<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
KENDLE INTERNATIONAL INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
OHIO 8731 31-1274091
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
700 CAREW TOWER
CINCINNATI, OHIO 45202
(513) 381-5550
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
EDWARD E. STEINER, ESQ.
KEATING, MUETHING & KLEKAMP, P.L.L.
1800 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6468
FACSIMILE (513) 579-6957
(Name, address, including zip code, telephone and facsimile numbers,
including area code, of agent for service)
Copy to:
SCOTT S. ROSENBLUM, ESQ.
MARK B. SEGALL, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3903
TELEPHONE (212) 715-9100
FACSIMILE (212) 715-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES AGGREGATE OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, no par value $53,820,000 $17,940
=============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 2, 1997
PROSPECTUS
3,600,000 SHARES
[KENDLE LOGO]
KENDLE INTERNATIONAL INC.
COMMON STOCK
---------------------------
Of the 3,600,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering"), 3,000,000 are being offered by Kendle International Inc.
("Kendle" or the "Company") and 600,000 are being offered by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." Prior to the Offering, there has been no public market
for the Common Stock. It is currently estimated that the initial public offering
price will be between $12.00 and $14.00 per share. See "Underwriting" for a list
of the factors to be considered in determining the initial public offering
price. Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "KNDL." The Company will not receive any of the proceeds
from the sale of the shares by the Selling Shareholders.
---------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 7.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================
PROCEEDS TO
PRICE TO PROCEEDS TO SELLING
PUBLIC UNDERWRITING COMPANY (2) SHAREHOLDERS
DISCOUNTS AND
COMMISSIONS (1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------
Total (3)........................... $ $ $ $
============================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting" and "Principal and
Selling Shareholders."
(2) Before deducting expenses of the Offering, payable by the Company estimated
at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
540,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to the Selling Shareholders
will be $ , $ , $ and $ , respectively.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Underwriting" and "Principal
and Selling Shareholders."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters, subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1997.
---------------------------
LEHMAN BROTHERS J.C. BRADFORD & CO.
, 1997
<PAGE> 3
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. Certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement, including
exhibits, schedules and reports filed as part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete; and, in such instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission in Washington, D.C. and copies of all or any part of which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices located at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained at prescribed rates by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
------------------------
The Company intends to distribute to its shareholders annual reports
containing audited financial statements and will make available copies of
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
------------------------
Kendle(SM), the Kendle logo, TrialWare(SM) and the names of certain other
services offered by Kendle are service marks, trademarks or registered service
marks or trademarks of Kendle. All other trademarks or service marks appearing
in this Prospectus are trademarks, service marks or registered trademarks or
service marks of the respective companies that utilize them.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including "Risk Factors"
appearing elsewhere in this Prospectus, and the financial statements and notes
thereto. Unless otherwise indicated, the information set forth in this
Prospectus: (i) does not give effect to the exercise of the Underwriters'
over-allotment option and (ii) gives effect to the proposed 36.5 for 1 stock
split of the Company's Common Stock.
THE COMPANY
Kendle is a contract research organization ("CRO") that provides a broad
range of clinical research and drug development services to the pharmaceutical
and biotechnology industries. Kendle augments the research and development
activities of pharmaceutical and biotechnology companies by offering high
quality, value added clinical research services and proprietary information
technology designed to reduce drug development time and expense. The Company's
services include Phase II to Phase IV clinical trial design and management,
clinical data management, biostatistical analysis, medical writing and
regulatory consultation and representation. Kendle believes that it is one of a
small number of CROs capable of providing a broad range of services within
multiple therapeutic areas, including cardiovascular, central nervous system,
gastrointestinal, immunology, oncology, respiratory, skeletal disease and
inflammation. Since its inception, Kendle has served more than 40 clients,
including 12 of the world's 20 largest pharmaceutical companies. In 1996, Kendle
participated in 62 studies at approximately 4,100 sites involving approximately
20,000 patients.
In furtherance of the Company's strategy to expand its international
coverage and range of services, the Company purchased U-Gene Research B.V.
("U-Gene"), based in Utrecht, the Netherlands, which provides Phase II to Phase
IV clinical trial design and management, and owns and operates a
state-of-the-art 38-bed Phase I testing unit and entered into an agreement to
purchase GMI gesellschaft fur Angewandte Mathematik und Informatik mbH ("gmi"),
based in Munich, Germany, which provides Phase II to Phase IV clinical trial
design and management and specializes in the field of pharmacoeconomic analysis
(the "Acquisitions"). The Company believes that the Acquisitions will make
Kendle the sixth largest CRO in Europe, based on total revenues, and will
enhance its ability to provide customers with a single source for contract
research services throughout North America and Europe.
The CRO industry derives substantially all of its revenue from the
pharmaceutical and biotechnology industries. In 1995, worldwide expenditures on
research and development by pharmaceutical and biotechnology companies are
estimated to have been $35.0 billion, of which the Company estimates $22.0
billion was spent on the type of drug development activities offered by the CRO
industry. The Company believes that approximately $2.5 billion of such spending
was outsourced to CROs in 1995.
The Company believes that the outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will continue
to increase as these companies strive to increase revenues through faster drug
development while also dealing with cost containment pressures. The CRO
industry, by specializing in clinical trials management, is often able to
perform the needed services with a higher level of expertise or specialization,
more quickly and at a lower cost than a client could perform the services
internally.
The Company believes that pharmaceutical and biotechnology companies are
increasingly selecting CROs that have the following capabilities: (i) a broad
range of therapeutic expertise in designing and managing all phases of clinical
trials; (ii) the ability to efficiently collect, edit and analyze data from
thousands of patients with various clinical conditions from many geographically
dispersed sites; (iii) the ability to provide a full range of services to
clients who desire to use fewer CROs to manage their drug development processes;
and (iv) global capabilities that incorporate diverse populations and allow
simultaneous filings of registration packages in several major jurisdictions.
Kendle's strategy is to continue to enhance its reputation as a
high-quality provider of a full range of CRO services. The Company's strategy
consists of the following key elements: (i) continue to expand its
3
<PAGE> 5
broad range of therapeutic expertise; (ii) offer its clients "one-stop shopping"
with a full range of services that encompass the clinical research process and
complement the research and development departments of its clients; (iii)
expedite the drug development process through innovative information technology
offered via the Company's proprietary TrialWare(sm) software; (iv) continue to
build a brand presence that portrays high quality work; and (v) supplement
internal growth through strategic acquisitions that expand the Company's
geographic presence and add to Kendle's clinical research capabilities in
existing or new therapeutic areas or service offerings.
ACQUISITIONS
U-Gene Acquisition
On July 1, 1997, Kendle acquired U-Gene for 30 million Dutch guilders
($15.6 million) (the "U-Gene Acquisition"). The Company utilized funds provided
under a bank credit facility (the "Bank Credit Facility") to consummate the
U-Gene Acquisition. U-Gene has been in existence since 1986 and has conducted
trials in several countries including the Netherlands, the United Kingdom and
Italy. U-Gene offers a full range of clinical drug development services
including Phase I to Phase IV national and multinational clinical trials,
biostatistics, quality management and regulatory consultation. In Phase II to
Phase IV, U-Gene has experience in a broad range of therapeutic areas, including
cardiovascular, central nervous system, gynecology, hematology and infectious
diseases. Since 1986, U-Gene has served more than 100 clients, including 19 of
the world's largest pharmaceutical companies. In 1996, U-Gene participated in
115 studies at approximately 500 sites involving approximately 4,700 patients
and recorded net revenues of $12.5 million, a 37% increase over the prior year,
and operating profit of $1.3 million, a 47% increase over the prior year.
gmi Acquisition
On July 2, 1997, the Company entered into a definitive agreement to acquire
gmi for 19.5 million Deutsche marks. Total acquisition costs are expected to be
approximately $9.5 million in cash and $2.8 million in shares of Common Stock,
with the number of shares to be determined by the initial public offering price
(the "gmi Acquisition"). The Company expects to close the gmi Acquisition
concurrently with the Offering. If the Offering is not completed by September
15, 1997, the cash portion of the gmi Acquisition will be funded with borrowings
under the Bank Credit Facility. Founded in 1983, gmi provides a wide range of
clinical drug development services including Phase II to Phase IV clinical
trials and has experience in a variety of national and international projects
across a wide range of diseases. gmi also engages in scientific consulting, the
planning, realization and evaluation of health economic studies and gmi also
conducts seminars, in-house training programs and presentations. gmi operates
primarily in Germany, but has conducted trials in six additional countries
including Austria, the United Kingdom, Switzerland and France. In 1996, gmi
participated in 119 studies at multiple sites and recorded net revenues of $7.0
million, a 32% increase over the prior year, and operating profit of $1.4
million, a 16% increase over the prior year.
Management believes that the Acquisitions will establish the Company as a
full-service international CRO. On a pro forma basis, the Company is the sixth
largest European CRO, based on total revenues, and is one of only four large
CROs able to offer clients the full range of Phase I through Phase IV clinical
trials. U-Gene and gmi will increase both the number and the geographic scope of
the clients served by Kendle, enabling the Company to cross-sell its services
and enhance its relationships with existing clients. U-Gene and gmi will also
add a number of additional areas of therapeutic expertise that complement
Kendle's areas of proficiency.
The Company plans to repay the indebtedness incurred under the Bank Credit
Facility with the proceeds from the Offering. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources." The gmi Acquisition is subject
to customary closing conditions contained in the definitive agreement, including
satisfactory due diligence investigation, the receipt of regulatory approvals
and the continued accuracy of the representations and warranties. See "The
Acquisitions," "Bank Credit Facility" and "Risk Factors--Risks Associated with
Acquisitions."
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 3,000,000 shares
Common Stock Offered by the Selling
Shareholders............................... 600,000 shares
Common Stock to be Outstanding after the
Offering................................... 7,350,687 shares(1)(2)
Use of Proceeds.............................. To repay indebtedness incurred in connection
with the U-Gene Acquisition, fund the cash
portion of the gmi Acquisition (which is
expected to close simultaneously with the
consummation of the Offering), general
corporate purposes, including working
capital, and possible future acquisitions of
related businesses. See "Use of Proceeds."
Nasdaq National Market Symbol................ KNDL
</TABLE>
- ---------------
(1) Excludes: (i) 1,000,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option and Stock Incentive Plan, of which options
to purchase 270,000 shares will be granted concurrently with the Offering at
an exercise price equal to the assumed initial public offering price of
$13.00 to employees and nonemployee directors; (ii) 15,000 shares of Common
Stock reserved for issuance under the 1997 Directors Compensation Plan; and
(iii) options to purchase 424,860 shares of Common Stock not currently
exercisable granted under the 1995 Stock Option and Stock Incentive Plan.
See "Management -- Employee Benefit Plans," and Note 4 to the Company's
financial statements.
(2) Includes options for the purchase of 329,449 shares of Common Stock, which
become immediately exercisable upon the consummation of the Offering.
5
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------
YEARS ENDED DECEMBER 31, PRO
--------------------------------------------------------- FORMA
1993 1994 1995 1996 1996(1) 1996
------ ------ ------ ------- -------- ------------
1992
------------
(UNAUDITED)
(UNAUDITED)
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $2,468 $2,555 $4,431 $6,118 $12,959 $32,463 $2,063
------ ------ ------ ------ ------- ------- ------
Costs and expenses:
Direct costs.................... 1,689 1,548 2,760 3,564 8,176 21,178 1,395
Selling, general and
administrative................ 1,158 603 1,067 1,776 3,278 6,658 372
Depreciation and amortization... 81 111 127 168 316 1,706 45
------ ------ ------ ------ ------- ------- ------
Total costs and expenses........ 2,928 2,262 3,954 5,508 11,770 29,542 1,812
------ ------ ------ ------ ------- ------- ------
Income (loss) from operations..... (460) 293 477 610 1,189 2,921 251
Interest expense.................. (72) (61) (43) (69) (65) (65) (18)
Other income, net................. 37 20 24 6 10 62 2
------ ------ ------ ------ ------- ------- ------
Income (loss) before income
taxes........................... (495) 252 458 547 1,134 2,918 235
Income taxes...................... 1,333
------ ------ ------ ------ ------- ------- ------
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 1,585 $ 235
====== ====== ====== ====== ======= ======= ======
HISTORICAL PRO FORMA DATA (2):
Net income (loss)............... ($ 495) $ 252 $ 458 $ 547 $ 1,134 $ 235
Pro forma income tax expense
(benefit)..................... (198) 101 183 219 454 94
------ ------ ------ ------ ------- ------
Pro forma net income (loss)..... ($ 297) $ 151 $ 275 $ 328 $ 680 $ 141
====== ====== ====== ====== ======= ======
Historical pro forma net income
(loss) per share.............. $(0.07) $ 0.04 $ 0.07 $ 0.08 $ 0.16 $ 0.03
====== ====== ====== ====== ======= ======
Pro forma net income per share.... $ 0.21
=======
Weighted average common and
equivalent shares outstanding
(3)............................. 4,031 4,031 4,031 4,080 4,239 7,457 4,162
<CAPTION>
PRO
FORMA
1997 1997(1)
------ -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $5,962 $11,230
------ -------
Costs and expenses:
Direct costs.................... 3,376 6,437
Selling, general and
administrative................ 1,893 2,714
Depreciation and amortization... 150 496
------ -------
Total costs and expenses........ 5,419 9,647
------ -------
Income (loss) from operations..... 543 1,583
Interest expense.................. (31) (31)
Other income, net................. 17 33
------ -------
Income (loss) before income
taxes........................... 529 1,585
Income taxes...................... 686
------ -------
Net income (loss)................. $ 529 $ 899
====== =======
HISTORICAL PRO FORMA DATA (2):
Net income (loss)............... $ 529
Pro forma income tax expense
(benefit)..................... 212
------
Pro forma net income (loss)..... $ 317
======
Historical pro forma net income
(loss) per share.............. $ 0.07
======
Pro forma net income per share.... $ 0.12
=======
Weighted average common and
equivalent shares outstanding
(3)............................. 4,263 7,481
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT MARCH 31, 1997
--------------------------------------
AS PRO FORMA
ACTUAL ADJUSTED(4) ADJUSTED(1)
------ ----------- -----------
<S> <C> <C> <C>
Working capital.............................................. $(294) $34,705 $12,314
Total assets................................................. 9,847 44,847 55,934
Total debt, excludes current portion of long-term debt....... 1,155 1,155 2,715
Total shareholders' equity................................... 1,257 35,532 38,761
</TABLE>
- ---------------
(1) The pro forma data give effect to: (i) the Acquisitions; (ii) the Offering;
(iii) borrowings and repayments under the Bank Credit Facility; (iv) the
recognition of an estimated $25 of deferred income taxes upon the
termination of Kendle's S corporation election; and (v) the payment of the S
corporation distribution of approximately $700. The pro forma data also
reflect the application of corporate income taxes to the Company's net
income at an assumed statutory combined federal and state rate of 40%, which
would have been recorded if the Company had been a C corporation during such
period. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Termination of S Corporation Status," "Use of Proceeds," "Bank
Credit Facility" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) The historical pro forma data reflect the application of corporate income
taxes to the Company's net income at an assumed statutory combined federal
and state rate of 40%, which would have been recorded if the Company had
been a C corporation.
(3) Weighted average common and equivalent shares outstanding assumes: (i) the
issuance of sufficient shares at an assumed initial public offering price of
$13.00 per share to pay the portion of the S corporation distribution to be
paid from the proceeds of the Offering; (ii) options to purchase shares of
Common Stock granted by the Company during the twelve months preceding the
Offering were outstanding for all periods presented, using the treasury
stock method at an assumed initial public offering price of $13.00 per
share; and (iii) the Warrants issued in connection with the U-Gene
Acquisition. See "Termination of S Corporation Status."
(4) As adjusted to reflect: (i) the sale by the Company of 3,000,000 shares of
Common Stock offered by the Company at an assumed initial public offering
price of $13.00 per share, after deducting underwriting discounts and
estimated offering expenses; (ii) the recognition of $25 of deferred income
taxes upon the termination of Kendle's S corporation election; and (iii) the
payment of the S corporation distribution of approximately $700. See "Use of
Proceeds."
6
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following risk factors, in addition to the other information
contained in this Prospectus, should be considered carefully in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
DEPENDENCE ON CERTAIN CLIENTS AND INDUSTRIES
During 1996 and the first three months of 1997, revenues from G.D. Searle &
Co. accounted for approximately 48% and 66%, respectively, of the Company's net
revenues. Other Company clients have, from time to time, accounted for more than
10% of the Company's net revenues, with revenues from The Procter & Gamble
Company and Amgen, Inc. accounting for approximately 19% and 13%, respectively,
of the Company's net revenues in 1996 and revenues from The Procter & Gamble
Company accounting for approximately 13% of the Company's net revenues for the
first three months of 1997. In addition, as of March 31, 1997, G.D. Searle & Co.
accounted for $11.2 million, or approximately 57%, of the Company's backlog.
However, on a pro forma basis assuming consummation of the Acquisitions as of
January 1, 1996, revenues from G.D. Searle & Co. were approximately 19% and 35%
of the Company's net revenues in 1996 and for the first three months of 1997,
respectively, and no other client would have accounted for more than 10% of the
Company's net revenues. Nonetheless, the CRO industry in general continues to be
dependent on the research and development efforts of the principal
pharmaceutical and biotechnology companies as major clients, and the Company
believes that this dependence will continue. The loss of business from any of
the Company's major clients would have a material adverse effect on the Company.
See "Business -- Clients and Marketing."
As a provider of integrated product development services to the
pharmaceutical and biotechnology industries, the Company's revenues are highly
dependent on industry research and development expenditures. Decreases in such
expenditures, including decreases resulting from economic downturns in these
industries or from industry mergers or other consolidations, could have a
material adverse effect on the Company. Furthermore, the Company has benefitted
to date from the tendency of pharmaceutical and biotechnology companies to
outsource an increasing percentage of their large clinical research projects and
other drug development activities. A reversal of this trend would have a
material adverse effect on the Company. See "Business -- General."
LOSS OR DELAY OF LARGE CONTRACTS
Most of the Company's service contracts are terminable by the client upon
30 days' notice. Clients may terminate or delay contracts for a variety of
reasons, including the failure of products to satisfy safety requirements,
unexpected or undesired clinical results, the client's decision to forego a
particular study, insufficient patient enrollment or investigator recruitment or
production problems resulting in shortages of the drug. The Company believes
that several factors, including increased cost containment pressures associated
with healthcare reform efforts, have caused pharmaceutical and biotechnology
companies to apply more stringent criteria to the decision to proceed with
clinical trials and therefore may have resulted in a greater willingness of
these companies to cancel contracts with CROs. The loss or delay of a large
contract or of multiple contracts could have a material adverse effect on the
Company. See "Business -- Contractual Arrangements."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to make additional strategic acquisitions as part of
its growth strategy. There can be no assurance that the Company will be able to
identify suitable acquisition candidates or that, if identified, the Company
will be able to acquire such companies on favorable terms. Acquisitions involve
numerous risks, including difficulties in the integration of the operations and
services of the acquired company; acquisition and integration expenses; the
diversion of management's attention from other business concerns; the successful
integration of the Company's business culture with those of acquired companies,
both in the United States and internationally; and the potential loss of key
employees. Acquisitions of foreign companies involve the
7
<PAGE> 9
additional risks of, among others, assimilating differences in foreign business
practices, exchange rate fluctuations, managing foreign companies, business
cycle risks in different countries, and overcoming language barriers. If the
Company consummates any acquisitions in the future, there can be no assurance
that such acquired businesses will be successfully integrated into the Company's
operations. See "Use of Proceeds" and "Business -- Company Strategy."
The Acquisitions will expand the Company's client and business bases and
increase the number of Company employees. However, there can be no assurance
that either U-Gene or gmi will be integrated successfully into Kendle's
operations. These Acquisitions could have a material adverse effect on the
Company.
VOLATILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly operating results are subject to volatility due to
such factors as the commencement, completion, cancellation or delay of
contracts; the progress of ongoing projects; cost overruns; the Company's sales
cycle; demand for the Company's services; competitive industry conditions; the
ability of the Company to develop, introduce and market new services on a timely
basis; changes in the mix of services provided to clients; changes in client
research and development expenditures and other general economic factors.
Because a large portion of the Company's operating costs are fixed, variations
in the timing and progress of large contracts or of multiple contracts can
materially affect quarterly 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 the
Company's quarterly operating results could affect the market price of the
Common Stock in a manner unrelated to the longer term operating performance of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED TO ATTRACT, RETAIN, INTEGRATE AND MANAGE PROFESSIONAL STAFF
The Company's business is labor intensive and involves the delivery of
specialized professional services. The Company's success depends in large part
upon its ability to attract, develop, motivate, integrate and retain highly
skilled employees. There is significant competition from other CROs as well as
from the in-house research departments of pharmaceutical and biotechnology
companies and other enterprises for employees with the skills required to
perform the services offered by the Company. There can be no assurance that the
Company will be able to attract, retain and integrate a sufficient number of
highly skilled employees in the future or that it will continue to be successful
in training, retaining, integrating and motivating its current employees. The
loss of a significant number of employees or the Company's inability to hire
sufficient numbers of qualified employees could have a material adverse effect
on the Company.
LIMITED INTERNATIONAL PRESENCE
Pharmaceutical and biotechnology companies are increasingly attempting to
expand the market for new drugs by pursuing regulatory approvals in multiple
countries simultaneously rather than sequentially as they have in the past. To
compete effectively for large, international contracts, a CRO must demonstrate
its ability to organize and manage large-scale trials on a global basis. Prior
to the U-Gene Acquisition, the Company did not have operations outside of North
America. If the gmi Acquisition is not consummated, there can be no assurance
that the Company will not experience difficulties in developing, integrating, or
acquiring international capabilities successfully or entering into alliances
with foreign CROs that meet the needs of the Company's clients. Foreign
operations also involve additional risks of assimilating differences in foreign
business practices; hiring, integrating, retaining and motivating qualified
personnel; exchange rate fluctuations; managing foreign companies; business
cycle risks in different countries and overcoming language barriers. The
Company's limited international experience may have a material adverse effect on
the Company.
8
<PAGE> 10
COMPETITION; CRO INDUSTRY CONSOLIDATION
The Company primarily competes against in-house research departments of
pharmaceutical and biotechnology companies, universities and teaching hospitals
and other full-service CROs, a number of which possess substantially greater
capital, technical and other resources than the Company. CROs generally compete
on the basis of previous experience, medical and scientific expertise in
specific therapeutic areas, the quality of contract research, the ability to
organize and manage large-scale trials on a global basis, medical database
management capabilities, the ability to provide statistical and regulatory
services, the ability to recruit investigators, the ability to integrate
information technology with systems to improve the efficiency of contract
research, an international presence with strategically located facilities,
financial viability and price. The Company's failure to compete effectively in
any one or more of these areas could have a material adverse effect on the
Company.
The CRO industry is highly fragmented, with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. However, the CRO industry is consolidating. This consolidation
trend has been caused, in part, by the decision of pharmaceutical and
biotechnology company clients to contract with fewer CROs, streamlining the
outsourcing process by entering into preferred provider relationships with a few
CROs or awarding a smaller number of large contracts to qualified CROs. This
trend is likely to increase competition among the larger CROs for both clients
and acquisition candidates and may lead to price and other forms of competition
that could have a material adverse effect on the Company. See
"Business -- Competition."
FIXED PRICE NATURE OF CONTRACTS
Most of the Company's service contracts are fixed price contracts, with
some variable components, which place the risk of cost overruns on the Company.
Under-pricing of major contracts or significant cost overruns could have a
material adverse effect on the Company. See "Business -- Contractual
Arrangements."
POTENTIAL LIABILITY RISKS OF CONDUCTING CLINICAL TRIALS
Clinical research services involve the testing of new drugs on human
volunteers pursuant to study protocols. Such testing exposes the Company to the
risk of liability for personal injury or death to study participants resulting
from, among other things, possible unforeseen adverse side effects or improper
administration of the new drug. Many study participants are already seriously
ill and are at risk of further illness or death. In addition, as a result of the
U-Gene Acquisition, the Company conducts Phase I trials and is subject to the
general risks associated with Phase I trials, including but not limited to,
adverse events resulting from the administration of drugs to clinical trial
participants and the professional malpractice of Phase I medical care providers.
The Company has entered into indemnification agreements which it believes
provide protection from these risks. However, if the Company were required to
pay damages or incur defense costs in connection with a personal injury or
wrongful death claim that is outside the scope of indemnification agreements
that may exist with clients, or if any such indemnification agreement, although
in force, is not performed in accordance with its terms, it could have a
material adverse effect on the Company. The Company currently does not maintain
liability insurance with respect to these risks. U-Gene carries professional
liability insurance in connection with its Phase I facility. See
"Business -- Potential Liability and Insurance."
REGULATORY RISKS
The Company's business depends on the continued strict government
regulation of the drug development process. In the United States, the general
trend has been toward continued or increased regulation. In Europe, the general
trend has been toward coordination of common standards for clinical testing of
new drugs, leading to changes in the various requirements currently imposed by
each country. Changes in regulations, including a relaxation of regulatory
standards or the introduction of streamlined drug approval procedures, could
materially adversely affect the demand for the Company's services. Moreover, if
the current regulatory structure is not changed, the failure on the part of the
Company to comply with applicable regulations could
9
<PAGE> 11
result in the termination of ongoing research or the disqualification of data
for submission to regulatory authorities. See "Business -- General" and "--
Government Regulation."
UNCERTAINTY IN HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. Implementation of government health care reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies which could decrease the business opportunities available to CROs. The
Company is unable to predict the likelihood of health care reform legislation
being enacted into law or the effects such legislation would, if enacted, have
on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends upon the capabilities and continuing efforts
of Candace Kendle Bryan, Pharm. D., its Chief Executive Officer, and Christopher
C. Bergen, its President, who are married to each other. The loss of either of
these persons or other key management personnel, including the strategic
business unit directors, could adversely affect the Company.
MANAGEMENT OF GROWTH
In addition to the growth anticipated from the Acquisitions, the Company
has experienced rapid growth over the past two years. The Company believes that
sustained growth places a strain on operational, human and financial resources.
In order to manage its growth, the Company must continue to improve its
operating and administrative systems and attract, retain and integrate qualified
management and professional, scientific and technical personnel. Failure to
manage growth effectively could have a material adverse effect on the Company.
CONTROL BY MANAGEMENT; UNDESIGNATED PREFERRED STOCK; CERTAIN ANTI-TAKEOVER
PROVISIONS
After the Offering, Dr. Bryan and Mr. Bergen will control approximately
33.1% of Kendle's outstanding Common Stock (approximately 30.8% if the
Underwriters' over-allotment option is exercised in full) and, if they act
together, will be able to significantly influence all matters requiring approval
by shareholders, including the election of directors. After the Offering, the
Company's executive officers and directors will, as a group, control
approximately 35.9% of Kendle's outstanding Common Stock. The Board of Directors
also has the authority to issue 100,000 shares of undesignated preferred stock
and to determine the rights, preferences, privileges and restrictions of such
shares without further action by shareholders. Any issue of preferred stock
could be given rights which would adversely affect the equity of the holders of
Common Stock and could have a preference over Common Stock with respect to
dividends and liquidation rights. In addition, Ohio law contains provisions that
may discourage takeover bids for the Company that have not been negotiated with
the Board of Directors. The terms of a series of preferred stock and such Ohio
law provisions could have the effect of delaying or preventing a change in
control of the Company and, accordingly, could limit the price that investors
might be willing to pay for the Common Stock, including transactions in which
holders of Common Stock might receive a premium for their shares over the market
price. See "Principal and Selling Shareholders" and "Description of Capital
Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock will
be determined by negotiations among management of the Company and the
representatives of the Underwriters and may not be indicative of future market
prices. See "Underwriting" for factors to be considered in determining the
initial public offering price per share. The Company has applied for listing of
the Common Stock on the Nasdaq National Market, and, even if approved for
listing, there can be no assurance that an active trading market will develop or
be sustained subsequent to the Offering or that the market price of Common Stock
will not decline below the initial public offering price.
10
<PAGE> 12
In addition, broad market trading and valuation fluctuations have adversely
affected the valuation of health care-focused and technology-based service
companies and may adversely affect the market price of the Common Stock.
Furthermore, the stock market has, from time to time, experienced extreme price
and volume fluctuations in the shares of certain issuers, which in some
circumstances have been unrelated to the operating performance of particular
companies affected. The Common Stock may be subject to wide fluctuations in
price in response to variations in quarterly operating results and other
factors, including the evolving business prospects of the Company's clients,
suppliers and competitors, changes in the financial estimates by securities
analysts, acquisitions or the failure to make acquisitions, general economic or
market conditions and other factors.
DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in the Offering (assuming an initial
public offering price of $13.00 per share) will experience an immediate and
substantial dilution of $7.91 in the adjusted pro forma net tangible book value
per share of Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of previously issued Common Stock
in the public market following the Offering could adversely affect the market
price for the Company's Common Stock. The number of shares of Common Stock
eligible for sale in the public market is limited by restrictions under the
Securities Act and lock-up agreements entered into by the Company, the Company's
officers and directors and all existing holders of Common Stock. Under these
lock-up agreements, subject to certain specified exceptions, the Company and
such persons have agreed not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Underwriters. As a result of these restrictions, only the
3,600,000 shares of Common Stock offered hereby will be eligible for sale on the
date of this Prospectus; and an additional 3,050,000 shares will be eligible for
sale 180 days after the date of this Prospectus, in accordance with Rules 701
and/or 144 promulgated under the Securities Act. The Company also intends, after
the effective date of the Offering, to register on a registration statement on
Form S-8 approximately 1,000,000 shares of Common Stock reserved for issuance
under the Company's 1997 Stock Option and Stock Incentive Plan. In addition,
approximately $2.8 million in shares of Common Stock, with the number of shares
to be determined by the initial public offering price, will be issued to
shareholders of gmi in connection with the gmi Acquisition. Such 217,500 shares
will be eligible for sale outside of the United States pursuant to Regulation S
and in the United States pursuant to Rule 144 one year after issuance. See
"Shares Eligible for Future Sale."
11
<PAGE> 13
THE ACQUISITIONS
On July 1, 1997, the Company acquired all of the issued and outstanding
capital stock of U-Gene for 30 million Dutch guilders ($15.6 million). Ten
percent of such amount is in the form of a promissory note subject to an escrow
agreement, which expires January 1, 1999.
On July 2, 1997, the Company entered into a definitive stock purchase
agreement to acquire gmi for 19.5 million Deutsche marks. Total acquisition
costs are expected to be approximately $9.5 million in cash and $2.8 million in
shares of Common Stock, with the number of shares to be determined by the
initial public offering price. The gmi Acquisition is expected to close
simultaneously with the closing of the Offering. If the Offering is not
completed by September 15, 1997, the cash portion of the gmi Acquisition will be
funded with borrowings under the Bank Credit Facility.
The closing of the gmi Acquisition is subject to customary closing
conditions contained in the definitive agreement, including satisfactory due
diligence investigation, the continued accuracy of representations and
warranties and the receipt of all applicable governmental approvals and
consents.
U-Gene has been in existence since 1986 and has conducted trials in the
Netherlands, the United Kingdom and Italy. U-Gene offers a full range of
clinical drug development services including Phase I to Phase IV national and
multinational clinical trial designs, biostatistics, quality management and
regulatory consultation. In Phase II to Phase IV, U-Gene has experience in a
broad range of therapeutic areas, including cardiovascular, central nervous
system, gynecology, hematology and infectious diseases. Since 1986, U-Gene has
served more than 100 clients, including 19 of the world's largest pharmaceutical
companies. In 1996, U-Gene participated in 115 studies at approximately 500
sites involving approximately 4,700 patients and recorded net revenues of $12.5
million, a 37% increase over the prior year, and operating profit of $1.3
million, a 47% increase over the prior year. U-Gene leases facilities at two
sites in Utrecht. Its clinical headquarters, adjacent to the University
Hospital, house a state-of-the-art 38-bed clinical pharmacology unit, medical
writers and other clinical personnel. The Company's Phase I unit was originally
built in 1991, and was increased from 26 beds to 38 beds and fully refurbished
in early 1996. Facilities include state-of-the-art intensive monitoring
equipment for continuous electrocardiolography, 24-hour ambulatory blood
pressure measurement, and automated vital signs monitors. In addition to its
five wards, the unit has volunteer recreation facilities, a preparative
pharmacy, a meal preparation area and dining room, and a laboratory for sample
processing and certain types of assay. U-Gene's second site houses Phase II to
Phase IV monitoring activities, the biostatistics group, marketing and general
management.
Founded in 1983, gmi provides a wide range of clinical drug development
services including Phase II to Phase IV clinical trials and has experience in a
variety of national and international projects across a wide range of diseases.
gmi also engages in scientific consulting, the planning, realization and
evaluation of health economic studies and conducts seminars, in-house training
programs and presentations. gmi operates primarily in Germany, but has conducted
trials in six additional countries including Austria, the United Kingdom,
Switzerland and France. gmi leases its facility in Munich. The facility includes
approximately 9,000 square feet of primarily office space. In 1996, gmi
participated in 119 studies at multiple sites and recorded net revenues of $7.0
million, a 32% increase over the prior year, and operating profit of $1.4
million, a 16% increase over the prior year.
Management believes that the Acquisitions will establish the Company as a
full-service international CRO in several ways. On a pro forma basis, the
Company is the sixth largest CRO in Europe, based on total revenues, and is one
of only four large CROs able to offer clients the full range of Phase I through
Phase IV clinical trials. U-Gene and gmi will increase both the number and the
geographic scope of the clients served by Kendle, enabling the Company to
cross-sell its services and enhance its relationships with existing clients.
U-Gene and gmi will also add a number of additional areas of therapeutic
expertise that complement Kendle's areas of proficiency.
12
<PAGE> 14
BANK CREDIT FACILITY
In connection with the Acquisitions, NationsBank, N.A. (the "Bank") has
agreed to lend the Company up to $20 million under a senior secured revolving
credit facility (the "Senior Credit Facility") and up to $10 million in
subordinated promissory notes (the "Subordinated Credit Facility") (the Senior
Credit Facility and the Subordinated Credit Facility, together referred to as
the Bank Credit Facility).
Outstanding borrowings under the Senior Credit Facility bear interest at a
rate equal to either LIBOR plus the Applicable Margin (as defined), or the
higher of the Bank's prime rate or the Federal Funds rate plus 0.50%. All
amounts outstanding thereunder become due and payable in June 2000. The
Subordinated Credit Facility consists of 12% Subordinated Series A and B
Promissory Notes which are payable over a five year term (the "Series A Note"
and "Series B Note") and Common Stock Purchase Warrants (the "Warrants"), each
Warrant exercisable at $0.01 per share of Common Stock, and expire ten years
from issuance.
The Bank Credit Facility contains various restrictive financial covenants,
including limitations on senior and total debt levels, capital expenditures and
future acquisitions, as well as the maintenance of certain fixed coverage ratios
and minimum net worth levels, and is collateralized by all the assets and shares
of Common Stock held by Dr. Bryan, Mr. Bergen, the Kendle Stock Trust and Hazel
Kendle (which shares will be released as collateral upon consummation of the
Offering) and existing and hereafter acquired material subsidiaries.
BANK CREDIT FACILITY UTILIZATION -- U-GENE ACQUISITION
On July 1, 1997 the U-Gene Acquisition and related costs were funded with
approximately $9.4 million from the Senior Credit Facility, a promissory note
payable to U-Gene deposited in an escrow account pursuant to the U-Gene purchase
agreement of approximately $1.6 million and $5 million from the Series A Note.
In addition, the Company issued the Warrants to the Bank to purchase 4% of the
outstanding shares of Common Stock of the Company prior to the Offering (153,738
shares). If the Offering is not completed on or before December 1, 1997, the
number of shares which may be purchased upon exercise of the Warrants will be
increased to 5%, and 6% if not completed by March 1, 1998.
BANK CREDIT FACILITY UTILIZATION -- GMI ACQUISITION
Although the Company expects the gmi Acquisition to close simultaneously
with the closing of the Offering, the Company is required per the gmi definitive
agreement, to consummate the gmi Acquisition not later than September 15, 1997.
If the Offering is not completed by September 15, 1997, or a mutually agreed
upon later date, then the Company expects to borrow approximately $4.5 million
from the Senior Credit Facility and $5 million from the Series B Note to fund
the cash portion of the gmi Acquisition. In addition, the non-cash portion of
the gmi Acquisition would be funded through the issuance of a subordinated
security by the Company (mandatory convertible exchangable preferred stock) to
the gmi shareholders. Upon issuance of the Series B Note, the Company is
required under the Subordinated Credit Facility to issue the Warrants to the
Bank for the purchase of an additional 3% of the outstanding shares of Common
Stock of the Company, and 4% if the Offering is not completed by March 1, 1998.
In addition, under the terms of the gmi definitive agreement, the Bank issued a
standby letter of credit to the gmi shareholders to secure the cash portion of
the gmi Acquisition price due to such shareholders.
The Company intends to repay all outstanding Subordinated Promissory Notes
and amounts outstanding under the Senior Credit Facility related to the U-Gene
Acquisition, with proceeds from the Offering. The Warrants issued in connection
with the U-Gene Acquisition will be exercised by the Bank and converted to
Common Stock concurrently with the consummation of the Offering.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby by the Company are estimated to be approximately $35
million (approximately $42 million if the over-allotment option is exercised in
full), assuming an initial public offering price of $13.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company expects to utilize approximately $14.4 million of the
proceeds in order to repay bank indebtedness incurred in connection with the
U-Gene Acquisition, and will use approximately $9.5 million to fund the cash
portion of the gmi Acquisition, which the Company expects to occur concurrently
with the Offering. The Company estimates that it will invest approximately $3
million to $4 million during 1997 for capital expenditures related to facilities
and investments in information technology. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company expects to use the remaining net proceeds from
the Offering for general corporate purposes, including working capital. A
portion of the proceeds may also be used to acquire or invest in similar or
complementary businesses; however, there are no agreements or commitments with
respect to any such transactions at the present time. Certain of the proceeds
may also be used to make payments related to the termination of the Company's S
corporation status. See "Termination of S Corporation Status" and "Certain
Transactions." Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term interest-bearing,
investment-grade obligations. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders.
TERMINATION OF S CORPORATION STATUS
Since 1989, the Company has been treated as an S corporation for federal
income tax purposes pursuant to an election under Subchapter S of the Internal
Revenue Code of 1986 (the "Code") and for certain state income tax purposes. As
a result, substantially all of the income of the Company has been taxed directly
to its shareholders rather than to the Company. Following the closing of the
Offering, the Company will be subject to federal and state income taxes.
Immediately prior to consummation of the Offering, Kendle will terminate
its S corporation status and will be subject to C corporation taxation.
Accordingly, as of such date, the Company will become fully subject to federal
and state income taxes. In connection with the termination of the Company's S
corporation status, the Company will distribute approximately $700,000 to its S
corporation shareholders primarily representing the Company's previously earned
but undistributed taxable Subchapter S income. The $700,000 represents the
maximum the Company may distribute at the time of the Offering in accordance
with the provisions the Bank Credit Facility.
In connection with the termination of Kendle's S corporation status, the
Company will record deferred income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." As of
March 31, 1997, such deferred income taxes would have totaled approximately
$25,000. This income tax expense will be in addition to income tax expense
otherwise incurred in such quarter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 to the Company's
financial statements.
DIVIDEND POLICY
Except for dividends paid to enable its shareholders to pay federal, state
and local income and earnings taxes, prior to December 1996 the Company did not
pay cash dividends on its Common Stock. Beginning in 1996, the Company
instituted a cash dividend to provide for routine, quarterly distributions of
previously taxed earnings. The Company currently anticipates that after the
Offering all of its earnings will be retained for development of the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future. Future cash dividends, if any, will be paid at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's future operations and earnings, capital requirements and surplus,
general financial condition, contractual restrictions, limitations under the
Bank Credit Facility and such other factors as the Board of Directors may deem
relevant.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) on an actual basis; (ii) on an as adjusted basis to reflect
(a) the sale of 3,000,000 shares of Common Stock offered by the Company at an
assumed initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses, (b) the
recognition of an estimated $25,000 of deferred income taxes upon the
termination of the Company's S corporation status, (c) the payment of the S
corporation distribution of approximately $700,000, and (d) the reclassification
of retained earnings to additional paid-in capital; and (iii) on a pro forma
basis as adjusted to give effect to the items discussed in (ii)(a) through (d)
above and the Acquisitions (including the issuance of the Warrants in
conjunction with the U-Gene Acquisition). The table should be read in
conjunction with the financial statements and notes thereto and the Unaudited
Pro Forma Condensed Consolidated Financial Statements included elsewhere in this
Prospectus. See "Use of Proceeds," "Selected Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------
AS PRO FORMA AS
ACTUAL ADJUSTED ADJUSTED(1)
------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................ $ 14 $34,314 $13,832
====== ======= =======
Short-term debt:
Current portion of capital lease obligations.............. $ 342 $ 342 $ 342
Obligations under capital leases, less current portion...... 1,155 1,155 1,155
Note payable -- escrow agreement............................ 1,560
Shareholders' equity:
Preferred stock; 100,000 shares authorized; no shares
issued or outstanding..................................
Common stock, 12,000,000 shares authorized; 3,650,000
shares issued and outstanding; 6,650,000 shares issued
and outstanding, as adjusted; and 7,021,238 shares
issued and outstanding, pro forma as adjusted (2)...... 75 105 109
Additional paid-in capital................................ 270 35,427 39,752
Retained earnings (deficit)............................... 912 -- (1,100)
------ ------- -------
Total shareholders' equity............................. 1,257 35,532 38,761
------ ------- -------
Total capitalization.............................. $2,754 $37,029 $41,818
====== ======= =======
</TABLE>
- ---------------
(1) Pro forma as adjusted includes: (i) Warrants issued in conjunction with the
Bank Credit Facility; (ii) 217,500 shares issued in conjunction with the gmi
Acquisition; and (iii) the write-off of the unamortized debt discount (net
of a tax benefit) and the conversion of the Warrants to shares of Common
Stock.
(2) Excludes exercisable options for the purchase of 329,449 shares of Common
Stock.
15
<PAGE> 17
DILUTION
The net tangible book value of the Company at March 31, 1997, on a pro
forma basis to reflect the $700,000 S corporation distribution and the
recognition of $25,000 in deferred income taxes upon the termination of the
Company's S corporation election, was approximately $532,000, or $0.15 per
share. See "Termination of S Corporation Status." Without taking into account
any other changes in net tangible book value after March 31, 1997, other than to
give effect to pro forma adjustments for the sale by the Company of 3,000,000
shares of its Common Stock offered hereby at an assumed initial public offering
price of $13.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses), the adjusted pro forma net
tangible adjusted book value of the Company at March 31, 1997 would have been
approximately $35.5 million, or $5.09 per share. This amount represents an
immediate increase in net tangible book value of $4.94 per share to existing
shareholders of the Company and an immediate dilution in net tangible book value
of $7.91 per share to purchasers of shares of Common Stock offered hereby as
illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Net tangible book value per share............................... $0.15
Increase per share attributable to new shareholders............. 4.94
-----
Pro forma net tangible book value per share....................... 5.09
------
Dilution per share to new shareholders............................ $ 7.91
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences between existing shareholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share (assuming an initial
public offering price of $13.00 per share and before deducting underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2).......... 3,653,614 49.7 $ 78,289 0.2 $ 0.02
Options immediately exercisable at
the Offering.................... 325,835 4.4 337,025 0.8 $ 1.03
Warrants issued in connection with
the U-Gene Acquisition.......... 153,738 2.1 1,537 * $ 0.01
Shares to be issued in connection
with the gmi Acquisition........ 217,500 3.0 2,827,500 6.7 $ 13.00
New investors..................... 3,000,000 40.8 39,000,000 92.3 $ 13.00
--------- ----- ----------- -----
Total................... 7,350,687 100.0 $42,244,351 100.0
========= ===== =========== =====
</TABLE>
- ---------------
* Less than 0.1%
(1) Sales by the Selling Shareholders in the Offering will cause the number of
shares held by existing shareholders to be reduced to 3,053,614 or 41.5% of
the total shares of Common Stock to be outstanding after the Offering, and
will increase the number of shares held by new investors to 3,600,000
shares, or 49.0% (4,140,000 shares or 52.5% if the Underwriters'
over-allotment option is exercised in full) of the total shares of Common
Stock to be outstanding after the Offering. See "Principal and Selling
Shareholders."
(2) Existing shares include options exercisable prior to the Offering for the
purchase of 3,614 shares of Common Stock.
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statements of operations for
the three month period ended March 31, 1997 and the year ended December 31, 1996
give effect to the Acquisitions as if they had occurred on January 1, 1996. The
unaudited pro forma condensed consolidated balance sheet as of March 31, 1997
gives effect to the Acquisitions as if they had occurred on March 31, 1997.
The unaudited pro forma condensed consolidated financial statements give
effect only to the reclassifications and adjustments set forth herein. The pro
forma financial information is provided as additional information only and is
not necessarily indicative of actual results that would have been achieved had
the Acquisitions been consummated at the beginning of the periods presented or
of future results.
These statements have been prepared from the financial statements of the
Company, U-Gene and gmi and should be read in conjunction with such statements
and the notes thereto which are included elsewhere herein.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
CONSOLIDATED
ACTUAL ACTUAL ACTUAL PRO FORMA PRO FORMA
KENDLE U-GENE GMI ADJUSTMENTS TOTALS (5)
------ ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues............................ $5,962 $3,273 $1,995 $11,230
Costs and expenses:
Direct costs.......................... 3,376 2,075 986 6,437
Selling, general and administrative... 1,893 703 118 2,714
Depreciation and amortization......... 150 85 20 208(1) 496
33(2)
------ ------ ------ ----- -------
Total costs and expenses........... 5,419 2,863 1,124 241 9,647
------ ------ ------ ----- -------
Income from operations.................. 543 410 871 (241) 1,583
Other income (expense):
Interest expense...................... (31) (31)
Other................................. 17 11 5 33
------ ------ ------ ----- -------
Income before income taxes.............. 529 421 876 (241) 1,585
Income taxes............................ 148 412 126(3) 686
------ ------ ------ ----- -------
Net income.............................. $ 529 $ 273 $ 464 $(367) $ 899
====== ====== ====== ===== =======
Weighted average common and equivalent
shares outstanding.................... 7,481(4)
Earnings per common and common
equivalent share...................... $ 0.12
=======
</TABLE>
See notes on the following page
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
CONSOLIDATED
ACTUAL ACTUAL ACTUAL PRO FORMA PRO FORMA
KENDLE U-GENE GMI ADJUSTMENTS TOTALS (5)
------- ------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $12,959 $12,508 $6,996 $32,463
Costs and expenses:
Direct costs........................ 8,176 8,108 4,894 21,178
Selling, general and
administrative................... 3,278 2,783 597 6,658
Depreciation and amortization....... 316 320 105 832(1) 1,706
133(2)
------- ------- ------ ------- -------
Total costs and expenses......... 11,770 11,211 5,596 965 29,542
------- ------- ------ ------- -------
Income from operations................ 1,189 1,297 1,400 (965) 2,921
Other income (expense):
Interest expense.................... (65) (65)
Other............................... 10 7 45 62
------- ------- ------ ------- -------
Income before income taxes............ 1,134 1,304 1,445 (965) 2,918
Income taxes.......................... 465 658 210(3) 1,333
------- ------- ------ ------- -------
Net income............................ $ 1,134 $ 839 $ 787 $(1,175) $ 1,585
======= ======= ====== ======= =======
Weighted average common and equivalent
shares outstanding.................. 7,457(4)
Earnings per common and common
equivalent share.................... $ 0.21
=======
</TABLE>
- ---------------
(1) Adjusted to reflect amortization expense. The excess of the cost of the
Acquisitions over net assets acquired will be amortized over 30 years using
the straight line method. The cost of the gmi Acquisition was computed using
the exchange rate in effect as of May 1, 1997.
(2) Adjusted to reflect amortization of debt issuance costs on the Senior Credit
Facility.
(3) Adjusted to reflect: (i) the application of corporate income taxes to the
Company's net income at an assumed statutory combined federal and state rate
of 40% which would have been recorded if the Company had been a C
corporation during such period; (ii) the application of corporate income
taxes for U-Gene and gmi at effective tax rates of 35% and 43%,
respectively; and (iii) the tax effect of the pro forma adjustments using an
estimated statutory rate of 40%. The pro forma adjustment includes non-
deductible amortization of goodwill relating to the U-Gene Acquisition of
$469 and $117 for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively.
(4) Pro forma weighted average common and equivalent shares outstanding
includes: (i) the issuance of 3,000 shares of Common Stock through the
Offering; (ii) the issuance of 218 shares of the Company's Common Stock for
the gmi Acquisition; (iii) the issuance of sufficient shares at an assumed
initial public offering price of $13.00 per share to pay the portion of the
S corporation distribution to be paid from the proceeds of the Offering;
(iv) options to purchase shares of Common Stock granted by the Company
during the twelve months preceding the Offering as if they were outstanding
for all periods presented using the treasury stock method at an assumed
initial public offering price of $13.00 per share; and (v) the Warrants
issued in connection with the U-Gene Acquisition.
(5) Pro forma adjustments do not give effect to the non-recurring charge for the
write-off of the unamortized debt discount associated with the Bank Credit
Facility of $1,100 (net of tax benefit of $400) upon repayment of the
Subordinated Credit Facility.
18
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA
ADJUSTMENTS TO REFLECT ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL ACTUAL TO REFLECT U-GENE TO REFLECT TO REFLECT GMI CONSOLIDATED
KENDLE U-GENE GMI BORROWING ACQUISITION OFFERING ACQUISITION PRO FORMA
------- ------- ------- ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................... $ 14 $ 879 $2,560 $14,040(1) $ (14,040)(2) $ 35,000(3) $ (9,483)(7) $ 13,832
(14,440)(4)
(700)(8)
2(4)
Receivables -- trade.... 4,379 3,540 1,597 9,516
Unreimbursed
investigator and
project costs......... 2,610 2,610
Other current assets.... 137 386 91 614
------ ------ ------ ------- -------- -------- ------- -------
Total current
assets.............. 7,140 4,805 4,248 14,040 (14,040) 19,862 (9,483) 26,572
------ ------ ------ ------- -------- -------- ------- -------
Property and
equipment............. 2,441 1,073 149 3,663
Other assets............ 266 73 400(1) 739
Excess of purchase price
over net assets
acquired.............. 14,078(2) 10,882(7) 24,960
------ ------ ------ ------- -------- -------- ------- -------
Total assets........ $9,847 $5,951 $4,397 $14,440 $ 38 $ 19,862 $ 1,399 $ 55,934
====== ====== ====== ======= ======== ======== ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of
obligations under
capital leases........ $ 342 $ 342
Amounts payable--book
overdraft............. 1,164 1,164
Advances of investigator
and project costs..... 480 480
Trade payables.......... 1,923 $1,508 $ 831 4,262
Dividends payable....... 140 140
Income taxes payable.... 1,160 $ (400)(4) 760
Accrued liabilities..... 471 1,051 796 2,318
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............. 3,055 1,555 182 4,792
------ ------ ------ -------- -------
Total current
liabilities......... 7,435 4,254 2,969 (400) 14,258
------ ------ ------ -------- -------
Obligations under
capital leases less
current portion....... 1,155 1,155
Pension obligation...... 175 175
Note payable -- escrow
agreement............. $ 1,560(2) 1,560
Deferred income taxes... 25(5) 25
Senior debt............. $ 9,440(1) (9,440)(4)
Subordinated debt....... 3,500(1) (3,500)(4)
Common stock purchase
warrants.............. 1,500(1) (1,500)(4)
------ ------ ------ ------- -------- -------- -------
Total liabilities... 8,590 4,429 2,969 14,440 1,560 (14,815) 17,173
------ ------ ------ ------- -------- -------- -------
</TABLE>
See notes on the following page
19
<PAGE> 21
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ADJUSTMENTS PRO FORMA PRO FORMA
ADJUSTMENTS TO REFLECT ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL ACTUAL TO REFLECT U-GENE TO REFLECT TO REFLECT GMI CONSOLIDATED
KENDLE U-GENE GMI BORROWING ACQUISITION OFFERING ACQUISITION PRO FORMA
------ ------ ------ ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholders Equity:
Common Stock......... $ 75 $ 172 $ 32 $ (172)(2) $ 30(3) $ (32)(7) $ 109
2(4) 2(7)
Paid-in capital...... 270 15 (15)(2) 912(6) 2,825(7) 39,752
(25)(5)
34,970(3)
(700)(8)
1,500(4)
Retained earnings
(deficit).......... 912 1,484 1,516 (1,484)(2) (912)(6) (1,516)(7) (1,100)
(1,100)(4)
Cumulative foreign
currency
translation
adjustments........ (149) (120) 149(2) 120(7)
------ ------ ------ -------- ------- ------- -------
Total Shareholders'
Equity............. 1,257 1,522 1,428 (1,522) 34,677 1,399 38,761
------ ------ ------ -------- ------- ------- -------
Total Liabilities and
Shareholders'
Equity............... $9,847 $5,951 $4,397 $14,440 $ 38 $ 19,862 $ 1,399 $ 55,934
====== ====== ====== ======= ======== ======= ======= =======
</TABLE>
- ---------------
(1) To record the proceeds from the Company's borrowings under the Bank Credit
Facility. The Bank Credit Facility includes a Senior Credit Facility, which
is a three-year revolving credit facility, bearing interest at a rate equal
to either LIBOR plus the Applicable Margin (as defined), or the Bank's prime
rate or the Federal Funds rate plus 0.50% and a Subordinated Credit
Facility, which is a five-year facility, bearing interest at 12%. As part of
the Subordinated Credit Facility, the Company also issued stock purchase
warrants containing a put feature. This put feature expires upon
consummation of the Offering. An allocation from the Subordinated Credit
Facility proceeds has been made to the Warrants, with the amount recorded
for the Warrants determined by their estimated fair market value. The
allocation of the proceeds to the Warrants has been accounted for as a debt
discount on the Subordinated Credit Facility borrowing. The Company also
incurred approximately $400 of debt issuance costs in connection with the
Bank Credit Facility.
(2) To record the acquisition of the net assets of U-Gene (including the
recording of the excess of purchase price over net assets acquired) and
eliminate shareholders' equity. The purchase price was 30 million guilders
($15.6 million). Of the purchase price, $14,040 was paid in cash and $1,560
paid in the form of a promissory note payable to U-Gene deposited in an
escrow account pursuant to the U-Gene purchase agreement. No allocation of
purchase price was made to existing contracts as the Company believes that
profits to be earned on contracts will be proportionate to the costs
incurred subsequent to the acquisition.
(3) To record the net proceeds from the initial public offering of $35 million,
consisting of 3,000 shares at an assumed price per share of $13.00, after
deducting underwriting commissions and discounts and estimating Offering
expenses of approximately $4 million.
(4) To record: (i) the repayment of the Bank Credit Facility; (ii) the write-off
of the unamortized debt discount of $1,100 (net of a tax benefit of $400);
and (iii) the assumed exercise of the Warrants issued in connection with the
U-Gene Acquisition.
(5) To record deferred income taxes upon the termination of the Company's S
corporation election.
(6) To record the reclassification of the Company's retained earnings to
additional paid-in capital upon terminating S corporation status.
(7) To record the purchase of the net assets of gmi (including the recording of
the excess of acquisition costs over net assets acquired) and eliminate
shareholders' equity. The acquisition costs (converted to U.S. dollars using
an exchange rate of 0.58 (DM/U.S.$ as of May 1, 1997)) consist of
approximately $9,483 in cash and $2,825 in shares of Common Stock. The
shares of Common Stock have been valued using the assumed initial public
offering price of $13.00 per share. No allocation of purchase price was made
to existing contracts as the Company believes that profits to be earned on
contracts will be proportionate to the costs incurred subsequent to the
acquisition.
(8) To record payment of the S Corporation distribution of $700 upon termination
of S corporation status.
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below at and for the year ended
December 31, 1992 are derived from unaudited financial statements and include
all adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for this period. For each of the years in the
four-year period ended December 31, 1996, the selected financial data are
derived from financial statements that have been audited by Coopers & Lybrand
L.L.P., independent accountants. The audited balance sheets as of December 31,
1995 and 1996 and the related statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended December 31, 1996
and related notes thereto appear elsewhere in this Prospectus. The balance sheet
data at March 31, 1997 and the statement of operations data for the three months
ended March 31, 1997 and 1996 are derived from unaudited financial statements.
The unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997. The selected pro forma financial data are derived from
the unaudited pro forma condensed consolidated financial statements included
elsewhere in this Prospectus and are based on the financial statements of the
Company, U-Gene and gmi, adjusted to give effect to the Acquisitions and certain
other matters. The selected pro forma statement of operations data for the year
and three month period ended December 31, 1996 and March 31, 1997, respectively,
give effect to the Acquisitions as if they had occurred on January 1, 1996. The
pro forma balance sheet data at March 31, 1997 give effect to the Acquisitions
as if they had occurred on March 31, 1997. The data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and are qualified by reference to the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------
YEARS ENDED DECEMBER 31, PRO
--------------------------------------------------------- FORMA
1993 1994 1995 1996 1996(1) 1996
------ ------ ------ ------- ------- ------------
1992
------------
(UNAUDITED)
(UNAUDITED)
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $2,468 $2,555 $4,431 $6,118 $12,959 $32,463 $2,063
------ ------ ------ ------- ------- ------ ------
Costs and expenses:
Direct costs.................... 1,689 1,548 2,760 3,564 8,176 21,178 1,395
Selling, general and
administrative................ 1,158 603 1,067 1,776 3,278 6,658 372
Depreciation and
amortization.................. 81 111 127 168 316 1,706 45
------ ------ ------ ------- ------- ------ ------
Total costs and expenses...... 2,928 2,262 3,954 5,508 11,770 29,542 1,812
------ ------ ------ ------- ------- ------ ------
Income (loss) from operations..... (460) 293 477 610 1,189 2,921 251
Interest expense.................. (72) (61) (43) (69) (65) (65) (18)
Other income, net................. 37 20 24 6 10 62 2
------ ------ ------ ------- ------- ------ ------
Income (loss) before income
taxes........................... (495) 252 458 547 1,134 2,918 235
Income taxes...................... 1,333
------ ------ ------ ------- ------- ------ ------
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $1,585 $ 235
====== ====== ====== ======= ======= ====== ======
HISTORICAL PRO FORMA DATA(2):
Net income (loss)............... $ (495) $ 252 $ 458 $ 547 $ 1,134 235
Pro forma income tax expense
(benefit)..................... (198) 101 183 219 454 94
------ ------ ------ ------- ------- ------
Pro forma net income (loss)..... $ (297) $ 151 $ 275 $ 328 $ 680 $ 141
====== ====== ====== ======= ======= ======
Historical pro forma net income
(loss) per share.............. $(0.07) $ 0.04 $ 0.07 $ 0.08 $ 0.16 $ 0.03
====== ====== ====== ======= ======= ======
Pro forma net income per share.... $ 0.21
======
Weighted average common and
equivalent shares outstanding
(3)............................. 4,031 4,031 4,031 4,080 4,239 7,457 4,162
<CAPTION>
PRO
FORMA
1997 1997(1)
------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 5,962 $11,230
-------
Costs and expenses:
Direct costs.................... 3,376 6,437
Selling, general and
administrative................ 1,893 2,714
Depreciation and
amortization.................. 150 496
-------
Total costs and expenses...... 5,419 9,647
-------
Income (loss) from operations..... 543 1,583
Interest expense.................. (31) (31)
Other income, net................. 17 33
-------
Income (loss) before income
taxes........................... 529 1,585
Income taxes...................... 686
-------
Net income (loss)................. $ 529 $ 899
=======
HISTORICAL PRO FORMA DATA(2):
Net income (loss)............... 529
Pro forma income tax expense
(benefit)..................... 212
-------
Pro forma net income (loss)..... $ 317
=======
Historical pro forma net income
(loss) per share.............. $ 0.07
=======
Pro forma net income per share.... $ 0.12
Weighted average common and
equivalent shares outstanding
(3)............................. 4,263 7,481
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
1997
PRO
1992 1993 1994 1995 1996 1997 FORMA(1)
------ ------ ------- ------- ------ ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- ---------------------
BALANCE SHEET DATA:
Working capital......................... $ (972) $ (492) $ (208) $ (139) $ (294) $ (294) $12,314
Total assets............................ 832 2,181 1,874 2,432 8,623 9,847 55,934
Total debt.............................. 278 173 139 151 761 1,155 2,715
Total shareholders' equity (deficit).... (827) (343) 51 345 944 1,257 38,761
</TABLE>
- ---------------
(1) The pro forma data give effect to: (i) the Acquisitions; (ii) the Offering;
(iii) borrowing and repayments under the Bank Credit Facility; (iv) the
recognition of an estimated $25 of deferred income taxes upon the
termination of Kendle's S corporation election; and (v) the payment of the S
corporation distribution of approximately $700. The pro forma data also
reflect the application of corporate income taxes to the Company's net
income at an assumed statutory combined federal and state rate of 40%, which
would have been recorded if the Company had been a C corporation during such
periods. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Termination of S Corporation Status," "Use of Proceeds," "Bank
Credit Facility" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) The historical pro forma data reflect the application of corporate income
taxes to the Company's net income at an assumed statutory combined federal
and state rate of 40%, which would have been recorded if the Company had
been a C corporation during such periods.
(3) Weighted average common and equivalent shares outstanding assumes: (i) the
issuance of sufficient shares at an assumed initial public offering price of
$13.00 per share to pay the portion of the S corporation distribution to be
paid from the proceeds of the Offering; (ii) options to purchase shares of
Common Stock granted by the Company during the twelve months preceding the
Offering were outstanding for all periods presented, using the treasury
stock method at an assumed initial public offering price of $13.00 per
share; and (iii) Warrants issued in connection with the U-Gene Acquisition.
See "Termination of S Corporation Status."
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides integrated clinical research services on a contract
basis to the pharmaceutical and biotechnology industries. These services include
Phase II to Phase IV clinical trial management, clinical data management,
biostatistical analysis, medical writing and regulatory consultation and
representation. Historically, the Company has grown through internal expansion.
Its strategy is to build its business in the future through a combination of
internal growth and acquiring businesses that offer services similar or
complementary to those offered by the Company.
Kendle's clinical research and development services contracts are generally
fixed price, with some variable components, and range in duration from a few
months to several years. A portion of the contract fee is typically required to
be paid at the time the contract is entered into and the balance is received in
installments over the contract's duration, in some cases on a milestone
achievement basis. Most of the Company's contracts are terminable upon 30 days'
notice by the client. Clients terminate or delay contracts for a variety of
reasons, including, among others, the failure of the product being tested to
satisfy safety requirements, unexpected or undesired clinical results of the
product, the client's decision to forego a particular study, insufficient
patient enrollment or investigator recruitment or production problems resulting
in shortages of the drug. Although the Company typically is entitled to receive
certain fees for winding down a study which is terminated or delayed and, in
some cases, a termination fee, the loss or delay of a large contract or the loss
or delay of multiple contracts could have a material adverse effect on the
Company.
Kendle recognizes revenues from contracts on the percentage of completion
method, measured by the total costs incurred as a percentage of estimated total
costs for each contract. Kendle uses this method because management considers
total costs incurred to be the best available measure of progress on these
contracts. The estimated total costs of contracts are reviewed and revised
periodically throughout the lives of the contracts with adjustment to revenues
resulting from such revisions being recorded on a cumulative basis in the period
in which the revisions are made. Additionally, the Company incurs costs, in
excess of contract amounts, in subcontracting with third-party investigators.
Such costs, which are reimbursable by its clients, are excluded from direct
costs and net revenues.
The Company's backlog consists of anticipated net revenues from work under
letter agreements and contracts which have not been realized. At March 31, 1997,
Kendle's backlog was approximately $19.7 million compared to $5.4 million at
March 31, 1996, a 263% increase. At March 31, 1997, U-Gene's and gmi's backlogs
were approximately $9.6 million and $6.9 million, respectively. The Company
believes that its backlog as of any date is not necessarily a meaningful
predictor of future results and no assurances can be given that the Company will
be able to fully realize all of its backlog as revenues. See
"Business -- Backlog."
Direct costs consist of compensation and related fringe benefits for
project-related employees, unreimbursed project-related costs and allocated
facilities, information systems and other costs. Selling, general and
administrative expenses consist of compensation and related fringe benefits for
sales and administrative employees, professional services and advertising costs,
as well as unallocated costs related to facilities, information systems and
other costs.
Following the Acquisitions, a significant percentage of the Company's cash
flow from operations will be derived from operations outside the United States.
As the Company's plans are to repatriate earnings from
U-Gene and gmi to the U.S., the Company will be subject to the risks of currency
exchange rate fluctuations.
23
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net revenues and the percentage change in these items
compared to the prior comparable period. The trends illustrated in the following
table may not be indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
(DECREASE)
PERCENTAGE OF NET REVENUES ---------------------------
---------------------------------------------
THREE MONTHS YEAR YEAR QUARTER
ENDED ----- ----- -------
YEAR ENDED DECEMBER 31, MARCH 31, 1994 1995 1996
------------------------- --------------- TO TO TO
1994 1995 1996 1996 1997 1995 1996 1997
----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 38.1% 111.8% 188.9%
Costs and expenses
Direct costs.................... 62.3 58.3 63.1 67.6 56.6 29.1 129.4 142.0
Selling, general and
administrative................ 24.1 29.0 25.3 18.0 31.8 66.4 84.6 409.3
Depreciation and amortization... 2.9 2.7 2.4 2.2 2.5 32.5 88.1 229.2
Income from operations............ 10.7 10.0 9.2 12.2 9.1 27.9 94.8 116.1
Other income (expenses), net...... (0.4) (1.0) (0.4) (0.8) (0.2) 232.6 (13.1) (12.6)
Net income........................ 10.3 9.0 8.8 11.4 8.9 19.4 107.2 125.0
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net revenues increased by $3.9 million, or 188.9%, from $2.1 million for
the three months ended March 31, 1996 to $6.0 million for the three months ended
March 31, 1997. The increase in net revenues was due to an increase in the
volume of clinical research and clinical data management projects. Revenues from
G.D Searle & Co. and The Procter & Gamble Company accounted for approximately
66% and 13%, respectively, of net revenues for the three months ended March 31,
1997. Net revenues from clients other than G.D. Searle & Co. increased $651,000,
or 47.4%, from $1.4 million for the three months ended March 31, 1996 to $2.0
million for the three months ended March 31, 1997.
Direct costs increased by $2.0 million, or 142.0%, from $1.4 million for
the three months ended March 31, 1996 to $3.4 million for the three months ended
March 31, 1997. Direct costs expressed as a percentage of net revenues decreased
from 67.6% for the three months ended March 31, 1996 to 56.6% for the three
months ended March 31, 1997. The decrease was due primarily to the absorption of
indirect project related costs over a larger revenue base as the Company's
volume of business increased.
Selling, general and administrative expenses increased by $1.5 million, or
409.3%, from $372,000 for the three months ended March 31, 1996 to $1.9 million
for the three months ended March 31, 1997. Selling, general and administrative
expenses as a percentage of net revenues increased from 18.0% for the three
months ended March 31, 1996 to 31.8% for the three months ended March 31, 1997.
This increase was primarily due to increases in unallocated costs, recruiting
and system support activity as compared to the same period in 1996.
Depreciation and amortization expense increased $104,000, or 229.2%, from
$46,000 for the three months ended March 31, 1996 to $150,000 for the three
months ended March 31, 1997. This increase was due primarily to capital
expenditures associated with the three offices opened by the Company in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues increased by $6.9 million, or 111.8%, from $6.1 million for
the year ended December 31, 1995 to $13.0 million for the year ended December
31, 1996. The increase in net revenues was due to an increase in the volume of
clinical research and clinical data management projects. Revenues from G.D.
Searle & Co., The Procter & Gamble Company and Amgen, Inc. accounted for
approximately 48%, 19% and 13%, respectively, of net revenues for the year ended
December 31, 1996. Net revenues from clients other than G. D. Searle & Co.
increased $3.1 million, or 86.9%, from $3.6 million for the year ended December
31, 1995 to $6.7 million for the year ended December 31, 1996.
24
<PAGE> 26
Direct costs increased by $4.6 million, or 129.4%, from $3.6 million for
the year ended December 31, 1995 to $8.2 million for the year ended December 31,
1996. Direct costs expressed as a percentage of net revenues increased from
58.3% for the year ended December 31, 1995 to 63.1% for the year ended December
31, 1996. The increase in direct costs was due to the hiring and contracting of
additional project-related personnel to meet the needs of current and future
projects, and increased occupancy and other costs associated with three
additional offices opened by the Company during 1996.
Selling, general and administrative expenses increased by $1.5 million, or
84.6%, from $1.8 million for the year ended December 31, 1995 to $3.3 million
for the year ended December 31, 1996. The increase in selling, general and
administrative expenses was primarily due to increased business development
costs, travel, training and systems support activities. Selling, general and
administrative expenses increased at a significantly lower rate than net
revenues for the year ended December 31, 1996, declining as a percentage of net
revenues from 29.0% for the year ended December 31, 1995 to 25.3% for the year
ended December 31, 1996.
Depreciation and amortization expense increased $148,000, or 88.1%, from
$168,000 for the year ended December 31, 1995 to $316,000 for the year ended
December 31, 1996. The increase was due primarily to capital expenditures
associated with the three offices opened by the Company in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues increased by $1.7 million, or 38.1%, from $4.4 million in 1994
to $6.1 million in 1995. The increase in net revenues was due to an increase in
clinical research and clinical data management projects. Revenues from G.D.
Searle & Co., Rhone-Poulene Rorer, Inc. and Parke-Davis, a division of Warner-
Lambert Co., accounted for approximately 42%, 12% and 11%, respectively, of net
revenues for the year ended December 31, 1995. Net revenues from clients other
than G.D. Searle & Co. increased $1.4 million, or 63.1%, from $2.2 million for
the year ended December 31, 1994 to $3.6 million for the year ended December 31,
1995.
Direct costs increased by $804,000, or 29.1%, from $2.8 million in 1994 to
$3.6 million in 1995. Direct costs as a percentage of net revenues decreased
from 62.3% in 1994 to 58.3% in 1995. The decrease was due primarily to the
absorption of indirect project related costs over a larger revenue base as the
Company's volume of business increased.
Selling, general and administrative expenses increased by $708,000, or
66.4%, from $1.1 million in 1994 to $1.8 million in 1995. Selling, general and
administrative expenses as a percentage of net revenues increased from 24.1% in
1994 to 29.0% in 1995. The increase in selling, general and administrative
expenses was due to increased business development, travel and systems support
activities and an increase in unallocated costs.
Depreciation and amortization expenses increased by $41,000, or 32.5%, from
$127,000 in 1994 to $168,000 in 1995. This increase was primarily due to
purchases of furniture, fixtures and equipment as a result of increases in the
Company's operations.
QUARTERLY RESULTS
The Company's quarterly operating results are subject to volatility due to
such factors as the commencement, completion, cancellation or delay of
contracts; the progress of ongoing projects; cost overruns; the Company's sales
cycle; demand for the Company's services; competitive industry conditions; the
ability of the Company to develop, introduce and market new services on a timely
basis; changes in the mix of services provided to clients; changes in client
research and development expenditures and other general economic factors.
Because a large portion of the Company's operating costs are fixed, variations
in the timing and progress of large contracts or of multiple contracts can
materially affect quarterly results.
The following table presents unaudited quarterly operating results for the
Company for each of the nine most recent quarters in the period ended March 31,
1997. In the opinion of the Company, this information is prepared on the same
basis as the financial statements appearing elsewhere in this Prospectus and
reflects all the adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results of operations for those periods.
This quarterly financial data should be read in conjunction with the financial
25
<PAGE> 27
statements and notes thereto appearing elsewhere in this Prospectus. The
operating results for any quarter are not indicative of the results of any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH
31, 30, 30, 31, 31, 30, 30, 31, 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $1,597 $1,638 $1,453 $1,429 $2,063 $2,630 $3,607 $4,659 $5,962
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Direct costs.................... 874 852 866 971 1,395 1,781 2,441 2,560 3,376
Selling, general and
administrative................ 434 510 507 323 372 646 818 1,442 1,893
Depreciation and amortization... 39 42 47 40 45 46 51 173 150
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses............... 1,347 1,404 1,420 1,334 1,812 2,473 3,310 4,175 5,419
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations............ 250 234 33 95 251 157 297 484 543
Other expense, net................ 11 17 19 18 16 10 3 26 14
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income........................ $ 239 $ 217 $ 14 $ 77 $ 235 $ 147 $ 294 $ 458 $ 529
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations and growth with cash
flow from operations and borrowings. Investing activities have primarily
consisted of capital expenditures for furniture, fixtures and equipment.
As a result of $3.3 million in cash provided by operating activities and
$0.4 million and $0.8 million cash used by investing and financing activities,
respectively, cash and cash equivalents increased by $2.1 million during the
year ended December 31, 1996. Net cash provided by operating activity resulted
primarily from net income and the net change in working capital items. Most of
the Company's contracts for its services provide for bills to be rendered based
upon the achievement of certain project goals or milestones. These milestones,
while related to the work performed, may provide for installment payments that
are not reflective of work performed for purposes of revenue recognition. As a
result, billings by the Company (and therefore collection of receivables) and
recognition of revenue do not necessarily coincide.
Investing activities for the year ended December 31, 1996 consisted
primarily of capital expenditures of $407,000. Financing activities for the year
ended December 31, 1996 consisted primarily of a net repayment of $320,000 under
the Company's revolving line of credit, the payment of $236,000 on capital lease
obligations and distributions to shareholders of $285,000.
Cash and cash equivalents decreased by $329,000 in 1995 as a result of cash
used by operating, investing and financing activities of $75,000, $166,000 and
$88,000, respectively. The decrease in net cash used by operating activities
resulted primarily from net income offset by the net change in working capital
items.
Investing activities in 1995 consisted of capital expenditures of $166,000.
Financing activities in 1995 consisted of $320,000 in net borrowings under a
revolving line of credit, offset by payments of capital lease obligations of
$156,000 and distributions to shareholders of $253,000.
Cash and cash equivalents decreased by $2.0 million for the three months
ended March 31, 1997 as a result of cash used by operating and investing
activities of $2.3 million and $321,000, respectively, and cash provided by
financing activities of $591,000. Net cash used by operating activities resulted
primarily from net income offset by the net change in working capital items.
Investing activities for the three months ended March 31, 1997 consisted
primarily of capital expenditures of $268,000. Financing activities for the
three months ended March 31, 1997 consisted of distributions to shareholders of
$466,000, payments on capital lease obligations of $107,000 offset by amounts
payable-book overdraft of approximately $1.2 million, which is the result of the
Company's cash management system.
26
<PAGE> 28
In connection with the Acquisitions, the Bank has agreed to lend the
Company up to $20 million under a Senior Credit Facility and up to $10 million
under a Subordinated Credit Facility. The Senior Credit Facility bears interest
at a rate equal to either LIBOR plus the Applicable Margin (as defined), or the
higher of the Bank's prime rate or the Federal Funds rate plus 0.50%. All
amounts outstanding thereunder become due and payable in June, 2000. The
Subordinated Credit Facility consists of Series A and B Notes, bearing interest
at 12% and maturing in June, 2002, and the Warrants.
This Bank Credit Facility contains various restrictive financial covenants,
including limitations on senior and total debt levels, capital expenditures and
future acquisitions as well as the maintenance of certain fixed coverage ratios
and minimum net worth levels, and is collateralized by all the assets and shares
of Common Stock held by Dr. Bryan, Mr. Bergen, the Kendle Stock Trust and Hazel
Kendle (which shares will be released as collateral upon consummation of the
Offering) and existing and hereafter acquired material subsidiaries.
On July 1, 1997 the U-Gene Acquisition and related costs were funded with
approximately $9.4 million from the Senior Credit Facility, a promissory note
payable to U-Gene deposited in an escrow account pursuant to the U-Gene purchase
agreement of approximately $1.6 million and $5 million from the Series A Note.
In addition, the Company issued the Warrants to the Bank to purchase 4% of the
outstanding shares of Common Stock of the Company (153,738 shares). If the
Offering is not completed on or before December 1, 1997, the number of shares
which may be purchased upon exercise of the Warrants will be increased to 5%,
and 6% if not completed by March 1, 1998.
Although the Company expects the gmi Acquisition to close simultaneously
with the closing of the Offering, the Company is required, per the gmi
definitive agreement, to consummate the gmi Acquisition not later than September
15, 1997. If the Offering is not completed by September 15, 1997, or a mutually
agreed upon later date, then the Company expects to borrow approximately $4.5
million from the Senior Credit Facility and $5 million from the Series B Note to
fund the cash portion of the gmi Acquisition. In addition, the non-cash portion
of the gmi Acquisition would be funded through the issuance of a subordinated
security by the Company to the gmi shareholders. Upon issuance of the Series B
Note, the Company is required under the Subordinated Credit Facility to issue
Warrants to the Bank for the purchase of an additional 3% of the outstanding
shares of Common Stock of the Company, and 4% if the Offering is not completed
by March 1, 1998. In addition, the Bank has issued a standby letter of credit to
the gmi shareholders to secure the cash portion of the gmi Acquisition price due
to such shareholders.
The Company intends to repay all outstanding Subordinated Promissory Notes
and a portion of the Senior Credit Facility with proceeds from the Offering. The
Warrants will be exercised by the Bank and converted to shares of Common Stock
concurrently with the Offering.
The Company had a revolving line of credit arrangement with a bank totaling
$2.0 million. The line is collateralized by all the Company's assets, other than
assets leased under the Company's capital lease line, and is subject to various
covenants and restrictions relating to, among others, minimum tangible capital
base, other liabilities and indebtedness. Amounts borrowed under the line are
payable upon demand and bear interest at the bank's prime rate or LIBOR plus
2.5% at the discretion of management for each borrowing. There were no
borrowings outstanding under the revolving line of credit at March 31, 1997. The
Company terminated this line of credit in June, 1997 and replaced it with the
Bank Credit Facility.
The Company has a $1.5 million computer and a $500,000 furniture lease line
of credit with a bank. Amounts drawn on these lines are payable over a five year
term from the date of funding. These lines expire on December 31, 1997. The
monthly installment payments are equal to 1.80% and 1.71% of the total computer
and furniture draws, respectively. Amounts drawn on these lines of credit
totaled $1,109,000 at March 31, 1997. In April 1997, the Company obtained an
additional $370,000 computer and $130,000 furniture lease line of credit with
the same bank. These lines expire March 31, 1998, with monthly installment
payments equal to 2.23% and 1.76% of the total computer and furniture
borrowings, respectively. Amounts drawn on the computer and furniture lines of
credit are payable over four and five year terms, respectively, from the date of
funding.
27
<PAGE> 29
The Company's primary cash needs on both a short-term and long-term basis
are for the payment of salaries and fringe benefits, capital expenditures,
facility-related expenses, business development expenses and travel
expenditures. The Company estimates that during 1997 it will invest
approximately $3.0 million to $4.0 million in capital expenditures related to
its facilities and investments in its information technology. The Company
believes that available cash, together with cash flow from operations,
borrowings under the Bank Credit Facility and other existing lines of credit and
net proceeds from the Offering, will be sufficient to meet foreseeable cash
needs. See "Use of Proceeds."
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 is designed to simplify the existing
computational guidelines for computing earnings per share and provides for the
elimination of primary Earnings Per Share ("EPS") and replacing it with basic
EPS, with the principal difference of common stock equivalents not being
considered in computing basic EPS. SFAS No. 128 is effective for the Company for
the year ending December 31, 1997. Management expects the effect of the adoption
of this statement to have an immaterial impact on the Company's earnings per
share calculation for 1996. The effect on the three months ended March 31, 1997
is to increase earnings per share by approximately 6%.
28
<PAGE> 30
BUSINESS
OVERVIEW
The Company is a CRO that provides a broad range of clinical research and
drug development services to the pharmaceutical and biotechnology industries.
Kendle augments the research and development activities of pharmaceutical and
biotechnology companies by offering high quality, value added clinical research
services and proprietary information technology designed to reduce drug
development time and expense. The Company's services include Phase II to Phase
IV clinical trial design and management, clinical data management,
biostatistical analysis, medical writing and regulatory consultation and
representation. Kendle believes that it is one of a small number of CROs capable
of providing a broad range of services within multiple therapeutic areas,
including cardiovascular, central nervous system, gastrointestinal, immunology,
oncology, respiratory, skeletal disease and inflammation.
The Company believes that pharmaceutical and biotechnology companies are
increasingly selecting CROs that have the following capabilities: (i) a broad
range of therapeutic expertise in designing and managing all phases of clinical
trials; (ii) the ability to efficiently collect, edit and analyze data from
thousands of patients with various clinical conditions from many geographically
dispersed sites; (iii) the ability to provide a full range of services to
clients who desire to use fewer CROs to manage their drug development processes;
and (iv) global capabilities that incorporate diverse populations and allow
simultaneous filings of registration packages in several major jurisdictions.
Kendle's strategy is to continue to enhance its reputation as a
high-quality provider of a full range of CRO services. The Company's strategy
consists of the following key elements: (i) continue to expand its broad range
of therapeutic expertise; (ii) offer its clients "one-stop shopping" with a full
range of services that encompass the clinical research process and complement
the research and development departments of its clients; (iii) expedite the drug
development process through innovative information technology offered via the
Company's proprietary TrialWare(SM) software; (iv) continue to build a brand
presence that portrays high quality work; and (v) supplement internal growth
through strategic acquisitions that expand the Company's geographic presence and
add to Kendle's clinical research capabilities in existing or new therapeutic
areas or service offerings.
In furtherance of the Company's strategy to expand its range of services
and international coverage, the Company purchased one European CRO and entered
into an agreement to purchase another European CRO: U-Gene based in Utrecht, the
Netherlands, which provides Phase II to Phase IV clinical trial design and
management, and owns and operates a state-of-the-art 38-bed Phase I testing
unit; and gmi, based in Munich, Germany, which provides Phase II to Phase IV
clinical trial design and management and specializes in the field of
pharmacoeconomic analysis. The Company believes that these two strategic
acquisitions will make Kendle the sixth largest CRO in Europe, based on total
revenues, and enhance its ability to provide customers with a single source for
contract research services throughout North America and Europe.
INDUSTRY TRENDS
The CRO industry provides integrated product development services to the
pharmaceutical and biotechnology industries. In general, CROs derive
substantially all of their revenue from the research and development
expenditures of pharmaceutical and biotechnology companies. The CRO industry has
evolved from providing limited clinical services in the 1970s to a full-service
industry that today encompasses much of the clinical research process (including
pre-clinical evaluations), study design, clinical trial management, data
collection and biostatistical analysis and product registration support. These
services are provided in accordance with government regulations covering
clinical trials and the drug approval process.
According to industry sources, in 1995, worldwide expenditures on research
and development by pharmaceutical and biotechnology companies are estimated to
have been approximately $35.0 billion, of which the Company estimates $22.0
billion was spent on drug development activities of the type offered by the CRO
industry. The Company believes that approximately $2.5 billion of such spending
was outsourced to CROs in 1995.
29
<PAGE> 31
The CRO industry is highly fragmented, with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. Although the CRO industry is not capital intensive and 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. These
barriers include the cost and experience necessary to develop expertise in a
number of therapeutic areas, the ability to manage complex clinical trials, the
experience to prepare regulatory submissions and integrated clinical data
management capabilities. The barriers to becoming a full-service CRO combined
with the expansion of some larger CROs has led to an increased rate of industry
consolidation.
The Company believes that the outsourcing of drug development activities by
pharmaceutical and biotechnology companies has been increasing and will continue
to increase as these companies strive to enhance revenues through faster drug
development while also dealing with cost containment pressures. The CRO
industry, by specializing in clinical trials management, is often able to
perform the needed services with a higher level of expertise or specialization,
more quickly and at a lower cost than a client could perform the services
internally.
The Company believes that pharmaceutical and biotechnology companies are
increasingly seeking to select CROs that have the following capabilities:
Therapeutic Expertise. Extensive therapeutic expertise is essential
in order to most efficiently design and manage all phases of the clinical
trials. A lack of therapeutic expertise can cause delays and cost overruns
ranging from additional time to recruit the proper investigative sites to
the need to recruit additional patients in order to obtain the necessary
data to support the efficacy of the drug. Thus, the level of therapeutic
expertise has a significant effect on the overall drug development time and
has become one of the leading factors that pharmaceutical and biotechnology
companies evaluate when choosing a CRO.
Broad Range of Services. As pharmaceutical and biotechnology
companies are utilizing fewer CROs to manage their drug development process
more efficiently, these companies are increasingly requiring CROs to
provide a full range of services. CROs must be able to manage a project
from the initial stages of protocol and study design, through clinical
trials management and data management, to regulatory and medical affairs
consulting.
Integrated Clinical Data Management. A key constraint in accelerating
the drug development process is the ability to collect, edit and analyze
the data from up to several thousand patients with various clinical
conditions from many geographically dispersed sites in an efficient manner.
The data must then be standardized and integrated into the client's
computer system prior to submission to the FDA. Currently, there is no
industry standard process for managing the clinical data and there is a
wide range of capabilities among CROs in managing the clinical data.
Pharmaceutical and biotechnology companies are increasingly requiring CROs
to have advanced clinical data management systems that are integrated with
their internal systems in order to reduce drug development time.
Proximity to Clients. Clients and potential clients frequently
consider the proximity of a company as a factor in selecting a CRO for a
project. Kendle currently has four domestic offices and plans either to
acquire or develop additional domestic or international offices where
existing and potential client relationships will be enhanced. Management
believes that the availability of offices that are convenient to clients
will be an increasingly important factor in gaining and retaining client
business.
International Support. To expedite the drug development process,
pharmaceutical and biotechnology companies increasingly require access to
diverse clinical trial participants from various countries. In an effort to
maximize profits of a given drug, such companies are now pursuing
regulatory approvals in multiple countries simultaneously rather than
sequentially as they have in the past. 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 to collect, analyze and
report 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.
30
<PAGE> 32
COMPANY STRATEGY
The Company's objective is to grow as a high-quality provider of a
full-range of CRO services. Kendle seeks to differentiate itself from its
competitors by focusing on those services that will significantly reduce the
time for drug development.
The Company's strategy consists of the following key elements:
Hiring, Training and Retaining Employees. The Company's success is
based on the quality and dedication of its employees. The Company strives
to hire the best available people in terms of ability, attitude, experience
and fit with the Company's performance philosophy. The Company believes
that it is an industry leader in the thoroughness of its training programs.
The Company trains employees extensively and encourages employees to
upgrade their skill level through internal and external training. As new
technologies develop, employees are equipped with, and trained to make use
of, such technological innovations. The Company also places significant
emphasis on retention of its employees in order to achieve a high degree of
consistency and continuity as it provides services to its clients.
Excellent Client Relationships. The Company invests significant time
and effort in building excellent relationships with its clients. It
accomplishes this through a combination of high quality, timely and cost
effective services that are designed to be highly responsive to its
clients' needs. The Company believes that the relationships developed by
its regional offices have been a key factor in gaining and retaining
certain client business. The Company has four domestic offices and plans to
establish additional domestic or international offices where client
relationships would be enhanced.
Therapeutic Area Expertise. The Company believes that it is better
able to serve its clients' needs by offering therapeutic expertise in
addition to a full range of drug development services. The Company has
expertise in several major therapeutic areas including cardiovascular,
central nervous system, gastrointestinal disease, immunology, oncology,
respiratory, and skeletal disease and inflammation. The Company's
experience in these therapeutic areas, along with the experience of the
Company's therapeutic area strategic business unit ("SBU") directors, has
enabled Kendle to grow its revenues from existing clients and win new
client business. The Company plans to continue to add to its expertise in
its existing therapeutic areas and to develop new areas of expertise by
hiring experienced personnel and by strategic acquisitions.
Full Service Clinical Research. The Company offers a full range of
services that encompasses the clinical research process and complements the
research and development departments of its clients. These services include
clinical trials management, clinical data management, biostatistical
analysis, study design, and regulatory affairs services, including product
registration with regulatory authorities. The Company emphasizes
efficiencies in each phase of clinical trials, data management and
analysis, report writing and report filing, in order to reduce the time and
cost of obtaining regulatory approval for its clients' products. The
Company's breadth of services, along with its process for conducting
clinical trials on a timely basis, have been key factors in the Company's
success in obtaining additional and larger contracts.
Key Acquisitions; Expand Geographic Presence. The Company intends to
supplement its internal growth through strategic acquisitions, including
the acquisitions of U-Gene and gmi, and the opening of regional offices.
The Company believes that significant acquisition opportunities exist due
to the highly fragmented nature of the CRO industry. The Company intends to
focus on acquisitions of businesses that expand its geographic presence,
add to its clinical expertise in existing or new therapeutic areas and
broaden its range of services. In addition, the Company believes that
opening regional offices is invaluable in developing client relationships
and obtaining clients. In 1996, the Company opened offices in Chicago,
Illinois, Los Angeles, California and Princeton, New Jersey.
International Support. As part of the Company's strategy to expand
its geographic presence, the Company recently acquired U-Gene and signed a
definitive agreement to acquire gmi. Following the consummation of the
Acquisitions, the Company will have significant international operations.
On a pro forma basis, assuming the consummation of the Acquisitions as of
January 1, 1996, the Company is the
31
<PAGE> 33
sixth largest European CRO, based on total revenues. U-Gene and gmi have
served clients in the Netherlands, Germany, the Czech Republic, the United
Kingdom, Israel and several additional countries in Europe. U-Gene and gmi
will increase both the number and the geographic scope of the clients
served by Kendle, enabling the Company to cross-sell its services and
enhance its relationships with existing clients. The Company will continue
to explore strategic acquisitions that will further enhance its
international capabilities.
Marketing and Brand Name Recognition. Due to the recent growth of the
CRO industry and the highly fragmented nature of the competition, the
Company believes it has been difficult for many CROs to achieve brand name
recognition with potential clients. Kendle's marketing strategy is to
continue to build a brand presence that portrays high quality work. The
Company's brand presence is reinforced through direct mail, professional
exhibits, journal advertising and an experienced sales force. See "Clients
and Marketing."
INFORMATION TECHNOLOGY
The Company believes that superior information technology is essential to
providing its clients with innovative services which expedite the clinical
trials process. The Company offers its clients access to its proprietary,
award-winning TrialWare(SM) software to help reduce the time required for drug
development. The TrialWare(SM) application system consists of state-of-the-art
modules, featuring intuitive graphical user interfaces, which allow scanning of
clinical case report forms ("CRFs") into electronic images, fast database
creation and automated workflow through the clinical data process. The CRF
images can be reviewed on-line and are compatible for inclusion in a Computer
Aided New Drug Application ("CANDA"). The TrialWare(SM) product family includes:
TrialBase, which is a database management system, saves up to 75% of
the time normally required to develop databases supporting the data entry
and clean up of CRFs from clinical trial sites. It also provides improved
data management quality by supporting extensive automated data checking and
quick feedback to study sites. TrialBase has an electronic imaging
component that allows a non-technical user to perform all the activities
necessary to build a clinical database and program data edits.
TrialFax, which enables Kendle personnel to rapidly review CRFs from
trial sites and to immediately resolve data queries. Using a standard fax
machine, CRFs are transmitted to Kendle's computer network and are stored
as an electronic image. These electronic CRF images can then be reviewed
for any problems or discrepancies and queries generated automatically.
Kendle personnel then interact with site personnel via fax or telephone to
resolve any discrepancies.
TriaLine, which uses interactive voice response and touch-tone
telephone entry to enroll, randomize and track patients, as well as
facilitate just-in-time management of test product inventory, thereby
reducing drug waste by up to 30% or more. TriaLine supports multiple
telephone lines for high enrollment trials, and has customized scripting
and multilingual capabilities.
TrialView, which enables Kendle personnel to access CRF images at any
time directly at their desktop computer without having to retrieve the
actual forms from the central file room. This can greatly reduce the amount
of time needed to find key information and enhance Kendle's ability to
respond to client requirements.
TriAlert, which is used to assign standard codes to key textual
parameters from clinical trials. In order to process such variables as
verbatim terms for adverse events, concomitant drug names, diagnoses,
physical exam results and medical history data, these items must be coded
to a standard dictionary of values used by the various regulatory agencies.
TriAlert supports assigning codes for multiple standard dictionaries
including COSTART, WHO-ART, WHO-Drug and ICD9-CM, as well as loading a
client specific dictionary. The system provides greater flexibility in
meeting the client's coding requirements.
TrialStats, which is used by the Company's biostatistics department to
produce data listings, summary tables and analysis tables. The Company uses
TrialStats to accelerate the generation of statistical reports by reducing
the time spent on programming and validation of data listings, tables and
32
<PAGE> 34
standard analyses. TrialStats also provides access to data for clinical
data management, report writing and client inquiries while a trial is in
process.
The Company believes that its TrialWare(SM) family of products provides a
competitive advantage by more fully integrating the Company's operations with
the investigative site clinical trial activities. Kendle also has the ability to
meet its clients' computer interfacing needs by utilizing SAS, Oracle, DLB
Recorder and other software.
The Company's Web Site on the Internet includes a description of the
Company and its services, a browser survey and the Company's e-mail address. In
addition, the Web Site provides information about the Company's proprietary
technology, employment opportunities, medical research and opportunities for
patients and investigators. The Company believes the Web Site demonstrates the
Company's commitment to using state-of-the-art technology while also providing
an excellent opportunity to communicate its capabilities on a worldwide basis.
The Web Site address is http://www.kendle.com/.
SERVICES
The Company's services assist its clients in optimizing their research and
development spending through the clinical stages of the drug development
process. The Company provides Phase II to Phase IV clinical trial management,
clinical data management and biostatistical analysis and medical writing and
regulatory services. Following the Acquisitions, the Company will also provide
Phase I clinical trial management. See "The Acquisitions."
Phase II to Phase IV Clinical Trial Management. The core of the Company's
business offerings is a comprehensive package of services to conduct Phase II to
Phase IV clinical trials. The Company has significant experience in the
therapeutic areas of cardiovascular, central nervous system, gastrointestinal
disease, immunology, oncology, respiratory and skeletal disease and inflammation
and has conducted several large clinical trials, including the management of a
10,000 patient heart failure trial at over 2,200 investigational sites and an
approximately 2,000 patient clinical trial at up to 125 investigational sites
relating to the treatment of cardiac arrhythmia.
Through its clinical experience, the Company has developed the expertise to
manage every aspect of clinical trials in Phase II to Phase IV of the drug
development process, including protocol development, CRF design, feasibility
studies, investigator selection, recruitment and training, site initiation and
monitoring, accelerated patient enrollment and development of training materials
for investigators and training of clients' staff. In managing clinical trials,
the Company has adopted standard operating procedures that are intended to
satisfy regulatory requirements and serve as a tool for controlling and
enhancing the quality of its clinical trials. The Company often provides its
clients with one or more of the following core Phase II to Phase IV clinical
trials management services, frequently performed in tandem with one another in
order to accelerate the drug development process.
- Study Design. The Company has broad experience in the preparation of
study protocols and CRFs. The study protocol defines the medical issues
to be examined in evaluating the safety and efficacy of the drug under
study, the number of patients required to produce statistically valid
results, the clinical tests to be performed in the study, the time period
over which the study will be conducted, the frequency and dosage of drug
administration, the exact inclusion and exclusion criteria to be met for
the patients enrolled in the study and the planned data summarization,
statistical analysis and interpretation of the results of the study. The
success of the study depends not only on meeting regulatory requirements,
but also on achieving a coherent fit between the protocol, the other
aspects of the development process and the marketing strategy for the
drug.
- Case Report Form Design. Once the study protocol is finalized, the
Company develops CRFs for investigators to record the desired information
obtained from the clinical studies. The Company organizes all disciplines
involved in the drug development process to assure a design that is
efficient for subsequent data entry, management and reporting. Proper CRF
design is critical for investigators and field monitors to conduct their
respective jobs quickly, accurately and effectively.
33
<PAGE> 35
- Site and Investigator Recruitment. The Company solicits the
participation of physicians, also referred to as investigators, who
contract directly with either the Company or its client to supervise the
administration of the drug under development at investigational sites,
including hospitals and clinics or other locations. In order to target
the appropriate physicians, the Company has access to a computerized
database of approximately 3,000 experienced investigators that includes
information regarding the Company's prior experience with these
investigators and their ability to rapidly initiate clinical studies. The
Company believes that its ability to rapidly identify and recruit
investigators who have the appropriate expertise and an adequate base of
patients who satisfy the requirements of the study protocol is critical
to completing trials in a timely manner.
- Study Monitoring. The Company provides study monitoring services that
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 Good Clinical
Practices ("GCP"), the study protocol, the requirements of the client and
applicable regulations.
Since the ability to complete projects on time is generally determined by
meeting deadlines during the first few months of study initiation, the Company
focuses on identifying and quickly completing the critical rate-limiting steps
of screening and selecting investigators, processing pre-study regulatory
paperwork, obtaining institutional review board approvals and scheduling
investigational site initiation visits. As clinical studies progress, the
Company collects data via visits by its field monitors to investigative sites
and by electronic means. The Company must ensure that data from investigative
sites is obtained efficiently, quickly and accurately to speed subsequent data
entry, data management and analysis and report writing.
The Company is currently managing a 10,000 patient heart failure trial that
is evaluating two doses of an ACE-inhibitor for the incidence of cardiovascular
hospitalizations and deaths in congestive heart failure patients. To date over
9,300 patients have been enrolled at over 2,200 investigative sites since the
study began in May 1994, generating 78,000 total pages of clinical case report
forms. In another example, the Company recently began the organization and
management of clinical trials relating to a major New Drug Application ("NDA")
in the treatment of cardiac arrhythmia (irregular heartbeats). These trials
involve approximately 2,000 patients at up to 125 investigational sites.
Patients in both the heart failure and arrhythmia programs are monitored for up
to twelve months. The Company previously had managed an identical program in
cardiac arrhythmia for another major existing client that involved 1,420
patients at 130 investigative sites. Programs of similar size and scope have
been completed in the areas of seasonal allergic rhinitis and asthma.
Clinical Data Management and Biostatistical Analysis.
The Company's data management and biostatistical analysis operations are
managed by professionals with extensive pharmaceutical industry experience in
processing data from local and multinational trials. The Company provides
assistance to clients in all areas of clinical data management and
biostatistical analysis, including study design, sample size determinations, CRF
design and production, fax-based monitoring, database design and construction,
data entry, data assessment for accuracy and consistency (data cleanup) and
statistical analyses. The Company offers data management and biostatistical
services as discrete products and as part of an integrated drug development
program. The Company has the ability to meet client needs by utilizing SAS,
Oracle, DLB Recorder and other software in addition to the Company's proprietary
TrialWare(SM) software. Approximately 58% of the Company's current clients use
TrialWare(SM).
The Company's automated work flow process using the TrialWareSM software
system makes possible the rapid development of databases by facilitating data
entry and cleanup of data from clinical trial sites. The first step in this
process is to scan completed CRF pages as they are received. This electronic
image of the CRF page with an overlay mask is the paradigm for data entry. This
significantly decreases the time required to develop databases. After data entry
is completed, the system performs computerized data checks. CRF pages are
available on-line at all stages of the data entry process. Thus, initial data
entry and verification can occur at the same time.
The system provides for multiple levels of automated data checks. All
computerized edit check failures are reviewed on-line to ensure data consistency
and to provide optimum feedback on data quality. The system
34
<PAGE> 36
automatically produces the materials that are used to interact with the
investigational site personnel to resolve data issues and maintains an extensive
audit trail of the results of the edit review process and of any updates that
are made to the database. This allows detailed reporting to clients on the
progress of data handling for their trial.
The Company's biostatistics department provides a full range of
biostatistical services and develops sponsor-compatible data sets, data display
and report forms. Additionally, the department is capable of managing all
statistical aspects of clinical trials, including overall clinical development
plans, individual analyses, report preparation of statistical sections of
regulatory dossiers and regulatory liaison and representation. The group has
highly experienced professionals (biostatisticians and statistical programmers)
with a wide therapeutic area background who can work with clients in all phases
of drug development.
Medical Writing and Regulatory Services
The Company provides report writing and regulatory services to its clients
in a manner designed to complement parallel development processes to reduce
overall development time. The Company provides its clients with strategic plan
and protocol design services at the beginning of projects, combined with clear,
concise data presentation, analysis and discussion at the completion of the
project to assist its clients in obtaining regulatory approvals. The Company
fully integrates these services with its other services to assure maximum speed,
quality service and regulatory compliance.
The Company maintains an internal compliance and quality assurance
department to offer its customers in-process monitoring of compliance with GCP.
The Company also offers this service to clients to assess their own trials.
CLIENTS AND MARKETING
The Company has provided services to 12 of the world's largest
pharmaceutical companies, as ranked by 1996 research and development spending.
During 1996, the Company provided services under approximately 62 contracts to
approximately 19 clients.
During 1996 and the first three months of 1997, revenues from G.D. Searle &
Co. accounted for approximately 48% and 66%, respectively, of the Company's net
revenues. Other Company clients have, from time to time, accounted for more than
10% of the Company's net revenues, with revenues from The Procter & Gamble
Company and Amgen, Inc. accounting for approximately 19% and 13%, respectively,
of the Company's net revenues in 1996 and revenues from The Procter & Gamble
Company accounting for approximately 13% of the Company's net revenues for the
first three months of 1997. In addition, as of March 31, 1997, G.D. Searle & Co.
accounted for $11.2 million, or approximately 57%, of the Company's backlog. The
CRO industry depends on the research and development efforts of the major
pharmaceutical and biotechnology companies as major clients, and the Company
believes that their dependence will continue. The loss of business from any of
the Company's major clients could have a material adverse effect on the Company.
See "Business -- Clients and Marketing." However, on a pro forma basis assuming
consummation of the Acquisitions as of January 1, 1996, revenues from G.D.
Searle & Co. would have accounted for approximately 19% and 35% of the Company's
net revenues in 1996 and for the first three months of 1997, respectively, and
no other client would have accounted for more than 10% of the Company's net
revenues. Backlog, as of March 31, 1997, on a pro forma combined basis, was
approximately $36.2 million.
The company has a new business development group made up of 3 components:
sales, proposals and client services and corporate communications. The Company
employs 16 individuals with responsibilities for the marketing and selling
activities within the new business development group. Kendle's salespeople
market to pharmaceutical and biotechnology firms and concentrate primarily on
obtaining business from potential new clients. The Company's sales efforts
helped to increase its non-G. D. Searle & Co. business from $3.6 million in net
revenues in 1995 to $6.7 million in net revenue in 1996, an 86.9% increase.
Since inception, U-Gene has served more than 100 clients, including 19 of
the world's 20 largest pharmaceutical companies. gmi has served more than 80
clients, including 19 of the world's 20 largest pharmaceutical companies.
35
<PAGE> 37
CONTRACTUAL ARRANGEMENTS
Most of the Company's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. 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 payments to milestone events such as
investigator recruitment, patient enrollment or delivery of databases. Most of
the Company's contracts for the provision of its services are terminable by the
client upon 30 days' notice. Clients terminate or delay contracts for a variety
of reasons, including the failure of a product to satisfy safety requirements,
unexpected or undesired clinical results, insufficient patient enrollment or
investigator recruitment or production problems resulting in shortages of the
drug. Although the contracts typically require payment of certain fees for
winding down the study, the loss or delay of a large contract or the loss of
multiple contracts could have a material adverse effect on the Company. See
"Risk Factors -- Loss or Delay of Large Contracts" and "Risk Factors -- Fixed
Price Nature of Contracts."
BACKLOG
Backlog consists of anticipated net revenues from letter agreements or
contracts that have been signed but not yet realized. Once contracted work
begins, revenues generally are recognized over the life of the contract, which
usually lasts for 12 months or more. In certain cases, the Company begins work
for a client before a contract is signed. Backlog excludes anticipated net
revenues from projects for which the Company has commenced work but for which
the Company does not have a signed letter of intent or contract. Backlog for the
Company at March 31, 1997 was approximately $19.7 million, as compared to
approximately $5.4 million at March 31, 1996.
At March 31, 1997, U-Gene's and gmi's backlog was approximately $9.6
million and $6.9 million, respectively.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to delay or termination upon 30 days' notice by
clients. See "Risk Factors-Loss or Delay of Large Contracts" and "Business --
Contractual Arrangements."
COMPETITION
The Company primarily competes against in-house research and development
departments of pharmaceutical and biotechnology companies, universities,
teaching hospitals and other full-service CROs, many of which possess
substantially greater capital, technical and other resources than the Company.
CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to manage large-scale trials on a global basis, medical
database management capabilities, the ability to provide statistical and
regulatory services, the ability to recruit investigators, the ability to
integrate information technology with systems to improve the efficiency of
contract research, an international presence with strategically located
facilities, financial viability and price.
The CRO industry is highly fragmented with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. The Company's competitors include, among other companies,
ClinTrials Research Inc., Covance, Inc., IBAH, Inc., PAREXEL International
Corporation, Pharmaceutical Product Development, Inc. and Quintiles
Transnational Corporation. See "Risk Factors -- Competition."
POTENTIAL LIABILITY AND INSURANCE
The Company attempts to manage its risk of liability for personal injury or
death to clinical trial participants 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
36
<PAGE> 38
from client to client and from trial to trial. Although most of the Company's
clients are large, well-capitalized companies, the financial performance of
these indemnities is not secured. Therefore, the Company bears the risk that an
indemnifying party may not have the financial ability to fulfill its
indemnification obligations. The Company could be materially adversely affected
if it were required to pay damages or incur defense costs in connection with a
claim that is beyond the scope of an indemnity provision or beyond the scope or
level of insurance coverage maintained by the client or where the indemnifying
party does not fulfill its indemnification obligations. The Company does not
currently maintain liability insurance with respect to these risks. See "Risk
Factors -- Potential Liability from Risks of Conducting Clinical Trials."
GOVERNMENT REGULATION
Before a new drug is marketed, it must undergo extensive testing and
regulatory review in order to determine that it is safe and effective. The
development process consists of two stages: preclinical and clinical. The first
stage is the preclinical 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. If the drug
is perceived to be safe for human testing, the drug then undergoes a series of
clinical tests in humans. During the clinical stage, one of the most time
consuming and expensive parts of the drug development process, the drug
undergoes a series of tests in humans, including healthy volunteers and patients
with the targeted disease or condition.
The services provided by the Company are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries is generally less
comprehensive than the regulation present in the United States.
Prior to commencing human clinical trials in the United States, the sponsor
must file an Investigational New Drug ("IND") application with the FDA. In order
to receive IND status, the sponsor of the new drug must provide available
manufacturing data, pre-clinical data, information about any use of the drug in
humans in other countries or in the United States for other purposes, and a
detailed plan for the conduct of the proposed clinical trials. The design of
these trials, also referred to as the study protocols, is essential to the
success of the drug development effort because the protocols must correctly
anticipate the nature of the data to be generated and results that the FDA will
require before approving the drug. In the absence of any FDA comments within 30
days after the IND filing, human clinical trials may begin.
Although there is no statutory definition of the structure or design of
clinical trials, human trials usually start on a small scale to assess safety
and then expand to larger trials to test efficacy. These trials are usually
grouped into the following three phases, with multiple trials generally
conducted within each phase:
- Phase I. Phase I trials involve testing the drug on a limited number of
healthy individuals, typically 20 to 80 people, to determine the drug's
basic safety data relating to tolerance, absorption, metabolization and
excretion as well as other pharmacological indications and actions. This
phase lasts an average of six months to one year.
- Phase II. Phase II trials involve testing a small number of patients,
typically 100 to 200 people who suffer from the targeted disease or
condition, to determine the drug's effectiveness and dose response
relationship. This phase lasts an average of one to two years.
- Phase III. Phase III trials involve testing large numbers of patients,
typically several hundred to several thousand people, 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 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
37
<PAGE> 39
circumstances, to many years, with the average review lasting two and one-half
years. Drugs that successfully complete this review may be marketed in the
United States, subject to the conditions imposed by the FDA.
- Phase IV. As a condition to its approval of a drug, the FDA may require
that a 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.
The industry standard for the conduct of clinical research and development
studies is embodied in the regulations for GCP. Although GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar regulatory
authorities in other countries, certain provisions of GCP have been included in
FDA regulations. As a matter of practice, the FDA and many other regulatory
authorities require that test results submitted to such authorities be based on
studies conducted in accordance with GCP. These regulations include: (i)
complying with FDA regulations governing the selection of qualified
investigators; (ii) obtaining specific written commitments from the
investigators; (iii) verifying that patient informed consent is obtained; (iv)
monitoring the validity and accuracy of data; (v) verifying drug or device
accountability; and (vi) instructing investigators to maintain records and
reports. The Company must also maintain reports for each study for specified
periods for inspection by the study sponsor and the FDA during audits. Non-
compliance with GCP can result in the disqualification of data collected during
the clinical trial.
INTELLECTUAL PROPERTY
Kendle has developed certain computer software and related methodologies
that the Company has sought to protect through a combination of contracts,
copyrights and trade secrets. However, the Company would not consider the loss
of exclusive rights to any of this software or methodology to be material to the
Company's business.
EMPLOYEES
At March 31, 1997, the Company had 255 full-time employees, approximately
15 of whom hold Ph.D., M.D., Pharm.D. or N.D. degrees. The Company's performance
depends on its ability to attract, develop, motivate and retain qualified
professional, scientific and technical staff. There is significant competition
for employees with the skills required to perform the services offered by the
Company from other CROs as well as from the in-house research departments of
pharmaceutical and biotechnology companies and other enterprises. None of the
Company's employees are covered by a collective bargaining agreement. The
Company has never experienced any work stoppages or slowdowns and considers its
relationship with its employees to be good. At March 31, 1997, U-Gene and gmi
had 102 and 68 full-time employees, respectively.
FACILITIES
The Company leases all of its facilities. The Company's principal executive
offices are located in Cincinnati, Ohio, where it leases approximately 55,000
square feet under a lease expiring in May 2006.
The Company also maintains offices in Chicago, Illinois, Los Angeles,
California, and Princeton, New Jersey.
U-Gene leases facilities at two sites in Utrecht. Leased space totals
approximately 24,000 square feet, under operating leases expiring in December
1997 and November 1998. U-Gene also maintains offices in London, England and
Milan, Italy.
gmi leases its facility in Munich. Leased space totals approximately 9,000
square feet with the lease expiring in March 2001.
LEGAL PROCEEDINGS
None of the Company, U-Gene or gmi is currently subject to any claim or
proceeding that could have a material adverse impact on their respective
financial conditions or results of operations.
38
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and other key employees of the Company as
of May 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Candace Kendle Bryan, Pharm.D.(1).... 50 Chairman of the Board and Chief Executive Officer
Christopher C. Bergen(2)............. 47 President, Chief Operating Officer, Secretary and
Member, Board of Directors
Timothy M. Mooney.................... 49 Vice President -- Finance, Chief Financial
Officer, Treasurer and Member, Board of Directors
Philip E. Beekman(1)(2).............. 65 Member, Board of Directors
Charles A. Sanders, M.D.(1)(2)....... 65 Member, Board of Directors
Michael F. Bayer..................... 49 Director, Clinical Services
Peter F. Djuric, Pharm.D............. 48 Director, Clinical Research
Ann Hagen, M.D....................... 39 Director, Safety Surveillance
Jere M. Hardy........................ 52 Director, Clinical Data Management
Lois B. Rosenberger, Ph.D............ 46 Director, Regulatory Affairs
Stephen G. Scheurer.................. 48 Director, Human Resources
William K. Sietsema, Ph.D............ 41 Director, Clinical Research
Mandyam K. Srirama, Ph.D............. 63 Director, Biostatistics
Gary M. Wedig........................ 47 Director, Information Technology
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
CANDACE KENDLE BRYAN, PHARM. D., co-founded the Company in 1981 and has
served as Chief Executive Officer and as a director of Kendle since its
incorporation and has been Chairman of the Board since 1991. From 1979-1981, Dr.
Bryan served as Clinical Assistant Professor of Pediatrics at University of
Pennsylvania School of Medicine; Clinical Assistant Professor at Philadelphia
College of Pharmacy and Sciences and Director, Department of Pharmacy, The
Children's Hospital of Philadelphia. From 1974 to 1978, Dr. Bryan served in a
variety of positions at the University of North Carolina School of Pharmacy and
School of Medicine. Dr. Bryan has published more than 15 scientific articles.
Dr. Bryan is the wife of Christopher C. Bergen, President and Chief Operating
Officer of the Company.
CHRISTOPHER C. BERGEN co-founded the Company in 1981 and has served as
President and Chief Operating Officer of Kendle since 1981 and has served as a
director of the Company since its incorporation. From 1977 through 1981, Mr.
Bergen served in various capacities at The Children's Hospital of Philadelphia,
most recently as Associate Vice President. Mr. Bergen is the husband of Candace
Kendle Bryan, Chief Executive Officer of the Company.
TIMOTHY M. MOONEY joined the Company in May 1996 and was elected to the
Board of Directors in January 1997. Prior to joining Kendle as Vice
President -- Finance, Chief Financial Officer and Treasurer, Mr. Mooney was the
Vice President, Chief Financial Officer and Treasurer of The Future Now, Inc., a
computer reseller. From May 1988 to July 1994, Mr. Mooney served as Senior Vice
President and Chief Financial Officer of Hook-SupeRx, Inc., a retail drugstore
chain. Mr. Mooney was previously a partner with Coopers & Lybrand L.L.P. Mr.
Mooney serves as a director of Winton Financial Corporation, a unitary savings
and loan holding company.
39
<PAGE> 41
PHILIP E. BEEKMAN was elected a member of the Board of Directors of the
Company in January 1997. Mr. Beekman is the President of Owl Hollow Enterprises,
a consulting and investment company. Prior to July 1994, Mr. Beekman served as
Chairman of the Board and Chief Executive Officer of Hook-SupeRx, Inc. Mr.
Beekman is a director of Fisher Scientific Inc., a provider of scientific
products and services; MAFCO, Inc., a tobacco products company; the National
Association of Chain Drug Stores; General Chemical Group Inc., a supplier of
soda ash and other chemicals; B.T. Office Products International, a distributor
of commercial office supply products; Linens 'N Things, a retail chain of home
furnishings; the Ladies Professional Golf Association, and the National
Organization on Disability.
CHARLES A. SANDERS, M.D., was elected a member of the Board of Directors of
the Company in January 1997. From 1989 to 1994, Dr. Sanders was Chief Executive
Officer of Glaxo Inc., and he served as Chairman of that company from 1992 to
1995. Prior to joining Glaxo Inc., Dr. Sanders spent eight years with Squibb
Corp. where he held a number of senior positions including Vice Chairman.
Previously, Dr. Sanders was general director of Massachusetts General Hospital
and Professor of Medicine at Harvard Medical School. He is currently a member of
the Institute of Medicine of the National Academy of Sciences, a trustee of the
University of North Carolina at Chapel Hill, chairman of Project HOPE and
chairman of the Commonwealth Fund. Dr. Sanders serves as a director of Magainin
Pharmaceuticals, Inc., a biopharmaceutical company engaged in the development of
medicines for serious diseases; Vertex Pharmaceuticals Incorporated, a company
engaged in the development of small molecule pharmaceuticals for the treatment
of diseases; and StaffMark, Inc., a provider of diversified staffing services to
businesses, healthcare providers and government agencies.
MICHAEL F. BAYER joined Kendle in 1993 as Assistant Director, Clinical
Research and has served as Director, Clinical Services since 1994. From 1973 to
1993, Mr. Bayer served in several capacities at Marion Merrell Dow
Pharmaceuticals, Inc., most recently as Manager, Global Product
Safety/International.
PETER E. DJURIC, PHARM. D., joined Kendle in 1991 as Assistant Director,
Clinical Research and has served as Director, Clinical Research since December
1995. Dr. Djuric is responsible for physical and resource management of large
trials and antiarhythmia compounds as well as the development of new business in
the cardiovascular area.
ANN HAGEN, M.D., joined Kendle as Medical Director/Safety Officer in April
1992 and currently serves as Director, Safety Surveillance. Her responsibilities
include reporting and handling of all serious and nonserious adverse safety
experiences. Prior to joining Kendle, Dr. Hagen spent six years with Marion
Merrell Dow Inc. where she held various positions including: Site Director,
Global Epidemiology Group, Product Safety Assurance; Manager, Clinical Affairs,
Clinical and Medical Research; Associate Project Director, Phase II
Cardiovascular Group, Medical Research; Manager, Medical Drug Experience
Surveillance Center, Global Medical Services; and Associate Group Director,
Medical Drug Experience Surveillance Center, Medical Director and Global Medical
Services.
JERE M. HARDY, joined Kendle in July 1994 as Director, Clinical Data
Management. He has over 20 years of experience in the pharmaceutical industry.
From June 1990 through June 1994, he served as Director, Special Products at
SmithKline Beecham where he provided management and technical support for
Clinical Research and Development computing activities with emphasis on new
technologies. He was also responsible for the development and global
coordination of the implementation of strategic software systems in support of
Clinical Data Management worldwide.
LOIS B. ROSENBERGER, PH.D., joined Kendle as Director, Regulatory Affairs
in September 1996. She has over 20 years of cardiovascular research experience
in both academia and the pharmaceutical industry. From April 1996 to August
1996, she served as President, Comprehensive Regulatory Compliance, Inc., a
provider of consulting services in global regulatory affairs. From November 1994
to March 1996, she served as Director, Regulatory Affairs/Safety for Medisorp
Technologies International, L.P. where she was responsible for all compliance
issues. From September 1991 to March 1994, she held various positions at The
Procter & Gamble Company most recently as Section Head, Regulatory Affairs.
40
<PAGE> 42
STEPHEN G. SCHEURER joined Kendle in February 1997 as the Director, Human
Resources. He has over 18 years of human resources experience primarily in the
professional/financial services and retail industries. Prior to joining Kendle,
Mr. Scheurer served as the Vice President Human Resources for Western-Southern
Life Insurance Company from April 1995 to February 1997. From 1988 to 1995, Mr.
Scheurer held various human resource positions with Lazarus Department Stores, a
division of Federated and from 1984 and 1988 Mr. Scheurer was personnel manager
for Coopers & Lybrand L.L.P.
WILLIAM K. SIETSEMA, PH.D., joined Kendle as Assistant Director, Clinical
Research in January 1996 after 12 years in various clinical positions at The
Procter & Gamble Company. His most recent position was Section Head, Bone
Research. He is an expert in bone therapeutics, histology, histomorphometry and
biomechanics. Dr. Sietsema is currently Director, Clinical Research. His
responsibilities include project management and new business development in the
skeletal disease and inflammation area.
MANDYAM K. SRIRAMA, PH.D., joined Kendle as Director of Biostatistics in
January 1995. Dr. Srirama has over 26 years of experience in all biostatistical
aspects of clinical trials. From 1977 to 1994, he was employed at the
Parke-Davis Pharmaceuticals Research Division of Warner-Lambert, where his most
recent position was Director, Biometrics. Prior to such position, he held
various positions in the statistics and biometrics areas at Warner-Lambert. He
is an expert in design, statistical monitoring and analysis of clinical trials.
His therapeutic areas of experience include: central nervous system (Alzheimer's
disease, epilepsy, depression), gastrointestinal, anti-inflammatory (NSAID),
endocrine (reproductive), anti infective, and dermatologics.
GARY M. WEDIG, joined Kendle as Director, Information Technology in
September 1995, after 15 years in developing and managing various information
systems functions supporting pharmaceutical research and development. From 1977
to 1995, he held various positions at Marion Merrell Dow Inc., most recently as
Director, Information Systems Services, in which capacity he provided management
and technical support for Information Systems, Research and Development for
Global Systems & Quality Improvement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following the Offering, the Company's Compensation Committee, composed of
Mr. Beekman (Chairman), Dr. Bryan and Dr. Sanders, will determine the
compensation of the Company's executive officers and will administer the 1997
Stock Option and Stock Incentive Plan. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered in 1996 for
the Company's Chief Executive Officer and each of the Company's executive
officers whose total salary and bonus exceeded $100,000 during 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1)
----------------------------------------- ----------- -------- ----- ---------------
<S> <C> <C> <C> <C>
Dr. Candace Kendle Bryan, Chief Executive
Officer................................ 1996 $122,400 0 3,773
Christopher C. Bergen, President......... 1996 $122,400 0
</TABLE>
- ---------------
(1) Other annual compensation represents club membership dues.
PROTECTIVE COMPENSATION ARRANGEMENTS
The Company maintains Protective Compensation and Benefit Agreements with
16 employees, including Dr. Bryan and Mr. Bergen. These agreements and the
employees covered by them are subject to review and approved by the Board of
Directors and expire December 31, 1999. The term of these agreements will be
automatically extended in one year increments. On the first anniversary of the
agreements and with each anniversary thereafter, unless notice of intent not to
so extend any agreement is given by either party at least 60 days before such
anniversary date, the agreements will continue in effect for an additional year.
If a Change
41
<PAGE> 43
of Control (as defined in the agreements) occurs while the agreement is in
effect, such agreement shall not expire before the second anniversary of the
Change of Control. The agreements are intended, in the event of a Change of
Control, to induce key personnel to remain in the employment of the Company.
In the event of a Change of Control, the agreements provide that if the
covered individual is terminated from employment by the Company within 24 months
following the Change of Control (except for Death, Disability or Cause, each as
defined in the agreements) or if the individual resigns for Good Reason (as
defined in the agreements) within 12 months following the Change of Control, the
Company, in addition to those payments to which the individual is otherwise
entitled pursuant to the terms of the Company's benefit plans (other than any
severance pay), will pay to the individual Change of Control Compensation (as
defined in the agreements).
The Change of Control Compensation includes (i) a lump sum cash payment in
an amount equal to two times the individual's annual compensation (base salary
and bonus) in effect immediately prior to his or her termination of employment
or the date of the Change of Control, if greater, and (ii) benefit continuation
for a period of two years. The agreements also provide that the Company shall be
required to make an additional payment to each covered individual to compensate
for the effect of any excise tax under Section 4999 of the Internal Revenue Code
that may be imposed on the Change of Control Compensation and any other payments
received by the individual. At December 31, 1996, the total cost to the Company,
for Dr. Bryan and Mr. Bergen, assuming each became entitled to Change of Control
Compensation as of that date, would be approximately $531,000 excluding payment
for excise taxes, if any. The total cost to the Company for other employees
covered by these agreements, assuming each such individual is entitled to Change
of Control Compensation as of that date, would be approximately $3,000,000,
excluding payment for excise taxes, if any.
The Company also intends to adopt a bonus plan under which each Company
employee may be eligible for merit-based bonuses up to 100% of her or his base
salary.
PROFIT SHARING AND 401(K) PLAN
The Company has a profit sharing and 401(k) plan covering substantially all
full-time employees. Under the plan, an employee must complete one year of
service and attain the age of 18 to be eligible to participate in the plan. To
satisfy the required period of service, an employee must complete at least 1,000
hours of service during a consecutive twelve month period. Eligible employees
may elect to have between 1% and 15% of their before-tax pay contributed to the
plan. The Company's contribution under the profit sharing provision is
determined annually by the Board of Directors. The Company made no profit
sharing contribution in 1994, 1995 or 1996.
STOCK-BASED INCENTIVES
The Company's 1997 Stock Option and Stock Incentive Plan (the "Plan")
provides for the grant of incentive stock options, non-qualified stock options,
stock appreciation rights ("SARs"), restricted stock awards, unrestricted stock
awards and performance unit awards with respect to up to 1,000,000 shares of
Common Stock. The Plan also provides for the grant of options to purchase shares
of Common Stock by non-employee directors of Kendle.
Options, SARs and restricted stock awards may be granted to any employee of
Kendle, or any advisor or consultant to Kendle. Incentive stock options can only
be granted to Kendle employees. The Plan will be administered by the
Compensation Committee, consisting of not less than three members of the Board
of Directors. The Plan provides that all exercise prices for options must equal
at least 95% of market value of the Common Stock on the date of grant. A SAR
entitles the grantee to receive upon exercise cash equal to the excess of the
fair market value of the shares of Common Stock covered by the SAR at the time
of exercise over a base price which shall be established by the Committee in
connection with a particular grant of SARs. Both Options and SARs expire ten
years after the date of grant, though the Committee can provide for a shorter
term for a particular grant. The Compensation Committee has broad discretion in
delineating the terms of the grant of awards under the Plan, subject to the
restrictions outlined above.
42
<PAGE> 44
The Company will grant options to purchase approximately 250,000 shares
concurrently with the closing of the Offering at the initial public offering
price to certain employees, including options for approximately shares
to certain executive officers. Each non-employee director will also receive an
option to purchase 10,000 shares of Common Stock concurrently with the closing
of the Offering at the initial public offering price, and an option to purchase
an additional 5,000 shares of Common Stock after one year of service.
The Company has outstanding options granted in 1995, 1996, and 1997 for ten
year periods under the 1995 Stock Option and Stock Incentive Plan to a total of
39 employees for the purchase of an aggregate of 754,309 shares of Common Stock
at prices ranging from $0.91 to $2.01. Of these options, 3,614 are immediately
exercisable (as of March 31, 1997) at $0.91 per share, while 325,835 options at
prices ranging from $0.91 to $1.21 become immediately exercisable upon the
consummation of the Offering. Neither Dr. Bryan nor Mr. Bergen hold any options.
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors will receive $1,000 for each
meeting of the Board of Directors held. Meeting fees will be paid quarterly, in
arrears, in shares of Common Stock pursuant to the terms of the 1997 Directors'
Compensation Plan. The Common Stock issued under such plan will be valued based
on the average of the closing price of the Common Stock on the Nasdaq National
Market for the ten immediately preceding trading days.
43
<PAGE> 45
CERTAIN TRANSACTIONS
The Company made payments in 1996 of $97,500 to a construction company
owned by a relative of Dr. Bryan for construction and renovations at its
principal executive offices. Such work is continuing. Management believes that
payments to the construction company are on terms no less favorable then those
that could have been negotiated with unaffiliated third parties.
Immediately prior to the Offering, the Company will terminate its S
corporation status. See "Termination of S Corporation Status." In connection
with such termination, the former shareholders of the S corporation, consisting
of Dr. Bryan, Mr. Bergen, a trust for the benefit of their children, and Dr.
Bryan's mother, will receive payments totaling $700,000.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, and as adjusted to reflect the sale of the shares
offered hereby for: (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock; (ii) each of the
Company's executive officers and directors; (iii) all directors and executive
officers of the Company as a group; and (iv) each Selling Shareholder. The
Company believes that each person or entity named below has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such holder, subject to community property laws where
applicable. The Selling Shareholders will bear none of the expenses of the
Offering other than the underwriting commissions applicable to the shares to be
sold by them.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP BENEFICIAL
PRIOR TO OWNERSHIP
OFFERING(1) AFTER OFFERING(1)
------------------- -------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
- --------------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Dr. Candace Kendle Bryan (2)(3).......................... 1,700,900 46.6 1,364,668 19.4
Christopher C. Bergen (2)(3)............................. 1,328,600 36.4 1,064,832 15.1
Kendle Stock Trust(2).................................... 620,500 17.0 620,500 8.8
Timothy M. Mooney(4)..................................... 27,010 * 135,050 1.9
All executive officers and directors as a group (7
persons)(5)............................................ 3,060,890 83.1 2,637,806 36.5
</TABLE>
- ---------------
* less than 1%.
(1) Applicable percentage of ownership prior to this Offering is based upon
3,650,000 shares of Common Stock outstanding as of June 1, 1997. Applicable
percentage ownership after the Offering includes an additional 3,000,000
shares of Common Stock which are being included for sale by the Company in
the Offering as well as the Warrants issued in conjunction with the U-Gene
Acquisition (153,738 shares) and 217,500 shares of the Company's Common
Stock to be issued in connection with the gmi Acquisition. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting and investment power with respect
to the shares shown as beneficially owned. Shares of Common Stock subject to
options currently exercisable or exercisable on or before June 1, 1997 are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Beneficial ownership for Dr. Bryan and Mr. Bergen does not include 620,500
shares held in trust by the Kendle Stock Trust, under which Dr. Bryan's and
Mr. Bergen's children are beneficiaries. Neither Dr. Bryan nor Mr. Bergen
have any voting or dispositive power with respect to these shares.
(3) Individual is considered a Selling Shareholder.
(4) Represents currently outstanding exercisable stock options for the purchase
of shares of Common Stock.
(5) Includes outstanding exercisable stock options for the purchase of shares of
Common Stock.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the Company's authorized capital
stock will consist of 12,000,000 shares of Common Stock, $.01 par value per
share and 100,000 shares of undesignated preferred stock. The following
description is a summary and is qualified in its entirety by the provisions of
the Company's proposed Amended Articles of Incorporation and Code of Regulations
and by provisions of Ohio law.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Shareholders do not
have the right to cumulate their votes in the election of directors. Subject to
preferences granted to holders of preferred stock, holders of Common Stock are
entitled to share in such dividends as the Board of Directors, in its
discretion, may validly declare from funds legally available. In the event of
liquidation, each outstanding share of Common Stock entitles its holder to
participate ratably in the assets remaining after payment of liabilities and any
preferred stock liquidation preferences. See "Dividend Policy." Shareholders
have no preemptive or other rights to subscribe for or purchase additional
shares of any class of stock or any other securities of the Company. There are
no redemption or sinking fund provisions with regard to the Common Stock. All
outstanding shares of Common Stock are fully paid, validly issued and
non-assessable. The affirmative vote of a majority of all outstanding shares of
Common Stock is required to amend the Articles of Incorporation and to approve
mergers, reorganizations and similar transactions.
PREFERRED STOCK
The Company has authorized 100,000 shares of preferred stock which may be
issued from time to time in series having such designated preferences and
rights, qualifications and limitations as the Board of Directors may determine
without any approval of shareholders. Preferred stock could be given rights
which would adversely affect the equity of holders of Common Stock and could
have preference over Common Stock with respect to dividend and liquidation
rights. The preferred stock could have the effect of acting as an anti-takeover
device to prevent a change of control of the Company.
PROVISIONS AFFECTING BUSINESS COMBINATIONS
Chapter 1704 of the Ohio Revised Code may be viewed as having an
anti-takeover effect. This statute, in general, prohibits an "issuing public
corporation" (the definition of which would include the Company) from entering
into a "Chapter 1704 Transaction" with the beneficial owner (or affiliates of
such beneficial owner) of 10% or more of the outstanding shares of the
corporation (an "interested shareholder") for at least three years following the
date on which the interested shareholder attains such 10% ownership, unless the
board of directors of the corporation approves, prior to such person becoming an
interested shareholder, either the transaction or the acquisition of shares
resulting in a 10% ownership. A "Chapter 1704 Transaction" is broadly defined to
include, among other things, a merger or consolidation with, a sale of
substantial assets to, or the receipt of a loan, guaranty or other financial
benefit (which is not proportionately received by all shareholders) from, the
interested shareholder. Following the expiration of such three-year period, a
Chapter 1704 Transaction with the interested shareholder is permitted only if
either: (i) the transaction is approved by the holders of at least two-thirds of
the voting power of the corporation (or such different proportion as is set
forth in the corporation's articles of incorporation), including a majority of
the outstanding shares, excluding those owned by the interested shareholder; or
(ii) the business combination results in the shareholders other than the
interested shareholder receiving a prescribed "fair price" for their shares. One
significant effect of Chapter 1704 is to cause a person or entity desiring to
become an interested shareholder to negotiate with the board of directors of a
corporation prior to becoming an interested shareholder.
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
45
<PAGE> 47
While the Company believes that these provisions are in its best interests,
potential shareholders should be aware that such provisions could be
disadvantageous to them because the overall effect of these statutes may be to
render more difficult or to discourage the removal of incumbent management or
the assumption of effective control by other persons.
LIABILITY OF DIRECTORS AND EXECUTIVE OFFICERS
Under Ohio law, shareholders are entitled to bring suit, generally in an
action on behalf of the corporation, to recover damages caused by breaches of
the duty of care and the duty of loyalty owed to a corporation and its
shareholders by directors and, to a certain extent, executive officers. Ohio law
has codified the traditional business judgement rule. Ohio law provides that the
business judgement presumption of good faith may only be overcome by clear and
convincing evidence, rather than the preponderance of the evidence standard
applicable in most states.
Further, Ohio law provides specific statutory authority for directors to
consider, in addition to the interests of the corporation's shareholders, other
factors such as the interests of the corporation's employees, suppliers,
creditors and customers; the economy of the state and the nation; community and
societal considerations; the long-term and short-term interests of the
corporation and the shareholders; and the possibility that these interests may
be best served by the continued independence of the corporation.
Directors of Ohio corporations are, unless the corporation's articles or
regulations otherwise provide, liable to the corporation for money damages for
actions taken or failed to be taken as a director only if it is proven by clear
and convincing evidence that the act or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the corporation or
reckless disregard for the best interests of the corporation.
Kendle's Code of Regulations provides that the Company shall indemnify
directors, officers, employees and agents to the fullest extent provided by Ohio
law and shall advance to officers and directors under certain circumstances
funds for expenses and liabilities incurred in connection with defending pending
or threatened suits.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Company's Common Stock is
.
46
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding a total
of 7,350,687 shares of Common Stock, including Warrants issued in the U-Gene
Acquisition and shares to be issued to shareholders of gmi in connection with
the gmi Acquisition. On the date of this Prospectus, the 3,600,000 shares
offered hereby and approximately 3,650,000 shares previously outstanding will be
eligible for sale in the public market without restriction, subject in certain
cases to lock-up agreements as described below. Beginning 90 days later,
approximately additional shares will become eligible for sale in compliance
with Rule 144 and/or 701 promulgated under the Securities Act, subject in
certain cases to lock-up agreements as described below. Approximately 3,650,000
of the above shares are subject to "lock-up" agreements between the Underwriters
and the holders of such shares which will expire 180 days after the date of this
Prospectus (or earlier if the Underwriters agree to release shares from the
"lock-up" agreements). Approximately shares will be eligible for sale
outside the United States under Regulation S one year after the date of this
Prospectus. The remaining approximately shares will become eligible for
sale on various dates thereafter. Approximately of the shares eligible
for sale in the public market 180 days after the date of this Prospectus will be
eligible for sale under Rule 144 only in compliance with the volume, manner of
sale and other restrictions applicable to shares held less than two years or
held by affiliates.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register 1,000,000 shares of Common Stock reserved for
issuance under the Plan. See "Management -- Stock Incentive Plan." Accordingly,
shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the lock-up agreements described above. In conjunction with the closing of
the Offering, the Company will grant options to purchase shares under the
Plan to certain key employees and 10,000 options to purchase 10,000 shares to
each non-employee director.
Rule 144 applies to public sales of restricted shares (shares issued
without registration under the Securities Act) and sales of any shares (whether
or not restricted) by affiliates of the issuer. Under Rule 144, shares that have
been held for at least two years and that are held by non-affiliates may be sold
in the public market at any time beginning on the date of this Prospectus.
Shares that have been held for at least one year may be sold in the public
market beginning 90 days after the date of this Prospectus. In each case, the
holding period of a prior owner may be included, except as to shares purchased
from an affiliate. If the shares have been held for less than two years, or if
the holder is an affiliate of the Company, the sale is subject to the
availability of current public information about the Company, the sale must be
made in a "broker's transaction" or transaction directly with a market maker for
the Common Stock, the seller must file a notice on Form 144 prior to the sale,
and the number of shares sold by the seller in any three-month period must not
exceed the greater of (i) 1% of the then-outstanding shares of the Common Stock
(approximately shares immediately after the Offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which the required notice is filed with the Securities and Exchange
Commission.
Regulation S applies to public sales of restricted shares outside of the
United States. Secondary sales of such shares may be made provided that such
sales are made in offshore transactions (where the offer is made outside the
United States and either the buyer is or is reasonably believed to be abroad or
the transaction is executed in, on or through certain offshore securities
markets) and that such sales are not accompanied by directed selling efforts in
the United States by the seller, an affiliate of the seller or any person acting
on their behalf.
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock. Furthermore, since
certain contractual and legal restrictions on resale described below restrict
the ability of the Company and current shareholders of the Company from selling
shares of Common Stock, sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.
47
<PAGE> 49
UNDERWRITING
The underwriters of the Offering named below (the "Underwriters"), for whom
Lehman Brothers Inc. and J.C. Bradford & Co. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which the Prospectus is a part, to purchase from the
Company, the aggregate number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc................................................................
J.C. Bradford & Co.................................................................
Total............................................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, and that, if any of the foregoing shares of Common
Stock are purchased by the Underwriters pursuant to the Underwriting Agreement,
all of the shares of Common Stock agreed to be purchased by the Underwriters
pursuant to the Underwriting Agreement (other than those covered by the
over-allotment option described below), must be so purchased.
The Company and the Selling Shareholders have been advised that the
underwriters propose to offer the shares of Common Stock directly to the public
initially at the public offering price set forth on the cover page of the
Prospectus, and to certain selected dealers (who may include the Underwriters)
at such public offering price less a selling concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow a
concession not in excess of $ per share to certain brokers and dealers.
After the initial public offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Representatives.
The Company and the Selling Shareholders have granted to the Underwriters
an option to purchase up to an additional 540,000 shares of Common Stock at the
public offering price, less the aggregate underwriting discounts and commissions
shown on the cover page of the Prospectus, solely to cover over-allotments, if
any. The option may be exercised at any time up to 30 days after the date of the
Underwriting Agreement. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company has agreed that, without the prior written consent of the
Representatives, it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell, contract to sell or otherwise issue or dispose of any
shares of Common Stock or any other capital stock of the Company for 180 days
after the date of the Prospectus. All of the shareholders of the Company,
including the Selling Shareholders, have agreed that, without the prior written
consent of the Representatives, they will not, subject to certain limited
exceptions, directly or indirectly, offer, sell or otherwise dispose of any
shares of Common Stock or any other capital stock of the Company for a period of
180 days after the date of the Prospectus.
48
<PAGE> 50
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Keating, Muething & Klekamp, P.L.L. and for the Underwriters
by Kramer, Levin, Naftalis & Frankel, New York, New York.
EXPERTS
The balance sheets of the Company, U-Gene and gmi as of December 31, 1995
and 1996, and the statements of operations, shareholders' equity and cash flow
for each of the three years in the period ended December 31, 1996 for the
Company and each of the two years in the period ended December 31, 1996 for
U-Gene and gmi included in this Prospectus have been included herein in reliance
upon the reports of Coopers & Lybrand L.L.P. as relates to the Company, Coopers
& Lybrand N.V. (The Netherlands) as relates to U-Gene, and Coopers & Lybrand
GmbH (Germany) as relates to gmi, independent accountants, given on the
authority of those firms as experts in accounting and auditing.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
KENDLE INTERNATIONAL INC. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996; and March 31, 1997 (Unaudited)..... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996; and
for the three months ended March 31, 1996 and 1997 (Unaudited)................... F-4
Statements of Changes in Shareholders' Equity for the years ended December 31, 1994,
1995 and 1996; and for the three months ended March 31, 1997 (Unaudited)......... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996; and
for the three months ended March 31, 1996 and 1997 (Unaudited)................... F-6
Notes to Financial Statements......................................................... F-7
GMI GESELLSCHAFT FUR ANGEWANDTE MATHEMATIK UND INFORMATIK MBH FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-15
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996; and March 31, 1997 (Unaudited)..... F-16
Statements of Operations for the years ended December 31, 1995 and 1996; and for the
three months ended March 31, 1996 and 1997 (Unaudited)........................... F-17
Statements of Changes in Shareholders' Equity for the years ended December 31, 1995
and 1996; and for the three months ended March 31, 1997 (Unaudited).............. F-18
Statements of Cash Flows for the years ended December 31, 1995 and 1996; and for the
three months ended March 31, 1996 and 1997 (Unaudited)........................... F-19
Notes to Financial Statements......................................................... F-20
U-GENE RESEARCH B.V. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-23
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996; and March 31, 1997
(Unaudited)...................................................................... F-24
Consolidated Statements of Operations for the years ended December 31, 1995 and
1996; and for the three months ended March 31, 1996 and 1997 (Unaudited)......... F-25
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1995 and 1996; and for the three months ended March 31, 1997
(Unaudited)...................................................................... F-26
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1996; and for the three months ended March 31, 1996 and 1997 (Unaudited)......... F-27
Notes to Consolidated Financial Statements............................................ F-28
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Kendle International Inc.
We have audited the accompanying balance sheets of Kendle International
Inc. (formerly Kendle Research Associates, Inc.) as of December 31, 1995 and
1996, and the related statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. 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 financial position of Kendle International Inc. as
of December 31, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
March 21, 1997, except as to
the information presented in Notes 10 and 11,
for which the date is .
***********
The foregoing report is in the form that will be signed by Coopers &
Lybrand L.L.P. upon consummation of the matters on or before the effective date
of the Registration Statement of which this Prospectus is a part as described in
Notes 10 and 11 to the financial statements concerning shares and per share
amounts and assuming that from the date hereof to the effective date no other
events shall have occurred that would effect the accompanying financial
statements.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
July 1, 1997
F-2
<PAGE> 53
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ---------- MARCH 31, PRO FORMA
1997 MARCH 31,
----------- 1997
(UNAUDITED) ------------
(UNAUDITED)
(NOTE 8)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 15,267 $2,047,476 $ 13,976
Accounts receivable........................... 1,655,289 3,583,210 4,379,115 $4,379,115
Unreimbursed investigator and project costs... 88,191 980,597 2,610,224 2,610,224
Other current assets.......................... 37,812 12,806 136,672 136,672
---------- ---------- ---------- ----------
Total current assets.................. 1,796,559 6,624,089 7,139,987 7,126,011
---------- ---------- ---------- ----------
Property and equipment:
Furnishings, equipment and other.............. 770,443 1,177,416 1,447,196 1,447,196
Equipment under capital leases................ 471,716 1,588,135 2,071,974 2,071,974
Less: accumulated depreciation and
amortization............................... (617,008) (930,550) (1,077,745) (1,077,745)
---------- ---------- ---------- ----------
Net property and equipment................. 625,151 1,835,001 2,441,425 2,441,425
---------- ---------- ---------- ----------
Other assets.................................... 9,829 164,020 265,597 265,597
---------- ---------- ---------- ----------
Total assets.......................... $2,431,539 $8,623,110 $9,847,009 $9,833,033
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable.................................. $ 320,000 $ 686,024
Current portion of obligations under capital
leases..................................... 129,265 $ 360,203 $ 342,388 342,388
Amounts payable -- book overdraft............. 1,163,789 1,163,789
Trade payables................................ 253,550 913,371 1,923,031 1,923,031
Dividends payable............................. 250,000
Advances against investigator and project
costs...................................... 723,016 776,565 480,185 480,185
Advance billings.............................. 397,235 4,303,809 3,055,139 3,055,139
Accrued compensation and related payroll
withholdings and taxes..................... 79,225 250,758 405,346 405,346
Other accrued liabilities..................... 33,144 62,914 64,369 64,369
---------- ---------- ---------- ----------
Total current liabilities.................. 1,935,435 6,917,620 7,434,247 8,120,271
---------- ---------- ---------- ----------
Obligations under capital leases, less current
portion....................................... 112,041 761,029 1,155,429 1,155,429
Deferred taxes.................................. 25,000
Deferred rent................................... 38,667
---------- ---------- ---------- ----------
Total liabilities.......................... 2,086,143 7,678,649 8,589,676 9,300,700
---------- ---------- ---------- ----------
Shareholders' equity:
Common stock.................................. 75,000 75,000 75,000 75,000
Additional paid-in capital.................... 270,396 270,396 270,396 457,333
Retained earnings............................. 599,065 911,937
---------- ---------- ---------- ----------
Total shareholders' equity................. 345,396 944,461 1,257,333 532,333
---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity.............................. $2,431,539 $8,623,110 $9,847,009 $9,833,033
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 54
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................ $4,431,160 $6,117,679 $12,959,054 $2,063,433 $5,961,576
---------- ---------- ----------- ---------- ----------
Cost and expenses:
Direct costs.............. 2,759,901 3,563,849 8,176,375 1,394,805 3,375,497
Selling, general and
administrative......... 1,067,396 1,775,613 3,277,931 371,666 1,892,872
Depreciation and
amortization........... 126,620 167,769 315,541 45,579 150,066
---------- ---------- ----------- ---------- ----------
3,953,917 5,507,231 11,769,847 1,812,050 5,418,435
---------- ---------- ----------- ---------- ----------
Income from
operations........... 477,243 610,448 1,189,207 251,383 543,141
---------- ---------- ----------- ---------- ----------
Other income (expense):
Interest income........... 23,644 6,276 14,746 1,838 11,803
Interest expense.......... (42,609) (69,361) (65,127) (18,089) (30,932)
Other..................... (4,470) (84) 4,860
---------- ---------- ----------- ---------- ----------
(18,965) (63,085) (54,851) (16,335) (14,269)
---------- ---------- ----------- ---------- ----------
Net income............. $ 458,278 $ 547,363 $ 1,134,356 $ 235,048 $ 528,872
========== ========== =========== ========== ==========
Pro forma (unaudited) (Note
1):
Net income, as reported... $ 458,278 $ 547,363 $ 1,134,356 $ 235,048 $ 528,872
Pro forma income tax
expense................ 183,311 218,945 453,742 94,019 211,549
---------- ---------- ----------- ---------- ----------
Pro forma net income...... $ 274,967 $ 328,418 $ 680,614 $ 141,029 $ 317,323
========== ========== =========== ========== ==========
Pro forma earnings per
share.................. $ 0.07 $ 0.08 $ 0.16 $ 0.03 $ 0.07
========== ========== =========== ========== ==========
Pro forma weighted average
number of shares
outstanding............ 4,031,118 4,079,823 4,239,459 4,161,918 4,263,819
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 55
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- ADDITIONAL RETAINED SHAREHOLDERS'
NUMBER OF PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
--------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994......... 3,650,000 $75,000 $ 515,477 $ (933,060) $ (342,583)
Capital contribution by
shareholders................ 365,630 365,630
Net income..................... 458,278 458,278
Distributions to
shareholders................ (304,067) (304,067)
--------- ------- --------- ---------- ----------
Balance, December 31, 1994....... 3,650,000 75,000 577,040 (474,782) 177,258
Net income..................... 547,363 547,363
Distributions to
shareholders................ (306,644) (72,581) (379,225)
--------- ------- --------- ---------- ----------
Balance, December 31, 1995....... 3,650,000 75,000 270,396 345,396
Net income..................... 1,134,356 1,134,356
Distributions to
shareholders................ (535,291) (535,291)
--------- ------- --------- ---------- ----------
Balance, December 31, 1996....... 3,650,000 75,000 270,396 599,065 944,461
--------- ------- --------- ---------- ----------
Net income (unaudited)......... 528,872 528,872
Distributions to shareholders
(unaudited)................. (216,000) (216,000)
--------- ------- --------- ---------- ----------
Balance, March 31, 1997
(unaudited).................... 3,650,000 $75,000 $ 270,396 $ 911,937 $1,257,333
========= ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 56
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 458,278 $ 547,363 $ 1,134,356 $ 235,048 $ 528,872
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization................ 126,620 167,769 315,541 45,579 150,066
Changes in:
Accounts receivable.......................... (408,432) (691,144) (1,927,921) (536,826) (795,906)
Other current assets......................... 47,690 (37,812) 25,007 (34,009) (123,866)
Other assets................................. (1,163) 2,191 (116,186) (8,886) (53,664)
Investigator and project costs............... (167,319) 267,927 (838,857) (337,447) (1,926,007)
Trade payables............................... 79,380 94,471 659,821 380,758 1,009,660
Advance billings............................. (294,786) (254,972) 3,906,574 83,795 (1,248,670)
Accrued liabilities.......................... 106,931 (137,834) 201,303 26,737 156,043
Deferred rent................................ (33,143) (33,144) (38,667) (8,285)
---------- ----------- ----------- --------- -----------
Net cash provided by (used in) operating
activities..................................... (85,944) (75,185) 3,320,971 (153,536) (2,303,472)
---------- ----------- ----------- --------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment......... (95,129) (165,928) (406,974) (92,869) (268,025)
Additions to software costs.................... (40,005) (52,538)
---------- ----------- ----------- --------- -----------
Net cash used in investing activities............ (95,129) (165,928) (446,979) (92,869) (320,563)
---------- ----------- ----------- --------- -----------
Cash flows from financing activities:
Borrowings under line of credit................ 1,825,000 4,267,000 715,000
Repayments under line of credit................ (1,505,000) (4,587,000) (330,000)
Net cash advanced to shareholders.............. (121,763)
Distributions to shareholders.................. (304,067) (253,225) (285,291) (466,000)
Payments on capital lease obligations.......... (90,495) (155,238) (236,492) (37,059) (107,254)
Amounts payable -- book overdraft.............. 1,163,789
---------- ----------- ----------- --------- -----------
Net cash provided by (used in) financing
activities..................................... (516,325) (88,463) (841,783) 347,941 590,535
---------- ----------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... (697,398) (329,576) 2,032,209 101,536 (2,033,500)
Cash and cash equivalents:
Beginning of period............................ 1,042,241 344,843 15,267 15,267 2,047,476
---------- ----------- ----------- --------- -----------
End of period.................................. $ 344,843 $ 15,267 $ 2,047,476 $ 116,803 $ 13,976
========== =========== =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest....... $ 42,609 $ 69,361 $ 65,127 $ 18,089 $ 30,932
========== =========== =========== ========= ===========
Supplemental schedule of noncash investing and
financing activities:
Acquisition of equipment under capital
leases....................................... $ 105,523 $ 240,976 $ 1,116,418 $ 483,839
========== =========== =========== ===========
Additional paid-in capital contributions
through reclassification of shareholder notes
payable...................................... $ 365,630
==========
Reclassification of shareholder's advance to
additional paid-in capital................... $ 126,000
===========
Dividends declared and payable................. $ 250,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 57
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Kendle International Inc. (formerly Kendle Research Associates, Inc.) (the
"Company") is a clinical research organization providing a broad range of
integrated product development services to complement the research and
development activities of the pharmaceutical and biotechnology industries. The
Company's services include Phase II-IV clinical trial management, clinical data
management and biostatistical analysis, medical writing and regulatory
consultation and representation. The Company operates primarily in the United
States.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and money market funds
held with a financial institution, with an initial maturity of three months or
less at the date of purchase.
The Company maintains its demand deposits with a single financial
institution, the balance of which from time-to-time exceeds the maximum
federally insured amount.
Revenue Recognition
Revenues are earned by performing services primarily under fixed-price
contracts. Revenues are recognized on the percentage of completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. This method is used because management considers total costs
incurred to be the best available measure of progress on these contracts. The
estimated total costs of contracts are reviewed and revised periodically
throughout the lives of the contracts with adjustment to revenues resulting from
such revisions being recorded on a cumulative basis in the period in which the
revisions are made. Hence, the effect of the changes on future periods of
contract performance is recognized as if the revised estimates had been the
original estimates. Because of the inherent uncertainties in estimating costs,
it is at least reasonably possible that the estimates used will change in the
near term and could result in a material change.
Contract costs include direct labor costs and indirect costs related to
contract performance, such as indirect labor, supplies, depreciation, rent and
utilities. Selling, general, and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are
recognized in the period in which such losses become known.
Amendments to contracts resulting in revisions to revenues and costs are
recognized in the period in which the revisions are negotiated. Included in
accounts receivable are unbilled accounts receivable, which represent revenue
recognized in excess of amounts billed. Advance billings represent amounts
billed in excess of revenue recognized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over
estimated useful lives of four to ten years using the straight-line method.
Repairs and maintenance are charged to expense as incurred. Upon disposition,
the asset and the related accumulated depreciation are relieved and any gains or
losses are reflected in operations.
Equipment under capital lease is recorded at the present value of future
minimum lease payments and is amortized over the terms of the related leases.
Accumulated amortization on these leases was $158,072, $352,804 and $459,328
(unaudited) at December 31, 1995 and 1996 and March 31, 1997, respectively.
F-7
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Internally Developed Software
The Company capitalizes costs incurred to develop internally its
proprietary software products used in the Company's clinical trial and data
management, and amortizes these costs on a straight-line basis over the
estimated useful life of the product, generally not to exceed five years.
Accumulated amortization totaled $2,000 and $6,627 (unaudited) at December 31,
1996 and March 31, 1997, respectively.
Investigator and Project Costs
In addition to various contract costs previously described, the Company
incurs costs, in excess of contract amounts, which are reimbursable by its
clients. Such pass-through costs incurred, but not yet reimbursed, are reflected
as a current asset in the accompanying balance sheet. Advances from clients for
such costs not yet incurred are reflected as a current liability. Such costs and
reimbursement for such costs are excluded from direct costs and net revenues and
totaled $2,151,992, $1,983,948 and $3,043,802, $966,763 (unaudited) and
$6,691,344 (unaudited) for years ended December 31, 1994, 1995 and 1996 and the
three months ended March 31, 1996 and 1997, respectively.
Current Liabilities
Under the Company's cash management system, checks issued but not presented
to banks frequently result in overdraft balances for accounting purposes. As a
result, such overdraft balances have been classified as "Amounts payable--book
overdraft" in the accompanying balance sheet.
Income Taxes
The financial statements of the Company for periods prior to the proposed
initial public offering described in Note 11 do not include a provision for
income taxes because taxable income or loss of the Company is included in the
income tax return of the individual shareholders under the S corporation
election. The statements of operations include the pro forma income tax
provision on taxable income for financial reporting purposes using statutory
federal, state and local rates that would have resulted if the Company had filed
corporate tax returns during these periods.
Prior to the effectiveness of a proposed initial public offering of the
Company's common stock described in Note 11, the Company will cease to be
treated as an S corporation for tax purposes and will be subject to federal,
state and local income taxes and will recognize deferred taxes in accordance
with Statement of Financial Accounting Standard No. 109 ("SFAS 109"),
"Accounting for Income Taxes." SFAS 109 requires companies subject to income
taxes to adjust their deferred tax assets and liabilities based on temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Based upon temporary differences existing
as of March 31, 1997, the estimated net deferred tax liabilities would have been
approximately $25,000 (unaudited) had the Company been subject to income taxes
at that date (See Note 8). The establishment of the deferred tax liability will
result in a charge to earnings in 1997 equal to the deferred tax liability at
the time the Company ceases to be an S Corporation.
Stock Options
The Company accounts for stock options issued to employees in accordance
with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees." Under APB No. 25, the Company recognized expense based on
the intrinsic value of the options.
F-8
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Earnings Per Share
Earnings per share are computed based on the weighted average number of
common shares outstanding including common share equivalents. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock options granted by the Company during the twelve months preceding the
anticipated initial public offering have been included in the calculation of
common share equivalents outstanding as if they were outstanding for all periods
presented using the treasury stock method at an assumed initial public offering
price of $13.00 per share.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 is designed to simplify the existing
computational guidelines for computing earnings per share (EPS). It provides for
the elimination of primary EPS, replacing it with basic EPS, with the principal
difference being that common stock equivalents are not considered in computing
basic EPS. SFAS No. 128 is effective for the Company for the year ending
December 31, 1997. Management expects the effect of the adoption of this
statement to have an immaterial impact on the Company's earnings per share
calculation for 1996, 1995 and 1994.
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.
Interim Financial Data
Interim financial information as of March 31, 1997 and for the three month
period ended March 31, 1997 and 1996 is unaudited. In the opinion of management,
this financial information includes all adjustments, consisting solely of normal
recurring adjustments, necessary to fairly present the financial information set
forth. The results for the three months ended March 31, 1997 may not be
indicative of operating results for the full year.
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Billed......................................... $1,133,146 $1,958,436 $2,549,538
Unbilled....................................... 507,927 1,603,154 1,802,234
Travel and other advances...................... 14,216 21,620 27,343
---------- ---------- ----------
$1,655,289 $3,583,210 $4,379,115
========== ========== ==========
</TABLE>
3. DEBT:
The Company has a $2,000,000 demand line of credit with a bank, which
expires July 31, 1997. Interest is charged at prime or LIBOR plus 2.5% at the
discretion of management for each borrowing. Advances under the line are
evidenced by a note which is collateralized by all of the Company's assets other
than assets under the Company's capital lease line of credit (see below), and is
subject to various covenants and restrictions, including, among others,
maintaining a minimum tangible capital base. There were no outstanding
borrowings under the line at December 31, 1996 or March 31, 1997.
F-9
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. DEBT, CONTINUED:
In 1996, the Company entered into two lease lines of credit with a bank.
Amounts drawn on the $1,500,000 computer and $500,000 furniture lines of credit
are payable in equal monthly installments over a five year term, from the date
of the funding. The monthly installment payments are equal to 1.80% and 1.71% of
the total computer and furniture draws, respectively. No amounts can be drawn on
the lines after December 31, 1997. Assets acquired with amounts drawn on these
lines of credit have been accounted for as capital leases, and have been
included in capital lease commitments as detailed in Note 5. Amounts drawn on
these lines of credit totaled approximately $1,109,000 (unaudited) as of March
31, 1997.
In April 1997, the Company obtained an additional $370,000 computer and
$130,000 furniture lease line of credit with the same bank. These lines expire
March 31, 1998, with monthly installment payments equal to 2.23% and 1.76% of
the total computer and furniture borrowings, respectively. Amounts drawn on the
computer and furniture lines of credit are payable over four and five year
terms, respectively, from the date of funding.
4. EMPLOYEE BENEFIT PLANS:
Profit Sharing and 401(k) Plan
The Company has a profit sharing plan covering substantially all full-time
employees who meet certain eligibility requirements. The Company's contribution
is determined annually by the Board of Directors. The Company made no profit
sharing contribution in 1994, 1995 or 1996 or for the three months ended March
31, 1997.
The profit sharing plan also has a 401(k) salary reduction provision, which
allows employees to make voluntary contributions after completing one year of
service.
Incentive Stock Option and Stock Incentive Plan
On January 15, 1995, the Company established a plan that provides for the
grant of up to 100,000 qualified and non-qualified stock options (the Plan).
Participation in the Plan is at the discretion of the Board of Directors. The
exercise price of qualified options granted under the Plan must be no less than
the fair market value of the Common Stock, as determined under the Plan
provisions, at the date the option is granted (110 percent of fair market value
for stockholders owning more than 10 percent of the Company's common stock). The
exercise price of non-qualified options must be no less than 85% of the fair
market value of the common stock at the date the option is granted. The Options
granted under the Plan vest in equal increments over a five year period
commencing, for some, on the date of grant, and others, two years after the
employees first anniversary after the date of grant, and expire either 90 days
after termination of employment or ten years after date of grant. No options can
be granted after January 15, 2005.
F-10
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. EMPLOYEE BENEFIT PLANS, CONTINUED:
Incentive Stock Option and Stock Incentive Plan, continued
Aggregate stock option activity during 1995, 1996 and the three months
ended March 31, 1997 (unaudited) was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES EXERCISE PRICE PRICE
-------- -------------- ---------
<S> <C> <C> <C>
Options outstanding, January 1, 1995..............
Granted......................................... 219,219 $ 0.91 $0.91
-------- ---------- -----
Options outstanding, at December 31, 1995......... 219,219 0.91 0.91
Granted......................................... 451,652 1.21 1.21
Canceled........................................ (3,103) 0.91 0.91
-------- ---------- -----
Options outstanding, at December 31, 1996......... 667,768 0.91-1.21 1.12
-------- ---------- -----
Granted (unaudited)............................. 250,609 2.01 2.01
Canceled (unaudited)............................ (153,665) 0.91-1.21 1.21
-------- ---------- -----
Options outstanding, at March 31, 1997
(unaudited)..................................... 764,712 $0.91-2.01 $1.40
======== ========== =====
</TABLE>
Options exercisable:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------ MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C>
Year first exercisable:
1997...................................................... 97,236 66,503
1998...................................................... 130,634 99,901
1999...................................................... 133,554 102,821
2000...................................................... 133,554 152,935
2001...................................................... 133,554 152,935
Thereafter................................................ 39,236 189,617
</TABLE>
The weighted average life of the stock options was approximately 9, 8 1/2
and 8 (unaudited) years as of December 31, 1995, 1996 and March 31, 1997,
respectively.
Had compensation cost for the Company's stock option 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, "Accounting for Stock-Based Compensation," the
effect on the Company's net income would not have been material for years ended
December 31, 1996 or 1995.
Subsequent Event-Protective Compensation and Benefit Arrangements
The Company has entered into Protective Compensation and Benefit Agreements
with certain employees, including all Executive Officers of the Company. These
Agreements are subject to annual review by the Company's Board of Directors,
expire on December 31, 1999, and will be automatically extended in one year
increments unless canceled by the Company. These Agreements provide for
specified benefits in the event of a change in control, as defined in the
Agreements. At December 31, 1996, the maximum amount which could be required to
be paid under these Agreements, if such events occur, is $3,531,000.
F-11
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. LEASES:
The Company leases facilities, office equipment and computers under
agreements which are classified as capital and operating leases. The leases have
initial terms which range from 3 to 6 1/2 years, with two facility leases that
have provisions to extend the leases for an additional 3 to 5 years. Certain of
the leased equipment is subject to the lease lines of credit as described in
Note 3.
Future minimum payments, by year and in the aggregate, under noncancelable
capital leases and operating leases with initial or remaining terms of one year
or more are as follows at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1997.......................................................... $ 450,728 $1,163,410
1998.......................................................... 349,708 1,163,160
1999.......................................................... 258,642 967,828
2000.......................................................... 165,241 912,732
2001.......................................................... 103,269 879,534
---------- ----------
Total minimum lease payments.................................. 1,327,588 $5,086,664
==========
Amounts representing interest................................. 206,356
----------
Present value of net minimum lease payments................... 1,121,232
Current portion............................................... 360,203
----------
Obligations under capital leases, less current portion........ $ 761,029
==========
</TABLE>
Rental expense for 1994, 1995, 1996 and for the three months ended March
31, 1996 and 1997 was $238,578, $235,852 and $502,628, $78,196 (unaudited) and
$299,148 (unaudited), respectively.
6. MAJOR CLIENTS:
The following sets forth the net revenues from clients who accounted for
more than 10% of the Company's net revenues during each of the periods
presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -----------------------
CLIENTS 1994 1995 1996 1996 1997
------------------ ---------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A................. $2,238,608 $2,542,424 $6,274,368 $689,350 $3,936,499
B................. * * 2,468,759 452,251 789,230
C................. * * 1,681,787 * *
D................. * 725,083 * 296,192 *
E................. * 670,005 * * *
</TABLE>
- ---------------
* Net revenues did not exceed 10%
7. SHAREHOLDERS' EQUITY:
At December 31, 1995, there were 200,000 shares authorized and 100 shares
of no par common stock issued and outstanding. During 1996, there was a 999 to 1
stock dividend accounted for as a stock split. As a result, at December 31, 1996
and March 31, 1997, there were 100,000 shares issued and outstanding. Refer to
Note 10 regarding a subsequent stock split.
F-12
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. PRO FORMA FINANCIAL INFORMATION:
In connection with termination of the Company's S corporation election, the
statement of operations include pro forma net income for all periods assuming
the Company was taxable as a C corporation and earnings per share of common
stock based on the pro forma net income divided by the pro forma weighted
average number of common shares outstanding. Pro forma weighted average shares
outstanding assumes the issuance of sufficient shares at $13.00 per share, after
aggregate estimated offering expenses and underwriting discounts, to pay
$700,000 in S corporation distribution as of March 31, 1997.
The pro forma balance sheet as of March 31, 1997 reflects: (i) the
reclassification of S Corporation retained earnings to additional paid-in
capital of $911,937; (ii) a distribution of $700,000 to the shareholders, which
is planned to occur prior to the initial public offering; and (iii) the
establishment of deferred income taxes of $25,000 in connection with the
termination of the Company's S Corporation election.
9. RELATED PARTY TRANSACTION:
The Company made payments in 1996 totaling approximately $97,500 to a
construction company owned by a relative of the Company's primary shareholder,
for construction and renovations at the corporate headquarters.
10. SUBSEQUENT EVENT -- ACQUISITIONS AND FINANCING:
In July 1997, the Company acquired U-Gene Research B.V. ("U-Gene") and
signed a definitive agreement to acquire GMI gesellschaft fur Angewandte
Mathematik und Informatik mbH ("gmi"). The purchase price for the U-Gene
acquisition ("U-Gene Acquisition") was 30,000,000 Dutch guilders ($15,600,000).
The purchase price for the gmi acquisition ("gmi Acquisition") is 19.5 million
Deutsch marks (total acquisition costs are expected to approximate $9.5 million
in cash and $2.8 million in the Company's Common Stock, with the number of
shares determined by the initial public offering price; calculated using an
exchange rate of 0.58 DM/U.S.$ as of May 1, 1997). These acquisitions will be
accounted for using the purchase method of accounting.
In connection with the acquisitions, NationsBank, N.A. (the "Bank") has
agreed to lend the Company up to $20,000,000 under a senior secured revolving
credit facility (the "Senior Credit Facility") and up to $10,000,000 in
subordinated promissory notes (the "Subordinated Credit Facility").
Outstanding borrowings under the Senior Credit Facility bear interest at a
rate equal to either LIBOR plus the Applicable Margin (as defined), or the
higher of the Banks prime rate or the Federal Funds rate plus 0.50%. All amounts
outstanding thereunder become due and payable in June, 2000. The Subordinated
Credit Facility consists of 12% Subordinated Series A and B Promissory Notes
payable over a five year term (the "Series A Note" and "Series B Note") and
Common Stock Purchase Warrants (the "Warrants").
Covenants
The credit facilities contain various restrictive financial covenants,
including limitations on senior and total debt levels, capital expenditures and
future acquisitions, as well as the maintenance of certain fixed coverage ratios
and minimum net worth levels, and is collateralized by all the assets and shares
of the common stock of the Company (existing shares at the time the Senior and
Subordinated Credit Facilities were executed, (which shares will be released as
collateral upon consummation of the initial public offering) and existing and
hereafter acquired material subsidiaries.
Bank Credit Facility Utilization--U-Gene Acquisition
The U-Gene Acquisition was funded with approximately $9,400,000 from the
Senior Credit Facility, a note payable to an escrow account provided under the
U-Gene purchase agreement of approximately
F-13
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. SUBSEQUENT EVENT -- ACQUISITIONS AND FINANCING, CONTINUED:
$1,600,000 and $5,000,000 from the Series A Note. In connection with the Series
A Note, the Company issued Warrants to the Bank to purchase 4% of the Common
Stock of the Company (153,738 shares). If the initial public offering described
in Note 11 does not occur on or before December 1, 1997, the number of shares
which may be purchased upon exercise of the Warrants will be increased to 5%,
and 6% if not completed by March 1, 1998.
Bank Credit Facility Utilization--gmi Acquisition
Although the Company expects the gmi Acquisition to occur simultaneously
with the closing of the initial public offering, described in Note 11, the
Company is required, per the gmi definitive agreement, to consummate the gmi
Acquisition not later than September 15, 1997. If the initial public offering is
not consummated by September 15, 1997, the Company expects to borrow
approximately $4,500,000 from the Senior Credit Facility and $5,000,000 from the
Series B Note to fund the cash portion of the gmi Acquisition. The Series B Note
includes a requirement to issue Warrants to the Bank for the purchase of 3% of
the Common Stock of the Company, and an additional 1% if the initial public
offering is not completed by March 1, 1998. In addition, the Bank has issued a
standby letter of credit to the gmi shareholders to secure the cash portion of
the gmi Acquisition price due to such shareholders.
Warrants
The Warrants which have been issued in connection with the Series A Note,
provide for purchase of the Company's common stock at $.01 per share and expire
in June 2007. The Warrants contain put rights which may be exercised at any time
after the earliest of June 2002 or the occurrence of other events as defined in
the agreement. The rights provide for a cash payment to the Bank equal to the
ratio of the Warrants to fully diluted shares of common stock multiplied by the
highest of the fair market value, the book value or an amount determined by a
formula specified in the agreement. The put rights expire upon consummation of
the initial public offering.
Repayment
The Company intends to repay all outstanding Subordinated Promissory Notes
and amounts outstanding under the Senior Credit Facility related to the U-Gene
Acquisition with proceeds from the initial public offering. The Warrants will be
exercised and converted to Common Stock concurrent with the initial public
offering.
11. SUBSEQUENT EVENT -- INITIAL PUBLIC OFFERING:
The Company is in the process of filing a registration statement for an
initial public offering which they expect to have completed in September, 1997.
Issuance of 3,000,000 shares is planned to raise approximately $35,000,000 in
net proceeds. In conjunction with this transaction, the Company has also
effected a stock split of 36.5 shares for 1 share. All numbers of common shares
and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect this stock split.
F-14
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of GMI gesellschaft
fur Angewandte Mathematik und Informatik mbH
We have audited the accompanying balance sheets of GMI gesellschaft fur
Angewandte Mathematik und Informatik mbH (gmi) as of December 31, 1995 and 1996,
and the related statements of operations, changes in shareholders' equity and
cash flows for each of the two years in the period ended December 31, 1996.
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 financial position of gmi as of December 31, 1995 and
1996 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand
Wirtschaftsprufungsgesellschaft GmbH
Munich, Germany
May 7, 1997
F-15
<PAGE> 66
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- ------------
USD USD USD
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................. $1,187,977 $1,667,097 $2,559,613
Accounts receivable................................... 1,553,491 1,770,528 1,597,311
Other current assets.................................. 130,221 58,992 91,143
---------- ---------- ----------
Total current assets............................... 2,871,689 3,496,617 4,248,067
---------- ---------- ----------
Equipment:
Equipment............................................. 615,793 691,919 652,210
Less: accumulated depreciation........................ (455,393) (521,430) (503,085)
---------- ---------- ----------
Net equipment...................................... 160,400 170,489 149,125
---------- ---------- ----------
Total assets $3,032,089 $3,667,106 $4,397,192
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 486,075 $ 413,044 $ 831,310
Advance billings...................................... 701,988 403,267 181,786
Taxes on income....................................... 203,526 860,613 1,160,158
Other accrued liabilities............................. 44,181 165,745 112,164
Other liabilities..................................... 631,132 779,952 683,897
---------- ---------- ----------
Total current liabilities.......................... 2,066,902 2,622,621 2,969,315
---------- ---------- ----------
Deferred tax liability.................................. 238,611
Total liabilities.................................. 2,305,513 2,622,621 2,969,315
---------- ---------- ----------
Shareholders equity:
Common stock.......................................... 32,283 32,283 32,283
Retained earnings..................................... 664,358 1,051,682 1,515,816
Currency translation adjustments...................... 29,935 (39,480) (120,222)
---------- ---------- ----------
Total shareholders equity.......................... 726,576 1,044,485 1,427,877
---------- ---------- ----------
Total liabilities and shareholders equity..... $3,032,089 $3,667,106 $4,397,192
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE> 67
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
DECEMBER 31, THREE MONTHS ENDED
------------------------ MARCH 31,
1995 1996 ------------------------
---------- ---------- 1996 1997
USD USD ---------- ----------
USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................... $5,294,434 $6,996,307 $1,425,107 $1,995,182
Cost and expenses:
Direct costs............................. 3,396,801 4,894,183 1,010,540 986,049
Selling, general and administrative...... 551,410 597,132 118,287 118,132
Depreciation............................. 143,898 105,016 28,143 20,112
---------- ---------- ---------- ----------
4,092,109 5,596,331 1,156,970 1,124,293
---------- ---------- ---------- ----------
Income from operations................ 1,202,325 1,399,976 268,137 870,889
---------- ---------- ---------- ----------
Other income (expense):
Interest income.......................... 28,645 48,899 7,455 8,794
Other.................................... (3,285) (4,292) (4,520) (3,958)
---------- ---------- ---------- ----------
25,360 44,607 2,935 4,836
---------- ---------- ---------- ----------
Income before taxes................... 1,227,685 1,444,583 271,072 875,725
---------- ---------- ---------- ----------
Income taxes
Current.................................. 424,610 885,715 356,533 411,591
Deferred................................. 198,767 (227,472) (232,924)
---------- ---------- ---------- ----------
623,377 658,243 123,609 411,591
---------- ---------- ---------- ----------
Net income............................ $ 604,308 $ 786,340 $ 147,463 $ 464,134
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE> 68
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENCY TOTAL
COMMON RETAINED TRANSLATION SHAREHOLDERS'
STOCK EARNINGS ADJUSTMENTS EQUITY
------- ---------- ----------- --------------
USD USD USD USD
<S> <C> <C> <C> <C>
Balance, January 1, 1995................... $32,283 $ 339,029 $ 371,312
Net income............................... 604,308 604,308
Distributions to shareholders............ (278,979) (278,979)
Translation adjustments.................. $ 29,935 29,935
------- ---------- --------- ----------
Balance, December 31, 1995................. 32,283 664,358 29,935 726,576
Net income............................... 786,340 786,340
Distributions to shareholders............ (399,016) (399,016)
Translation adjustments.................. (69,415) (69,415)
------- ---------- --------- ----------
Balance, December 31, 1996................. 32,283 1,051,682 (39,480) 1,044,485
Net income (unaudited)................... 464,134 464,134
Translation adjustments (unaudited)...... (80,742) (80,742)
------- ---------- --------- ----------
Balance, March 31, 1997 (unaudited)........ $32,283 $1,515,816 $(120,222) $1,427,877
======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE> 69
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
USD USD USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income.................................. $ 604,308 $ 786,340 $ 147,463 $ 464,134
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation............................. 143,898 105,016 28,143 20,112
Changes in:
Accounts receivable.................... (411,951) (524,546) 557,679 46,855
Other current assets................... (214,786) 223,927 52,617 (39,361)
Accounts payable....................... (3,747) 42,040 90,529 485,625
Advance billings....................... (23,384) (264,597) (381,095) (207,101)
Accrued taxes.......................... 159,909 729,912 317,054 399,218
Other accrued liabilities.............. 11,807 135,589 40,141 (44,708)
Deferred taxes......................... 184,008 (238,611) (238,611)
Other liabilities...................... 80,631 134,698 (31,787) (41,952)
---------- ---------- ---------- ----------
Net cash provided by operating activities..... 530,693 1,129,768 582,133 1,082,822
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net acquisitions of property and
equipment................................ (174,996) (134,675) (52,513) (11,887)
Proceeds from disposals of fixed assets..... 728
---------- ---------- ---------- ----------
Net cash used in investing activities......... (174,268) (134,675) (52,513) (11,887)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Distributions to shareholders............... (278,979) (399,016) (68,097)
---------- ---------- ----------
Net cash used in financing activities......... (278,979) (399,016) (68,097)
---------- ---------- ----------
Net effect of exchange rate changes on cash
and cash equivalents........................ 53,598 (116,957) (45,323) (178,419)
Net increase in cash and cash equivalents..... 131,044 479,120 416,200 892,516
---------- ---------- ---------- ----------
Cash and cash equivalents:
Beginning of period......................... 1,056,933 1,187,977 1,187,977 1,667,097
---------- ---------- ---------- ----------
End of period............................... $1,187,977 $1,667,097 $1,604,177 $2,559,613
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 70
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
GMI gesellschaft fur Angewandte Mathematik und Informatik mbH ("gmi" or the
"Company"), is an independent contract research organization providing a broad
range of medical, pharmaceutical and biotechnological research activities for
the industry. Its purpose is the planning, carrying out and execution of
clinical trials. The Company's services include design of clinical trials,
monitoring and data management, statistical analyses, quality assurance,
seminars and training, post marketing surveillance as well as pharmaceutical
cost-benefit analyses. The Company's major market is Germany, but it also
operates with customers from other European markets.
Cash and Cash Equivalents
Cash and cash equivalents consist of freely available current accounts and
savings held with a financial institution.
The Company maintains its bank accounts with a single German financial
institution, the Dresdner Bank AG. There is no state insurance coverage on bank
balances in Germany.
Revenue Recognition
Revenues are earned by performing services primarily under fixed-price
contracts. Revenues are recognized on the percentage of completion method,
measured by the percentage of costs incurred to date to estimated total costs
for each contract. This method is used because management considers total costs
incurred to be the best available measure of progress on these contracts. The
estimated total costs of contracts are reviewed and revised periodically
throughout the lives of the contracts with adjustments to costs resulting from
such revisions being recorded on a cumulative basis in the period in which the
revisions are made. Hence, the effect of the changes on future periods of
contract performance is recognized as if the revised estimates had been the
original estimates. Because of the inherent uncertainties in estimating costs,
it is at least reasonably possible that the estimates used will change in the
near term and result in a material change.
Contract costs include direct labor costs and indirect costs related to contract
performance, such as indirect labor, supplies, depreciation, rent and utilities.
Selling, general, and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are recognized in the
period in which such losses become known. Amendments to contracts resulting in
revisions to revenues and costs are recognized in the period in which the
revisions are determined. Included in trade receivables are unbilled accounts
receivable, which represent revenue recognized in excess of amounts billed.
Advance billings represent amounts billed in excess of revenue recognized.
Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed over the estimated useful lives of the assets, ranging from two to ten
years using the straight-line method and the declining-balance method. Repairs
and maintenance are charged to expenses as incurred. Upon disposition, the asset
and the related accumulated depreciation are relieved and any gains or losses
are reflected in operations.
Investigator and Project Costs
In addition to various contract costs previously described, the Company incurs
costs, in excess of contract amounts, which are reimbursable by its clients.
Such pass-through costs incurred, but not yet reimbursed, are
F-20
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
reflected as a current asset in the accompanying balance sheet. Advances from
clients for such costs not yet incurred are reflected as a current liability.
Reimbursement for such costs is excluded from contract revenues and totaled $2.7
million, $2.1 million and $679,000 (unaudited) for the years ended December 31,
1995 and 1996 and the three months ended March 31, 1997, respectively.
Income taxes
The Company is subject to corporate and trade income tax and recognizes deferred
taxes in accordance with Statement of Financial Accounting Standard No. 109
("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires companies subject
to income taxes to adjust their deferred tax assets and liabilities based on
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
German Corporation Tax Law provides for a regular tax rate of 45% (1996 and
1995: 45%) plus a surtax thereon of 7.5% (1996 and 1995: 7.5%). For dividends
distributed the regular rate is lowered to 30% (1996 and 1995: 30%).
The second component of the provision for taxes on income is the trade tax on
income which is levied at varying rates according to individual municipalities.
In the case of the Company, the applicable rate amounts to 19.35% of the taxable
trade income. This trade tax on income is deductible for corporate income tax
purposes which results in an effective total tax rate of 58.4% (1996 and 1995:
58.4%).
Reconciliations of the statutory German income tax rate to the financial
statement effective tax rates are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- -----------
(UNAUDITED)
% % %
<S> <C> <C> <C>
German statutory tax rate............. 58.4 58.4 58.4
Reduced Tax rate due to
distribution........................ (7.9) (12.9) (11.4)
Non-deductible Expenses............... 0.3 0.1
-------------------------
Effective tax rate.................... 50.8 45.6 47.0
=========================
</TABLE>
The deferred tax liability related to temporary differences between financial
statements and tax accounting for deferred revenue recognition on contracts
during the years 1994 and 1995. The effect has been reversed in the first
quarter of 1996, as deferred recognition is no longer part of the tax planning
strategy of the company.
The reduced tax rate due to distribution at year-end 1996 is based on suggested
distribution of $606,417 (1995: $328,865).
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.
F-21
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ----------
1995 1996 1997
---------- ---------- ----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Billed............................ $1,293,921 $1,070,731 $ 597,490
Unbilled.......................... 259,570 699,797 999,821
--------- ---------
$1,553,491 $1,770,528 $1,597,311
========= =========
</TABLE>
3. CURRENT LIABILITIES
The following sets forth the portions of the current liabilities which accounted
for more than 5% of the total current liabilities.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1995 1996 1997
--------- --------- ----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Sales tax liabilities............... $ 121,707 $ 174,109 *
Wages and Salaries.................. 352,459 468,290 $ 433,960
Social Security..................... * 88,431 *
</TABLE>
* liability does not exceed 5%
4. MAJOR CLIENTS:
The following sets forth the net revenues from clients who accounted for more
than 10% of the Company's net revenues during each of the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
CLIENTS 1996 1997
------------------------ -------- --------
YEAR ENDED
DECEMBER 31,
------------------------
1995 1996
---------- ----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
A....................... * $1,398,969 * $449,280
B....................... * 1,024,344 * 253,768
C....................... $ 564,893 * * *
D....................... * * $186,573 *
</TABLE>
* Net revenues did not exceed 10%
5. SHAREHOLDERS' EQUITY:
Common stock amounted to $32,283 as of December 31, 1995 and 1996. As the
company takes the legal form of a "GmbH," this common stock is not divided into
individual shares and therefore no earnings per share calculation is possible.
6. RELATED PARTY TRANSACTION:
The Company made payments in 1996 totalling approximately $ 107,069 to a
shareholder under a consulting contract.
7. FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the Deutsche mark.
For US dollars reporting purposes, assets and liabilities have been translated
from Deutsche mark to US dollars at year-end rates and revenues, costs and
dividends have been translated at average rates for the year. Gains and losses
resulting from this translation are accumulated in shareholders' equity.
F-22
<PAGE> 73
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
U-Gene Research B.V.
We have audited the accompanying consolidated balance sheets of U-Gene Research
B.V. as of December 31, 1996 and 1995, and the related consolidated statements
of operations, changes in 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U-Gene Research B.V. as of
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles in the United States of America.
Coopers & Lybrand N.V.
Utrecht, The Netherlands
June 17, 1997
F-23
<PAGE> 74
U-GENE RESEARCH B.V.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- 1997
1996 -----------
---------- USD
1995 USD
----------
USD
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 777,005 $2,022,645 $ 878,849
Accounts receivable........................................ 2,994,446 2,899,576 3,539,437
Other current assets....................................... 287,034 405,033 386,412
---------- ---------- ----------
Total current assets............................. 4,058,485 5,327,254 4,804,698
---------- ---------- ----------
Deferred tax asset......................................... 24,000 92,946 72,950
Property and equipment
Furnishings, equipment and other........................... 1,135,760 1,803,492 1,791,664
Less: accumulated depreciation............................. (407,780) (685,426) (718,773)
---------- ---------- ----------
Net property and equipment................................. 727,980 1,118,066 1,072,891
---------- ---------- ----------
Total assets..................................... $4,810,465 $6,538,266 $ 5,950,539
========== ========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- 1997
1996 -----------
---------- USD
1995 USD
----------
USD
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Trade payables............................................. $1,519,745 $1,265,114 $ 1,507,584
Dividends payable.......................................... 147,526 266,335 140,193
Advance billings........................................... 841,709 2,076,320 1,554,754
Accrued compensation and related payroll withholdings and
taxes.................................................... 783,529 651,577 632,881
Other accrued liabilities.................................. 538,833 753,576 417,980
---------- ---------- ----------
Total current liabilities........................ 3,831,342 5,012,922 4,253,392
---------- ---------- ----------
Pension liabilities........................................ 95,857 170,777 174,861
---------- ---------- ----------
Total liabilities................................ 3,927,199 5,183,699 4,428,253
---------- ---------- ----------
Shareholders' equity:
Common stock............................................... 172,235 172,235 172,235
Additional paid-in capital................................. 14,448 14,448 14,448
Retained earnings.......................................... 648,406 1,211,029 1,484,489
Accumulated translation adjustment......................... 48,177 (43,145) (148,886)
---------- ---------- ----------
Total shareholders' equity....................... 883,266 1,354,567 1,522,286
---------- ---------- ----------
Total liabilities and shareholders' equity....... $4,810,465 $6,538,266 $ 5,950,539
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 75
U-GENE RESEARCH B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ---------------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
USD USD USD USD
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................. $9,115,192 $12,507,765 $ 3,869,424 $ 3,273,094
---------- ----------- ---------- ----------
Cost and expenses:
Direct costs............................. 5,917,585 8,107,770 2,593,510 2,075,304
Selling, general and administrative...... 2,038,345 2,783,333 588,809 703,235
Depreciation............................. 278,257 319,764 67,735 84,466
---------- ----------- ---------- ----------
8,234,187 11,210,867 3,250,054 2,863,005
---------- ----------- ---------- ----------
Income from operations................... 881,005 1,296,898 619,370 410,089
---------- ----------- ---------- ----------
Other income (expense):
Interest income.......................... 6,222 6,623 1,538 11,424
---------- ----------- ---------- ----------
Income before tax........................ 887,227 1,303,521 620,908 421,513
Tax on income............................ 302,735 465,243 220,358 148,053
---------- ----------- ---------- ----------
Net income............................... $ 584,492 $ 838,278 $ 400,550 $ 273,460
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 76
U-GENE RESEARCH B.V.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL CURRENCY TOTAL
NUMBER OF COMMON PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
--------- -------- ---------- ----------- ----------- -------------
USD USD USD USD USD
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994...... 299 $172,235 $14,448 $ 348,431 $ 535,114
Net income..................... 584,492 584,492
Distributions to
shareholders................. (284,517) (284,517)
Translation adjustments........ $ 48,177 48,177
--- -------- ------- ---------- ---------- ----------
Balance December 31, 1995...... 299 172,235 14,448 648,406 48,177 883,266
Net income..................... 838,278 838,278
Distributions to
shareholders................. (275,655) (275,655)
Translation adjustments........ (91,322) (91,322)
--- -------- ------- ---------- ---------- ----------
Balance December 31, 1996...... 299 172,235 14,448 1,211,029 (43,145) 1,354,567
Net income (unaudited)......... 273,460 273,460
Translation adjustments
(unaudited).................. (105,741) (105,741)
--- -------- ------- ---------- ---------- ----------
Balance March 31, 1997
(unaudited).................. 299 $172,235 $14,448 $1,484,489 $ (148,886) $1,522,286
=== ======== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 77
U-GENE RESEARCH B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOR THE
DECEMBER 31, THREE MONTHS THREE MONTHS
------------------------- ENDED ENDED
1995 1996 MARCH 31, 1996 MARCH 31, 1997
---------- ---------- -------------- --------------
USD USD USD USD
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 584,492 $ 838,278 $ 400,550 $ 273,460
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation.......................... 278,257 319,764 67,735 84,466
Changes in:
Accounts receivable................... (688,280) 94,870 (85,223) (639,861)
Other current assets.................. 146,613 (117,999) (799,284) 18,621
Advance billings...................... (579,848) 1,234,611 705,067 (521,566)
Trade payables........................ 1,007,664 (254,631) (746,868) 242,470
Accrued liabilities and dividends
payable............................. 828,344 201,600 194,063 (480,434)
Pension liability..................... 74,920 4,084
Deferred taxes........................ (312,672) (68,946) (674) 19,996
---------- ---------- --------- -----------
Net cash provided by (used in)
operating activities................ 1,264,570 2,322,467 (264,634) (998,764)
---------- ---------- --------- -----------
Cash flows from investing activities
in tangible fixed assets:
Additions............................. (474,786) (709,850) (318,959) (39,292)
Disposals............................. 132,476
---------- ---------- --------- -----------
Net cash used in investing
activities.......................... (342,310) (709,850) (318,959) (39,292)
---------- ---------- --------- -----------
Cash flows from financing activities:
Distributions to shareholders......... (284,517) (275,655)
---------- ----------
Net cash used in financing
activities.......................... (284,517) (275,655)
---------- ----------
Net effect of exchange rate changes on
cash and cash equivalents........... 48,177 (91,322) 21,666 (105,740)
---------- ---------- --------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 685,920 1,245,640 (561,927) (1,143,796)
Cash and cash equivalents:
Beginning of period................... 91,085 777,005 777,005 2,022,645
---------- ---------- --------- -----------
End of period......................... $ 777,005 $2,022,645 $ 215,078 $ 878,849
========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 78
U-GENE RESEARCH B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
U-Gene Research B.V., (the "Company") is a clinical research organization
providing a broad range of integrated product development services to complement
the research and development activities of the pharmaceutical and biotechnology
industries. The Company's services include Phase-II-IV clinical trial
management, clinical data management and biostatistical analysis, medical
writing and regulatory consultation and representation. The Company is based in
Utrecht, The Netherlands, and has local offices in London, United Kingdom, and
since April 1, 1997, Milan, Italy.
Principles of consolidation
The consolidated financial statements include the financial information of
U-Gene Research B.V. and its wholly-owned subsidiaries U-Gene Clinical Research
B.V. and U-Gene Research Biotechnology B.D., both based in Utrecht, The
Netherlands.
Foreign currency translation
The Company's functional currency is the Dutch guilder. Assets and
liabilities denominated in other currencies have been converted into Dutch
guilders at year-end rates. Exchange differences are charged or credited to the
statements of operations.
For US dollars reporting purposes, assets and liabilities have been
translated from Dutch guilders to US dollars at year-end rates and revenues,
costs and dividends have been translated at average rates for the year. Gains
and losses resulting from this translation are accumulated in shareholders'
equity.
Cash and cash equivalents
Cash and cash equivalents consist of freely available current accounts and
savings accounts held with a financial institution.
The Company maintains its bank accounts with a single Dutch financial
institution, the Crediet-en Effectenbank N.V., a subsidiary of the ING-Bank.
There is no state insurance coverage on bank balances in The Netherlands.
Revenue recognition
Revenues are earned by performing services primarily under fixed-price
contracts. Revenues are recognized on the percentage of completion method,
primarily measured by the percentage of costs incurred to date to estimated
total costs for each contract. This method is used because management considers
total costs incurred to be the best available measure of progress on these
contracts. The estimated total costs of contracts are reviewed and revised
periodically throughout the lives of the contracts with adjustment to revenues
resulting from such revisions being recorded on a cumulative basis in the period
in which the revisions are made. Hence, the effect of the changes on future
periods of contract performance is recognized as if the revised estimates had
been the original estimates. Because of the inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates used will change in
the near term and could result in a material change.
Contract costs include direct labor costs, investigator costs, other direct
costs and indirect costs related to contract performance, such as indirect
labor, supplies and utilities. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recognized in the period in which such losses become known.
F-28
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Revenue Recognition, continued
Amendments to contracts resulting in revisions to revenues and costs are
recognized in the period in which the revisions are negotiated. Included in
accounts receivable are unbilled accounts receivable, which represent revenue
recognized in excess of amounts billed. Advance billings represent amounts
billed in excess of revenue recognized.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed over
estimated useful lives of three to eight years using the straight-line method.
Repairs and maintenance are charged to expense as incurred. Upon disposition,
the asset and the related accumulated depreciation are relieved and any gains or
losses are reflected in operations.
Income taxes
The company is subject to corporate income tax and recognizes deferred
taxes in accordance with Statement of Financial Accounting Standard No. 109,
("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires companies subject
to income taxes to adjust their deferred tax assets and liabilities based on
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Dutch Corporation Tax Law provides for a
tax rate of 35%.
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.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ------------
1995 1996 1997
---------- ---------- ------------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C>
Billed...................................... $1,522,952 $1,346,515 $1,400,124
Unbilled.................................... 1,471,494 1,553,061 2,139,313
---------- ---------- ----------
$2,994,446 $2,899,576 $3,539,437
========== ========== ==========
</TABLE>
3. DEBT
The Company has a USD 573,000 (NLG 1 million) overdraft facility with a
bank. The Company's receivables serve as collateral. There were no outstanding
borrowings at December 31, 1995, 1996 and March 31, 1997 (unaudited).
4. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering nearly all of its
employees and two directors in The Netherlands. The plan benefits are based on
years of service and compensation levels at the time of retirement.
F-29
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. EMPLOYEE BENEFIT PLANS, CONTINUED
The pension arrangements are single employer plans as defined in SFAS No.
87, "Employers' Accounting for Pensions."
The company's funding policy is to fund amounts as are necessary on an
actuarial basis to provide for vested benefits.
Plan assets of the single employer plans are participating annuity
contracts as defined in SFAS No. 87.
Two other directors have defined contribution pension plans. The annual
contribution to each of these plans is USD 8,876.
Net periodic pension expense of single employer plans included the
following components in thousands:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ -------------
USD USD
(UNAUDITED)
<S> <C> <C>
Service cost-benefits earned during the year............... $ 92 $ 30
Interest cost on the projected benefit obligations......... 19 8
Actual return on plan assets............................... (27) (10)
Net total of other components.............................. 35 8
--- ---
Net periodic pension cost.................................. $119 $ 36
=== ===
</TABLE>
The actuarial present value of benefit obligations and funded status for
the Company's single employer plans were as follows in thousands:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
FOR THE 1996 1997
YEAR ------------ -------------
ENDED
DECEMBER 31, USD USD
1995
------------
USD
(UNAUDITED)
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested........................................ $128 $ 210 $ 250
Accumulated................................... 123 201 240
Projected..................................... 217 375 410
Plan assets at fair value..................... 42 120 160
---- ---- ----
Plan assets less than projected benefit
obligation.................................. (175) (255) (250)
Unrecognized transition obligation............ 79 61 52
Unrecognized net loss......................... 23 23
---- ---- ----
Accrued pension cost.......................... $(96) $ (171) $(175)
==== ==== ====
Weighted average discount rates............... 6.2 % 5.6 % 5.6 %
Expected long-term rate of return on assets... 4.0 4.0 4.0
Assumed rate of increase in future
compensation................................ 4.0 4.0 4.0
</TABLE>
F-30
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LEASES
Lease contracts
U-Gene Research B.V. leases a number of cars under operating lease
contracts. The lease contracts have a term of four years or a certain number of
kilometers, usually 150,000. The estimated costs per year amount to USD 250,000.
A lease contract has been concluded for a photocopier under an operational lease
contract for a term of five years.
Lease contract for premises
With effect from December 1, 1992 an operating lease contract for the main
premises at Bolognalaan 40 was entered into with S.F.A.R. for a period of three
years. The lessee has a right to renew the lease for two option periods of three
years, commencing on December 1, 1995 and December 1, 1998. The current rent is
USD 232,000 excluding VAT, to be paid in advance in quarterly installments
amounting to USD 58,000 each. The lessee is also obliged to pay service costs of
USD 10,000 every three months in advance. The rent is adjusted annually on July
1. A bank guarantee has been given to S.F.A.R. of USD 82,000 for an indefinite
period.
With effect from January 1, 1996 an operating lease contract for the
offices located Einsteindreef 129-131 was entered into with Verwaltung IFU
Immobilienfonds GmbH & Co. K.G. for a period of two years. The lessee has a
right to renew the lease for two option periods of three years, commencing on
January 1, 1998 for a period of one year and January 1, 1999 for a period of two
years. The current rent is USD 115,000, excluding VAT, to be paid in advance in
quarterly installments amounting to USD 28,750 each. The lessee is also obliged
to pay service costs of USD 3,500 every three months in advance. A bank
guarantee has been given to Verwaltung IFU Immobilienfonds GmbH & Co. K.G. of
USD 37,800 for an indefinite period.
Commitments under operating lease contracts can be summarized as follows:
<TABLE>
<CAPTION>
USD
--------
<S> <C>
1997.............................................. $488,000
1998.............................................. 459,500
1999.............................................. 125,000
2000.............................................. 62,500
</TABLE>
6. GEOGRAPHICAL SEGMENT INFORMATION
The following sets forth net revenues from customers in the following
geographical areas:
<TABLE>
<CAPTION>
1995 1996 FOR THE
---- ---- THREE MONTHS
ENDED
% % MARCH 31,
1997
-------------
%
(UNAUDITED)
<S> <C> <C> <C>
The Netherlands........................................... 62 40 32
Other European Community countries........................ 26 28 14
Other (mainly USA)........................................ 12 32 54
--- --- ---
100 100 100
=== === ===
</TABLE>
F-31
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. MAJOR CLIENTS
The following sets forth the net revenues from clients who accounted for
more than 10% of the Company's net revenues during each of the periods
presented:
<TABLE>
<CAPTION>
CLIENTS MARCH 31,
----------------------------------------------- 1997
YEAR ENDED -----------
DECEMBER 31,
------------------------- USD
1995 1996
-------- ---------- (UNAUDITED)
USD USD
<S> <C> <C> <C>
A.............................................. $933,288 $2,114,293 $ 935,686
B.............................................. 980,204 2,041,000 *
C.............................................. * 1,925,683 *
D.............................................. * 1,516,039 *
</TABLE>
* Net revenues did not exceed 10%.
8. GRANTS
For 1995 and 1996 costs are stated net of Dutch wage tax credits for R&D
work amounting to USD 156,000 and USD 191,000 respectively.
This wage tax credit facility may not necessarily be available for the
Company in 1997 and following years.
9. TAXES
Reconciliations of the statutory income tax rate to the effective tax rates
shown in the financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
1995 1996 MARCH 31, 1996 MARCH 31, 1997
---- ---- -------------- --------------
% % % %
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
The Netherlands statutory tax rate....... 35.0 35.0 35.0 35.0
Permanent differences.................... (0.9) 0.6 0.5 0.1
---- ---- ---- ----
34.1 35.6 35.5 35.1
==== ==== ==== ====
</TABLE>
Permanent differences comprise partly deductible entertaining expenses and
permanent deductions in relation to capital expenditures.
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED ENDED
1995 1996 MARCH 31, 1996 MARCH 31, 1997
--------- -------- -------------- --------------
USD USD USD USD
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current tax..................... $615,407 $534,189 $221,032 $128,057
Deferred tax (benefit).......... (312,672) (68,946) (674) 19,996
-------- -------- -------- --------
$302,735 $465,243 $220,358 $148,053
======== ======== ======== ========
</TABLE>
The deferred tax asset relates to temporary differences mainly relating to
the recognition of pension costs.
10. SHAREHOLDERS' EQUITY:
At December 31, 1995, 1996 and March 31, 1997 (unaudited) there were 1,000
shares authorized with a par value of NLG 1,000, each of which 299 shares were
issued and outstanding.
F-32
<PAGE> 83
======================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Information.................... 2
Prospectus Summary........................ 3
The Company............................... 3
Acquisitions.............................. 4
The Offering.............................. 5
Summary Financial and Operating Data...... 6
Risk Factors.............................. 7
The Acquisitions.......................... 12
Bank Credit Facility...................... 13
Use of Proceeds........................... 14
Termination of S Corporation Status....... 14
Dividend Policy........................... 14
Capitalization............................ 15
Dilution.................................. 16
Unaudited Pro Forma Condensed Consolidated
Financial Statements.................... 17
Selected Financial Data................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 23
Business.................................. 29
Management................................ 39
Certain Transactions...................... 44
Principal and Selling Shareholders........ 44
Description of Capital Stock.............. 45
Shares Eligible for Future Sale........... 47
Underwriting.............................. 48
Legal Matters............................. 49
Experts................................... 49
Index to Financial Statements............. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS AN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
3,600,000 SHARES
KENDLE
INTERNATIONAL INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 199
---------------------------
LEHMAN BROTHERS
J.C. BRADFORD & CO.
======================================================
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following estimated costs and expenses in connection with the issuance
and distribution of the securities being registered hereby are being paid by the
Registrant. Underwriting discounts and commissions are being paid by the
Registrant and the Selling Shareholders based on the pro rata number of shares
sold by each.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.......... $ 17,940
NASD filing fee.............................................. 5,880
The Nasdaq Stock Market listing fee.......................... 27,000
Printing and engraving costs................................. 100,000
Legal fees and expenses...................................... 110,000
Accounting fees and expenses................................. 180,000
Blue sky filing fees and expenses............................ 15,000
Transfer Agent and Registrar fees and expenses............... 5,000
Miscellaneous expenses....................................... 39,180
-------
TOTAL...................................................... $500,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by the Registrant to any person made or threatened to be made a
party to any proceedings, other than a proceeding by or in the right of the
Registrant, by reason of the fact that he is or was a director, officer,
employee or agent of the Registrant, against expenses, including judgments and
fines, if he acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the Registrant and, with respect to
criminal actions, in which he had no reasonable cause to believe that his
conduct was unlawful. Similar provisions apply to actions brought by or in the
right of the Registrant, except that no indemnification shall be made in such
cases when the person shall have been adjudged to be liable for negligence or
misconduct to the Registrant unless determined by the court. The right to
indemnification is mandatory in the case of a director or officer who is
successful on the merits or otherwise in defense of any action, suit or
proceeding or any claim, issue or matter therein. Permissive indemnification is
to be made by a court of competent jurisdiction, the majority vote of a quorum
of disinterested directors, the written opinion of independent counsel or by the
shareholders.
The Registrant's Code of Regulations provides that the Registrant shall
indemnify its directors and officers to the fullest extent permitted by law.
The Registrant maintains director and officer liability insurance which
provides coverage against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
As of March 31, 1997, the Registrant had outstanding 764,712 options to
purchase shares of Common Stock. Of these, options to purchase 219,219 shares
were granted in 1995 at $0.91 per share; options to purchase 451,652 shares were
granted in 1996 at $1.21 per share; and options to purchase 250,609 shares were
granted in 1997 at $2.01 per share. Options cancelled during those periods
totalled 156,768.
In addition, the Registrant issues promissory notes, guarantees of
indebtedness and other commercial paper in the ordinary course of its business.
II-1
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
1 -- Form of Underwriting Agreement**
2.1 -- Stock Purchase Agreement dated July 1, 1997 by and among the Company and
Shareholders of U-Gene**
2.2 -- Stock Purchase Agreement dated July 2, 1997 by and among the Company and
Shareholders of gmi**
3.1 -- Form of Amended and Restated Articles of Incorporation**
3.2 -- Amended and Restated Code of Regulations**
4 -- Specimen Common Stock Certificate**
5 -- Opinion of Keating, Muething & Klekamp, P.L.L.**
10.1 -- Amended and Restated Shareholders' Agreement dated June 26, 1997*
10.2 -- Revolving Credit Loan Agreement, dated August 9, 1996 by and between the Company
and Star Bank, N.A., as amended on November 27, 1996 and February 13, 1997*
10.3 -- Promissory Note dated August 9, 1996 made by the Company in favor of Star Bank,
N.A. in the principal amount of $2,000,000*
10.4 -- Master Lease Agreement dated November 27, 1996 by and between the Company and
Bank One Leasing Corporation, as amended on April 18, 1997*
10.5 -- Master Equipment Lease dated January 31, 1995 by and between the Company and Star
Bank, N.A.*
10.6 -- Master Equipment Lease dated August 16, 1996 by and between the Company and The
Fifth Third Leasing Company*
10.7 -- Lease Agreement dated December 9, 1991 by and between the Company and Carew
Realty, Inc., as amended on December 30, 1991, March 18, 1996, October 8, 1996 and
January 29, 1997*
10.8 -- Indemnity Agreement dated June 21, 1996 by and between the Company and Candace
Kendle Bryan*
10.9 -- Indemnity Agreement dated June 21, 1996 by and between the Company and
Christopher C. Bergen*
10.10 -- Indemnity Agreement dated June 21, 1996 by and between the Company and Timothy M.
Mooney*
10.11 -- Credit Agreement by and between the Company and NationsBank, N.A. dated June 26,
1997**
10.12 -- Investment Agreement by and between the Company and NationsBank, N.A. Investment
Corporation dated June 26, 1997**
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
10.13 -- 1995 Stock Option and Stock Incentive Plan*
10.14 -- 1995 Stock Option and Stock Incentive Plan -- Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.13)*
10.15 -- 1997 Stock Option and Stock Incentive Plan**
10.16 -- Form of Protective Compensation and Benefit Agreement*
11 -- Statement Regarding Computation of Earnings Per Share*
21 -- List of Subsidiaries**
23.1 -- Consent of Coopers & Lybrand L.L.P.*
23.2 -- Consent of Coopers & Lybrand N.V.*
23.3 -- Consent of Coopers & Lybrand GmbH*
</TABLE>
II-2
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
23.4 -- Consent of Keating, Muething & Klekamp, P.L.L. (contained in Exhibit 5)**
24 -- Powers of Attorney (contained in Signature Page)*
27.1 -- Financial Data Schedule for year ended December 31, 1996*
27.2 -- Financial Data Schedule for quarter ended March 31, 1997*
</TABLE>
- ---------------
* Filed herewith
** To be filed by an amendment
ITEM 17. UNDERTAKINGS.
(f) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Cincinnati, State of Ohio,
on the 2nd day of July, 1997.
KENDLE INTERNATIONAL INC.
BY: /s/ CANDACE KENDLE BRYAN
------------------------------------
Candace Kendle Bryan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. The persons whose names are marked with
an asterisk (*) below hereby designate Candace Kendle Bryan or Timothy M. Mooney
to sign all amendments, including post-effective amendments, to this
Registration Statement as well as any related registration statement (or
amendment thereto) filed pursuant to Rule 462(b) promulgated under the
Securities Act of 1933.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ CANDACE KENDLE BRYAN Chairman of the Board of Directors July 2, 1997
- ---------------------------------------- and Chief Executive Officer
Candace Kendle Bryan (principal executive officer)
/s/ CHRISTOPHER C. BERGEN President, Chief Operating Officer, July 2, 1997
- ---------------------------------------- Secretary and Director
Christopher C. Bergen
/s/ TIMOTHY M. MOONEY Vice President -- Finance, Chief July 2, 1997
- ---------------------------------------- Financial Officer, Treasurer,
Timothy M. Mooney Assistant Secretary (principal
financial officer and principal
accounting officer) and Director
/s/ PHILIP E. BEEKMAN Director July 2, 1997
- ----------------------------------------
Philip E. Beekman
/s/ CHARLES A. SANDERS Director July 2, 1997
- ----------------------------------------
Charles A. Sanders
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
KENDLE SHAREHOLDER AGREEMENT
THIS AMENDED AND RESTATED KENDLE SHAREHOLDER AGREEMENT ("Agreement") is
made as of this 26th day of June, 1997, among CANDACE KENDLE BRYAN and
CHRISTOPHER C. BERGEN ("Founding Shareholders"), HAZEL KENDLE, NATIONSBANK,
N.A., a national banking association ("NationsBank"), WILLIAM J. KEATING, JR.,
as Trustee under the Kendle Stock Trust dated December 28, 1996 ("Trustee") (the
Founding Shareholders, Hazel Kendle, NationsBank and Trustee are referred to
herein collectively as the "Shareholders" and individually as a "Shareholder"),
and KENDLE INTERNATIONAL, INC. (formerly known as Kendle Research Associates,
Inc.) ("Kendle").
Background
----------
A. This Agreement amends and restates in its entirety the Kendle
Shareholder Agreement entered into on December 29, 1996, among the Founding
Shareholders, Trustee and Kendle ("Original Shareholder Agreement").
B. On December 29, 1996, the Founding Shareholders transferred to
Trustee stock in Kendle. As a condition of such transfer, the Founding
Shareholders required the execution of the Original Shareholder Agreement and
that such stock transferred to Trustee (and any additional stock acquired by
Trustee) be subject to a right of first refusal.
C. In connection with the consummation of the Investment Agreement
between Kendle and NationsBank of even date herewith ("Investment Agreement"),
Kendle has agreed to (i) issue its Common Stock Purchase Warrant ("Warrant")
entitling NationsBank to purchase certain of the shares of Kendle's common
stock, $0.01 par value per share ("Common Stock"), and (ii) amend and restate
the Original Shareholder Agreement to provide NationsBank with certain rights
and benefits.
In consideration of the premises and the covenants and undertakings
hereinafter set forth, the parties hereto agree as follows:
1. PRESENT SHAREHOLDERS. Kendle represents that as of the date hereof,
the shareholders of Kendle are as set forth on Schedule 1 attached hereto.
2. TRANSFER RESTRICTIONS ON SHARES.
(a) PERMITTED TRANSFERS. A Shareholder may transfer all or a
portion of its shares of Common Stock ("Shares") to a spouse or children or to a
trust for the benefit of the Shareholder, a spouse or children (provided any
such transfer to a trust must be to a qualified trust which will not cause a
termination of Kendle's Subchapter S Corporation status under the Internal
Revenue Code (the "Code"); PROVIDED, HOWEVER, that as a condition to any such
transfer, the transferee must agree
<PAGE> 2
- 2 -
in writing that it, its heirs, successors and assigns, shall be subject to and
bound by the provisions of this Agreement.
(b) FIRST REFUSAL.
(i) OFFER TO SELL SHARES. Except as provided in
Section ___, if any
Shareholder (such Shareholder being hereinafter referred to as the "Selling
Shareholder") shall desire to sell all or any of the Shares now owned or
hereafter acquired by it, it must first receive a bona fide written offer to
purchase such Shares and then deliver to Kendle and the other Shareholders a
written notice ("Notice") containing the following information:
(1) The name and address of the prospective
purchaser of such Shares;
(2) The number of Shares that the Selling
Shareholder desires to sell;
(3) The price being offered to the Selling
Shareholder and the terms of payment, and any other terms of
such offer; and
(4) The proposed closing date for the transaction,
which shall be within not less than sixty (60) nor more than
one hundred twenty (120) days after the date of delivery of
the Notice.
For a period of thirty (30) days after the giving of the Notice by the Selling
Shareholder, Kendle shall have the option, exercisable in whole or in part by
notice in writing to the Selling Shareholder and to each of the other
Shareholders, to purchase the Shares that are proposed to be sold, at the price
and upon the terms set forth in the Notice. The Selling Shareholder shall have
no right to vote as a shareholder or director on the decision to exercise such
option, and action on such option may be taken by the holders of a majority of
the outstanding Shares, exclusive of the Shares held by the Selling Shareholder.
A failure by Kendle to give written notice of exercise during such period shall
be deemed a rejection by Kendle of its option to purchase.
(ii) OFFER TO OTHER SHAREHOLDERS. If Kendle does not
exercise the option granted to it above with respect to any of the Shares that
the Selling Shareholder desires to sell hereunder, each of the other
Shareholders shall then have the option to purchase its pro rata portion of the
Shares that will not be purchased by Kendle (based on the number of Shares owned
by such Shareholder in relation to the total number of Shares outstanding, less
all of the Shares owned by the Selling Shareholder), at the price and upon the
terms set forth in the Notice. Such options shall be exercisable by written
notice to the Selling Shareholder and to each of the other Shareholders for a
period of twenty (20) days from the date of express rejection by Kendle of its
option to purchase or the date of expiration of Kendle's option, whichever is
earlier. A failure by a Shareholder to give written notice of exercise within
such twenty (20) day period shall be deemed a rejection by such
<PAGE> 3
- 3 -
Shareholder of its option to purchase. If any Shareholder does not exercise its
option to purchase all of the Shares to which it is first entitled, each
remaining Shareholder shall then have the option to purchase all or any portion
of the Shares that will not be purchased by the Shareholders first entitled
thereto, which option shall be exercisable by notice in writing to the Selling
Shareholder and to each of the other Shareholders within ten (10) days after the
date of express rejection by such Shareholders or the expiration of the options
to the Shareholders who did not elect to purchase such Shares, whichever is
earlier. If more than one Shareholder exercises this option, the Shares
available for purchase shall be allocated pro rata among the Shareholders
desiring to purchase such Shares, which allocation shall be based on the number
of Shares owned by each such Shareholder in relation to the total number of
Shares outstanding, less all of the Shares owned by the Selling Shareholder, and
less all of the Shares owned by any Shareholder who does not exercise its option
to purchase any such unpurchased Shares. In determining the pro rata portion of
the Shares that any Shareholder is entitled to purchase, the Shares owned by a
Shareholder shall be neither increased nor decreased by reason of any Shares to
be purchased from or sold by the Selling Shareholder.
(iii) NON-CASH CONSIDERATION FOR SHARES. If any
consideration to be received by a Selling Shareholder from a prospective
purchase of its Shares, as identified in a Notice given in compliance herewith,
is property other than cash, then the price per share for such Shares shall be
measured to that extent by the fair market value (determined as hereinafter
provided) of such non-cash consideration. If non-cash consideration has been
offered to a Selling Shareholder, Kendle and the other Shareholders, if such
parties or any of them exercise their option(s) to purchase the Selling
Shareholder's Shares, may deliver to the Selling Shareholder, in payment of the
non-cash portion of the purchase price for the Shares proposed to be sold, an
amount of cash equal to the fair market value of the non-cash consideration that
has been offered to the Selling Shareholder. For purposes hereof, the fair
market value of non-cash consideration shall in each case be agreed upon by the
Selling Shareholder and the party purchasing its Shares as provided in this
Agreement, or, in the absence of such agreement, such fair market value shall be
determined by an appraisal thereof by three (3) independent qualified
appraisers, one being selected by the Selling Shareholder, one being selected by
the party hereto desiring to purchase the Selling Shareholder's Shares, and the
third appraiser being chosen by the two appraisers thus chosen. The cost of any
such appraisal shall be borne equally by the parties to the appraisal
proceeding. Any closing provided for herein may be extended for such reasonable
period of time as may be necessary in order for a required appraisal to be
completed. In the event of an appraisal pursuant to this Section 2, the parties
agree to be bound thereby.
(iv) CLOSINGS. If Kendle or any Shareholder shall
exercise an option to purchase granted to such parties in this Section 2, the
closing of the purchase and sale transaction shall be held at the principal
office of Kendle on a date designated by the purchaser or purchasers, which date
in no event shall be later than ninety (90) days after the Selling Shareholder
gives the Notice. If there is more than one purchaser of the Shares being sold,
the Selling Shareholder may require that all purchases close concurrently on the
same date.
<PAGE> 4
- 4 -
(v) RIGHT TO TRANSFER. If Kendle and the other
Shareholders do not elect to purchase all of the Shares that a Selling
Shareholder desires to sell, no election to purchase a portion of such Shares
shall be effective, and the Selling Shareholder shall have the right to sell
all, but not less than all, of the Shares covered by the bona fide offer to the
prospective purchaser named in the Notice; PROVIDED, that the sale is made in
strict accordance with (1) the terms of sale set forth in the Notice, and (2)
Section __ below. In addition, as a condition to any such sale, the purchaser of
the Shares must agree in writing that it, its heirs, successors and assigns,
shall be subject to and bound by the provisions of this Agreement.
(vi) RIGHT TO CO-SALE. In the event the Selling
Shareholder disposes of its Shares to a third party, except as permitted under
this Section 2(b), the Shareholders shall have the right to offer to sell a
proportionate number of Shares to the third party acquiring the Selling
Shareholder's Shares, on the same price and on the same terms as outlined in the
Notice, in accordance with the following procedure:
(1) The Selling Shareholder shall, prior to
sale, give notice to the other Shareholders of its right of
co-sale.
(2) The other Shareholders shall have
fifteen (15) days to determine if they desire to offer Shares
to the third party acquiring the Selling Shareholder's Shares.
In the event any Shareholder elects not to offer for co-sale
its proportionate interest, the remaining Shareholders, other
than the Selling Shareholder, shall be entitled to offer for
sale such interest on a pro rata basis.
(vii) PROHIBITED TRANSFERS VOID. Any purported
transfer of Shares in violation of this Agreement shall be void and shall not
transfer any interest or title to any Shares to the purported transferee. Kendle
shall not be required to transfer on its books any Shares sold or transferred in
violation of any of the provisions set forth in this Agreement or to treat as
owner of those Shares or to pay dividends to any transferee to whom any of those
Shares shall have been so sold or transferred.
3. PREEMPTIVE RIGHTS.
(a) PREEMPTIVE RIGHTS OF SHAREHOLDERS. If, at any time, Kendle
proposes to issue (except in a transaction described in Section 3(b) below) any
of its equity securities (including the Shares) or any securities convertible
into or having the rights to purchase any equity securities (including the
Shares) to any person or entity (which may include a Shareholder) (collectively,
"Equity Securities") other than stock options issued to any Shareholder which
are approved by [all Shareholders/the disinterested members of the Board of
Directors], then, in such event, Kendle shall first offer in writing to sell all
such Shares and/or securities, on the same terms and conditions as proposed by
Kendle to such person or entity, to the Shareholders. Each Shareholder shall
then have the option to purchase its pro rata portion of the Equity Securities
proposed to be issued (based on the number of equity securities, including the
Shares, owned by such Shareholder, on a fully diluted
<PAGE> 5
- 5 -
basis, in relation to the total number of the Equity Shares then outstanding),
at the price and upon the terms set forth in such writing. Such options shall be
exercisable by written notice to Kendle for a period of fifteen (15) days from
the date of such offer. A failure by a Shareholder to give written notice of the
exercise within such fifteen (15) day period shall be deemed to be a rejection
by such Shareholder of its option to purchase. To the extent that any of the
Shareholders elect not to purchase the full amount of Equity Securities they are
entitled to purchase pursuant to this Section 3(a), the other Shareholders'
rights to purchase Equity Securities pursuant to this Section 3(a) shall be
increased by their pro rata portion, up to the maximum quantity of each class of
Equity Securities set forth in their respective notices to Kendle. The closing
of the purchase of Equity Securities by the Shareholders shall take place within
fifteen (15) days after the expiration of said fifteen (15) day period. Kendle
shall have sixty (60) days from the closing of the purchase of Equity Securities
by the Shareholders to sell the unsold portion of the Equity Securities to other
purchasers, but only upon terms and conditions that are in all material respects
no more favorable to such purchasers or less favorable to Kendle than those set
forth in the Equity Securities offering. In the event that the sale of the
unsold portion of Equity Securities is not consummated within such sixty (60)
day period, Kendle's right to sell such unsold Equity Securities shall be deemed
to lapse, and any sale of Equity Securities without additional notice to the
Shareholders as provided for in this Section 3(a) shall be deemed to be in
violation of the provisions of this Agreement.
(b) EXCLUDED TRANSACTIONS. The following transactions
shall be excluded from the restrictions of this Section 3:
(i) Any issuance to a non-Shareholder employee of
Kendle of stock options to purchase shares under a bona fide stock option plan
or agreement approved by Kendle's Board of Directors;
(ii) An underwritten initial public offering of the
Shares under the Securities Act of 1933, as amended; and
(iii) _______________________________________________
______________________________________________________________________________ .
4. ENDORSEMENT ON SHARE CERTIFICATES. Upon the execution of this
Agreement, the certificates of Common Stock subject to this Agreement and any
other Shares of stock transferred or issued shall be endorsed as follows:
"This Certificate is transferable only upon compliance with
the provisions of the Amended and Restated Kendle Shareholder
Agreement dated as of June __, 1997, a copy of which is on
file in the office of the Secretary of Kendle International,
Inc."
5. TERMINATION OF RESTRICTIONS. The restrictions on the transfer of the
Shares set forth herein shall terminate with respect to any [NationsBank]
transferee at the time the Shares
<PAGE> 6
- 6 -
are registered with the United States Securities and Exchange Commission and
with a national stock exchange or regularly quoted over-the-counter exchange.
6. AGREEMENT BINDING. This Agreement shall inure to the benefit of and
be binding upon the Shareholders and each of their heirs, successors and
assigns. It shall also be binding upon any transferee and their heirs,
successors and assigns of such transferee who has received any Shares.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties as to the subject matter herein contained, superseding any and all
prior or contemporaneous oral and prior written agreements, understandings,
letters of intent or commitment letters.
8. AMENDMENT OR TERMINATION OF AGREEMENT. This Agreement may be amended
or terminated by the consent of all of the Shareholders and Kendle.
9. NOTICES. Whenever a notice is required to be given under this
Agreement, such notice shall be given by registered or certified U.S. mail,
postage prepaid, to the following addresses:
If to Kendle:
Kendle International, Inc.
700 Carew Tower
Fifth and Vine Streets
Cincinnati, Ohio 45202
Attention: __________________
If to a Founding Shareholder:
Dr. Candace Kendle Bryan
c/o Kendle International, Inc.
700 Carew Tower
Fifth and Vine Streets
Cincinnati, Ohio 45202
Mr. Christopher C. Bergen
c/o Kendle International, Inc.
700 Carew Tower
Fifth and Vine Streets
Cincinnati, Ohio 45202
<PAGE> 7
- 7 -
If to Trustee:
William J. Keating, Jr., Esq.
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
If to Hazel Kendle:
Ms. Hazel Kendle
--------------------------------
--------------------------------
If to NationsBank:
NationsBank, N.A.
--------------------------------
--------------------------------
--------------------------------
Such notice shall be effective when received.
10. JURISDICTION. This Agreement is made pursuant to, and will be
governed by and construed in accordance with, the laws of the State of Ohio
applicable to contracts executed and to be performed wholly within such state.
Each of the parties hereby (a) irrevocably consents and agrees that any legal or
equitable action or proceeding arising under or in connection with this
Agreement shall be brought exclusively in any federal or state court within the
County of Hamilton, State of Ohio; (b) by execution and delivery of this
Agreement, irrevocably submits to and accepts with respect to its properties and
assets, generally and unconditionally, the jurisdiction of the aforesaid courts,
and irrevocably waives any and all rights it may have to object to such
jurisdiction under the Constitution or laws of the State of Ohio or the
Constitution of the United States or otherwise; and (c) irrevocably consents
that service of process upon it in any such action or proceeding shall be valid
and effective against it if made in the manner provided herein for delivery of
notices hereunder.
11. INVALIDITY. If any portion or portions of this Agreement shall be
adjudged, declared, held, or ruled to be invalid for any reason, such invalidity
shall not be deemed to impair the validity of any other provision of this
Agreement.
12. GENDER AND NUMBER REFERENCES. All references to any gender shall
include all genders; all references to the singular shall include the plural;
and all references to the plural shall include the singular, unless the context
indicates otherwise.
<PAGE> 8
- 8 -
IN WITNESS WHEREOF, the Shareholders and Kendle have signed this
Agreement as of the day and year first above written.
/s/ Candace Kendle Bryan
--------------------------------
CANDACE KENDLE BRYAN
/s/ Christopher C. Bergen
--------------------------------
CHRISTOPHER C. BERGEN
/s/ Hazel Kendle
--------------------------------
HAZEL KENDLE
NATIONSBANK, N.A.
By: /s/ Nationsbank, N.A.
-----------------------------
Its:
-----------------------------
KENDLE STOCK TRUST
BY: /s/ William J. Keating, Jr.
-----------------------------
William J. Keating, Jr., Trustee
KENDLE INTERNATIONAL, INC.
BY: /s/ Candace K. Bryan
-----------------------------
Candace K. Bryan, Chairman
and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.2
------------
August 9, 1996
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
441 Vine Street, Suite 700
Cincinnati, OH 45202-2816
Dear Ms. Bryan and Mr. Bergen:
This letter shall set out the terms and conditions under which Star Bank, N.A.
(hereafter referred to as the "Bank") agrees to lend Kendle Research Associates,
Inc. (hereafter called the "Company") Two Million Dollars ($2,000,000) under
this Revolving Credit Loan Agreement (the "Agreement"). The purpose of this
loan is for working capital.
THE REVOLVING CREDIT
Subject to there being no event of default (or circumstance which would, with
the passage of time become an event of default) the Bank agrees to make
revolving credit loans to the Company (as described below) from the date of this
Agreement through the earlier of: a) a demand for payment in accordance with the
terms of a revolving promissory note (the "Revolving Note") which will evidence
the Company's obligation; or b) July 31, 1997 (the "Maturity Date").
Under the Revolving Note, the Company may borrow, repay, and reborrow up to
$2,000,000. Interest on the outstanding principal balance of the Revolving Loan
Portion shall accrue from the date of disbursement of each draw thereunder in
accordance with the following provisions:
(a) Interest on advances hereunder shall be computed on the basis of a year
of 360 days, for the actual number of days outstanding, and charged
based on a rate per annum, selected at the option of the Company as
provided herein, equal to:
i. the Prime Rate of the Bank, adjusted automatically and
immediately, without notice, as of the date of each change in
the Prime Rate; or
ii. the LIBOR Rate for the applicable Interest Period (30, 60 or
90 days) PLUS two ---- hundred fifty basis points (2.50%).
(b) The following definitions shall be used in connection with this Loan
Agreement.
i. "Prime Rate" shall mean the rate per annum established or
announced by the Bank from time to time as its Prime Rate
determined solely by the Bank pursuant to market factors and
its own operating needs and is not necessarily the Bank's most
favored or favorable rate.
<PAGE> 2
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 2
ii. "LIBOR Rate" shall mean an annual rate, determined solely by
the Bank, as the rate offered to the Bank by prime banks
(rounded off upwards if necessary, to the nearest 1/1000 of
one percent) for deposits with the Bank of immediately
available United States dollars for the applicable Interest
Period of such LIBOR Rate Loan in the London Interbank Market
at or about 11:00 a.m., London time, (or such earlier time as
may be arranged and agreed upon the Company and the Bank) on
the day three Business Days preceding the first day of the
Interest Period of such LIBOR Rate Loan and adjusted for
Reserve Percentages and any other regulatory and/or
governmental costs incurred by the Bank from Eurocurrency
liabilities. The amount of the adjustment for Reserve
Percentages and the regulatory and/or governmental costs shall
be based upon the assumption that the Bank funded 100% of the
loan in the London interbank market.
iii. "Interest Period" shall mean, with respect to any LIBOR Rate
Loan, the period commencing on the date such loan is made,
continued or converted or on the last day of the immediately
preceding Interest Period applicable to such LIBOR Rate Loan,
as the case may be, and ending on the same day in the first,
second, third calendar month thereafter, as the Company may
elect in advance in accordance with the requirements of this
Loan Agreement; provided, however, that whenever the last day
of any Interest Period would otherwise occur on a day other
than a Business Day, the last day of such Interest Period
shall occur on the next succeeding Business Day, and further
provided that if such extension of time would cause the last
day of the Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day. If any Interest
Period ends on a day during a month in which there is no
numerically corresponding day to the first day of the Interest
Period, then the Interest Period shall end on the last
Business Day of such calendar month. Interest shall accrue
from and including the first day of an Interest Period to, but
excluding, the last day of such Interest Period.
iv. "Business Day" shall mean for any Prime Rate Loan any day
other than Saturday, Sunday or Holiday on which banks in the
State of Ohio are authorized by law to close and for any LIBOR
Rate Loan any day on which the Bank is open for the regular
conduct of business and a day on which dealings in U.S. dollar
denominated deposits are carried out in the London interbank
market.
v. "LIBOR Rate Loan" shall mean a loan made under the Agreement,
as amended, that bears interest with reference to such LIBOR
Rate.
vi. "Prime Rate Loan" shall mean a loan made under the Agreement,
as amended, that bears interest with reference to the Prime
Rate.
<PAGE> 3
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 3
vii. "Notification Date" shall mean for any LIBOR Rate Loan the
date which is three (3) Business Days prior to the first day
of Interest Period such LIBOR Rate Loan.
viii. "Reserve Percentages" shall mean the total maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulations D, rounded upward to the nearest 1/1000 of one
percent. The percentage will include, but not be limited to
marginal, emergency, supplemental, special and other reserve
percentages.
(c) Loans hereunder shall be made pursuant to Company's written request
thereof given to Bank as provided in accordance to the provisions of
the Agreement, stating the date of the requested loan, the amount of
the requested loan;: whether it will be a Prime Rate Loan or LIBOR Rate
Loan, the applicable Interest Period, if any, and the total amount to
be borrowed. Each request for a LIBOR Rate Loan shall be for a minimum
amount of Two Hundred Fifty U.S. dollars ($250,000.00). Any written
request with respect to a LIBOR Rate Loan shall be received by the Bank
on or before the applicable Notification Date. No written request for
any loan shall become effective until actually received by the Bank.
The Company will only be entitled to a combined total of three (3)
LIBOR Rate Loans at any one time.
(d) Any LIBOR Rate Loan elected by the Company under this Agreement, shall
remain in effect until the expiration of the applicable Interest
Period. The Company may select a new Interest Period for such LIBOR
Rate Loan by delivery of written notice to the Bank on or before the
Notification Date.
(e) Interest on the Revolving Credit Note is payable monthly on the last
day of each month following the execution of such Revolving Credit
Note, until the Maturity Date, at which time the principal balance,
together with interest and unpaid fees, shall become due and payable;
provided, however, that any LIBOR Rate Loan shall, at the option of the
Bank be due and payable in full at the end of the Interest Period then
in effect for such LIBOR Rate Loan. In case of any change in law or
governmental rules, regulations, guidelines or orders (or any
interpretation thereof) or the introduction of new laws, regulations or
guidelines which require the Bank to reserve for unfunded revolving
credit commitments, the Bank may charge the borrower an additional fee
which will compensate the Bank for such requirements.
(f) Loans may be prepaid at any time, in whole or in part, without premium
or penalty, except that, upon any such prepayment of any such LIBOR
Rate Loan, as referred to in this section, the Company shall pay to the
Bank immediately upon demand a prepayment fee, computed
<PAGE> 4
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 4
solely by the Bank, as the amount necessary to compensate the Bank for
reasonable losses, expenses and liabilities the Bank may sustain as a
result of such prepayment. In calculating the amount of such a
prepayment fee, the Bank is hereby authorized by the Company to make
such assumptions regarding the source of funding, redeployment of funds
and other related matters as the Bank may deem appropriate. If the
Company fails to pay any prepayment fee when due, the amount of such
prepayment fee shall thereafter bear interest until paid at a rate per
annum three percent (3%) above the Bank's Prime Rate in effect from
time to time (computed on the basis of a 360-day year, actual days
elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate
change is announced within the Bank. Any prepayment of principal shall
be accompanied by a payment of interest accrued to date thereon; and
said prepayment shall be applied to the principal installments in the
inverse order of their maturities.
REPRESENTATIONS & WARRANTIES
To induce the Bank to enter into this Agreement and to agree to make the loans
described herein, the Company represents and warrants that:
(A) CORPORATE EXISTENCE. It is a corporation duly existing under the laws
of the State of Ohio, is qualified to do business in all states where
failure to be so qualified would have a material adverse effect on the
Company, and has all requisite power and authority to own its property
and carry on its business as now being conducted.
(B) BORROWING AUTHORIZATION. The execution by the Company and the delivery
and performance of this Agreement, the Note(s), and other documents
connected to the loans described herein have been authorized by
necessary corporate action and will not violate: 1) any provision of
law; 2) the Articles of Incorporation or By-laws of the Company; or 3)
any agreement binding on the Company.
(C) FINANCIAL STATEMENTS. Its audited financial statements dated December
31, 1995 (a copy of which have been previously furnished to the Bank)
have been prepared in conformity with generally accepted accounting
principles consistently applied, and fairly present the financial
condition of the Company and its operation as of the date of the
statements, and since such date there has been no material adverse
change in its financial condition.
(D) ACTIONS PENDING. There is no litigation pending or threatened against
or affecting the Company before any court or agency, or any contingent
liabilities that are not provided for in the financial statements
referred to in subsection (C) FINANCIAL STATEMENTS above.
<PAGE> 5
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 5
(E) LIENS. None of the assets of the Company are subject to any mortgage,
pledge, security interest, lien, or other encumbrance except for those
noted in the financial statements referred to in subsection (C)
FINANCIAL STATEMENTS.
(F) ENVIRONMENTAL MATTERS. All operations and property of the Company are
in full compliance with all federal, state, and local statutes, rules,
and regulations relating to air and water pollutants and hazardous
waste disposal. There is no judicial or administrative proceeding
pending or threatened against or affecting the Company with respect to
such environmental matters.
(G) COMPLIANCE. The Company is in compliance in all material respects with
all statutes, rules, and regulations applicable to it. No default (or
event which with notice or lapse of time, or both, would constitute a
default) exists under any agreement or instrument for borrowed money to
which Company is a party or pursuant to which any property of Company
is encumbered.
(H) LIABILITIES. All taxes, assessments, and other liabilities which are
due have been paid in full and in a timely manner, except for those
taxes and assessments which the Company is contesting in good faith and
with respect to which the Company has taken proper steps to perfect its
appeal and which have not resulted in liens on the Company's property
which materially diminishes the value of the property.
COLLATERAL
All obligations of the Company to the Bank under this Agreement and the
Note(s) shall be secured by the following (collectively called the
"Collateral"):
(A) A security interest in the Company's accounts receivable, inventory,
machinery, equipment, furniture, fixtures, furnishings, and general
intangibles, now owned or hereafter acquired, their proceeds (cash or
non-cash) and any insurance proceeds related thereto, all to be
evidenced by the Bank's standard Security Agreement.
The Collateral and all documentation with respect thereto shall be in a form
satisfactory to the Bank, and the Company agrees to execute any and all
documents necessary to assure the protection, perfection, and/or enforcement of
the Bank's security interest in the Collateral.
COVENANTS
In consideration of the Bank's promise to make the loans described herein, the
Company agrees that, from the date of this Agreement until the Note(s) are paid
in full, it shall:
<PAGE> 6
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 6
(A) FINANCIAL STATEMENT. Furnish the Bank: 1) a copy of the Company's
audited financial statements, prepared in conformity with generally
accepted accounting principles applied on a basis consistent with the
preceding years by independent certified public accountants acceptable
to the Bank within 90 days of the Company's fiscal year end; and 2) a
copy of its unaudited financial statements, similarly prepared, in a
form satisfactory to the Bank within 45 days of the end of each of its
fiscal months.
(B) PERIODIC REPORTS. Provide the Bank within 10 days of the end of each of
the Company's fiscal months: 1) an aging of accounts receivable in a
form satisfactory to the Bank; 2) an analysis of long-term projects %
of completion; 3) a schedule of project advances; 4) a billings
schedule; and 5) other reports and information as the Bank may
reasonably request.
(C) INSURANCE. Maintain insurance on all real and personal property with
carriers acceptable to the Bank in an amount and against hazards and
liabilities as is common with other companies in similar situations.
The policies shall show the Bank as "name insured" and "loss payee."
The Company shall provide the Bank with certificates of insurance or
other satisfactory evidence upon request.
(D) TAXES. Pay all taxes, assessments, and other liabilities when due,
except for those which are contested in good faith.
(E) NOTICE. Give the Bank prompt notice of any: (i) default of this or any
other Agreement or contract under which the Company is liable; (ii)
environmental or labor dispute; (iii) lawsuit filed naming the Company
as a defendant; (iv) reportable event under ERISA; or (v) material
change in the Company's business prospects or financial condition.
(F) CANCELLATION OF CONTRACT. Give the Bank notice within three days of any
canceled clinical trials contract.
(G) CORPORATE EXISTENCE AND STATUS. Maintain its corporate existence and
remain in good standing under the laws of each jurisdiction where the
Company is duly qualified to conduct its business.
(H) MAINTENANCE OF PROPERTY. Maintain Company property in good condition
and repair, and not commit or permit any action that may impair the
value of the property or the Bank's Collateral.
(I) TANGIBLE CAPITAL BASE. Not permit its tangible capital base to be less
than $400,000 plus 50% of net income less any S-Corporation tax
distributions beginning with the quarter ending June 30, 1996 and for
each fiscal quarter thereafter plus 90% of net proceeds from the public
offering of Company stock. The remaining 10% shall be used for
distributions of
<PAGE> 7
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 7
previously taxed S-Corporation earnings. "Tangible Capital Base" shall
mean, as of any date, the sum of the Company's total equity plus debts
subordinated to the Bank minus any intangible assets. All financial
terms in this Agreement shall have the meanings given them under
generally accepted accounting principles.
(J) INDEBTEDNESS. Not incur or permit to exist any indebtedness, except:
(i) the borrowings evidenced by this Agreement; (ii) favorable
short-term unsecured trade credit granted in the ordinary course of
business.
(K) LIENS. Not create or permit to exist any mortgage, pledge, security
interest, or other encumbrance with respect to any assets now owned or
hereafter acquired, except for (i) liens created in favor of the Bank
hereunder; or (ii) purchase money interests created in connection with
the acquisition of property acquired after the date of this Agreement
which attaches specifically to the property acquired.
(L) GUARANTIES. Not guaranty any obligation or indemnify any other person
or enterprise except for the personal liability from the Company's own
officers', directors', or employees' own actions on behalf of the
Company.
(M) MERGER AND SALE OF ASSETS. Not be a party to any merger, consolidation,
or reorganization (including the purchase of all or substantially all
of the equity or assets of any other enterprise). Not, except in the
ordinary course of its business, sell, transfer, or lease any part of
its property.
(N) RESTRICTED PAYMENTS. Total compensation to Candace K. Bryan and
Christopher Bergen shall not exceed $250,000 combined annually.
(O) DEPOSITORY ACCOUNTS. The Company agrees to maintain all primary
depository accounts with the Bank.
(P) INVESTMENTS. Not invest in, loan, or make advances to any other
enterprises, except for (i) obligations of the United States Treasury
and agencies thereof, (ii) commercial paper maturing within one-year
and rate "A-1/P-1," or (iii) Certificates of Deposit of the Bank.
(Q) WAIVER. Any variance from these covenants shall be permitted only with
the prior written consent and/or waiver of the Bank. Any such waiver
shall not preclude the exercise of any power or right under this
Agreement by the Bank.
<PAGE> 8
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 8
CLOSING CONDITIONS
The obligation of the Bank to make the loans described by this Agreement is
subject to the satisfaction of each of the following conditions:
(A) RESOLUTIONS. The Company shall have delivered to the Bank a copy of the
resolutions of the Company's Board of Directors authorizing the loans
described herein and the execution and delivery of this Agreement, the
Note(s), and other documents the Bank deems necessary for these loans,
certified by an appropriate officer of the Company.
(B) OTHER DOCUMENTS: INSPECTION The Company shall have delivered to the
Bank such other documents as the Bank may request prior to the date of
the initial loan. The Bank or its designated representative shall have
the continuing right to inspect and review all the Company's records,
documents, and assets, whether or not directly related to the Company's
obligations hereunder.
(C) DEFAULT. Before and after giving effect to the loan(s) described
herein, no event of default (as defined below) or event which would
with the passage of time mature into an event of default shall have
occurred and/or be continuing.
(D) WARRANTIES. Before and after giving effect to the loan(s) described
herein, the representations and warranties noted above shall be true
and correct on the date of this Agreement.
(E) FEES AND EXPENSES The Company agrees to pay the Bank any out-of-pocket
expenses incurred by the Bank (including reasonable attorneys' fees,
legal expenses, filing fees, etc.) in entering into and closing this
Agreement.
EVENTS OF DEFAULT
Upon the occurrence of any of the following events, the Bank may declare the
Note(s) due and immediately payable, without further notice or demand and the
Bank shall have all rights to realize on the collateral. To the extent the
maximum Amount Available is not being utilized by the Company, the Bank may upon
such declaration of default terminate any unused balance:
(A) Non-payment of principal or interest prescribed herein when due or when
notice of such non-payment is sent to the Company by the Bank, or any
default, demand, or acceleration under any Note or related instrument
concerning the Collateral; or
(B) Non-payment of principal or interest on any other borrowed money
obligation when due or the holder of such obligation declares the
obligation due prior to its stated maturity unless the obligation is
disputed in good faith; or
<PAGE> 9
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 9
(C) Any representation or warranty of the Company in this or any other loan
document is false; or
(D) The Company violates any covenant or condition of this or any other
loan documentation; or
(E) The Company is unable to pay its business debts as they become due or
the Company's consolidated financial statement indicates an insolvency
or deficit net worth; or
(F) The Company applies for the appointment of a trustee or receiver of any
part of the assets of the Company or commences any proceedings relating
to Borrower under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or other liquidation law
of any jurisdiction; or
(G) Any such application, if filed, or any such proceedings are commenced
against the Company, and the Company indicates its approval, consent,
or acquiescence; or an order is entered appointing such trustee or
receiver, or adjudicating the Company bankrupt or insolvent, or
approving the petition in any such proceedings, and such order remains
in effect for thirty (30) days; or
(H) A material part of the Company's operations shall cease for a period of
thirty (30) days, other than temporary or seasonal cessations which are
simultaneously experienced by other companies in the Company's line of
business (which, if continued, would not have a material adverse effect
on the Company's operations or financial conditions); or,
(I) If, in the reasonable opinion of the Bank, there has been-a material
adverse change in the financial affairs or operating condition of the
Company or in the value of the Collateral which, in the reasonable
judgment of Bank, materially imperils the Company's ability to repay or
secure its obligations to the Bank under this Agreement.
<PAGE> 10
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
Page 10
LAW/JURISDICTION
This Agreement, the loans, and the Note(s) shall be deemed made in Ohio, and all
the rights and obligations of the parties hereunder shall in all respects be
governed by and construed in accordance with the laws of the State of Ohio,
including all matters of construction, validity, and performance. Without
limitation on the ability of the Bank to exercise all its rights as to the
Collateral security for any loan or note, or to initiate and prosecute actions
for repayment in any applicable jurisdiction, Bank and Company agree that any
action or proceeding commenced by or on behalf of the parties relating to this
Agreement, the loans, or the Note(s) shall be commenced and maintained
exclusively in courts of applicable jurisdiction located in Hamilton County,
Ohio.
STAR BANK, N.A.
/s/ Mark A. Sesler
------------------------------
Mark A. Sesler
Assistant Vice President
Accepted this 9th day of August, 1996
--- ------
Kendle Research Associates, Inc.
By /s/ Timothy M. Mooney
----------------------
<PAGE> 11
November 27, 1996
Mr. Timothy M. Mooney
Chief Financial Officer
Kendle Research Associates, Inc.
441 Vine Street, Suite 700
Cincinnati, Ohio 45202-2816
RE: Line of Credit Agreement dated August 9, 1996 by and between Star Bank,
N.A. (the "Bank") and Kendle Research Associates, Inc. (the "Company")
(said agreement shall hereinafter be referred to as the "Agreement").
Dear Mr. Mooney:
Pursuant to the Loan Agreement referenced above, the Bank hereby waives the
following covenant.
(J) INDEBTEDNESS. Not incur or permit to exist any indebtedness, except:
(i) the borrowings evidenced by this Agreement, (ii) favorable
short-term unsecured trade credit granted in the ordinary course of
business.
This waiver pertains specifically to a $2 million lease line transaction for the
acquisition of office equipment, office furniture, computer equipment and
computer software. The covenant remains in effect for all other transactions. Do
not hesitate to contact me should you have any questions.
Sincerely,
/s/Mark A. Sesler
--------------------------
Mark A. Sesler
Assistant Vice President
MAS:d
<PAGE> 12
February 13, 1997
Ms. Candace K. Bryan and
Mr. Christopher Bergen
Kendle Research Associates, Inc.
441 Vine Street, Suite 700
Cincinnati, OH 45202-2816
Re: The Revolving Credit Loan Agreement dated August 9, 1997 and
as subsequently amended from time to time, (hereinafter referred
to as the "Agreement") by and between Star Bank, N.A. (the
"Bank") and Kendle Research Associates, Inc. (the "Company")
Dear Ms. Bryan and Mr. Bergen:
This letter, when duly and validly accepted by the Company, shall amend the
Agreement such that:
1) INCREASE RESTRICTED PAYMENTS. Total compensation to Candace K. Bryan and
Christoper Bergen shall not exceed $275,000 combined annually.
All representations and warranties of the Company as originally set forth in
the Agreement are true and correct as of the date hereof. All other terms,
conditions, and covenants of the Agreement shall remain in full force and
effect.
If all the above terms represent our understanding, please indicate your
agreement by signing below.
Sincerely,
Star Bank, N.A.
By: /s/ David B. Cardell
--------------------------------
David B. Cardell
Vice President
Accepted this 27 day of November 1997.
-- --------
KENDLE RESEARCH ASSOCIATES, INC.
By: /s/ Timothy M. Mooney
----------------------------------
<PAGE> 1
EXHIBIT 10.3
------------
PROMISSORY NOTE
$2,000,000.00 Cincinnati, Ohio
August 9, 1996
For value received, receipt of which is hereby acknowledged, the
undersigned (jointly and severally if more than one) promises to pay to the
order of STAR BANK, N.A. (hereinafter the "Bank") the sum of Two Million Dollars
and 00/100 Dollars, ____ interest, as set forth below, upon the unpaid balance
for the period outstanding, except there shall be a minimum interest charge of
$50.00. This note is __, is not __, issued under the provisions of a loan
agreement dated August 9, 1996.
RATE OF INTEREST AND ITS CALCULATION
*See Loan Agreement for Rate Conditions.
__ A fixed rate of ________% per annum.
__ A floating rate equal to __ the Bank's Prime Rate (currently _______% per
annum), or __ the following other index rate:
____________________________________, PLUS an additional _____% per annum. The
initial rate will be ____% per annum.
"Prime Rate" shall mean the rate announced as such from time to time by
the Bank. The Prime Rate is determined solely by the Bank pursuant to market
factors and its own operating needs and is not necessarily the Bank's best or
most favorable rate for commercial or other loans. If the rate of interest is to
float with the Bank's Prime Rate or another index, as described above, then the
rate of interest shall be adjusted to reflect changes in the applicable index on
__ the same day as the applicable index changes or __
_________________________________.
Interest shall be computed on the basis of a year consisting of 360
days but applied to the actual number of days elapsed. At the option of the
Bank, (a) prior to acceleration of this note, in the event any interest of
principal amounts remain unpaid pasty thirty (30) days of the date due, and/or
(b) upon the occurrence of any other default under this note or upon the
acceleration of this note, interest will be paid on the outstanding principal
amount of this note, at the rate specified above plus an additional three
percent (3%) per annum up to any maximum rate permitted by law.
FREQUENCY OF PAYMENT AND MATURITY
* See Loan Agreement for Repayment Conditions.
__ This note is a single payment note. Principal balance (plus all interest and
unpaid fees) are due and payable on _____________, 19__.
__ This note is a multi-payment note. Final principal balance (plus all
interest and unpaid fees) are due and payable on July 31, 1997.
Payment Amount $_____________ Date of First Payment _______________, 19__.
Payment Frequency (on same date of each succeeding _______________).
(M/Q/SA/A)
__ Payment Amount includes both interest and principal.
__ Payment Amount includes principal only (interest is additional).
__Other ____________________________________________________________________.
In the event that the undersigned should fail to make any payment
hereunder within ten (10) days of the date due, the undersigned shall pay the
Bank a fee in an amount of up to 5 percent (5%) of the amount of such payment,
but in no event less than $50.00, which fee shall be immediately due
<PAGE> 2
and payable without notice or demand.
COLLATERAL
The undersigned (jointly and severally if more than one) hereby grants
to the Bank a security interest in the following property:
Security Agreement covering Inventory, Accounts Receivable, Equipment,
- -------------------------------------------------------------------------------
Furniture, Fixtures and General Intangibles
- --------------------------------------------------------------------------------
together with all additions thereto and substitutions therefor, and the
proceeds, products, and any insurance or damage claims with respect thereto. The
undersigned and any endorser, guarantor, or surety of this note (hereinafter
individually and collectively the "Obligors") also grant the Bank a security
interest in all other property of Obligors or in which Obligors have an interest
now or hereafter in the possession of the Bank or in which the Bank has a
security interest or mortgage, together with all additions thereto and
substitutions therefor, and the proceeds, products and any insurance or damage
claims with respect thereto; provided, that such security interest shall not be
created in any household furnishings or other goods used by any individual
Obligors for personal, family or household purposes. The security interests
granted to the Bank herein secure the payment of (i) the loan evidenced by this
note and all fees and charges due hereunder; (ii) all other loans, indebtedness,
and liabilities of the Obligors, or any of them, to the Bank howsoever
evidenced, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and whether incurred alone or with
others, as maker, endorser, guarantor, or surety and including any extensions or
renewals thereof, (iii) interest and financing fees on such loans, indebtedness,
and liabilities; and (iv) all costs of collection and attorneys' fees incurred
by the Bank in collecting or enforcing such loans, indebtedness, liabilities, or
realizing on any security interest securing such loans, indebtedness, and
liabilities (all such loans, indebtedness, liabilities, interest, costs, and
fees hereinafter the "Obligations"). Any separate security agreement or
instrument in which any of the Obligors grants the Bank any security interest
shall supplement the security provisions hereof, and any inconsistency between
the provisions of this note and such agreement or instrument shall be
interpreted in all respects in favor of the Bank.
The Obligors further grant the Bank a security interest in all deposits
and account balances and credits of the Obligors or other sums, credited by or
due from the Bank to the Obligors in the possession of or in transit to the
Bank, now existing or hereafter arising, and all proceeds thereof, and the Bank
may treat such deposits and sums as security for the payment of the Obligations.
To the extent the Obligations are due and payable, the Bank may apply or set off
such deposits or other sums against the Obligations as the Bank deems
appropriate, and/or refuse to honor orders to pay or withdraw such deposits or
sums.
The property in which the Bank is granted a security interest
hereunder, and all additions thereto and substitutions therefor, and the
proceeds, products and any insurance or damage claims with respect thereto, are
hereinafter collectively referred to as the "Collateral". The Obligors or any
other person who owns securities which are Collateral, shall provide the Bank
with the certificates representing such securities endorsed in blank or
accompanied by assignments or stock powers sufficient to transfer title to such
securities to the Bank or its nominee, and shall hold in trust for and
immediately deliver to the Bank with such endorsements, assignments, or powers
all securities received in addition to or in exchange for such securities and
all rights to subscribe to securities incident thereto.
<PAGE> 3
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE PROVISIONS ON THE REVERSE SIDE
HEREOF CONSTITUTE A PART OF THIS AGREEMENT AND ACKNOWLEDGES RECEIPT OF A TRUE
AND COMPLETELY FILLED IN COPY OF THIS INSTRUMENT AT THE TIME OF SIGNING.
THE FOLLOWING SHALL BE APPLICABLE IN ANY JURISDICTION OR CIRCUMSTANCE
IN WHICH THE APPLICATION OR EFFECT OF SAME IS NOT PROHIBITED BY LAW, AND IS VOID
AND OF NO EFFECT IN ANY JURISDICTION OR CIRCUMSTANCE IN WHICH SAME IS PROHIBITED
BY LAW:
Each of the undersigned as maker or endorser, hereby authorizes any
attorney-at-law to appear in any court of record in any county in the State of
Ohio or elsewhere where any of the undersigned reside, signed this note or can
be found, after the holder declares an event of default and accelerates the
balances due under this note, to waive the issuance of service of process and
confess judgment against any or all of the undersigned in favor of the holder of
this note for the amounts then appearing due, together with the costs of suit,
and thereupon to release all errors and waive all right of appeal and stay of
execution; but no such judgement or judgements against one of the undersigned
shall be a bar to a subsequent judgment or judgments against any of the
undersigned against which/whom judgment has not been obtained hereunder. Each of
the undersigned agrees and consents that the attorney confessing judgment on
behalf of the undersigned hereunder may also be counsel to the Bank or its
affiliates, waives any conflict of interest which might otherwise arise, and
consents to the Bank paying such confessing attorney a legal fee or allowing
such attorney's fees to be paid from any proceeds of collection of this Note or
collateral security therefor. The undersigned are jointly and severally liable
hereon and this warrant of attorney to confess judgment is a joint and several
warrant of attorney.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE (OHIO REVISED CODE SECTION 2323.13).
Address 441 Vine Street Suite 700 Kendle Research Associates, Inc.
---------------------------- --------------------------------
Cincinnati, Ohio 45202 By: Timothy M. Mooney
- ----------------------------------- --------------------------------
- ----------------------------------- --------------------------------
ENDORSEMENT
Endorser Endorser
--------------------------- ------------------------
Address Address
---------------------------- -------------------------
- ----------------------------------- --------------------------------
<PAGE> 4
The Bank may at its option at any time after the occurrence of an event
of default (i) transfer the Collateral at any time to itself or its nominee,
with or without a designation that the Bank is a pledgee, and take any other
action necessary to become record holder of any Collateral, (ii) exercise all
rights and privileges in connection with the Collateral to which the Bank or its
nominee may be entitled as record holder thereof, and (iii) receive the income
from the Collateral and hold the same as additional Collateral or apply it as
the Bank deems appropriate against the principal or interest due on this note or
any other Obligations. No such transfer of Collateral by the Bank to itself or
its nominee shall operate to discharge the Obligations. The Bank may operate,
use, and exercise any right of ownership pertaining to the Collateral which the
Bank deems necessary to preserve the value of the Collateral as security for the
Obligations, and the Obligors irrevocably appoint the Bank as attorney-in-fact
to do all things and acts in connection therewith. The Bank shall not be liable
to the Obligors, other owners of the Collateral, or any third party for damages
arising from the manner in which the Bank holds, operates, uses or exercises
rights of ownership pertaining to the Collateral.
Should the Bank deem itself insecure, the Obligors shall deliver to the
Bank such additional Collateral as the Bank requests. At any time, at the Bank's
request, the Obligors shall sign all financing statements, trust receipts,
security agreements, mortgages, deeds of trust, registration agreements, or
other documents which the Bank deems necessary to evidence, perfect, secure,
preserve, protect, or enforce existing or additional security interests in the
Collateral, or to facilitate sale or other realization by the Bank of same, and
the Obligors irrevocably appoint the Bank as attorney-in-fact (which power of
attorney is couple with an interest) to do all things and acts which the Bank
deems necessary in connection therewith.
If, at the time of the payment, discharge, and surrender of this note,
the Obligors are directly or contingently liable to the Bank as maker, endorser,
surety, or guarantor of any other instrument, or are directly or contingently
liable to the Bank for any other reason, the Bank may continue to hold any of
the Collateral to secure such liability and may thereafter exercise all rights
granted herein with respect to such Collateral. The Bank may at any time at its
option demand, sue for, collect, or make any compromise or settlement it deems
desirable with reference to the Collateral. The Obligors shall take all steps
necessary to preserve all rights in the Collateral against prior parties, but
the Bank shall not be required to take any such steps.
FEES AND EXPENSES
The Obligors shall, at the option of the Bank and in addition to any
other amounts to be paid hereunder, pay to the Bank upon demand (i) in the event
that the loan evidenced by this note is not a revolving credit loan, a minimum
fee of $25.00 for each renewal, extension, modification or amendment of this
note (or such higher amount the Obligors and the Bank may negotiate), (ii) all
fees and charges incurred by the Bank in connection with title and lien searches
on the Collateral and filing and recording documents to evidence, protect or
perfect the Bank's lien on any Collateral, (iii) a fee of $25.00 in connection
with each substitution, exchange or release of any Collateral at the request of
any Obligor, (iv) all costs of collection and attorney's fees incurred, related
to and/or paid by the Bank in enforcing this note, and (v) all costs and
expenses incurred by the Bank in connection with any change of law or
governmental rules, regulations, guidelines or orders (or any interpretation
thereof) or the introduction of new laws, regulations or guidelines affecting
this note or the loan evidenced by this note. The Obligors agree to defend,
indemnify and hold the Bank
<PAGE> 5
harmless from any liability, obligation, cost, damage or expense (including
attorney's fees and legal expenses) for taxes (other than income taxes), fees or
third party claims which may arise or be related to the execution, delivery,
payment or performance of this note or realization by the Bank as to the
Collateral.
DEFAULT
At the Bank's option, all Obligations shall become immediately due and
payable without notice or demand (except that all Obligations shall become
automatically due and payable upon the occurrence of an event of default
described in (v) or (vii) below), upon the occurrence of any of the following
events of default: (i) failure of the Obligors to deliver additional collateral
as provided above; (ii) default in the payment or performance of any of the
Obligations, or breach of any covenant or default as to any liability contained
or referred to in this note; (iii) any representation or warranty made by any of
the Obligors to the Bank is or becomes false in any material respect; (iv) an
event of default occurs under any other document, agreement or instrument
between any Obligor and the Bank or delivered by any Obligor to the Bank; (v)
any Obligor does not repay when due any borrowed money obligation or the holder
of such obligation declares or may declare such obligation due prior to its
stated maturity; (vi) failure to pay when due any premium on any insurance
policy held as or supporting any of the Collateral; (vii) death, dissolution,
termination of existence, insolvency, business failure, appointment of a
receiver of any part of the property of, assignment for the benefit of creditors
by, or commencement of any proceedings under any bankruptcy, insolvency, or
reorganization was by or against any of the Obligors; (viii) if, in the opinion
of the holder, there has been a material adverse change in the financial affairs
or operating condition of any of the Obligor's or in the value of the
Collateral; (ix) levy upon, attachment of seizure by legal process of any
Obligor's property or the institution of garnishment or attachment proceedings
against any Obligors; or (x) if the Bank for any good faith reason deems itself
insecure. Such listing of events of defaults shall not affect the Bank's right
otherwise to make demand if this note is payable on demand. Upon the occurrence
of any such event of default, and at any time thereafter, the Bank may exercise
all rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the state where the principal office of the Bank is located or under
the laws of any state where Collateral is located, exercise all voting rights
and receive all dividends and other distributions related to any securities
which are Collateral, and without making demand against any person for payment
of the Obligations or first resorting to any other Collateral, the Bank may sell
or otherwise dispose of any or all of the Collateral (with the right to bid for
and buy free from any redemption right) at public or private sale or at any
broker's board or exchange, for cash, upon credit, or for future delivery. Any
requirement of reasonable notice under the Uniform Commercial Code shall be met
if such notice is mailed, postage prepaid, to the person entitled to such notice
at least five (5) days prior to the sale or disposition of the Collateral. The
Obligors acknowledge that a public sale would not be commercially reasonable in
the event that the Bank, in its sole discretion, deems that a public sale would
require a registration of Collateral under any federal or state securities law,
and in such case the Obligors waive any right to require a public sale on the
ground that the proceeds of a private sale may be less than the proceeds of a
public sale.
OTHER
If at any time the rate of interest charged in this note (the
"Applicable Rate"), together with
<PAGE> 6
all fees and charges provided for herein or in any other document or instrument
executed or delivered in connection herewith which are treated as interest under
applicable law (collectively, the "Charges"), exceeds the maximum lawful rate
allowed under applicable law (the "Maximum Rate"), the rate of interest payable
hereunder, together with all Charges, shall be limited to the Maximum Rate;
provided, however, that any subsequent reduction in the Prime Rate, or other
applicable index as described above, shall not reduce the Applicable Rate below
the Maximum Rate until the total amount of interest earned hereunder equals the
total amount of interest which would have accrued at the Applicable Rate if the
Applicable Rate had at all times been in effect. If any payment hereunder, for
any reason, results in the Obligors having paid interest in excess of that
permitted by applicable law, then all excess amounts theretofore collected by
the Bank shall be credited on the principal balance owing hereunder (or, if all
sums owing hereunder have been paid in full, refunded to the Obligors), and the
amounts thereafter collectible hereunder shall immediately be deemed reduced,
without the necessity of the execution of any new document, so as to comply with
applicable law and permit the recovery of the fullest amount otherwise provided
for hereunder.
The Obligors shall at all reasonable times and from time to time allow
the Bank, by or through any of its officers, agents, attorneys or accountants,
to examine, inspect or make extracts from the Obligors' books and records. The
Obligors further agree to provide to the Bank, upon demand, statements and
information with respect to the Obligors' businesses, including but not limited
to profit and loss reports, balance sheets and other financial statements and
listings of Collateral. All such financial date and listings of the Collateral
shall be compiled in accordance with generally accepted accounting principles
consistently applied.
No delay or omission of the Bank in exercising any right hereunder
shall operate as a waiver of such right or of any other right hereunder. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
such right on any future occasion.
The Obligors waive presentment, demand for payment, notice of protest,
notice of non-payment, protest, and all other demands and notices in connection
with the delivery, acceptance, performance, default, or enforcement of this
note. The Obligors consent to any extension or postponement of the time for
payment or any other indulgence granted by the Bank, to any substitution,
exchange, or release of Collateral, and to the addition or release of any person
primarily or secondarily liable hereunder. Further, each of the Obligors
authorizes and ratifies any payment of any of the Obligations by any other
Obligors to the same extent as if made collectively or by each of them
individually, and agrees, consents, and confirms that any extension of any
statute of limitations resulting from such payment and affecting enforcement or
collection of the Obligations shall to the same degree also extend the statute
of limitations applicable to all Obligors affecting enforcement or collection of
the Obligations. Each of the Obligors who is an individual agrees that his death
of any other Obligors shall not terminate the powers of or authority granted to
the Bank hereunder.
All notices required to be given to the Obligors or any other person,
including notices stating that the Bank has exercised or will exercise any
rights hereunder, shall be given to the persons entitled to such notice at their
addresses given on the front side of this note or if no address is given, then
to the last address known to the Bank. The unenforceability or invalidity of any
provisions of this note shall not affect the enforceability or validity of any
other provision hereof.
<PAGE> 7
All notices required to be given to the Obligors or any other person,
including notices stating that the Bank has exercised or will exercise any
rights hereunder, shall be given to the persons entitled to such notice at their
addresses given on the front side of this note or if no address is given, then
to the last address known to the Bank. The unenforceability or invalidity of any
provisions of this note shall not affect the enforceability or validity of any
other provision hereof.
IMPORTANT: The loan evidenced by this note shall be deemed made in the
state where the principal office of the Bank is located and this note, and all
the rights and obligations of the parties hereunder, shall in all respects be
governed and construed in accordance with the laws of such state, including all
matters of construction, validity and performance. Without limitation on the
ability of the Bank to exercise all its rights as to the Collateral security for
this note, as to repayment of the amounts owing under this note, the parties
agree that any action or proceeding commenced by or on behalf of the parties
arising out of or relating to this note and the loan, shall be commenced and
maintained exclusively in a court of applicable general jurisdiction located in
the federal district where the principal office of the Bank is located. The
parties also agree that a summons and complaint commencing on action or
proceeding in any such courts by or on behalf of such parties shall be properly
served and shall confer personal jurisdiction on a party if (a) served
personally or by certified mail to the party at any of its addresses noted
herein, or (b) as otherwise provided under the laws of such state. The interest
rate and other terms of this note are, in part, related to the aforesaid
provision on jurisdiction, which the Bank deems a vital part of this loan
arrangement. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE BANK TO EXTEND
CREDIT EVIDENCED BY THIS NOTE, THE BANK AND THE OBLIGORS EACH WAIVE TRIAL BY
JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING OUT OF THIS NOTE, THE LOAN EVIDENCED HEREBY THE COLLATERAL PROVIDED
HEREIN AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE BANK AND ANY OR ALL OF
THE OBLIGORS.
<PAGE> 1
EXHIBIT 10.4
------------
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is made, entered and dated as of November
27, 1996 by and between LESSOR, BANC ONE LEASING CORPORATION, 2400 Corporate
Exchange Drive, Columbus, Ohio 43231, and LESSEE, KENDLE RESEARCH ASSOCIATES,
INC., 700 Carew Tower, Fifth and Vine Streets, Cincinnati, Ohio 45202.
1. LEASE OF EQUIPMENT: Lessor leases to Lessee, and Lessee leases from
Lessor, all the property described in the Lease Schedules which are signed from
time to time by Lessor and Lessee.
2. CERTAIN DEFINITIONS: "Schedule" means each Lease Schedule signed by
Lessee and Lessor which incorporates the terms of this Master Lease Agreement,
together with all exhibits, riders, attachments and addenda thereto. "Equipment"
means the property described in each Schedule, together with all attachments,
additions, accessions, parts, repairs, improvements, replacements and
substitutions thereto. "Lease", "herein", "hereunder", "hereof" and similar
words mean this Master Lease Agreement and all Schedules, together with all
exhibits, riders, attachments and addenda to any of the foregoing, as the same
may from time to time be amended, modified or supplemented. "Prime Rate" means
the prime rate of interest announced from time to time as the prime rate by Bank
One, Columbus, NA; provided, that the parties acknowledge that the Prime Rate is
not intended to be the lowest rate of interest charged by said bank in
connection with extensions of credit. "Lien" means any security interest, lien,
mortgage, pledge, encumbrance, judgment, execution, attachment, warrant, writ,
levy, other judicial process or claim of any nature whatsoever by or of any
person. "Fair Market Value" means the amount which would be paid for an item of
Equipment by an informed and willing buyer (other than a used equipment or scrap
dealer) and an informed and willing seller neither under a compulsion to buy or
sell. "Lessor's Cost" means the invoiced price of any item of Equipment plus any
other cost to Lessor of acquiring an item of Equipment. All terms defined in the
Lease are equally applicable to both the singular and plural form of such terms.
3. LEASE TERM AND RENT: The term of the lease of the Equipment
described in each Schedule ("Lease Term") commences on the date stated in the
Schedule and continues for the term stated therein. As rent for the Equipment
described in each Schedule, Lessee shall pay Lessor the rent payments and all
other amounts stated in such Schedule, payable on the dates specified therein.
All payments due under the Lease shall be made in United Stated dollars at
Lessor's office stated in the opening paragraph or as otherwise directed by
Lessor in writing.
4. ORDERING, DELIVERY, REMOVAL AND INSPECTION OF EQUIPMENT: If an
event of default occurs or if for any reason Lessee does not accept, or revokes
its acceptance of, equipment covered by a purchase order or purchase contract or
if any commitment or agreement of Lessor to lease equipment to Lessee expires,
terminates or is otherwise canceled, then automatically upon notice from Lessor,
any purchase order or purchase contract an all obligations thereunder shall be
assigned to Lessee and Lessee shall pay and perform all obligations thereunder.
Lessee agrees to pay, defend, indemnify and hold Lessor harmless from
<PAGE> 2
- 2 -
any liabilities, obligations, claims, costs and expenses (including reasonable
attorney fees and expenses) of whatever kind imposed on or asserted against
Lessor in any way related to any purchase orders or purchase contracts. Lessee
shall make all arrangements for, and Lessee shall pay all costs of,
transportation, delivery, installation and testing of Equipment. The Equipment
shall be delivered to Lessee's premises stated in the applicable Schedule and
shall not be removed without Lessor's prior written consent. Lessor has the
right upon reasonable notice to Lessee to inspect the Equipment wherever
located. Lessor may enter upon any premises where Equipment is located and
remove it immediately, without notice or liability to Lessee, upon the
expiration or termination of the Lease Term.
5. MAINTENANCE AND USE: Lessee agrees it will, at its sole expense:
(a) repair and maintain the Equipment in good condition and working order and
supply and install all replacement parts or other devices when required to so
maintain the Equipment or when required by applicable law or regulation, which
parts or devices shall automatically become part of the Equipment; (b) use and
operate the Equipment in a careful manner in the normal course of its business
and only for the purposes for which it was designed in accordance with the
manufacturer's warranty requirements, and comply with all laws and regulations
relating to the Equipment, and obtain all permits or licenses necessary to
install, use or operate the Equipment; and (c) make no alterations, additions,
subtractions, upgrades or improvements to the Equipment without Lessor's prior
written consent, but any such alterations, additions, upgrades or improvements
shall automatically become part of the Equipment. The Equipment will not be used
or located outside of the United States.
6. NET LEASE; NO EARLY TERMINATION: The Lease is a net lease. Lessee's
obligation to pay all rent and all other amounts payable under the Lease is
absolute and unconditional under any and all circumstances and shall not be
affected by any circumstances of any character including, without limitation,
(a) any setoff, claim, counterclaim, defense or reduction which Lessee may have
at any time against Lessor or any other party for any reason, or (b) any defect
in the condition, design or operation of, any lack of fitness for use of, any
damage to or loss of, or any lack of maintenance or service for any of the
Equipment. Each Schedule is a noncancelable lease of the Equipment described
therein and Lessee's obligation to pay rent and perform all other obligations
thereunder and under the Lease are not subject to cancellation or termination by
Lessee for any reason.
7. NO WARRANTIES BY LESSOR: LESSOR LEASES THE EQUIPMENT AS-IS,
WHERE-IS, AND WITH ALL FAULTS. LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED, OF ANY KIND AS TO THE EQUIPMENT INCLUDING, WITHOUT
LIMITATION: ITS MERCHANTABILITY; ITS FITNESS FOR ANY PARTICULAR PURPOSE; ITS
DESIGN, CONDITION, QUALITY, CAPACITY, DURABILITY, CAPABILITY, SUITABILITY OR
WORKMANSHIP; ITS NON-INTERFERENCE WITH OR NON-INFRINGEMENT OF ANY PATENT,
TRADEMARK, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT; OR ITS COMPLIANCE
WITH ANY LAW, RULE, SPECIFICATION, PURCHASE ORDER OR CONTRACT PERTAINING
THERETO. Lessor hereby assigns to Lessee the benefit of any assignable
<PAGE> 3
- 3 -
manufacturer's or supplier's warranties, but Lessor, at Lessee's written
request, will cooperate with Lessee in pursuing any remedies Lessee may have
under such warranties. Any action taken with regard to warranty claims against
any manufacturer or supplier by Lessee will be at Lessee's sole expense. LESSOR
MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND AS TO
THE FINANCIAL CONDITION OR FINANCIAL STATEMENTS OF ANY PARTY OR AS TO THE TAX OR
ACCOUNTING TREATMENT OR CONSEQUENCES OF THE LEASE, THE EQUIPMENT OR THE RENTAL
PAYMENTS.
8. INSURANCE: Lessee at its sole expense shall at all times keep each
item of Equipment insured against all risks of loss or damage from every cause
whatsoever for an amount not less than the greater of the full replacement value
or the Lessor's Cost of such item of Equipment. Lessee at its sole expense shall
at all times carry public liability and property damage insurance in amounts
satisfactory to Lessor protecting Lessee and Lessor from liabilities for
injuries to persons and damage to property of others relating in any way to the
Equipment. All insurers shall be reasonably satisfactory to Lessor. Lessee shall
deliver to Lessor satisfactory evidence of such coverage. Proceeds of any
insurance covering damage or loss of the Equipment shall be payable to Lessor as
loss payee and shall, at Lessor's option, be applied toward (a) the replacement,
restoration or repair of the Equipment, or (b) payment of the obligations of
Lessee under the Lease. Proceeds of any public liability or property insurance
shall be payable first to Lessor as additional insured to the extent of its
liability, then to Lessee. If an event of default occurs and is continuing, or
if Lessee fails to make timely payments due under Section 9 hereof, then Lessee
automatically appoints Lessor as Lessee's attorney-in-fact with full power and
authority in the place of Lessee and in the name of Lessee or Lessor to make
claim for, receive payment of, and sign and endorse all documents, checks or
drafts for loss or damage under any such policy. Each insurance policy will
require that the insurer give Lessor at least 30 days prior written notice of
any cancellation of such policy and will require that Lessor's interests remain
insured regardless of any act, error, omission, neglect or misrepresentation of
Lessee. The insurance maintained by Lessee shall be primary without any right of
contribution from insurance which may be maintained by Lessor.
9. LOSS AND DAMAGE (a) Lessee bears the entire risk of loss, theft,
damage or destruction of Equipment in whole or in part from any reason
whatsoever ("Casualty Loss"). No Casualty Loss to Equipment shall relieve Lessee
from the obligation to pay rent or from any other obligation under the Lease. In
the event of Casualty Loss to any item of Equipment, Lessee shall immediately
notify Lessor of the same and Lessee shall, if so directed by Lessor,
immediately repair the same. If Lessor determines that any item of Equipment has
suffered a Casualty Loss beyond repair ("Lost Equipment"), then Lessee, at the
option of Lessor shall: (1) Immediately replace the Lost Equipment and similar
equipment in good repair, condition and working order free and clear of any
Liens and deliver to Lessor a bill of sale covering the replacement equipment,
in which event such replacement equipment shall automatically be Equipment under
the Lease; or (2) On the rent payment date which is at least 30 but no more than
60 days after the date of the Casualty Loss, pay to Lessor all amounts then due
and payable by Lessee under the Lease for the Lost Equipment plus the Stipulated
Loss Value for such Lost Equipment as of the date of the Casualty Loss. Upon
payment by Lessee of all amounts due under the above clause
<PAGE> 4
- 4 -
(2), the lease of the Lost Equipment will terminate and Lessor shall transfer to
Lessee all of Lessor's right, title and interest in such Equipment on an "as-is,
where-is" basis with all faults, without recourse and without representation or
warranty of any kind, express or implied.
"Stipulated Loss Value" of any item of Equipment during its Lease Term
equals the present value discounted in arrears to the applicable date at the
applicable SLV Discount Rate of (1) the remaining rents and all other amounts
[including, without limitation, any balloon payment and, as to a terminal rental
adjustment clause ("TRAC") lease, the TRAC value stated in the Schedule, and any
other payments required to be paid by Lessee at the end of the applicable Lease
Term] payable under the Lease for such item on and after such date to the end of
the applicable Lease Term and (2) an amount equal to the Economic Value of the
Equipment. For any item of Equipment, "Economic Value" means the Fair Market
Value of the Equipment at the end of the applicable Lease Term as originally
anticipated by Lessor at the Commencement Date of the applicable Schedule;
provided, that Lessee agrees that such value shall be determined by the books of
Lessor as of the Commencement Date of the applicable Schedule. After the payment
of all rent due under the applicable Schedule and the expiration of the Lease
Term of any item of Equipment, the Stipulated Loss Value of such item equals the
Economic Value of such item. Stipulated Loss Value shall also include any Taxes
payable by Lessor in connection with its receipt thereof. For any item of
Equipment, "SLV Discount Rate" means an interest rate equal to the Prime Rate in
effect on the Commencement Date of the Schedule for such item minus two
percentage points.
10. TAX BENEFITS INDEMNITY. (a) The Lease has been entered into on the
basis that Lessor shall be entitled to such deductions, credits and other tax
benefits as are provided by federal, state and local income tax law to an owner
of the Equipment (the "Tax Benefits") including, without limitation: (1)
modified accelerated cost recovery deductions on each item of Equipment under
Section 168 of the Code (as defined below) in an amount determined commencing
with the taxable year in which the Commencement Date of the applicable Schedule
occurs, using the maximum allowable depreciation method available under Section
168 of the Code, using a recovery period (as defined in Section 168 of the Code)
reasonably determined by Lessor, and using an initial adjusted basis which is
equal to the Lessor's Cost of such item; (2) amortization of the expenses paid
by Lessor in connection with the Lease on a straight-line basis over the term of
the applicable Schedule; and (3) Lessor's federal taxable income will be subject
to the maximum rate on corporations in effect under the Code as of the
Commencement Date of the applicable Schedule.
(b) If on any one or more occasions (1) Lessor shall lose, shall not
have or shall lose the right to claim all or any part of the Tax Benefits, (2)
there shall be reduced, disallowed, recalculated or recaptured all or any part
of the Tax Benefits, or (3) all or any part of the Tax Benefits is reduced by a
change in law or regulation (each of the events described in subparagraphs 1, 2
or 3 of this paragraph (b) will be referred to as a "Tax Loss"), then, upon 30
days written notice by Lessor to Lessee that a Tax Loss has occurred, Lessee
shall pay Lessor an amount which, in the reasonable opinion of Lessor and after
the deduction of all taxes required to be paid by Lessor with respect to the
receipt of such amount, will provide Lessor with the same after-tax net economic
yield
<PAGE> 5
- 5 -
which was originally anticipated by Lessor as of the Commencement Date of
the applicable Schedule.
(c) A Tax Loss shall occur upon the earliest of: (1) the happening of
any event (such as disposition or change in use of an item of Equipment) which
may cause such Tax Loss; (2) Lessor's payment to the applicable taxing authority
of the tax increase resulting from such Tax Loss; or (3) the adjustment of
Lessor's tax return to reflect such Tax Loss.
(d) Lessor shall not be entitled to payment under this section for any
Tax Loss caused solely by one or more of the following events: (1) a
disqualifying sale or disposition of an item of Equipment by Lessor prior to any
default by Lessee; (2) Lessor's failure to timely or properly claim the Tax
Benefits in Lessor's tax return; (3) a disqualifying change in the nature of
Lessor's business or liquidation thereof; (4) a foreclosure by any person
holding through Lessor a security interest on an item of Equipment which
foreclosure results solely from an act of Lessor; or (5) Lessor's failure to
have sufficient taxable income or tax liability to utilize the Tax Benefits.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
For the purposes of this section 10, the term "Lessor" shall include any
affiliate group (within the meaning of section 1504 of the Code) of which Lessor
is a member for any year in which a consolidated income tax return is filed for
such affiliated group. Lessee's obligations under this section shall survive the
expiration, cancellation or termination of the Lease.
11. GENERAL TAX INDEMNITY: Lessee will pay, and will defend, indemnify
and hold Lessor harmless on an after-tax basis from, any and all Taxes (as
described below) and related audit and contest expenses on or relating to (a)
any of the Equipment, (b) the Lease, (c) purchase, acceptance, ownership, lease,
possession, use, operation, transportation, return or other disposition of any
of the Equipment, and (d) rentals or earnings relating to any of the Equipment
or the Lease. "Taxes" means present and future taxes or other governmental
charges that are not based on the net income of Lessor, whether they are
assessed to or payable by Lessee or Lessor, including, without limitation (i)
sales, use, excise, licensing, registration, titling, franchise, business and
occupation, gross receipts, stamp and personal property taxes, (ii) levies,
imposts, duties, assessments, charges and withholdings, (iii) penalties, fines,
and additions to tax and (iv) interest on any of the foregoing. Unless Lessor
elects otherwise, Lessor will prepare and file all reports and returns relating
to any Taxes and will pay all Taxes to the appropriate taxing authority. Lessee
will reimburse Lessor for all such payments promptly on request. On or after any
applicable assessment/levy/lien date for any personal property Taxes relating to
any Equipment, Lessee agrees that upon Lessor's request Lessee shall pay to
Lessor the personal property Taxes which Lessor reasonably anticipates will be
due, assessed, levied or otherwise imposed on any Equipment during its Lease
Term. If Lessor elects in writing, Lessee will itself prepare and file all such
reports and returns, pay all such Taxes directly to the taxing authority, and
send Lessor evidence thereof. Lessee's obligations under this section shall
survive the expiration, cancellation or termination of the Lease.
<PAGE> 6
- 6 -
12. GENERAL INDEMNITY: Lessee assumes all risk and liability for, and
shall defend, indemnify and keep Lessor harmless on an after-tax basis from, any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses, including reasonable attorney fees and expenses, of
whatsoever kind and nature imposed on, incurred by or asserted against Lessor,
in any way relating to or arising out of the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, any claim for latent or other defects,
whether or not discoverable by Lessee or any other person, any claim for
negligence, tort or strict liability, any claim under any environmental
protection or hazardous waste law and any claim for patent, trademark or
copyright infringement). Lessee will not indemnify Lessor under this section for
loss or liability arising from events which occur after the Equipment has been
returned to Lessor or for loss or liability caused directly and solely by the
gross negligence or willful misconduct of Lessor. In this section, "Lessor" also
includes any director, officer, employee, agent, successor or assign of Lessor.
Lessee's obligations under this section shall survive the expiration,
cancellation or termination of the Lease.
13. PERSONAL PROPERTY: Lessee represents and agrees that the Equipment
is, and shall at all times remain, separately identifiable personal property.
Upon Lessor's request, Lessee shall furnish Lessor a landlord's and/or
mortgagee's waiver and consent to remove all Equipment. Lessor may display
notice of its interest in the Equipment by any reasonable identification. Lessee
shall not alter or deface any such indicia of Lessor's interest.
14. DEFAULT: Each of the following events shall constitute an event of
default under the Lease: (a) Lessee fails to pay any rent or other amount due
under the Lease within ten days of its due date; or (b) Lessee fails to perform
or observe any of its obligations in Sections 8, 18, or 22 hereof; or (c) Lessee
fails to perform or observe any of its other obligations in the Lease for more
than 30 days after Lessor notifies Lessee of such failure; or (d) Lessee or any
Lessee affiliate defaults in the payment, performance or observance of any
obligation under any loan, credit agreement or other lease in which Lessor or
any subsidiary (direct or indirect) of Banc One Corporation (which is Lessor's
ultimate parent corporation) is the creditor or lessor; or (e) any statement,
representation or warranty made by Lessee in the Lease, in any Schedule or in
any document, certificate or financial statement in connection with the Lease
proves at any time to have been untrue or misleading in any material respect as
of the time when made; or (f) Lessee becomes insolvent or bankrupt, or Lessee
admits its inability to pay its debts as they mature, or Lessee makes an
assignment for the benefit of creditors, or Lessee applies for, institutes or
consents to the appointment of a receiver, trustee or similar official for
Lessee or any substantial part of its property or any such official is appointed
without Lessee's consent, or Lessee applies for, institutes or consents to any
bankruptcy, insolvency, reorganization, debt moratorium, liquidation, or similar
proceeding relating to Lessee or any substantial part of its property under the
laws of any jurisdiction or any such proceeding is instituted against Lessee
without stay or dismissal for more than 30 days, or Lessee commences any act
amounting to a business failure or a winding up of its affairs, or Lessee ceases
to do business as a going concern; or (g) with respect to any guaranty, letter
of credit, pledge agreement, security agreement, mortgage, deed of trust,
<PAGE> 7
- 7 -
debt subordination agreement or other credit enhancement or credit support
agreement (whether now existing of hereafter arising) signed or issued by any
party in connection with all or any part of Lessee's obligations under the
Lease, the party signing or issuing any such agreement defaults in its
obligations thereunder or any such agreement shall cease to be in full force and
effect or shall be declared to be null, void, invalid or unenforceable by the
party signing or issuing it; or (h) there shall occur in Lessor's reasonable
opinion any material adverse change in the financial condition, business or
operations of Lessee.
<PAGE> 8
- 8 -
14. DEFAULT (CONTINUED): As used in this section 14, the term "Lessee"
also includes any guarantor (whether now existing or hereafter arising) of all
or any part of Lessee's obligations under the Lease and/or any issuer of a
letter of credit (whether now existing or hereafter arising) relating to all or
any part of Lessee's obligations under the Lease, and the term "Lease" also
includes any guaranty or letter of credit (whether now existing or hereafter
arising) relating to all or any part of Lessee's obligations under the lease.
15. REMEDIES. If any event of default exists, Lessor may exercise in
any order one or more of the remedies described in the lettered subparagraphs of
this section, and Lessee shall perform its obligations imposed thereby:
(a) Lessor may require Lessee to return any or all Equipment
as provided in the Lease.
(b) Lessor or its agent may repossess any or all Equipment
wherever found, may enter the premises where the Equipment is located
and disconnect, render unusable and remove it, and may use such
premises without charge to store or show the Equipment for sale.
(c) Lessor may sell any or all Equipment at public or
private sale, with or without advertisement or publication, may
re-lease or otherwise dispose of it or may use, hold or keep it
(d) Lessor may require Lessee to pay to Lessor on a date
specified by Lessor, with respect to any or all Equipment (i) all
accrued and unpaid rent, late charges and other amounts due under the
Lease on or before such date, plus (ii) as liquidated damages for loss
of a bargain and not as a penalty, and in lieu of any further payments
of rent, the Stipulated Loss Value of the Equipment on such date, plus
(iii) interest at the Overdue Rate on the total of the foregoing
("Overdue Rate" means interest rate per annum equal to the higher of
18% or 2% over the Prime Rate, but not to exceed the highest rate
permitted by applicable law). The parties acknowledge that the
foregoing money damage calculation reasonably reflects Lessor's
anticipated loss with respect to the Equipment and the related Lease
resulting from the event of default. If an event of default under
section 14(f) of this Master Lease Agreement exists, then Lessee will
be automatically liable to pay Lessor the foregoing amounts as of the
next rent payment date unless Lessor otherwise elects in writing.
(e) Lessee shall pay all costs, expenses and damages
incurred by Lessor because of the event of default or its actions
under this section, including, without limitation any collection
agency and/or attorney fees and expenses, any costs related to the
repossession, safekeeping, storage, repair, reconditioning or
disposition of the Equipment and any incidental and consequential
damages.
(f) Lessor may terminate the Lease and/or any or all
Schedules, may sue to enforce Lessee's performance of its obligations
under the Lease and/or may exercise any other right or remedy then
available to Lessor at law or in equity.
<PAGE> 9
- 9 -
Lessor is not required to take any legal process or give Lessee any
notice before exercising any of the above remedies. None of the above remedies
is exclusive, but each is cumulative and in addition to any other remedy
available to Lessor. Lessor's exercise of one or more remedies shall not
preclude its exercise of any other remedy. No action taken by Lessor shall
release Lessee from any of its obligations to Lessor. No delay or failure on the
part of Lessor to exercise any right hereunder, shall operate as a waiver
thereof, nor as an acquiescence in any default, nor shall any single or partial
exercise of any right preclude any other exercise thereof or the exercise of any
other right. After any default, Lessor's acceptance of any payment by Lessee
under the Lease shall not constitute a waiver by Lessor of such default,
regardless of Lessor's knowledge or lack of knowledge at the time of such
payment, and shall not constitute a reinstatement of the Lease if the Lease has
been declared in default by Lessor, unless Lessor has agreed in writing to
reinstate the Lease and to waive the default.
If Lessor actually repossesses any Equipment, then it will use
commercially reasonable efforts under the then current circumstances to attempt
to mitigate its damages; provided, that Lessor shall not be required to sell,
re-lease or otherwise dispose of any Equipment prior to Lessor enforcing any of
the remedies described above. Lessor may sell or re-lease the Equipment in any
manner it chooses, free and clear of any claims or rights of Lessee and without
any duty to account to Lessee with respect thereto except as provided below. If
Lessor actually sells or re-leases the Equipment, it will credit the net
proceeds of any sale of the Equipment, or the net present value (discounted at
the then current Prime Rate) of the rents payable under any new lease of the
Equipment, against and up to (but not exceeding) the Stipulated Loss Value of
the Equipment and any other amounts (Lessee owes Lessor, or will reimburse
Lessee for and up to (but not exceeding) Lessee's payment thereof. The term
"net" as used above shall mean such amount after deducting the costs and
expenses described in clause (e) above of this section. If Lessor elects in
writing not to sell or re-lease any Equipment, it will similarly credit or
reimburse Lessee for Lessor's reasonable estimate of such Equipment's Fair
Market Value.
16. LESSOR'S RIGHT TO PERFORM: If Lessee fails to make any payment
under the Lease or fails to perform any of its other agreements in the Lease
(including, without limitation, its agreement to provide insurance coverage as
stated in the Lease), Lessor may itself make such payment or perform such
agreement, and the amount of such payment and the amount of the expenses of
Lessor incurred in connection with such payment or performance shall be accrued
to be additional rent, payable by Lessee on demand.
17. FINANCIAL REPORTS: Lessee agrees to furnish to Lessor: (a) annual
financial statements setting forth the financial condition and results of
operation of Lessee (financial statements shall include the balance sheet,
income statement and changes in financial position and all notes thereto) within
120 days of the end of each fiscal year of Lessee; (b) quarterly financial
statements setting forth the financial condition and results of operation of
Lessee within 60 days of the end of each of the first three fiscal quarters of
Lessee; and (c) such other financial information as Lessor may from time to time
reasonably request including, without limitation, financial reports filed by
Lessee with federal or state regulatory agencies. All such financial information
shall be prepared in accordance with generally accepted accounting principles.
If
<PAGE> 10
- 10 -
Lessee fails to furnish the annual financial statements to Lessor within 30 days
of Lessor's written request, then Lessor may, at its option, charge Lessee a
non-performance fee equal to all the rentals due under the Lease for the then
current month (unless otherwise prohibited by law) and such fees that shall be
deemed to be additional rent, payable by Lessee on demand.
18. NO CHANGES IN LESSEE: Lessee shall not: (a) liquidate, dissolve or
suspend business; (b) sell, transfer or otherwise dispose of all or a majority
of its assets, except that Lessee may sell its inventory in the ordinary course
of its business; (c) enter into any merger, consolidation or similar
reorganization unless it is the surviving corporation; (d) transfer all or any
substantial part of its operations or assets outside of the United States of
America; or (e) without 30 days advance written notice to Lessor, change its
name or chief place of business. Lessee shall at all times maintain a tangible
net worth which is no less than the greater of 75% of its tangible net worth as
of the date of the Master Lease Agreement or 75% of its highest tangible net
worth thereafter.
19. LATE CHARGES: If any rent or other amount payable under the Lease
is not paid when due, then as compensation for the administration and
enforcement of Lessee's obligation to make timely payments. Lessee shall pay
with respect to each overdue payment on demand an amount equal to the greater of
fifteen dollars ($15.00) or five percent (5%) of the each overdue payment (but
not to exceed the highest late charge permitted by applicable law) plus any
collection agency fees and expenses.
20. NOTICES; POWER OF ATTORNEY: (a) Service of all notices under the
Lease shall be sufficient if given personally or couriered or mailed to the
party involved at its respective address set forth herein or at such other
address as such party may provide in writing from time to time. Any such notice
mailed to such address shall be effective three days after deposit in the United
States mail with postage prepaid. (b) With respect to any power of attorney
covered by the Lease, the powers conferred on Lessor thereby; are powers coupled
with an interest; are irrevocable; are solely to protect Lessor's interests
under the Lease; and do not impose any duty on Lessor to exercise such powers.
Lessor shall be accountable solely for amounts it actually receives as a result
of its exercise of such powers.
21. ASSIGNMENT BY LESSOR: Lessor and any assignee of Lessor, with or
without notice to or consent of Lessee, may sell, assign, transfer or grant a
security interest in all or any part of Lessor's rights, obligations, title or
interest in the Equipment, the Lease, any Schedule or the amounts payable under
the Lease or any Schedule to any entity ("transferee"). The transferee shall
succeed to all of Lessor's rights in respect to the Lease (including, without
limitation, all rights to insurance and indemnity protection described in the
Lease). Lessee agrees to sign any acknowledgment and other documents reasonably
requested by Lessor or the transferee in connection with any such transfer
transaction. Lessee, upon receiving notice of any such transfer transaction,
shall comply with the terms and conditions thereof. Lessee agrees that it shall
not assert against any transferee any claim, defense, setoff, deduction or
counterclaim which Lessee may now or hereafter be entitled to assert against
Lessor. Unless otherwise agreed in writing, the transfer transaction shall not
relieve Lessor of any of its obligations to Lessee under the
<PAGE> 11
- 11 -
Lease and Lessee agrees that the transfer transaction shall not be construed as
being an assumption of such obligations by the transferee.
22. ASSIGNMENT, SUBLEASE OR LIEN BY LESSEE: LESSEE SHALL NOT, DIRECTLY
OR INDIRECTLY, (a) MORTGAGE, ASSIGN, SELL, TRANSFER, OR OTHERWISE DISPOSE OF THE
LEASE OR ANY INTEREST THEREIN OR THE EQUIPMENT OR ANY PART THEREOF, OR (b)
SUBLEASE, RENT, LEND OR TRANSFER POSSESSION OR USE OF THE EQUIPMENT OR ANY PART
THEREFOR TO ANY PARTY, OR (c) CREATE, INCUR, GRANT, ASSUME OR ALLOW TO EXIST ANY
LIEN ON THE LEASE, ANY SCHEDULE, THE EQUIPMENT OR ANY PART THEREOF.
23. EXPIRATION OF LEASE TERM: (a) At the end of 90 days (or earlier if
otherwise specified), but no more than 270 days prior to expiration of the Lease
Term of each Schedule, Lessee shall give Lessor written notice of its electing
one of the following options for some but not less than all) of the Equipment
covered by such Schedule: return the Equipment under clause (_) below; or
purchase the Equipment under clause (c) below. The election of an option shall
be irrevocable. If Lessee fails to give timely notice of its election, it shall
be deemed to have elected to return the Equipment.
(b) If Lessee elects or is deemed to have elected to return
the Equipment at the expiration of the Lease Term of a Schedule or if
Lessee is obligated at any time to return the Equipment, then Lessee
shall, at its sole expense and risk, deinstall, disassemble, pack,
crate, insure and return the Equipment to Lessor (all in accordance
with applicable industry standards) at any location in the continental
United States of America selected by Lessor. The Equipment shall be in
the same condition as when received by Lessee, reasonable wear, tear
and depreciation resulting from normal and proper use excepted (or, if
applicable, in the condition set forth in the Lease or the Schedule),
shall be in good operating order and maintenance as required by the
Lease, shall be certified as being eligible for any available
manufacturer's maintenance program, shall be free and clear of any
Liens as required by the Lease, shall comply with all applicable laws
and regulations and shall include all manuals, specifications, repair
and maintenance records and similar documents. Until Equipment is
returned as required above, all terms of the Lease shall remain in
full force and effect including, without limitation, obligations to
pay rent and insure the Equipment; provided, that after the expiration
of any Schedule and before Lessee has completed its return of the
Equipment or its purchase option (if elected), the term of the lease
of the Equipment covered by such Schedule shall be month-to-month or
such shorter period as may be specified by Lessor.
(c) If Lessee gives Lessor timely notice of its election to
purchase Equipment, then on the expiration date of the applicable
Schedule Lessee shall purchase all (but not less than all) of the
Equipment and shall pay to Lessor the Fair Market Value of the
Equipment plus all Taxes (other than income taxes on Lessor's gains on
such sale), costs and expenses incurred or paid by Lessor in
connection with such sale plus all accrued but unpaid amounts due with
resect to the Equipment and/or the Schedule. The Stipulated Loss Value
or Economic Value of any item of Equipment shall have no bearing or
influence on the determination of Fair Market Value under this clause
(c). Upon payment in full of the above amounts, and if no default has
occurred and is continuing under the Lease, Lessor shall transfer
title to such Equipment to Lessee "as-is, where-
<PAGE> 12
- 12 -
is" with all faults and without recourse to Lessor and without any
representation or warranty of any kind whatsoever by Lessor, express
or implied.
(d) For purposes of the purchase option of the Lease, the
determination of the Fair Market Value of any Equipment shall be
determined (1) without deducting any costs of dismantling or removal
from the location of use, (2) on the assumption that the Equipment is
in the condition required by the applicable return and maintenance
provisions of the Lease and is free and clear of any Liens as required
by the Lease, and (3) shall be determined by mutual agreement of
Lessee and Lessor or, if Lessor and Lessee are not able to agree on
such value, by the Appraisal Procedure. "Appraisal Procedure" means
the determination of Fair Market Value by an independent appraiser
acceptable to Lessor and Lessee, or, if the parties are unable to
agree on an acceptable appraiser, by averaging the valuation
(disregarding the one which differs the most from the other two) of
three independent appraisers, the first appointed by Lessor, the
second appointed by Lessee and the third appointed by the first two
appraisers. For purposes of the "Remedies" section of the lease, the
Fair Market Value shall be determined by Lessor in good faith and any
such valuation shall be on an "as-is, where is" basis without regard
to the first sentence of this clause (d) Lessee, at its sole expense,
shall pay all fees, costs and expenses of the above described
appraisers.
24. GOVERNING LAW: THE INTERPRETATION, CONSTRUCTION AND VALIDITY OF
THE LEASE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO. WITH RESPECT TO
ANY ACTION BROUGHT BY LESSOR AGAINST LESSEE TO ENFORCE ANY TERM OF THE LEASE,
LESSEE HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY STATE OR
FEDERAL COURT IN THE FRANKLIN COUNTY, OHIO, WHERE LESSOR HAS ITS PRINCIPAL PLACE
OF BUSINESS AND WHERE PAYMENTS ARE TO BE MADE BY LESSEE.
25. MISCELLANEOUS: (a) Subject to the limitations herein, the Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, administrators, successors and assigns. (b) This Master Lease
Agreement and each Schedule may be executed in any number of counterparts, which
together shall constitute a single instrument. Only one counterpart of each
schedule shall be marked "Lessor's Original" and all other counterparts shall be
marked "Duplicate". A security interest in any Schedule may be created through
transfer and possession only of the Counterpart marked "Lessor's Original". (c)
Section and paragraph headings in this Master Lease Agreement and the Schedules
are for convenience only and have no independent meaning. (d) The terms of the
Lease shall be severable and if any term thereof is declared unconscionable,
invalid, illegal or void, in whole or in part, the decision so holding shall not
be construed as impairing the other terms of the Lease and the Lease shall
continue in full force and effect as if such invalid, illegal, void or
unconscionable term were not originally included herein. (e) All indemnity
obligations of Lessee under the Lease and all rights, benefits and protections
provided to Lessor by warranty disclaimers shall survive the cancellation,
expiration or termination of the Lease. (f) Lessor shall not be liable to Lessee
for any indirect, consequential or special damages for any reason whatsoever,
(g) Each payment made by Lessee shall be applied by Lessor in such manner as
Lessor determines in its discretion which may
<PAGE> 13
- 13 -
include, without limitation, application as follows: first, to accrued late
charges; second, to accrued fees, and third, the balance to any other amounts
then due and payable by Lessee under the Lease. (h) If the Lease is signed by
more than one Lessee, each of such Lessees shall be jointly and severally liable
for payment and performance of all of Lessee's obligations under the Lease.
26. ENTIRE AGREEMENT: THE LEASE REPRESENTS THE FINAL, COMPLETE AND
ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO. THERE ARE NO ORAL OR UNWRITTEN
AGREEMENTS OR UNDERSTANDINGS AFFECTING THE LEASE OR THE EQUIPMENT. Lessee agrees
that Lessor is not the agent of any manufacturers or supplier, that no
manufacturer or supplier is an agent of Lessor, and that any representation,
warranty or agreement made by a manufacturer, supplier or their employees, sales
representatives or agents shall not be binding on Lessor.
27. JURY WAIVER: ALL PARTIES TO THIS MASTER LEASE AGREEMENT WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY
PARTY AGAINST ANY OTHER PARTY ON ANY MATTER WHATSOEVER ARISING OUT OF, IN
CONNECTION WITH OR IN ANY WAY RELATED TO THIS MASTER LEASE AGREEMENT.
BANC ONE LEASING CORPORATION KENDLE RESEARCH ASSOCIATES, INC.
--------------------------------
(Name of Lessee)
Lessor
By: /S/ Anthony Park By: /S/ Timothy M. Mooney
--------------------- -----------------------
Title: Lending Authority Title: Vice President - Finance
------------------ ----------------------------
- --------------------------------------------------------------------------------
Regardless of any prior, present or
future oral agreement or course of
dealing, no term or condition of the
Lease may be amended, modified, waived,
discharged, cancelled or terminated KENDLE RESEARCH ASSOCIATES, INC.
except by a cancelled or terminated --------------------------------
except by a written instrument signed (Name of Lessee)
by the party to be bound; except
Lessee authorizes Lessor to complete
the Acceptance Date of each Schedule
and the serial numbers of the Equipment.
By: /S/ Timothy M. Mooney
---------------------
Title: Vice President - Finance
------------------------
<PAGE> 14
ADDENDUM I TO MASTER LEASE AGREEMENT
Date:November 27, 1996
-----------------
Master Lease Agreement Dated:November 27, 1996
-----------------
Lessee: KENDLE RESEARCH ASSOCIATES, INC.
Reference is made to the Master Lease Agreement identified above ("Master
Lease") by and between BANC ONE LEASING CORPORATION ("Lessor") and the Lessee
identified above ("Lessee"). This Addendum I modifies the terms and conditions
of the Master Lease. Unless otherwise defined herein, capitalized terms defined
in the Master Lease shall have the same meaning when used herein. As part of the
valuable consideration to induce the execution of the Master Lease, Lessor and
Lessee hereby agree as follows:
1. The fourth sentence of Section 4 of the Master Lease is amended and
restated as follows:
The Equipment shall be delivered to Lessee's premises stated
in the applicable Schedule and shall not be removed without
Lessor's prior written consent which consent shall not be
unreasonably withheld.
2. Notwithstanding the restrictions in Section 5 of the Master Lease,
Lessee may make Severable Improvements to the Equipment. "Severable
Improvements" shall mean alterations, additions, upgrades, and improvements to
the Equipment that: (a) are not required to make the Equipment usable as
intended by Lessee at the Commencement Date; (b) are separately identifiable
personal Property; and (c) are capable of being readily removed from the
Equipment without causing material damage to the Equipment and without
materially reducing the original functional utility or Fair Market Value of the
Equipment. Lessee shall not remove any Severable Improvement from the Equipment
unless Lessee returns the Equipment to its original condition and functional
utility.
3. Section 10(a) of the Master Lease is amended and restate as follows:
(a) The Lease has been entered into on the basis that Lessor
shall be entitled to such deductions, credits and other tax benefits as
are provided by federal and state income tax law to an owner of the
Equipment (the"Tax Benefits") including, without limitation: (1)
modified accelerated cost recovery deductions on each item of Equipment
under Section 168 of the Code (as defined below) in an amount
determined commencing with the taxable year in which the Commencement
Date of the applicable Schedule occurs, using the maximum allowable
depreciation method available under Section 168 of the Code, using a
recovery period (as defined in Section 168 of the Code) reasonably
determined by Lessor, and using an initial adjusted basis which is
equal to the Lessor's Cost of such item; (2) amortization of the
expenses paid by Lessor in connection with the Lease on a straight-line
basis over the term of the applicable Schedule; and (3) Lessor's
federal taxable income will be subject to
1
<PAGE> 15
the maximum rate on corporations in effect under the Code as of the
Commencement Date of the applicable Schedule.
4. Section 10(b) of the Master Lease is amended and restated as
follows:
(b) If on any one or more occasions (1) Lessor shall lose,
shall not have or shall not lose the right to claim all or any part of
the Tax Benefits, or (2) there shall be reduced, disallowed,
recalculated or recaptured all or any part of the Tax Benefits (each of
the events described in subparagraphs 1 or 2 or this paragraph (b) will
be referred to as a "Tax Loss"), then, upon 30 days written notice by
Lessor to Lessee that a Tax Loss has occurred, Lessee shall pay Lessor
an amount which, after the deduction of all taxes required to be paid
by Lessor with respect to the receipt of such amount, will provide
Lessor with the same after tax net economic yield which was originally
anticipated by Lessor as of the Commencement Date of the applicable
Schedule and which shall be disclosed to Lessee on or after the date of
the Tax Loss.
5. Section 10(c) of the Master Lease is amended and restated as
follows:
(c) A Tax Loss shall occur upon the earliest of: (1) the
happening of any event referred to in section (b), (1) or (2) above
(such as disposition or change in use of an item of Equipment) which
may cause such Tax Loss; (2) Lessor's payment to the applicable taxing
authority of the tax increase resulting from such Tax Loss; or (3) the
adjustment of Lessor's tax return to reflect such Tax Loss.
6. Section 11 of the Master Lease is amended and restated as follows:
11. GENERAL TAX INDEMNITY: Lessee will pay, and will defend,
indemnify and hold Lessor harmless on an after-tax basis from, any and
all Taxes (as defined below) and related reasonable audit and contest
expenses on or relating to (a) any of the Equipment, (b) the Lease, (c)
purchase, acceptance, ownership, lease, possession, use, operation,
transportation, return or other disposition of any of the Equipment,
and (d) rentals or earnings relating to any of the Equipment or the
Lease. "Taxes" means present and future taxes or other governmental
charges that are not based on the net or gross income of Lessor,
whether they are assessed to or payable by Lessee or Lessor, including,
without limitation (i) sales, use, excise, licensing, registration,
titling, stamp and personal property taxes, (ii) levies, imposts,
duties, assessments, charges and withholdings, (iii) penalties, fines,
and additions to tax (unless caused by the negligence or misconduct of
Lessor) and (iv) interest on any of the foregoing. Unless Lessor elects
otherwise, Lessor will prepare and file all reports and returns
relating to any Taxes and will pay all Taxes to the appropriate taxing
authority. Lessee will reimburse Lessor for all such payments promptly
on request. On or after any
2
<PAGE> 16
applicable assessment/levy/lien date for any personal property Taxes
relating to any Equipment, Lessee agrees that upon Lessor's request
Lessee shall pay to Lessor the personal property Taxes which Lessor
reasonably anticipates will be due, assessed, levied or otherwise
imposed on any Equipment during its Lease Term. If Lessor elects in
writing, Lessee will itself prepare and file all such reports and
returns, pay all such Taxes directly to the taxing authority, and send
Lessor evidence thereof. Lessee's obligations under this section shall
survive the expiration, cancellation or termination of the Lease.
7. Section 12 of the Master Lease is amended and restated as follows:
12. GENERAL INDEMNITY: Except as otherwise expressly provided
in this section, Lessee assumes all risk and liability for, and shall
defend, indemnify and keep Lessor harmless on an after-tax basis from,
any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs and expenses, including reasonable
attorney fees and expenses, of whatsoever kind and nature imposed on,
incurred by or asserted against Lessor, in any way relating to or
arising out of the manufacture, purchase, acceptance, rejection,
ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any
part thereof (including, without limitation, any claim for latent or
other defects, whether or not discoverable by Lessee or any other
person, any claim for negligence, tort or strict liability, any claim
under any environmental protection or hazardous waste law and any claim
for patent, trademark or copyright infringement). Lessee will not
indemnify Lessor under this section for loss or liability arising from
events which occur after the Equipment has been returned to Lessor or
for loss or liability caused directly and soley by the negligence or
willful misconduct of Lessor. In this section, "Lessor" also includes
any director, officer, employee, agent, successor or assign of Lessor.
Lessee's obligations under this section shall survive the expiration,
cancellation or termination of the Lease.
8. The first paragraph of Section 14 of the Master Lease is amended and
restated as follows:
14. DEFAULT: Each of the following events shall constitute an
event of default under the Lease: (a) Lessee fails to pay any rent or
other amount due under the Lease within ten days of its due date; or
(b) Lessee fails to perform or observe any of its obligations in
sections (8), (18), or (22) hereof; or (c) Lessee fails to perform or
observe any of its other obligations in the Lease for more than 30 days
after Lessor notifies Lessee of such failure; or (d) Lessee or any
Lessee affiliate defaults in the payment, performance or observance of
any obligation under any loan, credit agreement or other lease in which
Lessor or any subsidiary (direct or indirect) of Banc One Corporation
(which is Lessor's ultimate parent corporation) is the creditor or
lessor; or (e) any statement, representation or warranty made by Lessee
in the Lease, in any Schedule or in any document, certificate or
financial statement in connection with the Lease proves at any time to
have been untrue or misleading in any material respect as of the time
when made; or (f) Lessee becomes insolvent or bankrupt, or
3
<PAGE> 17
Lessee admits its inability to pay its debts as they mature, or Lessee
makes an assignment for the benefit of creditors, or Lessee applies
for, institutes or consents to the appointment of a receiver, trustee
or similar official for Lessee or any substantial part of its property
or any such official is appointed without Lessee's consent or Lessee
applies for, institutes or consents to any bankruptcy, insolvency,
reorganization, debt moratorium, liquidation or similar proceeding
relating to Lessee or any substantial part of its property under the
laws of any jurisdiction or any such proceeding is instituted against
Lessee without stay or dismissal for more than 30 days, or Lessee
commences any act amounting to a business failure or a winding up of
its affairs, or Lessee ceases to do business as a going concern; or (g)
with respect to any guaranty, letter of credit, pledge agreement,
security agreement, mortgage, deed of trust, debt subordination
agreement or other credit enhancement or credit support agreement
(whether now existing or hereafter arising) signed or issued by any
party in connection with all or any part of Lessee's obligations under
the Lease, the party signing or issuing any such agreement defaults in
its obligations thereunder or any such agreement shall cease to be in
full force and effect or shall be declared to be null, void, invalid or
unenforceable by the party signing or issuing it.
9. Section 17(a) of the Master Lease is amended and restated as
follows:
(a) annual audited financial statements setting forth the
financial condition and results of operation of Lessee
(financial statements shall include balance sheet, income
statement and changes in financial position and all notes
thereto) within 120 days of the end of each fiscal year of
Lessee;
10. Section 17(b) of the Master Lease is amended and restated as
follows:
(b) published quarterly financial statements setting forth the
financial condition and results of operation of Lessee within
90 days of the end of each of the first three fiscal quarters
of Lessee; and
11. Section 18 of the Master Lease is amended and restated as follows:
18. NO CHANGES ON LESSEE:
(a) Lessee shall not: (i) liquidate, dissolve or suspend
business; (ii) sell, transfer or otherwise dispose of all or a
majority of its assets, except that Lessee may sell its
inventory in the ordinary course of its business; (iii) enter
into any merger, consolidation or similar reorganization
unless it is the surviving corporation; (iv) transfer all or
any substantial part of its operations or assets outside of
the United States of America; or (v) without 30 days advance
written notice to Lessor, change its name or chief place of
business.
4
<PAGE> 18
(b) Lessee shall comply, as of each quarterly testing period,
with all of the covenants in this section 18(b), and that
unless otherwise defined below, all terms and ratios used
below shall be defined or determined in accordance with
generally accepted accounting principles ("GAAP"):
(1) As used in this section 18(b), "INDEBTEDNESS"
means any indebtedness in its broadest sense and includes,
without limitation, any indebtedness for borrowed money or the
deferred purchase price of property, any issue of or
assumption of any note, debenture, bond or other evidence of
indebtedness, any capitalized lease, any operating lease with
a term exceeding twelve (12) months, any contribution or
agreement to contribute or otherwise maintain or support the
capital requirements of another, or any guarantee of any of
the foregoing obligations of others.
(2) Lessee shall not permit its tangible capital base
to be less than $400,000 plus 50% of net income less any
S-Corporation tax distributions beginning with the quarter
ending December 31, 1996 and for each fiscal quarter
thereafter plus 90% of net proceeds from the public offering
of Lessee's stock. The remaining 10% shall be used for
distributions of previously taxed S-Corporation earnings.
"Tangible Capital Base" shall mean, as of any date, the sum of
Lessee's total equity plus debts subordinated to Lessor minus
any intangible assets.
(3) Lessee will maintain a Cash Flow Ratio for
Lessee's fiscal year to date that is equal to or greater than
Required Minimum Ratio. "Required Minimum Ratio" means 2.0 to
1.0 as of and for December 31, 1996 and each March 31st, June
30th, September 30th, and December 31st thereafter. "Cash Flow
Ratio" means the ratio of
(i) the aggregate of
(A) its net income for that quarter before
income taxes, plus
(B) its interest expense for that quarter,
plus
(C) its depreciation and amortization for
that quarter, plus
(D) operating lease payments for that
quarter
To (ii) the aggregate of
(A) its current maturities of long-term
Indebtedness for that quarter, plus
(B) operating lease payments for that
quarter, plus
(C) its interest expense for that quarter.
5
<PAGE> 19
(c) Candace K. Bryan and Christopher Bergen shall not cease to
own a majority of Lessee's outstanding capital stock or cease
to have the unconditional right to elect a majority of
Lessee's board or directors, except as a result of the initial
public offering being contemplated by Lessee.
(d) Lessee shall not be required to comply with the covenants
in 18(b), (2) and (3) and paragraph (c) above if Lessee is the
subject of a initial public offering that generates not less
than $15,000,000 of which 90% is retained by the Lessee.
12. Section 19 of the Master Lease is amended and restated as follows:
19. LATE CHARGES: If any rent or other amount payable under
the Lease is not paid when due, then as compensation for the
administration and enforcement of Lessee's obligation to make timely
payments, Lessee shall pay with respect to each overdue payment on
demand an amount equal to the greater of fifteen dollars ($15.00) or
two percent (2%) of the each overdue payment (but not to exceed the
highest late charge permitted by applicable law) plus any collection
agency fees and expenses.
13. The first sentence in Section 23(c) of the Master Lease is amended
and restates as follows:
If Lessee gives Lessor timely notice of its election to
purchase Equipment, then on the expiration date of the applicable
Schedule Lessee shall purchase all (but not less than all) of the
Equipment and shall pay to Lessor the Fair Market Value of the
Equipment plus all Taxes (other than income taxes on Lessor's gains on
such sale), and out-of-pocket costs and expenses incurred or paid by
Lessor in connection with such sale plus all accrued but unpaid amounts
due with respect to the Equipment and/or the Schedule.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum I as
of the date referenced above.
6
<PAGE> 20
KENDLE RESEARCH BANC ONE LEASING CORPORATION
ASSOCIATES, INC. (Lessor)
(Lessee)
By: /s/ Timothy M. Mooney By: /s/
------------------------------- ---------------------------------
Title: VP - Finance Title: VP - Lending Authority
---------------------------- -------------------------------
By: By:
------------------------------- ---------------------------------
Title: Title:
---------------------------- -------------------------------
Lessee's Witness: /s/ John C. Kennedy
---------------------
7
<PAGE> 1
EXHIBIT 10.5
------------
Lease No. __________
MASTER EQUIPMENT LEASE
This is a Master Equipment Lease between STAR BANK, NA whose principal
office is located at 425 Walnut Street, Cincinnati, Ohio ("Lessor") and KENDLE
RESEARCH ASSOCIATES, INC. whose principal office is located at 441 Vine Street,
700, City of Cincinnati, Ohio ("Lessee").
1. LEASE. Lessor agrees to lease to Lessee and Lessee agrees to lease
from Lessor, subject to the terms and conditions set forth herein, the items of
personal property (the "Equipment") described in each Acceptance Supplement (a
"Supplement") executed and delivered by the parties hereto pursuant to the terms
of this Master Equipment Lease ("Lease"). Each Supplement shall be in the form
prescribed by Lessor and, upon the execution and deliver thereof, shall
constitute a part of this Lease to the same extent as if the provisions thereof
were set forth in full in this Lease, the terms "Agreement," "hereof," "herein,"
and "hereunder," when used in this Lease, shall mean this Lease, each Supplement
and each Schedule. This Agreement Constitutes an agreement of lease and nothing
herein contained shall be construed as conveying to Lessee any right, title, or
interest in the Equipment except as Lessee only.
2. TERM; ACCEPTANCE; RENT; RETURN. The term of lease of each item of
Equipment shall commence on the Commencement Date specified in the Supplement
pertaining to such Equipment and, unless earlier terminated pursuant to the
provisions hereof, shall continue for the term specified in such Supplement.
Lessee's execution and delivery of each Supplement shall constitute Lessee's
irrevocable acceptance of the Equipment covered thereby for all purposes of this
Agreement. Lessee shall pay to Lessor (at Lessor's office specified above, or as
Lessor may otherwise designate), rent as specified in each Supplement. Each date
on which an installment of rent is payable is hereunder called a "Rent Payment
Date." As to each Supplement, the first Rent Payment Date shall be the Rent
Payment Date set forth therein, with the succeeding Rent Payment Dates on the
corresponding day of each month thereafter. In addition, if applicable, Lessee
shall pay interim rent for the period between rent for the period between the
Commencement date and the first Rent Payment Date based on a 30 day month and
the number of days between the Commencement Date and the first Rent Payment
Date. Lessee shall also pay to Lessor, on demand, a late payment charge of 5% of
each installment of rent and any other amount owing hereunder which is not paid
when due. Upon the expiration or earlier termination of the term of lease of
each item of Equipment leased hereunder. Lessee shall as its expense return such
item to lessor at such location as Lessor may designate, in the condition
required to be maintained by Section 7 hereof.
3. DISCLAIMER OF WARRANTY. LESSOR MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE EQUIPMENT, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND
WHATSOEVER. Lessee confirms that it has made (or will make) the selection of
each item of Equipment on the basis of its own judgment and expressly disclaims
reliance upon any statements, representations or warranties made by Lessor.
<PAGE> 2
- 2 -
Lessor shall not be liable to Lessee for any matter relating to the ordering,
manufacture, purchase, delivery, assembly, installation, testing, operation or
servicing of the Equipment or for any claim, loss, damage or expense of any kind
related to or caused by the Equipment. Lessor hereby assigns to Lessee all
rights which Lessor has or may acquire against any manufacturer, supplier, or
contractor with respect to any warranty or representation relating to the
Equipment leased hereunder. This assignment to Lessee is only of those
representations which are by law or by their terms assignable, and Lessor makes
no representation or warranty of any manufacturer, supplier or contractor.
4. EQUIPMENT TO REMAIN PERSONAL PROPERTY; LOCATION; IDENTIFICATION:
INSPECTION. Lessee represents that the Equipment shall be and all times remain
separately identifiable personal property. Lessee shall, at its expense, take
such action as may be necessary to prevent any third party from acquiring any
right to or interest in the Equipment by virtue of the Equipment being deemed to
be real property or a part of other personal property and shall indemnify Lessor
against any loss which it may sustain by reason of Lessee's failure to do so.
The Equipment may not be removed from the location specified in the Supplement
pertaining thereto without Lessor's prior written consent. If requested by
Lessor, Lessee shall attach to and maintain on the Equipment a conspicuous plate
or marketing disclosing Lessor's ownership therein. Lessor or its
representatives may, at reasonable times, inspect the Equipment.
5. TAXES: INDEMNITY. Lessee agrees to pay, and to indemnify and hold
Lessor harmless from, all license fees, assessments, and sales, use, property,
excise, and other taxes and charges (other than federal income taxes and the net
income of Lessor for reasons other than the ownership or leasing of the
Equipment in such jurisdiction) imposed upon or with respect to (a) the
Equipment or any part thereof arising out of or in connection with the shipment
of Equipment or the possession, ownership, use of operation thereof, or (b) this
Agreement or the consummation of the transactions herein contemplated. Lessee
further agrees to assume liability for, and to indemnify and hold Lessor
harmless against, all claims, costs, expenses, damages, and liabilities arising
from or pertaining to the manufacture, assembly, installation, ownership, use,
possession and operation of the Equipment, including, without limitation, latent
and other defects, whether or not discoverable by Lessee or any other person,
any expense, liability or loss directly or indirectly related to or arising out
of any injury to any person or tangible or intangible property, whether arising
from negligence or under any theory of strict or absolute liability or any other
cause, or any claim for patent or copyright infringement, together with all
legal fees and expenses reasonably incurred by Lessor in connection with any
liability asserted against it, whether groundless or otherwise. The agreements
and indemnities contained in this Section shall survive the expiration or
earlier termination of this Agreement.
6. ASSIGNMENT, SUBLETTING, ENCUMBRANCES. (a) Without Lessor's prior
written consent, Lessee shall not (i) assign, transfer, pledge, hypothecate or
otherwise dispose of this Lease or any interest herein, (ii) sublet or lend the
Equipment or (iii) permit the Equipment to be used by anyone other than Lessee
or Lessee's employees in their capacity as employees of Lessee. Neither this
Lease nor any interest herein is transferable by operation of law. For purposes
of this Lease, a change of control, whether direct or indirect, shall be
considered an assignment of this
<PAGE> 3
- 3 -
lease, (b) Lessor may sell, assign, transfer, grant security interests in or
otherwise dispose of all or any portion of its right, title and interest in and
to any Item of Items of Equipment, this Lease (including, without limitation,
any Schedule) or any of the foregoing, to any lender or other entity
("Assignee"). Lessee hereby consents to such sales, assignments and transfers
and agrees (i) upon receipt of written notice of the same from Lessor, to pay
rent hereunder as directed by such notice; (ii) to perform or observe, as the
case may be, all of its obligations hereunder may be exercised by Assignee);
(iii) to execute and deliver to Lessor such documentation as Lessor or Assignee
may reasonably request, including without limitation Uniform Commercial Code
financing statements; and (iv) to furnish to Assignee copies of any notices
given by Lessee under this Lease or any Schedule. Assignee shall have all of the
rights but, unless otherwise agreed in writing executed by Assignee, none of the
obligations of Lessor under this Lease, and Lessee shall not look to Assignee
for performance thereof.
7. USE, REPAIRS, ETC. Lessee will cause the Equipment to be operated in
accordance with the manufacturer's or supplier's instructions or manuals by
competent and duly qualified personnel only and in compliance with all laws and
regulations and the insurance policies required to be maintained hereunder. The
Equipment shall also be maintained in accordance with the instructions contained
in Schedule B to each Supplement. Lessee will, at its expense, maintain the
Equipment in good repair, condition and working order and furnish all parts,
mechanisms, devices, and servicing required therefore so that the value and
condition thereof will at all times be maintained, normal wear and tear
excepted. All such parts, mechanisms and deices shall immediately, without
further act, become part of the Equipment for all purposes of this Agreement
without cost to Lessor, Lessee will not alter or add to the Equipment without
Lessor's prior written consent. Lessee will remove any attachments, alterations,
or accessories at the termination of this Lease if Lessor shall so demand. In
the absence of such demand, all attachments, alterations or accessories shall
become part of the Equipment at the time of their attachment thereto.
8. LOSS, DAMAGE. If any Equipment shall be lost, stolen, destroyed,
damaged beyond repair, or rendered permanently unfit for normal use for any
reason, or in the event of any condemnation, confiscation, seizure, or
requisition of title to or use of any Equipment (each of the foregoing being
hereinafter called a "Loss"). Lessee shall promptly pay to Lessor an amount
equal to the sum of (i) all rent and other amounts due and owing hereunder for
such Equipment to and including the date of the Loss, and (ii) the Stipulated
Loss Value of such Equipment computed as of the Rent Payment Date occurring on
or immediately preceding the date of the Loss as set forth in Schedule A
attached to each Supplement, whereupon Lessor will transfer to Lessee, without
recourse or warranty, all of Lessor's right, title, and interest in such
Equipment. If any Equipment is damaged as the result of an event not
constituting a Loss, Lessee shall promptly cause such item to be repaired or
replaced in accordance with the provisions of Section 7 hereof.
9. INSURANCE. Lessee shall maintain at all times on the Equipment, at
Lessee's expense, property damage, direct damage, liability insurance and such
other insurance coverage as Lessor shall require in such amounts, against such
risks, and in such form and with such
<PAGE> 4
- 4 -
insurers as shall be satisfactory to Lessor. The required insurance shall be as
specified in the applicable Supplement; provided, that the amount of direct
damage insurance shall not on any date be less than the greater of the full
replacement value or the Stipulated Loss Value of the Equipment as of such date.
Each insurance policy will name Lessor as additional insured and as loss payee,
and shall contain a clause requiring the insurer to give to Lessor at least 30
days prior written notice of any alteration in or cancellation or other evidence
satisfactory to Lessor that such insurance coverage is in effect, provided,
however, that Lessor shall be under no duty to ascertain as to the existence or
adequacy of such insurance.
10. NON-CANCELLABLE AGREEMENT: LESSEE'S OBLIGATIONS UNCONDITIONAL. This
Agreement cannot be cancelled or terminated except as expressly provided herein.
Lessee agrees that its obligation to pay all rent and other amounts payable
hereunder and to perform its duties with respect hereto shall be absolute and
unconditional and is not and shall not be subject to:
(a) Any setoff, counterclaim, recoupment, defense, or other right
which Lessee may have against Lessor , the manufacturer, or
supplier of any Equipment or anyone else for any reason
whatsoever;
(b) Any defect in the condition, design, title, operation, or
fitness for use, or any damage to loss of any Equipment;
(c) Any insolvency, reorganization or similar proceedings by or
against Lessee; or
(d) Any other event or circumstances whatsoever, whether or not
similar to the foregoing.
Each rent or other payment made by Lessee hereunder shall be final and Lessee
will not seek to recover all or any part of such payment from Lessor for any
reason whatsoever.
11. DEFAULT. If (i) Lessee shall fail to make any payment of rent or
other amount owing hereunder when due; (ii) Lessee shall fail to perform or
observe any other covenant, agreement, or condition hereunder or under any other
agreement with Lessor; (iii) any representation or warranty made by Lessee
herein or in any document or certificate furnished Lessor in connection herewith
shall prove to be incorrect at any time; (iv) as a result of or in connection
with a material change in the ownership of Lessee's Stock, Lessee's debt to
worth ratio equals or exceeds twice Lessee's debt to worth ratio as of the date
of this Lease, without the prior written consent of Lessor (as used herein,
"debt to worth ratio" shall mean the ratio of (x) Lessee's total liabilities
which, in accordance with GAAP, would be included in the liability side of a
balance sheet, to (y) Lessee's tangible net worth including the sum of the par
or stated value of all outstanding stock, surplus and undivided profits, less
any amounts attributable to good will, patents, copyrights, mailing lists,
catalogs, trademarks, covenants not to compete, bond discount and underwriting
expenses, organization expense and other intangibles, all determined in
accordance with GAPP), (v) Lessee fails to maintain throughout the term of this
Agreement all significant accounts (including, without limitation, all
significant operating accounts, demand and time deposit accounts, certificate of
deposit accounts and safekeeping accounts) and/or other banking relationships
currently established between Lessee and Lessor; (vi) Lessee shall become
insolvent or shall be generally not paying its debts as they become due or shall
default with any other creditor, or shall make an assignment for the benefit of
creditors or consent to the
<PAGE> 5
- 5 -
appointment of a trustee or receiver, or a trustee or receiver shall be
appointed for Lessee or for a substantial part of its property or for the
Equipment, or reorganization, arrangement, insolvency, dissolution, or
liquidation proceedings shall be instituted by or against Lessee; or (vii)
Lessor, in its good faith judgment, deems itself insecure as to lessee's
financial condition or performance under the Lease teach of the foregoing being
herein called and "Event of Default"), then Lessor may declare this Agreement to
be in default and may do one or more of the following with respect to any or all
of the Equipment as Lessor in its sole discretion may elect, to the extent
permitted by, and subject to compliance with any mandatory requirements of
applicable law then in effect: (a) demand that Lessee, and Lessee shall at its
expense upon such demand, return the Equipment promptly to Lessor in the manner
and condition required by and otherwise in accordance with the provisions of
Section 2 hereof, as if the Equipment were being returned at the expiration of
its term of lease hereunder, or Lessor, at its option, may enter upon the
premises where the Equipment is located and take possession of and remove the
same by summary proceedings or otherwise, all without liability to Lessor for
damage to property or otherwise and to the extent permitted by law. Lessee
waives any right it may have in such instance to a judicial hearing prior to
such retaking, (b) sell the Equipment at public or private sale, with or without
notice to Lessee or advertisement, or otherwise dispose of, hold, use, operate,
lease to others or keep idle the Equipment as Lessor may determine all free and
clear of any rights of Lessee and without any duty to account to Lessee with
respect to such action or inaction or for any proceeds with respect thereof; (c)
by written notice to Lessee, demand that Lessee pay and Lessee shall pay to
Lessor, as liquidated damages for loss of a bargain and not as a penalty, on the
payment date specified in such notice, an amount (together with interest thereon
at the rate of 18% per annum or at the highest rate permitted by law, whichever
is less, from said date to the date to the date of actual payment) equal to the
amount by which the Stipulated Loss Value of the Equipment computed as of the
Rent Payment Date occurring on or immediately proceeding the payment date
specified in such notice exceeds the Fair Market Sales Value of such Equipment;
and (d) Lessor may exercise any other right or remedy which may be available to
it under applicable law or proceed by appropriate court action to enforce the
terms hereof or to recover damages for the breach hereof or to rescind this
Agreement. In addition, Lessee shall be liable for all unpaid rent and other
amounts due hereunder before or during the exercise of any of the foregoing
remedies and for all legal fees, taxes, governmental charges and other costs and
expenses incurred by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto, including placing any
Equipment in the condition required by Section 7 hereof. Furthermore, Lessee's
obligations under this Agreement may be secured by collateral given by Lessee to
Lessor and, upon the occurrence of an Event of Default, Lessor shall be entitled
to the benefits of such collateral and any document or instrument providing
therefor. Lessee grants the Lessor a security interest in all deposits and
account balances and credits of the Lessee or other sums credited by or due from
the Lessor to the Lessee in the possession of or in transit to the Lessor, now
existing or hereafter arising, and all proceeds thereof, and the Lessor may
treat such deposits and sums against the Lessee as the Lessor deems appropriate,
and/or refuse to honor orders to pay or withdraw such deposits or sums.
For the purpose of the preceding paragraph, the "Fair Market Sales
Value" of any Equipment shall mean such value to Lessor net of all expenses and
costs whatsoever which are incidental to the reclamation of the Equipment and
the sale thereof as determined (at Lessee's
<PAGE> 6
- 6 -
expense) by an independent appraiser selected by Lessor; provided, however, that
(i) the "Fair Market Sales Value" of any Equipment shall be zero if Lessor is
unable to recover possession thereof in accordance with their terms of clause
(a) of the immediately preceding paragraph, and (ii) if Lessor shall have sold
any Equipment prior to the giving of the notice referred to in clause (c) of the
immediately preceding paragraph, the "Fair Market Sales Value" thereof shall be
the net proceeds of such sales after deducting all costs and expenses incurred
by Lessor in connection therewith. Except as expressly provided above, no remedy
referred to in this Section is exclusive, but each shall be cumulative and in
addition to any other remedy referred to herein or otherwise available to Lessor
at law or equity; and the exercise or beginning of exercise by Lessor constitute
a waiver of any other or subsequent Event of Default. To the extent permitted by
law, Lessee waives any rights now or hereafter conferred by statute or otherwise
which may require Lessor to sell, lease or otherwise use the Equipment in
mitigation of Lessor's damages or which may otherwise limit or modify any of
Lessor's rights or remedies.
12. LESSOR'S RIGHTS TO PERFORM. If Lessee fails to make any payment
required to be made hereunder or fails to comply with any other agreements
contained herein, Lessor may make such payment or comply with such agreement and
the amount of such payment or compliance, shall be payable by Lessee on demand
and until paid shall bear interest at the Lessor's Prime Rate plus 4% up to any
maximum rate permitted by Ohio and federal law.
"Prime Rate" shall mean the rate announced as such from time to time by
Lessor. Such rate is determined solely by Lessor pursuant to market factors and
its own operating needs and such rate is not necessarily Lessor's best or most
favorable rate for Equipment or other loans.
<PAGE> 7
ACCEPTANCE SUPPLEMENT
(True Lease)
Supplement No. 02 to Master Equipment Lease No. 909 Commencement Date: January
31, 1995. Initial Lease Term: Thirty-Six Months. THIS ACCEPTANCE SUPPLEMENT is
executed and delivered by STAR BANK, NA ("Lessor") and KENDLE RESEARCH
ASSOCIATES, INC. ("Lessee"), pursuant to, and in accordance with the Master
Equipment Lease dated January 31, 1995 between Lessor and Lessee (the
"Agreement"), defined terms therein being used herein with their defined
meanings.
A. The Equipment covered by this Acceptance Supplement has a total
acquisition cost of Sixty-Nine Thousand, Nine Hundred Ninety-Five & 00/100
Dollars ($69,995.00) and consists of the items identified on Schedule C,
attached hereto and made a part hereof.
B. Lessee confirms that said Equipment has been delivered to it, on the
_______ day of __________________________________, 19____, duly assembled and
installed in good working order and condition, at the following location:
PHYSICAL LOCATION TAX DISTRICT
441 Vine Street, Suite 700 County: Hamilton
Cincinnati, Ohio 45202-2816 Township/School Dist:
-----------
C. Lessee hereby: (a) confirms that said Equipment is of the size,
design, capacity and manufacture selected by it and meets the provisions of any
purchase order pursuant to which Lessor has acquired title thereto; and (b)
irrevocably accepts said Equipment as-is, where-is for all purposes of the
Agreement as of the Commencement date set forth above.
D. The Commencement Date and the Initial Lease Term of said Equipment
under the Agreement, unless earlier terminated pursuant to the provisions of the
Agreement, shall be as set forth above. Lessee or Lessor may terminate this
Acceptance Supplement effective at the expiration of the Initial Lease Term or
any renewal term, by giving the other party 90 days prior written notice. If
notice of termination is not given at least 90 days prior to such expiration,
then the Initial Lease Term shall be automatically extended for an additional
period of three months on the same terms provided for during the Initial Lease
Term. No notice of termination may be revoked without prior written consent of
the other party.
E. As rent for said Equipment throughout the term of lease referred to
in the preceding paragraph D, Lessee shall pay to Lessor in accordance with the
terms of the Agreement 35 consecutive rental payments of $2,239.84 each. Rental
payments shall be made monthly. The first Rent Payment Date shall be February
20, 1995 with subsequent rental payments commencing March 20, 1995 to and
including January 20, 1998. Lessee shall pay applicable sales or use tax added
to each Rent Payment.
F. Tax Indemnity.
<PAGE> 8
- 2 -
(a) Lessor, as the owner of the Equipment, shall be entitled
to such deductions, credits and other benefits as are provided by the Internal
Revenue Code of 1986, as amended (hereinafter called the "Code"), to an owner of
property.
(b) Lessee agrees that neither it nor any corporation
controlled by it, in control of it, or under common control with it, directly or
indirectly, will at any time take any action or file any returns or other
documents inconsistent with the foregoing and that each of such corporations
will file such returns, take such action and execute such documents as may be
reasonable and necessary to facilitate accomplishment of the intent thereof.
Lessee agrees to copy and make available for inspection and copying by Lessor
such records as will enable Lessor to determine whether it is entitled to the
benefit of any amortization or depreciation deduction or tax credit which may be
available from time to time with respect to the Equipment.
(c) If, under any circumstances or for any reason whatsoever,
except for acts of the Lessor, (i) Lessor shall become liable for additional tax
as a result of Lessee having added an attachment or made an alteration to the
Equipment which would increase the productivity or capability of the Equipment
so as to violate the provisions of Rev. Proc. 75-21, 1975-1 C.B. 715, as
modified by Rev. Proc. 79-48, 1979-2 C.B. 529 (and as either or both may
hereafter be modified or superseded); (ii) the statutory full-year marginal
Federal tax rate for corporations with a December 31 tax year-end is greater
than thirty-four (34) percent; or (iii) Lessor shall lose, shall not have or
shall lost the right to claim, or there shall be disallowed or recaptured all or
any portion of the Federal tax depreciation deductions with respect to any item
of Equipment based on depreciation of the Lessor's full cost of such item of
Equipment and computed on the basis of a method of depreciation provided by the
Code as Lessor in its complete discretion may select, then Lessee agrees to pay
Lessor upon demand an amount which, after deduction of all taxes required to be
paid by Lessor in respect of the receipt thereof under the laws of any federal,
state, or local government or taxing authority of the United States or of any
taxing authority of government subsidiary of any foreign country, shall be equal
to (1) an amount equal to the additional income taxes which would be paid or
payable by Lessor in consequence of the failure to obtain the benefit of a
depreciation deduction calculated under the assumption that Lessor's income is
taxed at the highest applicable rate (without regard to the actual taxes paid by
Lessor), and (2) any interest and/or penalty which may be assessed in connection
with any of the foregoing.
(d) The provisions of this Section 12 shall survive the
expiration of earlier termination of this Agreement.
G. Pursuant to Section 9 of the Agreement, Lessee shall maintain at a
minimum the following insurance coverage:
Personal Property Amount: $59,995.00. Liability Amount: $1,000,000.00.
Such insurance shall be provided by an insurance company admitted to do
business in the State of Ohio with no less than a B rating. Each insurance
policy will contain
<PAGE> 9
- 3 -
a clause requiring the insurer to give to Lessor at least 30 days prior written
notice of any alteration in or cancellation of such insurance and will name as
Loss Payee and Additional Insured:
Star Bank, National Association
Equipment Finance Division
425 Walnut Street, Loc 8135
Cincinnati, Ohio 45202
The Lessee shall request the insurance company send a Certificate of
Insurance to the Loss Payee at the above address.
H. The Purchase option price for the Equipment pursuant to paragraph 19
of the Agreement shall be (check applicable box):
[X] A price equal to the then appraised Fair Market Sales Value of the
Equipment, as determined (at Lessee's expense) by an independent appraiser
selected by Lessor;
[ ] $
--------------------------------------
The purchase price shall be payable as set forth in paragraph 9 of the
Agreement.
I. All provisions of the Agreement are hereby incorporated by reference
in this Acceptance Supplement to the same extent as if fully set forth herein.
J. ADDITIONAL PROVISIONS. The Lessee and Lessor further agree as
follows:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 10
- 4 -
APPROVED AND AGREED to by the parties hereto as of the Commencement Date set
forth above.
LESSOR: Star Bank, NA LESSEE: Kendle Research Associates, Inc.
---------------------- ------------------------------------
The undersigned affirms that s/he is duly
authorized to execute and deliver this
acceptance supplement on behalf of Lessee.
By: /s/ Lynn Anne West By: /s/ Christopher Bergen
-------------------------- ----------------------------------------
Title: Marketing Rep Title: President
----------------------- -------------------------------------
Witness Witness /s/
---------------------- ------------------------------------
<PAGE> 11
ADDITIONAL PROVISIONS
Supplement No. 01 and 02 to Master Equipment Lease 909.
"Lessee hereby acknowledges and agrees that any and all assets
included under the Security Agreement dated October 11, 1994
shall be utilized as additional security on the above
referenced leases until the maturity of said leases."
AGREED to this 31st day of January, 1995.
LESSOR: LESSEE:
Star Bank, N.A. Kendle Research Associates, Inc.
By: /s/ Lynn Anne West By: /s/ Christopher Bergen
-------------------------- ----------------------------------------
Title: Marketing Rep Title: President
----------------------- -------------------------------------
<PAGE> 12
SCHEDULE B
SUPPLEMENT NO. 01 TO MASTER EQUIPMENT LEASE NO. 909
MAINTENANCE PROVISIONS
A. Maintenance is to be provided at all times during the lease
term by the manufacturer or manufacturer recognized service
company.
B. Lessor has the right to review and approve maintenance.
C. Copies of all maintenance contracts and records to be provided
at Lessor's request.
D. No repairs, modifications or other alterations shall be made
without Lessor's consent.
E. All parts which are lost, destroyed or deemed unfit for use
shall be replaced at Lessee's expense.
F. Additions, modifications or upgrades shall become the property
of Lessor, unless they can be easily removed without
degradation to original equipment.
G. The Lessor at his sole discretion may from time to time
inspect the Equipment at the Lessor's sole expense.
H. If any discrepancies are found pertaining to the general
condition of the Equipment, the Lessor will communicate the
discrepancies to the Lessee in writing. The Lessee shall have
30 days to rectify these discrepancies at his sole expense.
I. The equipment will be de-installed at Lessee's expense by
manufacturer's technicians.
J. The Lessee, at its expense, will cause the Equipment to be
delivered to any point in the United States in a manner
consistent with the manufacturer's recommendations for
transportation and packaging of the Equipment.
K. The Lessee will provide, at no expense to Lessor, 120 days of
free storage at the current location. The Equipment will be
stored in accordance with manufacturer's recommendations
regarding storage.
L. Lessee shall be responsible for any licensing or related fees
upon the resale of the Equipment.
<PAGE> 13
APPROVED AND AGREED to by the parties hereto as of the 27th day of
January, 1995.
LESSOR: LESSEE:
STAR BANK, NATIONAL ASSOCIATION KENDLE RESEARCH ASSOCIATES,
INC.
The undersigned affirms that s/he is duly
authorized to execute this Schedule on
behalf of Lessee.
By: /s/ Lynne Anne West By: /s/ Christopher Bergen
-------------------------- ----------------------------------------
Title: Market Rep Title: President
----------------------- -------------------------------------
Witness: Witness: /s/
--------------------- -----------------------------------
<PAGE> 1
EXHIBIT 10.6
------------
MASTER EQUIPMENT LEASE
This Master Equipment Lease ("Master Lease") is entered into as of August 16,
1996 by and between THE FIFTH THIRD LEASING COMPANY, an Ohio corporation
("Lessor"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263 and KENDLE RESEARCH
ASSOCIATES, INC., a (an) Ohio S Corporation ("Lessee"), 700 Carew Tower, 5th &
Vine Streets, Cincinnati, Ohio 45202.
TERMS AND CONDITIONS OF LEASE
In consideration of the premises and of the rentals and the covenants
hereinafter mentioned to be kept and performed by Lessee, Lessor hereby leases
the equipment (including all replacement parts, repairs, additions and
accessories thereto) listed on Equipment Schedule A attached hereto on the date
hereof or as attached hereto at any time in the future or listed or described in
any other document which refers to and incorporates the terms of this Agreement
(collectively "Equipment"), upon the following terms and conditions:
SECTION 1. ACQUISITION AND LEASE OF EQUIPMENT.
(a) Lessor will, subject to the terms of this Master Lease, purchase
the Equipment set forth in Schedule A and simultaneously lease such Equipment to
Lessee. The approximate purchase price for each unit of Equipment is as set
forth in Schedule A. Lessee shall provide a security deposit (the "Security
Deposit") in the amount, if any, specified in Schedule A to be paid to Lessor
prior to the commencement of the Master Lease. Lessee acknowledges either:
(i) that Lessee has approved any written Supply Contract as
defined by the uniform version of the Uniform Commercial Code (UCC)
Section 2A-103(y) as adopted in the state of Lessor's principle place
of business covering the Equipment purchased from the "Supplier" (as
defined by UCC Section 2A-103(x)) thereof for lease to Lessee; or
(ii) that Lessor has informed or advised Lessee, in writing,
either previously or by this Master Lease of the following:
(1) the identity of the Supplier;
(2) that the Lessee may have rights under the
Supply Contract; and
(3) that the Lessee may contact the Supplier
for a description of any such rights Lessee
may have under the Supply Contract.
(b) Lessor hereby authorizes Lessee to accept delivery of the Equipment
from the manufacturer or the Supplier. Upon delivery and installation of each
item of Equipment, if such Equipment is in good working order, and complies with
the specifications of the purchase order, Lessee shall execute and deliver to
Lessor a Certificate of Acceptance in form acceptable to Lessor. Lessor shall be
under no obligation to purchase the Equipment until it has received the
Acceptance Certificate executed by Lessee.
<PAGE> 2
(c) Lessor shall be under no obligation to purchase any item of
Equipment if there shall exist an Event of Default or any condition, event or
act which, with notice or lapse of time or both, would become an Event of
Default.
SECTION 2. TERM AND RENT.
(a) This Master Lease shall commence on the date set forth above and
shall continue in effect thereafter so long as any Equipment Schedule A entered
into pursuant to this Master Lease remains in effect. The term of each Equipment
Schedule A shall commence upon the Effective date specified in each Schedule and
shall continue for the term specified unless earlier terminated pursuant to the
terms hereof. Unless otherwise stated in schedule each Schedule A term shall be
automatically extended for successive monthly periods until terminated by either
party giving to the other not less than ninety (90) days prior written notice of
termination. Any such termination shall be effective only on the last day of the
term specified in Schedule A or any successive period.
(b) As rent for the Equipment, Lessee agrees to pay to Lessor the rent
specified in Schedule A. All payments provided for in this Master Lease shall be
made to the Lessor at the address of the Lessor set forth above, or at such
other place as the Lessor, or its assigns, shall specify in writing. The rent
specified in Schedule A shall be adjusted for any errors, increase or decrease
in the purchase price of the Equipment. The payment of the rent specified in
Schedule A also shall be secured by any presently existing or hereafter acquired
property pledged to Lessor or any affiliate of Fifth Third Bancorp for any
indebtedness of Lessee owed to Lessor and all affiliates of Fifth Third Bancorp,
whether direct or contingent, due or to become due, provided, however, that this
provision shall not apply to a "consumer credit transaction" as defined in Title
I, Consumer Credit Protection Act 15 U.S. C.A. Sections 1601 et. seq., as
amended or any applicable state statute containing similar provisions.
(c) This Master Lease is a net lease and Lessee acknowledges and agrees
that Lessee's obligation to make all payments hereunder, and the rights of
Lessor in and to all such payments, shall be absolute and unconditional and
shall not be subject to any abatement of rent or reduction thereof, including
but not limited to, abatements or reductions due to any present or future claims
of Lessee against Lessor, the manufacturer of the Equipment, the Supplier, or
any party under common ownership or affiliated with Lessor, by reason of any
defect in the Equipment, the condition, design, operation or fitness for use
thereof, or by reason of any failure of Lessor to perform any of its obligations
hereunder, or by reason of any other cause. It is the intention of the parties
hereto that the rent payable by Lessee hereunder shall continue to be payable in
all events and in the manner and at the times herein provided unless the
obligation to pay shall be terminated pursuant to the provisions of this Lease.
SECTION 3. TAX INDEMNIFICATION.
(a) The terms of this Master Lease, including payment amounts, have
been made in reliance on the fact that Lessor, its successors and assigns, shall
be entitled to such deductions,
2
<PAGE> 3
credits and other benefits (the "Tax Benefits") as are provided to an owner of
property, to the extent permitted under applicable law and provisions of the
Internal Revenue Code of 1986 (the "Code"), as amended, including but not
limited to depreciation and amortization deductions allowable under Sections
167, 168 and 169 of the Code and any amendments or additions thereto relating to
the leased property (the "Deductions").
(b) If the Lessor or its successor or assigns shall lose, during the
term of this Master Lease, its right to claim all or any part of such Tax
Benefits or Deductions or any part of such Tax Benefits or Deductions is
disallowed, the rental set forth in Schedule A shall be increased by an amount
which, in the reasonable opinion of Lessor, will cause Lessor's total net return
(after all taxes) to be equal to the net return which Lessor would have received
had such Tax Benefits or Deductions not been disallowed.
(c) In the event Lessor's claim of all or any part of such Tax Benefits
or Deductions with respect to the Equipment is disallowed or lost after the term
of the Lease, Lessee shall pay Lessor a lump sum which, in the reasonable
opinion of Lessor will cause Lessor's total net return (after all taxes) to be
equal to the net return Lessor would have received had such Tax Benefits or
Deductions not been disallowed.
(d) In the event that this Master Lease is, for any reason, canceled or
prepaid prior to the expiration of its term the Lessee agrees to pay to Lessor,
in addition to all other amounts payable under this Master Lease, a lump sum
amount which, in the reasonable opinion of Lessor, will cause Lessor's net
return (when combined with all other payments hereunder but excluding any
prepayment penalties and after all taxes) to be equal to the net return Lessor
would have received had this Master Lease not been terminated prior to the
expiration of its term.
(e) The rent shall not be so increased (or the lump sum payment shall
not be due) if and to the extent that the Lessor shall have lost the right to
claim such a Tax Benefit or Deduction as a direct result of any one of the
following events:
(i) a casualty occurrence with respect to the Equipment if
Lessee shall have paid the Lessor pursuant to the provisions of Section
13 hereof;
(ii) the failure of Lessor to claim the Tax Benefit or
Deduction on its income tax return for the appropriate year; or
(iii) the failure of Lessor to have sufficient tax liability
to fully use such Tax Benefits or Deductions.
(f) Lessee agrees that neither it nor any corporation controlled by it,
in control of it, or under common control with it, directly or indirectly, will
at any time take any action or file any returns or other documents inconsistent
with the foregoing and that each of such corporations will file such returns,
take such action and execute such documents as may be reasonable and necessary
to facilitate accomplishment of the intent thereof. Lessee agrees to copy and
make available for
3
<PAGE> 4
inspection and copying by Lessor such records as will enable Lessor to determine
whether it is entitled to the benefit of any amortization or depreciation
deduction or tax credit which may be available from time to time with respect to
the Equipment.
(g) If, under any circumstances or for any reasons whatsoever, except
for acts of the Lessor:
(i) Lessor shall become liable for additional tax as a
result of Lessee having added an attachment or made
an alteration to the Equipment which would increase
the productivity or capability of the Equipment so as
to violate the provisions of Rev. Proc. 75-21, 1975-1
C.B. 715, as modified by Rev. Proc. 79-48, 1979-2
C.B. 529 (and as either or both may hereafter be
modified or superseded);
(ii) the statutory full-year marginal federal tax rate for
corporations with a December 31 tax year-end is
different than the statutory tax rate in effect on
the date of this Master Lease; or
(iii) Lessor shall not have or shall lose the right to
claim or there shall be disallowed or recaptured all
or any portion of the Federal tax depreciation
deductions with respect to any item of Equipment
based on depreciation of the Lessor's full cost of
such item of Equipment and computed on the basis of a
method of depreciation provided by the Code as Lessor
in its complete discretion may select; then Lessee
agrees to pay Lessor upon demand an amount which,
after deduction of all taxes required to be paid by
Lessor in respect of the receipt thereof under the
laws of any federal, state or local government or
taxing authority of the United States or of any
taxing authority or government subsidiary of any
foreign country, shall be equal to the sum of:
(1) an amount equal to the additional
income taxes which would be paid or
payable by Lessor in consequence of
the failure to obtain the benefit
of a depreciation deduction
calculated under the assumption
that Lessor's income is taxed at
the highest applicable rate
(without regard to the actual taxes
paid by Lessor), and
(2) any interest and/or penalty which
may be assessed in connection with
any of the foregoing.
(h) The provisions of this Section 3 shall survive the expiration or
earlier termination of this Master Lease.
4
<PAGE> 5
SECTION 4. ACCEPTANCE, USE AND MAINTENANCE OF EQUIPMENT.
(a) Lessor hereby authorizes Lessee to accept delivery of the Equipment
from the manufacturer or Supplier. Upon delivery and installation of each item
of Equipment, if such Equipment is in good working order, Lessee shall execute
and deliver to Lessor a Certificate of Acceptance in a form acceptable to
Lessor.
(b) Lessor shall have no obligation and assumes no liability for any
matter relating to the ordering, manufacture, shipment, installation, erection,
testing, adjusting or servicing of any item of Equipment, or for any failure or
delay in obtaining or delivering any item of Equipment. Lessee shall provide and
maintain a suitable installation environment for each item of Equipment with all
appropriate utilities, wiring and other facilities prescribed or recommended by
the appropriate manufacturer's installation and operating manuals.
(c) Lessee shall cause the Equipment to be operated by competent
employees and in accordance with the manufacturer's operating manuals and shall
pay all expenses of operating the Equipment. The Equipment shall be maintained
at the location(s) specified in Schedule A and shall not be removed from such
location(s) without the written consent of the Lessor. Lessor will have the
right, from time to time during reasonable business hours, to enter upon the
Lessee's premises or any other premises where the Equipment may be located, for
the purpose of confirming the existence, location, condition or proper
maintenance of the Equipment.
(d) Lessee, at its own cost and expense, shall keep all Equipment in
good repair, condition and working order and shall furnish all parts,
mechanisms, devices and servicing required therefor. All such parts, mechanisms,
and devices shall immediately become the property of Lessor and part of the
Equipment for all purposes.
(e) Lessee shall comply with and conform to all laws, ordinances and
regulations, present or future, in any way relating to the possession, use or
maintenance of the Equipment throughout the term of this Master Lease.
(f) Lessee shall pay or satisfy and discharge any and all claims
against, through or under Lessee and its successors and assigns, which, if
unpaid, might constitute or become a lien or a charge upon any of the Equipment,
and any liens or charges which may be levied against or imposed upon the
Equipment as a result of the failure of Lessee to perform or observe any of its
covenants or agreements under this Master Lease and any other liens or charges
which arise by virtue of claims against, through or under any other party other
than Lessor, but Lessee shall not be required to pay or discharge any such
claims so long as it shall, in good faith by any appropriate legal proceedings
contest the validity thereof in any reasonable manner which will not, in the
reasonable opinion of Lessor, affect or endanger the interest of Lessor or other
rights of any assignee under this Master Lease hereof in and to the Equipment or
diminish the value thereof. Lessee's obligations under this Section shall
survive the termination of this Master Lease.
5
<PAGE> 6
SECTION 5. NO AGENCY. Lessee acknowledges and agrees that neither the
manufacturer, the Supplier, nor any salesman, representative, or other agent of
the manufacturer or Supplier, is an agent of Lessor. No salesman, representative
or agent of the manufacturer or Supplier is authorized to waive or alter any
term or condition of this Master Lease and no representation as to the Equipment
or any other matter by the manufacturer or Supplier shall in any way affect
Lessee's duty to pay rent and perform its obligations as set forth in this
Master Lease.
SECTION 6. DISCLAIMER OF WARRANTIES. LESSEE ACKNOWLEDGES THAT: LESSOR IS NOT THE
MANUFACTURER OF THE EQUIPMENT NOR THE MANUFACTURER'S AGENT NOR A DEALER THEREIN;
THE EQUIPMENT IS OF A SIZE, DESIGN, CAPACITY, DESCRIPTION AND MANUFACTURE
SELECTED BY LESSEE; LESSEE IS SATISFIED THAT THE EQUIPMENT IS SUITABLE AND FIT
FOR ITS PURPOSES; AND LESSOR MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS
OR IMPLIED AS TO THE DESIGN, OPERATION OR CONDITION, OR AS TO THE QUALITY OF THE
MATERIAL, EQUIPMENT OR WORKMANSHIP IN THE EQUIPMENT LEASED HEREUNDER, AND LESSOR
MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY
PARTICULAR PURPOSE OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, IT BEING
AGREED THAT ALL SUCH RISKS AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY
LESSEE AND THE BENEFITS OF ANY AND ALL IMPLIED WARRANTIES OF LESSOR ARE HEREBY
WAIVED BY LESSEE. LESSEE SHALL NOT BE RESPONSIBLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES. Lessor agrees that Lessee shall be entitled to the
benefit of any manufacturer's warranties on the Equipment to the extent
permitted by applicable law.
SECTION 7. IDENTIFICATION; PERSONAL PROPERTY. No right, title or interest in the
Equipment shall pass to Lessee other than the right to maintain possession and
use of the Equipment for the full lease term. Lessor may require plates or
markings to be conspicuously affixed to or placed on the Equipment indicating
Lessor is the owner. However, if any item of Equipment leased hereunder is to be
operated by the public, such plates or markings need not be placed in a
conspicuous part of the Equipment. The Equipment is, and shall at all times be
and remain, personal property even though the Equipment or any part thereof may
hereafter become affixed or attached to real property.
SECTION 8. QUIET ENJOYMENT. So long as Lessee is in compliance with the terms of
this Master Lease:
(a) Lessee's right of quiet enjoyment of the Equipment shall not be
impaired by the Lessor or anyone claiming through the Lessor; and
(b) Lessor shall not create any liens or encumbrances upon the
Equipment other than liens arising out of claims contested in good faith by
Lessor which will not in the reasonable opinion of Lessor affect or endanger the
interest of Lessee under this Master Lease.
6
<PAGE> 7
SECTION 9. ASSIGNMENT.
(a) LESSEE AGREES NOT TO SELL, ASSIGN, SUBLET, PLEDGE, HYPOTHECATE, OR
OTHERWISE ENCUMBER, SUFFER A LIEN UPON OR AGAINST ANY INTEREST IN THIS AGREEMENT
OR THE EQUIPMENT LEASED HEREUNDER.
(b) Lessor may assign, pledge, or in any other way transfer this Master
Lease either in whole or in part, without notice to Lessee. Should this Master
Lease or any interest therein be assigned or should the rentals hereunder be
assigned, no breach or default of this Master Lease by Lessor to its assignee
shall excuse performance by Lessee of any provision hereof. Upon receipt of
notice of assignment of this Master Lease or the rentals due hereunder, if so
directed by Lessor, Lessee shall pay the rentals hereunder as they become due to
any assignee without any set-offs, counterclaims or defense thereto.
SECTION 10. FEES - TAXES. Lessee agrees to pay and to indemnify and hold Lessor
harmless from all license and registration fees and all assessments, taxes and
impositions of whatever nature including income, franchise, sales, use,
property, excise and other taxes now or hereinafter imposed by any governmental
body or agency upon the Equipment, or the use thereof, including all interest
and penalties, but excluding any income taxes payable by Lessor on the receipt
of income under this Master Lease.
SECTION 11. LIMITATION OF LIABILITY; INDEMNIFICATION.
(a) Lessee agrees that Lessor shall not be responsible for any loss or
damage to Lessee, its customers or anyone else, caused by any failure or defect
of the Equipment, or otherwise.
(b) Lessee hereby assumes liability for, and hereby agrees to
indemnify, defend, protect, save and keep harmless Lessor, its successors and
assigns, from and against any and all claims, liabilities, judgments, suits,
obligations, losses, damages, expenses, penalties, and disbursements (including
reasonable attorneys' fees and expenses) of any kind and nature arising from or
pertaining to the use, possession, operation, manufacture, purchase, financing,
ownership, delivery, rejection, nondelivery, transportation, storage
maintenance, repair return or other disposition of the Equipment including but
not limited to liabilities resulting from strict liability in tort or a breach
of any law, regulation or ordinance of any federal, state or local government
agency.
SECTION 12. RETURN OF EQUIPMENT. Upon the expiration of the terms of this Master
Lease, unless the Equipment is sold to the Lessee, Lessee will at its own cost
and expense deliver possession of the Equipment to Lessor at a location
designated by the Lessor free and clear of all liens, charges, encumbrances, and
rights of others, in good working order and repair (except for ordinary wear and
tear resulting from proper use) and in the condition required hereby.
SECTION 13. CASUALTY LOSS. Lessee hereby assumes and shall bear the risk of
loss, damage to or theft of the Equipment from any and every cause whatsoever,
whether or not insured. No loss or damage to the Equipment or any part thereof
shall impair any obligation of Lessee under this Master
7
<PAGE> 8
Lease which shall continue in full force and effect. In the event that any item
of Equipment shall become damaged, worn out, destroyed, lost or stolen, or if
any item of the Equipment is requisitioned or taken by any governmental
authority under the power of eminent domain or otherwise. Lessee shall promptly
notify Lessor thereof at the option of Lessor, Lessee shall:
(a) Place the same in good repair, condition and working order; or
(b) Replace the same with the like property in good repair, condition
and working order which property shall be thereupon conveyed to Lessor free,
clear and unencumbered and thereupon be subject to this Master Lease; or
(c) On the Rental Payment date next following the date the Equipment
becomes damaged, worn out, destroyed, lost or stolen, pay Lessor in cash all of
the following:
(i) all amounts then owed by Lessee to Lessor under this
Master Lease;
(ii) an amount equal to the greater of the estimated fair
market value of the equipment at the end of lease term or 10% of the
actual cost of said Equipment; and
(iii) the unpaid balance of the total rent for the initial
term of this Master Lease attributable to such Equipment.
Upon Lessor's receipt of such payment, Lessee shall be entitled to whatever
interest Lessor may have in such Equipment, in its then condition and location
"AS IS" and "WHERE IS", without warranty express or implied.
SECTION 14. INSURANCE.
(a) Lessee at its expense will provide and maintain fire and extended
coverage insurance against loss, theft, damage or destruction of the Equipment
in an amount not less than 100% of the insurable value of the Equipment on a
replacement cost basis as determined by Lessor. Each policy will provide
expressly that such insurance, as to lessor and its assigns, will not be
invalidated by any act, omission or neglect of Lessee and will provide expressly
for at least thirty (30) days prior written notice to Lessor of alteration or
cancellation. The proceeds of such insurance will be applied first to any
obligations of Lessee under this Master Lease arising prior to the receipt of
the proceeds and then toward the restoration or repair of the Equipment or if
Lessor determines that any item of Equipment is lost, stolen, destroyed, or
damaged beyond repair toward payment of the amounts required by Section 13
above. Any excess proceeds remaining thereafter will be paid to Lessee, provided
Lessee is not then in default under this Master Lease.
(b) Lessee at its expense will carry public liability, property damage,
and if required by Lessor, collision insurance with respect to the Equipment and
the use thereof in amounts satisfactory to Lessor. Each such policy of insurance
will name Lessor as an additional insured thereon.
8
<PAGE> 9
(c) All policies relating to the insurance referred to in Subsections
14(a) and (b) above, will be in such form and with such companies as are
satisfactory to Lessor and will name Lessor as an additional insured and as an
additional loss payee. Lessee will furnish Lessor proof of such insurance.
Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make claim for,
adjust, settle, receive payment of and execute and endorse all documents, checks
or drafts for loss or damage under any such insurance policy.
(d) If Lessee fails to procure, maintain and pay for such fire and
extended coverage insurance or any such public liability, property damage or
collision insurance required by Lessor, Lessor will have the right, but not the
duty, to obtain such insurance on behalf of and at the expense of Lessee. In the
event Lessee does obtain and pay for such insurance, Lessee will reimburse
Lessor for the costs thereof no later than the date of the next scheduled rental
payment under this Master Lease.
SECTION 15. RIGHT OF LESSOR TO PERFORM. If the Lessee shall fail to comply with
any of its covenants herein contained, the Lessor (or, in the case of an
assignment by the Lessor pursuant to Section 9(b) hereof, as assignee), may, but
shall not be obligated to, make advances to perform the same and to take all
such action as may be necessary to obtain such performance. Any payment so made
by any such party and all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection therewith shall
be immediately due and payable by the Lessee to the party making the same, as
additional rent hereunder.
SECTION 16. EVENTS OF DEFAULT. Any of the following events shall constitute an
Event of Default:
(a) The nonpayment by Lessee for ten (10) days of any rent or other
amount provided for herein after the same is due and payable;
(b) The failure of Lessee to observe, keep or perform any other
provisions of this Master Lease required to be observed, kept or performed by
Lessee, which failure is not cured ten (10) days after notice hereof by Lessor;
(c) The failure of Lessee to make any payment when due, or to observe
or perform any covenant or agreement contained in, or the occurrence of a
Default or Event of Default under any agreement evidencing, guarantying or
securing any other indebtedness or obligation of Lessee to Lessor, The Fifth
Third Bank, or any other affiliate of Fifth Third Bancorp of any kind or nature;
(d) The making of any representation or warranty by Lessee herein or in
any agreement, document or certificate delivered to Lessor in connection
herewith, or any financial statement furnished by Lessee to Lessor which, at any
time, proves to be incorrect in any material respect;
(e) Lessee or any guarantor makes an assignment for the benefit of
creditors or commits any other affirmative act of insolvency or bankruptcy,
files a petition in bankruptcy or for arrangement or reorganization or having
such a petition filed against it if such petition is not dismissed or withdrawn
within thirty (30) days;
9
<PAGE> 10
(f) The attachment of a substantial part of the property of Lessee or
appointment of a receiver for Lessee or any substantial part of Lessee's
property;
(g) Lessee ceases to do business as a going concern, or if there is a
change in the ownership of Lessee which changes the identity of any person or
persons having, directly or indirectly, more than 10% of either the legal or
beneficial ownership of Lessee;
(h) There shall occur, in Lessor's reasonable opinion, a deterioration
in the financial strength of the Lessee or any event occurs which might, in
Lessor's opinion, have an adverse effect on the Equipment or on Lessee's
financial condition, operations or prospects;
(i) The death or dissolution of Lessee or any guarantor, or any
guarantor of Lessee's obligations hereunder denies his or its obligations to
guarantee any obligations then existing or attempts to limit or terminate his or
its obligations to guaranty the Lessee's obligations hereunder.
Lessee also agrees upon any responsible officer of Lessee becoming aware of any
condition which constituted or constitutes an Event of Default under this Master
Lease or which, after notice or lapse of time, or both, would constitute such an
Event of Default, to promptly furnish to Lessor written notice specifying such
condition and the nature and status thereof. For purposes of this Section, a
"responsible officer" shall mean, with respect to the subject matter of any
covenant, agreement or obligation of Lessee contained in this Master Lease, any
corporate officer of Lessee who, in the normal performance of his operational
responsibilities, would or should have knowledge of such matter and the
requirements of this Master Lease with respect thereto.
SECTION 17. REMEDIES. Upon the occurrence of any Event of Default, and so long
as the same shall be continuing, Lessor shall have the right to declare this
Master Lease in default without notice to Lessee. Such declaration shall apply
to all schedules then in effect hereunder. Upon the making of any such
declaration, Lessor shall have the right to exercise any one or more of the
following remedies:
(a) To take possession of any and all items of Equipment without
further demand or notice wherever they may be located without any court order or
process of law (but if Lessor applies for a court order or the issuance of legal
process, Lessee waives any prior notice of the making of this application or the
issuance of such order of legal process) and Lessee hereby waives any and all
damages occasioned by such taking of possession; any such taking of possession
shall not constitute termination of this Master Lease as to any or all of
Equipment unless Lessor expressly so notified Lessee in writing;
(b) To terminate this Master Lease as to any or all items of
Equipment without prejudice to Lessor's rights in respect to
obligations then accrued and remaining unsatisfied;
(c) To recover from Lessee (and Lessee agrees to pay in cash the
following):
10
<PAGE> 11
(i) all amounts then owed by Lessee to Lessor under this
Master Lease;
(ii) the unpaid balance of the total rent for the initial term
of this Master Lease attributable to said Equipment.
(iii) an amount equal to the greater of the estimated fair
market value of the equipment at lease termination or 10% of the actual
cost of said Equipment; and
(iv) an amount equal to 10% of the original cost of the
Equipment as liquidated damages and not as a penalty.
(d) To sell any or all of the Equipment in public or private sale, in
bulk or in parcels, for cash or credit without having the Equipment present at
the place of sale and to recover from Lessee all costs of taking possession,
storing, repairing, and selling the Equipment (and Lessor may use Lessee's
premises for any or all of the foregoing without liability for rent, costs, or
damages or otherwise) or to otherwise dispose, hold, use, operate, lease to
others or keep idle such Equipment all as Lessor in its sole discretion may
determine and to apply the proceeds of any such action:
(i) to all costs, charges and expenses incurred in taking,
removing, holding, operating, repairing, and selling, leasing or
otherwise disposing of the Equipment; then
(ii) to the amounts set forth in Section (c)(i),(ii),(iii) and
(iv) above provided that Lessee shall pay any deficiency due Lessor;
and
(iii) any surplus shall be retained by Lessor.
(e) To pursue any other remedy provided for by statute or otherwise
available at law or in equity. Notwithstanding any repossession, or other action
which Lessor may take, the Lessee shall be remain liable for the full
performance of all obligations on the part of Lessee to be performed under this
Master Lease to the extent not paid or performed by Lessee. All such remedies
are cumulative and may be exercised concurrently or separately. In addition to
the foregoing, Lessee shall pay Lessor all costs and expenses, including
reasonable attorneys' fees and fees of collection agencies incurred by Lessor in
exercising any of its rights and remedies hereunder.
SECTION 18. REPAYMENT OF OTHER AMOUNTS. In addition to any other right granted
to Lessor hereunder to terminate this Master Lease, Lessor shall have the right
to terminate this Master Lease and collect all amounts due hereunder (including
any lump sum or other tax payments provided in Section 3 hereof) if Lessee,
whether at the direction or request of the Lessor or any affiliate of Lessor,
The Fifth Third Bank or The Fifth Third Bancorp, repays all or substantially all
other amounts and obligations owed by Lessee to the Lessor or any affiliate of
Lessor, The Fifth Third Bancorp.
SECTION 19. FURTHER ASSURANCES. Lessee will, upon request of Lessor, at Lessee's
sole cost and expense, do and perform any other act and will execute,
acknowledge, deliver, file, record and
11
<PAGE> 12
deposit (and will re-file, re-register, re-record, and re-deposit whenever
required) any and all further instruments required by law or Lessor including,
without limitation, financing statements or other documents needed for the
protection of Lessor's interest.
SECTION 20. NOTICES. Any notices and demands required to be given hereunder
shall be in writing and may be delivered personally or mailed by certified mail,
return receipt requested, to the respective addresses of the parties above set
forth, or to such other address as either party may hereinafter indicate by
written notice, as provided in this section.
SECTION 21. FINANCIAL STATEMENTS. Within sixty (60) days after the end of each
fiscal quarter and within ninety (90) days after the end of each fiscal year of
Lessee during the term of this Master Lease, Lessee shall deliver to Lessor
yearly Balance Sheets, Profit and Loss Statements and Source and Application of
Funds of Lessee certified by the independent public accountants of Lessee or if
unaudited, certified to be true and correct by the chief financial officer of
Lessee.
SECTION 22. FILINGS; POWER OF ATTORNEY. Lessee will execute and deliver to
Lessor at Lessor's request all financing statements, continuation statements,
and other documents that Lessor may reasonably request, in form satisfactory to
Lessor, to perfect and maintain Lessor's interest in the Equipment and to fully
consummate all transactions contemplated under this Agreement. Lessee hereby
irrevocably makes, constitutes and appoints Lessor (or any of Lessor's officers,
employees or agents designated by Lessor) as Lessee's true and lawful attorney
with power to sign the name of Lessee on any such documents. This power, being
coupled with an interest, is irrevocable until all obligations of Lessee to
Lessor have been fully satisfied.
SECTION 23. LATE PAYMENTS. Interest at the rate of 5% per month or the maximum
rate permitted by law, whichever is less, shall accrue on the amount of any
payment not made when due hereunder from the date thereof until payment is made,
and Lessee shall pay such interest to Lessor, on demand.
SECTION 24. ENTIRE AGREEMENT. THIS MASTER LEASE AND ASSOCIATED SCHEDULES
CONSTITUTES THE ENTIRE AGREEMENT BETWEEN LESSOR AND LESSEE AND EXCLUSIVELY AND
COMPLETELY STATES THE RIGHTS OF LESSOR AND LESSEE WITH RESPECT TO THE LEASING OF
THE EQUIPMENT AND SUPERSEDES ALL PRIOR AGREEMENTS, ORAL OR WRITTEN, WITH RESPECT
THERETO AND ANY COURSE OF DEALING OF THE PARTIES HERETO. The terms and
conditions of all Schedules, Addenda, and Exhibits which refer to this Master
Lease are hereby incorporated herein.
SECTION 25. FINANCE LEASE. The Lessor and Lessee hereby agree that this Master
Lease is a "finance lease" as that term is defined in Section 2A-103 of the
Uniform Commercial Code as adopted in the state of Lessor's principle place of
business and that Lessor shall be treated as a finance lessor entitled to the
benefits and releases from liability accorded to a finance lessor under the
Uniform Commercial Code.
12
<PAGE> 13
SECTION 26. MISCELLANEOUS. (a) This Master Lease shall inure to the benefit of
and be binding upon the successors and assigns of the respective parties hereto
provided, however, that nothing contained in this section shall impair any of
the provisions prohibiting assignment without the consent of Lessor;
(b) Any provision of this Master Lease which is unenforceable in any
jurisdiction shall not render unenforceable such provision in any other
jurisdiction and shall not invalidate the remaining provision of this Master
Lease.
(c) This Master Lease shall be governed by and construed under the laws
of the state of the Lessor's principal place of business without regard to its
conflicts of laws provisions.
(d) All covenants of Lessee herein shall survive the expiration or
termination of this Master Lease to the extent required for their full
observance and performance.
(e) No delay or omission to exercise any right, power or remedy
accruing to Lessor upon any breach or default of Lessee hereunder shall impair
any such right, power or remedy nor shall it be construed to be a waiver of any
such breach or default, or any acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach of
default be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breach or default under this Master Lease
must be in writing specifically set forth.
(f) Lessee agrees that the state and federal courts in the county of
Lessor's principal place of business or any other court in which Lessor
initiates proceedings have exclusive jurisdiction over all matters arising out
of this Agreement and that service of process in any such proceeding shall be
effective if mailed to Lessee at its address described in the first paragraph of
this Master Lease. LESSOR AND LESSEE HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF
ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
(g) No variation or modification or amendment of this Master Lease and
no waiver of any of its provisions or conditions shall be valid unless in
writing.
(h) Each and every Lessee hereunder authorizes any attorney of record
to appear for them in any court of record in the State of Ohio, after this
Master Lease is in default whether by its terms or otherwise, waive the issuance
and service of process, and release all errors and rights of appeal, and confess
a judgment against them in favor of the Lessor, for the principal amount of this
Master Lease plus interest at the Master Lease rate, together with court costs
and attorneys' fees. Lessee also agrees that the attorney acting for the
undersigned as set forth in this paragraph may be compensated by Lessor for such
services, and Lessee waives any conflict of interest caused by such
representation and compensation arrangement. Stay of execution and all
exemptions are hereby waived. If this Master Lease is referred to an attorney
for collection, and the payment is obtained without the entry of a judgment, the
Lessee shall pay to Lessor its attorney's fees.
13
<PAGE> 14
Lessor and Lessee have each caused this Master Lease to be duly executed as of
the date set forth on the first page hereof:
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL, IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON ITS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
KENDLE RESEARCH ASSOCIATES, INC. THE FIFTH THIRD LEASING COMPANY
By: /s/ Christopher Bergen By: /s/
----------------------------- -------------------------------
Title: President Title: Asst Cashier
----------------------------- -------------------------------
Lessee Lessor
14
<PAGE> 15
EQUIPMENT SCHEDULE A
EFFECTIVE DATE August 16, 1996
This Schedule A amends and supplements the terms and conditions of the MASTER
EQUIPMENT LEASE between THE FIFTH THIRD LEASING COMPANY, Lessor, and KENDLE
RESEARCH ASSOCIATES, INC., Lessee, dated August 16, 1996 ("Master Lease").
SECTION 1. EQUIPMENT. Pursuant to the terms of the Master Lease, Lessor agrees
to acquire and lease to Lessee the equipment listed below ("Equipment").
<TABLE>
<CAPTION>
EQUIPMENT DESCRIPTION LOCATION SERIAL NUMBER COST
<S> <C> <C> <C>
OFFICE FURNITURE 700 Carew Tower, 5th & Vine $185,962.84
Streets,
Cincinnati, Ohio 45202
SEE ATTACHED EXHIBIT A FOR A
COMPLETE DESCRIPTION OF THE Total Cost $185,962.84
EQUIPMENT.
</TABLE>
SECTION 2. BILLING ADDRESS. SAME
SAME
SECTION 3. TERM. IN MONTHS: 60 PAYMENT FREQUENCY: MONTHLY
SECTION 4. RENT. RENT SHALL BE PAYABLE IN ADVANCE. FIRST PAYMENT DATE:
AUGUST 16, 1996
<TABLE>
<CAPTION>
Number of Payments Rent
<S> <C>
60 $3,400.48
</TABLE>
(B) MONTHLY PAYMENTS SHALL INCLUDE THE ABOVE RENT PLUS SALES USE TAX IF
APPLICABLE.
(C) FOR THIS SCHEDULE THERE SHALL BE ADDED TO THE FIRST INSTALLMENT OF
RENT A FURTHER SUM (INTERIM RENT) EQUAL TO THE PRODUCT RESULTING FROM
MULTIPLYING (I) THAT PART OF THE COST OF THE EQUIPMENT PAID BY LESSOR PRIOR TO
THE EFFECTIVE DATE OF THIS SCHEDULE BY (II) AN AMOUNT EQUAL TO PRIME % PER ANNUM
IN EACH CASE COMPUTED FROM THE RESPECTIVE DATES OF ANY SUCH PAYMENT BY LESSOR TO
THE EFFECTIVE DATE OF THIS SCHEDULE.
SECTION 5. TAX BENEFITS. (a) Depreciable Life: Lessor has assumed a depreciable
life of 7 years in computing the Rent listed above.
SECTION 6. END OF TERM FMV OPTIONS. At the end of the initial Term of this Lease
Schedule, so long as no Event of Default has occurred, Lessee shall exercise one
of the following options.
15
<PAGE> 16
(a) So long as no Event of Default has occurred and this Schedule has
not been earlier terminated, the Lessee may, at the expiration of the initial
Term, provided written notice has been given to Lessor at least ninety (90) days
but not more than one hundred eighty (180) days prior to the end of Term,
purchase all, but not less than all, of the Equipment in this Schedule on an "AS
IS, WHERE IS, BASIS" to be paid in cash in an amount equal to the fair market
value of the Equipment (plus all applicable taxes); or
(b) Lessee may return the Equipment in accordance with Section of the
Master Lease entitled "Return of Equipment"; or
(c) Lessee may renew the Master Lease at a term and rate to be
negotiated by the parties based on the fair market value of the Equipment.
SECTION 7. AMENDMENTS TO MASTER LEASE. For purposes of this Schedule, the terms
of the Master Lease are hereby amended and supplemented as follows:
Subsection (c)(ii) of SECTION 13 of the MASTER LEASE entitled CASUALTY
LOSS and Subsection (c)(iii) of Section 17 of the Master Lease entitled REMEDIES
are each deleted in their entirety and are each replaced with the following:
"an amount equal to 15% of said Equipment cost; and"
SECTION 8. SPECIAL TERMS AND CONDITIONS. Provided no Event of Default (as
defined in the master Lease) has occurred, Lessee shall have the option to
purchase (the "Option"), after the payment of the 48th rental of this Master
Lease Schedule ("Early Purchase Date"), all, but not less than all, of the
Equipment described in the Schedule upon the following terms and conditions: If
Lessee desires to exercise the Option, it shall give Lessor written notice of
its intention to exercise the Option to purchase at least ninety (90) days
before the Early Purchase Date with respect to the Schedule subject to this
Addendum. Thereupon, at the Early Purchase Date, Lessee shall pay to Lessor, in
cash, the Purchase Price for the Equipment so purchased, determined as
hereinafter provided. The Purchase Price of the Equipment shall be an amount
equal to 31% of the Total Invoice Cost of the Equipment, together with all taxes
and charges payable in full upon sale. Lessor and Lessee agree that the Purchase
Price is a reasonable prediction of the Fair Market Value of the Equipment.
KENDLE RESEARCH ASSOCIATES, INC. THE FIFTH THIRD LEASING COMPANY
BY: /s/ Christopher Bergen BY: /s/
-------------------------- ----------------------------
TITLE: President TITLE: Asst Cashier
----------------------- -------------------------
LESSEE LESSOR
16
<PAGE> 17
EXHIBIT A
This Exhibit A pertains to a Schedule A dated August 16, 1996 to a certain
Master Equipment Lease dated August 16, 1996 between THE FIFTH THIRD LEASING
COMPANY, Lessor, and KENDLE RESEARCH ASSOCIATES, INC., Lessee.
<TABLE>
<CAPTION>
Equipment Description Location Serial Number Cost
<S> <C> <C> <C>
Office Furniture -see attached 700 Carew Tower, 5th & Vine $116,757.00
Exhibit A-1 Streets
Cincinnati, Ohio 45202
(Hamilton County)
Office Furniture - See attached $69,205.84
Exhibit A-2 299 West Hillcrest Drive,
Thousand Oaks, CA 91360
(Ventura County)
Total Cost $185,962.84
</TABLE>
KENDLE RESEARCH ASSOCIATES, INC.
BY: /s/ Christopher Bergen
-----------------------------
TITLE: President
--------------------------
LESSEE
17
<PAGE> 1
EXHIBIT 10.7
------------
Exhibit A - Floor Plan
Exhibit B - Definition of Rentable Area
Exhibit C - Declaration of Commencement
Exhibit D - Improvements
Exhibit E - Rules and Regulations
Exhibit F - Janitorial Cleaning work Schedule
Exhibit G - HVAC Performance Specifications
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 9th day of
December, 1991, by and between the Lessor and the Lessee hereinafter named.
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and
basic provisions shall be construed in conjunction with and limited by the
references thereto in other
provisions of this lease:
(a) "Lessor": CAREW REALTY, INC.
(b) "Lessee": KENDLE RESEARCH ASSOCIATES
(c) "Demised Premises": approximately 19,000 square feet of Rentable
Area on Floors 6 and 7 in the building located at 441 Vine Street, Cincinnati,
Ohio 45202, such Demised Premises being shown and outlined on the floor plan
attached hereto as Exhibit A. The actual number of square feet of Rentable Area
in the Demised Premises shall be determined by Lessor and set forth in the
Declaration of Commencement to be executed by Lessor and Lessee pursuant to
paragraph (d) below.
(d) "Lease Term": A period of Seventy-Two (72) months commencing on
March 1, 1992 and ending on February 28, 1998. On or before the commencement
date of this lease, Lessor and Lessee shall execute a Declaration of
Commencement in the form attached hereto as Exhibit C specifying the
commencement date of this lease, the expiration date of this lease, the number
of square feet of Rentable Area including in the Demised Premises, Lessee's
Share, that all work to be performed by Lessor in the Demised Premises is
satisfactorily completed and that Lessee accepts the Demised Premises.
(e) "Basic Rental": The annual sums per square foot of Rentable Area
in the Demised Premises as follows: First 12 months $5.50; Second 12 months
$5.50; Third 12 months $5.50; Fourth 12 months $6.00; Fifth 12 months $6.50;
Sixth 12 months $6.50. All rental payments shall be paid to the order of Carew
Realty, Inc. As an inducement to Lessee, Lessor shall abate Lessee's Basic
Rental from the Commencement Date through December 31, 1992.
(f) "Security Deposit": Intentionally omitted.
<PAGE> 2
- 2 -
(g) "Permitted Use": Lessee may use the Demised Premises for general
office purposes; provided, however, that no such use shall be inconsistent with
or detract from the occupancy of the Building as a first-class office building.
Such uses shall at all times be in conformance with the Rules and Regulations
attached hereto, as the same may be amended, modified or altered, from time to
time.
(h) "Lessee's Share" : 5.40%; The percentage which the number of
square feet of Rentable Area in the Demised Premises bears to the total number
of square feet of Rentable Area in the building as determined by Lessor at the
commencement of this lease and set forth in the Declaration of Commencement
executed by Lessor and Lessee pursuant to paragraph (d) above.
2. GRANTING CLAUSE. In consideration of the obligation of the Lessee
to pay rent as herein provided and in consideration of the other terms,
covenants and conditions hereof, Lessor hereby demises and leases to Lessee, and
Lessee hereby takes from Lessor, the Demised Premises to have and to hold the
same for the Lease Term specified in Section 1(d) hereof, all upon the terms and
conditions set forth in this lease.
3. SERVICES BY LESSOR. So long as Lessee is not in default hereunder,
Lessor agrees to furnish Lessee while occupying the Demised Premises the
following services:
(a) Hot and cold water at those points of supply provided for the
general use of occupants of the building, and for lavatory, drinking and office
cleaning purposes and for a kitchenette in the Demised Premises.
(b) Heat and air conditioning in season, at such times as Lessor
normally furnishes these services to all tenants of the building, and at such
temperatures and in such amounts as are considered by Lessor to be standard and
as set forth herein in Exhibit
(c) Passenger elevator service in common with other tenants for
ingress to and egress from the Demised Premises, with at least one such elevator
to be operational at all times.
(d) Janitorial cleaning services as set forth in Exhibit F attached
hereto.
(e) Electric lighting for public areas and special service areas of
the building in the manner and to the extent similar to that provided in other
first class buildings in the Cincinnati, Ohio area.
Failure to any extent to furnish, or any stoppage of, these defined
services, resulting from causes beyond control of Lessor, shall not render
Lessor liable in any respect for damages to either person or property, nor be
construed as an eviction of Lessee or work an abatement of rent, nor relieve
Lessee from fulfillment of any covenant or agreement hereof. Should any
equipment or machinery break down, or for any cause cease to function properly,
Lessor shall use reasonable diligence to repair same promptly, but Lessee shall
have no claim for rebate or abatement of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom,
<PAGE> 3
- 3 -
unless caused by negligence of Lessor in deed or failure to repair within a
reasonable period of time as determined by standards set forth for first class
buildings in Cincinnati.
4. PAYMENTS. (a) Lessee shall pay to Lessor as Basic Rental for the
Demised Premises the sum specified in Section 1(e) hereof, payable in equal
consecutive monthly installments, in advance, on or before the first day of each
and every calendar month during the Lease Term; provided, however, that if the
commencement date shall be a day other than the first day of a calendar month,
the Basic Rental installment for the first and last fractional months of the
Lease Term shall be prorated on the basis of the number of days during the month
this lease was in effect in relation to the total number of days in such month.
Except as expressly provided herein, the obligation of the Lessee to pay Basic
Rental is an independent covenant, and no act or circumstance whether
constituting breach of covenant by Lessor or not, shall release Lessee of the
obligation to pay rent.
(b) Lessee shall, and hereby agrees to, supply, replace and pay for
its own supplies and labor for all replacements of electric lamps, fluorescent
and otherwise, and ballasts in the Demised Premises.
(c) Lessee shall, and hereby agrees to, pay to Lessor as additional
rent, on the first day of each calendar month, Lessee's share of the total
amount of all monthly utility charges (including meter reading fees charged by
Cincinnati Gas & Electric Co.) for the building for the preceding calendar
month, as metered separately by Lessor, said meter to be installed at and as a
part of the buildout. Lessor shall not be responsible for the failure of said
services in whole or in part, unless said failure is a result of a negligent act
or omission by Lessor.
(d) Except for the period from the Commencement Date of this Lease
through December 31, 1992, Lessee shall pay to Lessor, in addition to the Basic
Rental payable by Lessee to Lessor pursuant to this lease, an amount equal to
Lessee's Share of Building Operating Expenses (as hereinafter defined) as
follows:
(1) For all purposes of this Lease, "Building Operating
Expenses" shall mean the amount of all of Lessor's direct costs and
expenses, accounted for on an accrual basis, paid in connection with
the operation and maintenance of the building (including all areas
relating to, or used in connection with, the building) for a
particular year, or portion thereof, as determined by Lessor in a
consistent manner. There shall also be included in the Building
Operating Expenses (A) (intentionally omitted), and (B) all General
real estate taxes, payments in lieu of real estate taxes, installments
of assessments and all special assessments levied against the building
or the land upon which the building is situated (hereinafter called
"real estate taxes"), and reasonable costs and expenses of contesting
the validity or amount of real estate taxes.
(2) Commencing on January 1, 1993, in order to provide for
reasonably current payments of Building Operating Expenses by Lessee,
Lessee shall pay to Lessor each month, at the same time the monthly
installment of Basic Rental is due, an amount equal to $5.50 per
square foot of Rentable Area in the Demised Premises (the "Stop"). In
addition, Lessee shall pay to Lessor
<PAGE> 4
- 4 -
each month, at the same time the monthly installment of Basic Rental
is due, an amount equal to 1/12th of Lessor's estimate of Lessee's
share of the amount by which Building operating expenses for the then
current year will exceed the Stop (the "Estimated Excess"), which
Estimated Excess shall not increase by more than five percent (5%) per
year over the Stop cumulative for each year during the Lease Term.
There shall be no limitation on real estate taxes and insurance. On or
before December 1 of each year during the Lease Term, Lessor shall
estimate the amount by which Building Operating Expenses will exceed
the Stop for the ensuing calendar year and shall give notice of such
estimate to Lessee, and Lessee shall pay Lessee's share of such
estimated amount pursuant to this paragraph (2) during the ensuing
calendar year. In addition, if real estate taxes or the cost of
utilities, janitorial or other services increase during any calendar
year, Lessor may increase the Estimated Excess payable by Lessee to
Lessor during such year by giving Lessee written notice of the amount
of such increase, and thereafter Lessee shall pay to Lessor an amount
equal to the amount of such increase in the Estimated Excess divided
by the number of months remaining in such calendar year.
(3) Within one hundred twenty (120) days after the end of
each calendar year, Lessor shall prepare and deliver to Lessee a
statement showing the amount by which actual Building operating
Expenses incurred by Lessor during the previous calendar year exceed
the stop (the "Actual Excess"), if any. within thirty (30) days after
receipt of the aforementioned statement. Lessee shall pay to Lessor,
or Lessor will credit against the next payment of Estimated Excess due
from Lessee, as the case may be, the difference between Lessee's share
of Actual Excess for the preceding calendar year and the estimated
amount paid by Lessee during such calendar year, as limited by
Paragraph (2) herein. If this lease shall commence, expire or be
terminated on any date other than the last day of a calendar year,
then Lessee's Share of actual Building Operating Expenses for such
partial calendar year shall be prorated, and Lessee shall pay to
Lessor or Lessor shall pay to Lessee, as the case may be, the
difference between lessee's Share of the Actual Excess for such
partial calendar year and the Estimated Excess.
(e) Intentionally Omitted.
(f) In the event payment of any and all amounts required to be paid
pursuant to this lease are not made within three business days of written notice
that the same is due, a service fee of five (5%) of the unpaid amount(s) will be
due as additional rent, at the election of Lessor.
5. REPAIRS AND RE-ENTRY. Lessee will, at Lessee's own cost and
expense, keep the Demised Premises and all other improvements to the extent
covered by this lease in sound condition and good repair, and shall repair or
replace any damage or injury done to the building or any part thereof by Lessee
or Lessee's agents, contractors, employees and invitees, and if Lessee fails to
make such repair or replacements within 15 days after the need therefor arises,
Lessor may at its option make such repair or replacement, and Lessee shall pay
the cost thereof to Lessor on demand. Lessee will not commit or allow to be
committed any waste or damage to or on any portion of the Demised Premises, and
shall at termination of this lease by lapse of time or otherwise, deliver up
said Demised Premises and all other improvements covered by this lease to
<PAGE> 5
- 5 -
Lessor in as good condition as at the date of possession, ordinary wear and tear
excepted, failing which Lessor may restore the Demised Premises to such
condition and Lessee shall pay the costs of same to Lessor upon demand. Lessor,
its agents, contractors, employees and representatives, shall have the right to
enter into and upon all parts of the Demised Premises, with reasonable prior
notice to Lessee (except in emergency situations) to inspect same or clean or to
make such repairs, alternations or additions as Lessor may from time to time
deem necessary, and Lessee shall not be entitled to any abatement or reduction
of rent as a result of such entry, except those entries which result in a
disruption of Lessee's business and is a result of a negligent act or omission
by the Lessor. In addition, Lessee shall permit Lessor or Lessor's agents and
any other person authorized by the same to enter the Demised Premises during the
last six (6) months of the Lease Term for the purpose of exhibiting the Demised
Premises to prospective lessees. Notwithstanding the foregoing, during the last
ninety (90) days of the Lease Term if Lessee removes a substantial portion of
Lessee's personal property or has been in physical absence for ten (10) days,
Lessor may enter the Demised Premises for purposes of renovations, altering and
decorating the Demised Premises for occupancy by a new tenant without in any way
affecting Lessee's obligation to pay rent and comply with all other terms and
conditions of this lease during the entire Lease Term.
6. ASSIGNMENT OR SUB-LETTING Lessee shall not mortgage, sell, assign
or transfer this lease, or any interest herein, or allow the same to be done by
operation of law or otherwise, or sublet the Demised Premises or any part
thereof, except to a wholly-owned subsidiary or affiliate, or use or permit the
Demised Premises to be used for any purpose other than a Permitted Use set forth
in Section 1 hereof without the prior written consent of Lessor, which consent
shall not be unreasonably withheld. In the event Lessee desires to assign this
lease or sub-let the Demised Premises, Lessee shall provide Lessor with not less
than sixty (60) days written notice of Lessee's request, specifying in detail
any and all terms of such assignment or sub-lease and providing all information
regarding same as may be requested by Lessor. In the event Lessor gives such
consent, Lessee shall remain primarily liable for the payment of all rents and
other payments and for the performance of all of the other terms and covenants
contained in this lease on its part to be performed. In addition, in the event
Lessor consents to an assignment or sub-lease of the Demised Premises, which
assignment or sub-lease results in rental payments in excess of the monthly
payments due and owing under the terms of this lease, such excess rental
payments shall belong equally to Lessor and Lessee.
7. ALTERATIONS. ADDITIONS. IMPROVEMENTS. Lessee will not make or allow
to be made any alteration or additions in or to the Demised Premises without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld. Such alterations, physical additions, or improvements when made to the
Demised Premises by Lessee shall be surrendered to Lessor and become the
property of Lessor upon termination in any manner of this lease, but this clause
shall not apply to moveable non-attached fixtures or furniture of Lessee. If any
mechanic lien is filed against the Demised Premises or the building as a result
of any act or omission by Lessee, its agents, employees or invitees, Lessee
shall cause same to be discharged of record within fifteen (15) days after the
lien is filed.
<PAGE> 6
- 6 -
8. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE. Lessee will maintain
the Demised Premises in a clean and healthful condition and comply with all
laws, ordinances, orders, rules, and regulations of all state, federal,
municipal and other agencies or bodies having jurisdiction with respect to the
use, condition, or occupancy of the Demised Premises. Lessee will not occupy or
use, nor permit the Demised Premises to be occupied or used for any business or
purpose which is unlawful in part or in whole or deemed by Lessor to be
hazardous or disreputable in any manner, nor permit anything to be done which
will in any way increase the rate of insurance on the building or its contents,
and in the event that there shall be any increase in the rate of insurance on
the building or its contents created by Lessee's acts or conduct of business
then Lessee hereby agrees to pay such increase to Lessor upon demand. Lessee
will at all times conduct its business, and control its agents, employees, and
invitees in such a manner as not to create any nuisance, interfere with, annoy,
or disturb other tenants of the building or Lessor in the management of the
building.
9. INDEMNITY, LIABILITY AND LOSS OR DAMAGE. Lessor and Lessee shall
not be liable or responsible for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority, or any other matter beyond the control of either party or for any
damage or inconvenience which may arise through repair or alteration of any part
of the building, or failure to make such repairs, or from bursting or leaking of
water or steam pipes, or from any other cause whatsoever beyond either Lessor's
or Lessee's reasonable control, unless arising from the willful misconduct or
omission of Lessor. In addition, neither party shall be liable to the other or
the other's agents, employees, guests, invitees or to any other person claiming
by, through or under Lessee or Lessor for any injury to person, loss or damage
to property, or for loss or damage to their business, occasioned by or through
the acts or omissions of Lessor or Lessee or any other person, or by any other
cause whatsoever, unless caused solely by either party's gross negligence or
willful misconduct. Both Lessor and Lessee shall, and hereby agree to, indemnify
the other party, and save it harmless from all suits, actions, damages,
liability and expense in connection with loss of life, bodily or personal injury
or property damage arising from or out of any occurrence in, upon, at or from
the Demised Premises or the occupancy or use by the parties of the Demised
Premises or any part thereof, if occasioned fully or in part by any action or
omission of the other party, its agents, guests, employees, contractors,
invitees or licensees. If either Lessee or Lessor shall, without fault on their
part, be made a party to any action commenced by or against the other party, the
Lessee or Lessor shall protect and hold the other harmless and shall pay all
costs, expenses, and reasonable attorney's fees.
Notwithstanding Lessor's obligations hereunder, Lessee shall bear the
sole risk of any loss of, or damage to, any personal property (including but not
limited to, any furniture, machinery, equipment, goods or supplies) of Lessee or
which Lessee may have on or in the Demised Premises, or any trade fixtures
installed by or paid for by Lessee on or in the Demised Premises, or any
additional improvements which Lessee may construct on or in the Demised
Premises, unless such loss or damage results from the willful misconduct or
omission of Lessor.
<PAGE> 7
- 7 -
10. RULES OF BUILDING. Lessor has heretofore delivered to Lessee, and
Lessee hereby acknowledges the receipt of, a set of rules applicable to the
building. Lessee and Lessee's agents, employees, and invitees, will comply fully
with all rules of the building, which rules are made a part hereof as though
fully set out herein. Lessor shall at all times have the right to change such
rules, make new rules, or amend such rules in such reasonable manner as Lessor
may deem advisable, all of which new rules, changes and amendments will be
posted or forwarded to Lessee in writing and shall be carried out and observed
by Lessee. Lessor and Lessee acknowledged that different tenants in the Building
may negotiate changes in the Rules and Regulations applicable to them. To the
extent that the same Rules and Regulations apply to Lessee and other tenants in
the Building, Lessor shall attempt in good faith to apply and enforce the same
uniformly.
11. HOLDING OVER. If Lessee retains possession of the Demised Premises
or any part thereof after the expiration or termination of this lease by lapse
of time or otherwise, Lessee shall pay to Lessor for each month, or portion
thereof, during such holdover period, an amount equal to 120% the rate of rental
payable by Lessee to Lessor with respect to the Demised Premises for the month
immediately preceding the month of expiration or termination, and in addition
thereto shall pay to Lessor all damages and all other costs and expenses
incurred by Lessor by reason of such holding over. Such holding over or
retention of the Demised Premises by Lessee shall operate and be construed only
as a month- to-month tenancy and shall not in any way be construed as an
extension or renewal of the term of this lease.
12. CONDEMNATION AND CASUALTY. (a) In the event the building or any
portion thereof necessary to the continued efficiency and/or economically
feasible use of the building shall be taken or condemned in whole or in part for
any public or quasi-public purposes, or sold to a condemning authority to
prevent taking, then the term of this lease shall, at the option of the Lessor,
forthwith cease and terminate. In the event the Demised Premises, or such
portion thereof as would prevent Lessee from occupying and using the Demised
Premises for the purposes herein provided, shall be taken or condemned for any
public or quasi-public purpose, or sold to a condemning authority to prevent
taking, then, at Lessor's option, either (i) the term of this Lease shall
forthwith cease and terminate, or (ii) Lessor shall, to the extent reasonably
practicable, provide Lessee with such additional space and make such repairs to
the Demised Premises as may be necessary to enable Lessee to use such additional
and repaired space for the purposes herein provided. All compensation awarded
for any such taking or conveyance of Lessor's interest shall be the property of
Lessor without any deduction therefrom for any present or future estate of
Lessee, and Lessee hereby assigns to Lessor all its right, title and interest in
and to any such award.
(b) If the Demised Premises or the building in which the Demised
Premises are located shall be damaged by any cause or means whatsoever not
caused or contributed to by the negligence or fault of Lessee, its employees,
servants, agents or visitors, and if said damage can be repaired within a period
of three (3) months by using standard working methods and procedures Lessor
shall, within a reasonable time of occurrence of said damage, enter and make
repairs to the extent that insurance proceeds are available therefor, and this
lease shall not be affected but shall
<PAGE> 8
- 8 -
continue in full force and effect. However, if said damage cannot be repaired
within a period of three (3) months by using standard working methods and
procedures, then this lease shall cease and terminate as of the date of such
occurrence, and Lessee shall pay rent hereunder only to such date of occurrence
and immediately surrender the Demised Premises to Lessor, unless within a period
of sixty (60) days from the date of such occurrence Lessor shall elect to keep
this lease in force and to restore the Demised Premises to substantially the
condition as existed prior to the date of occurrence by giving Lessee written
notice of such election within said sixty (60) day period. If Lessor so elects
to continue the lease and restore the Demised Premises, Lessor shall, within a
reasonable time after the date of the notice of said election, enter and make
repairs and this lease shall not be affected, except that rents hereunder shall
be reduced or abated from the date of occurrence while such repairs are being
made for the period of time and in the proportion that the Demised Premises are
untenantable. If, however, such damage is contributed to or results from the
fault of the Lessee, or Lessee's employees, servants, agents, or visitors, and
if Lessor does not have insurance covering such damage, such damage shall
promptly be repaired by and at the expense of Lessee under the control,
direction and supervision of Lessor, and the rent shall continue without
abatement or reduction. The completion of the repair of all such damage is
subject to reasonable delays resulting from causes beyond the reasonable control
of the party obligated to make such repairs. Lessor shall not be obligated to
repair any damage to the Demised Premises or the building that is not covered by
insurance.
13. ENTIRE AGREEMENT. It is expressly agreed by Lessee, as a material
consideration of this lease, that there are, and were, no verbal
representations, understanding, stipulations, agreements or promises pertaining
hereto not incorporated in writing herein, or in all other agreements referred
to herein, and it is likewise agreed that this lease shall not be altered,
waived, amended or extended other than as provided herein or in a writing signed
by the parties to this lease or their authorized agents.
14. TRANSFER OF LESSOR'S RIGHTS. Lessor shall have the right to
transfer and assign, in whole or in part, all of its rights and obligations
hereunder and in the building. Upon any such transfer or assignment, the term
"Lessor" shall be deemed to refer only to the transferee or assignee of Lessor's
interest hereunder, and Lessor shall thereafter be released from all liability
and obligation hereunder accruing after the date of assignment.
15. DEFAULT CLAUSE. In the event: (a) Lessee fails to make any payment
required to be made by Lessee to Lessor pursuant to this lease within five (5)
days of written notice from Lessor that the same is due and payable; (b) Lessee
fails (other than a failure covered by (a) above) to comply with any term,
provision, condition, or covenant of this lease or any of the rules now or
thereafter established for the government of the building and such failure
continues for a period of fifteen (15) days after written notice thereof; (c)
Lessee deserts, abandons or vacates the Demised Premises; (d) any petition is
filed by or against Lessee under any section or chapter of any bankruptcy act or
under any similar law or statute of the United States or its subdivisions; (e)
Lessee becomes insolvent or makes a transfer in fraud of creditors; (f) Lessee
makes an assignment for the benefit of creditors; or (g) a receiver is appointed
for Lessee or any of the assets of Lessee, then, in any of such events, Lessor
shall have the option to do any one or more
<PAGE> 9
- 9 -
of the following without any notice or demand, in addition to and not in
limitation of any other remedy available to Lessor at law, in equity or under
this lease:
(1) Terminate this lease, in which event Lessee shall
immediately surrender the Demised Premises to Lessor, and if Lessee
shall fail to do so, Lessor may, without notice and without prejudice
to any other remedy Lessor may have for possession or arrearages in
rent, enter upon and take possession of the Demised Premises and expel
or remove Lessee and its effects without being liable to prosecution
or any claim for damages therefor; and Lessee agrees to indemnify
Lessor for all loss, damage, and expense, which Lessor m a y suffer by
reason of such termination, whether through inability to relet the
Demised Premises on satisfactory terms, or through decrease in rent,
or otherwise; and/or
(2) Intentionally Omitted.
(3) Enter upon and take possession of the Demised Premises
as the agent of Lessee, without being liable to prosecution or any
claim for damages therefor, and Lessor may relet the Demised Premises
as the agent of the Lessee and receive the rent therefor; and in such
event, Lessee shall pay Lessor the reasonable cost for renovating,
repairing and altering the Demised Premises for a new tenant or
tenants and any deficiency that may arise by reason of such reletting
on demand at the address of Lessor specified herein or hereunder;
provided, however, that the failure or refusal of Lessor to relet the
Demised Premises shall not release or affect Lessee's liability for
rent or for damages and such rent and damages shall be paid by Lessee
on the dates specified herein; and/or
(4) Lessor may, as agent for Lessee, do whatever Lessee is
obligated to do by the provisions of this lease and may enter the
Demised Premises with reasonable notice, without being liable to
prosecution or any claim for damages therefor, in order to accomplish
this purpose. Lessee agrees to reimburse Lessor immediately upon
demand for any expenses which Lessor may incur in thus effecting
compliance with this Lease on behalf of Lessee, and Lessee further
agrees that Lessor shall not be liable for any damages resulting to
Lessee from such action, whether caused by the negligence of Lessor or
otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies available at law
or in equity. In the event Lessee, or Lessee's subsidiary or affiliate, shall
have other leases for other premises in the building, any default by Lessee
under such other leases shall be deemed to be a default herein and Lessor shall
be entitled to enforce all rights and remedies as provided for a default herein.
16. BINDING EFFECT. This lease shall inure to the benefit of, and be
binding upon, the heirs, executors, administrators, successors and assigns of
Lessor; and, subject to Section 6 hereof, the heirs, executors, administrators,
successors and assigns of Lessee.
17. NO WAIVER OR SURRENDER. No act or thing done by Lessor or its
agents during the term hereof shall be deemed an acceptance of a surrender of
the Demised Premises, and no agreement to
<PAGE> 10
- 10 -
accept a surrender of the Demised Premises shall be valid unless made in writing
and signed by Lessor. The mention in this lease of any particular remedy shall
not preclude Lessor from any other remedy Lessor might have, either at law or in
equity, nor shall the waiver of or redress for any violation of any covenant or
condition contained in this lease or any of the rules and regulations attached
hereto, or hereafter adopted by Lessor, prevent a subsequent act from having all
the force and effect of an original violation. The receipt by Lessor of rent
with knowledge of the breach of any covenant contained in this lease shall not
be deemed a waiver of such breach. The failure of Lessor to enforce any of the
rules of the building attached hereto, or hereafter adopted, against Lessee
and/or any other tenant in the building shall not be deemed a waiver thereof.
Failure of Lessor to declare any default immediately upon occurrence thereof, or
delay in taking any action in connection therewith, shall not waive such
default, but Lessor shall have the right to declare any such default at any time
and take such action as might be lawful or authorized hereunder, at law or in
equity. No waiver shall be effective unless in writing and signed by Lessor.
18. QUIET POSSESSION. Lessor hereby covenants that Lessee, Upon paying
rent as herein reserved, and performing all covenants and agreements herein
contained on the part of Lessee to be paid or performed, shall and may
peacefully and quietly have, hold and enjoy the Demised Premises.
19. IMPROVEMENTS. Except as specifically set forth in Exhibit D
hereto, Lessor shall have no obligation to provide any improvements to the
Demised Premises or the building. By moving into the Demised Premises or taking
possession thereof, Lessee accepts the Demised Premises as suitable for the
purposes of which the same are leased and accepts the building and each and
every appurtenance thereof, and Lessee by said acts waives any and all defects
therein, except for latent defects.
20. POSSESSION. Except as provided in Exhibit D hereto, if for any
reason the Demised Premises shall not be ready for occupancy by Lessee at the
time set forth in Section 1(d) for commencement of this Lease, this Lease shall
not be affected hereby, nor shall Lessee have any claim against Lessor by reason
thereof, but no rent shall be payable for the period during which the Demised
Premise shall not be ready for occupancy. Notwithstanding the foregoing, if
delivery of possession of the Demised Premises shall be delayed beyond the date
specified for the commencement of the Lease Term, it is understood and agreed
that the commencement of the Lease Term shall be extended to the date that the
Demised Premises are tendered to the Lessee in which event the termination date
of the Lease Term shall be correspondingly extended.
21. SIGNS. Lessee will not place or suffer to be placed or maintained
on any exterior door, wall or window of the Demised Premises any sign, awning or
canopy, or advertising matter or other thing of any kind, and will not place or
maintain any decoration, lettering or advertising matter on the glass of any
window or door of the Demised Premises without first obtaining Lessor's prior
written approval and consent, which shall not be unreasonably withheld, in each
instance. Lessee further agrees to maintain any such sign, awning, canopy,
decoration, lettering or advertising matter or other thing as may be approved in
good condition at all times.
<PAGE> 11
- 11 -
22. SUBORDINATION. Lessee hereby subordinates this Lease and all
rights of Lessee hereunder to any ground lease, mortgage or mortgages, vendor's
lien, or similar instruments which now are or which may from time to time
hereafter be placed upon the Demised Premises or the property containing the
same; and such ground lease, mortgage or mortgage liens or other instruments
shall be superior to and prior to this Lease. Lessee further covenants and
agrees that if the Landlord under any ground lease or any mortgagee or other
person or entity acquires the Demised Premises through default under the ground
lease, foreclosure, or by deed in lieu of foreclosure (any such Landlord,
mortgagee or other lien holder or purchaser at the foreclosure sale being each
hereinafter referred to as the "Purchaser at foreclosure") , Lessee shall
thereafter, but only at the option of the Purchaser at Foreclosure, as evidenced
by the written notice of its election given to Lessee within a reasonable time
thereafter, remain bound by novation or otherwise to the same effect as if a new
and identical lease between the Purchaser at Foreclosure, as Lessor, and Lessee,
as tenant, had been entered into for the remainder of the Lease Term. Lessee
agrees to execute any instrument or instruments which Lessor or any mortgagee or
other secured party may deem necessary or desirable further to effect the
subordination of this lease to each such ground lease, mortgage, lien or other
instrument, or to confirm any election to continue the lease in effect in the
event of foreclosure or default, as above provided.
23. SEVERABILITY CLAUSE. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under any present or future law, then and in
that event, it is the intention of the parties hereto that the remainder of this
lease shall not be affected thereby, and it is also the intention of the parties
to this lease that in lieu of each clause or provision that is illegal, invalid
or unenforceable, there be added as a part of this lease a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be legal, valid and enforceable. The caption of each paragraph
hereof is added as a matter of convenience only and shall be considered to be of
no effect in the construction of any provision or provisions of this Lease.
24. SECURITY DEPOSIT. Intentionally Omitted.
25. LESSEE'S INSURANCE. Lessee, in order to enable it to meet its
obligations to insure against the liabilities specified in this Lease, shall at
all times during the Lease Term, at its own expense, for the protection of
Lessee, Lessor, Lessor's mortgagee and Lessor's management agent, as their
interests may appear, carry one or more policies of general public liability and
property damage insurance, issued by one or more insurance companies acceptable
to Lessor, with the following minimum coverages:
(a) Worker's Compensation Minimum Statutory Amount
<PAGE> 12
- 12 -
Comprehensive General Not Less than $1,000,000
Liability Insurance, combined single limit for both
including blanket bodily injury and property
contractual liability, damage.
broad form property
damage, personal injury,
completed operations,
products liability and fire
damage.
(b) Fire and extended coverage, vandalism and malicious mischief, and
sprinkler leakage insurance for the full cost of replacement of Lessee's
property and fixtures located in the Demised Premises.
Such insurance policy or policies shall name Lessor, Lessor's
mortgagee and Lessor's management agent as additional insureds and shall provide
that such insurance may not be cancelled on less than ten (10) days prior
written notice to Lessor. Lessee shall furnish Lessor with a copy of all
certificates evidencing such insurance. Should Lessee fail to carry such
insurance and/or furnish Lessor with a copy of all such certificates after a
request to do so, Lessor shall have the right to obtain such insurance and
collect the cost thereof from Lessee upon demand. Neither the minimum insurance
coverages required herein, nor the types of insurance coverages required hereby
shall be interpreted or construed as any limitation on Lessee's liability under
this Lease.
26. LESSOR'S INSURANCE. Lessor shall be responsible for insuring and,
unless Lessor elects to self insure, Lessor shall at all times during the term
of this Lease carry a policy of insurance which insures the building, including
the Demised Premises, against loss or damage by fire or other casualty (namely,
the perils against which insurance is afforded by a standard fire insurance
policy and extended coverage endorsement); provided, however, that Lessor shall
not be responsible for, and shall not be obligated to insure against, any loss
of or damage to any trade fixtures or other personal property located anywhere
in or on the building or the Demised Premises, nor shall Lessor be responsible
for, or obligated to insure against, any loss of or damage to any improvements
installed in the Demised Premises by, for or at the instance of Lessee. Lessor
may, at its option, self insure the building and the Demised Premises to the
extent herein required, in which case Lessor's liability shall be limited to
such items as would be covered by the above described insurance had Lessor not
elected to self insure.
27. WAIVER OF SUBROGATION. Lessor and Lessee hereby release each other
and each other's employees, agents, customers, contractors and invitees from any
and all liability for any loss, damage or injury to person or property occurring
in, on, about or to the Demised Premises, the building, improvements to the
building or personal property within the building by reason of fire or other
casualties which are required by this Lease to be insured against, regardless of
cause, including the negligence of Lessor or Lessee and their employees, agents,
customers, contractors
<PAGE> 13
- 13 -
and invitees. Each party to this Lease shall obtain from its respective
insurance company a consent to this mutual waiver of subrogation/release, so as
to prevent the invalidation of insurance coverage by reason of this mutual
waiver of subrogation/release, and shall provide the other party a copy of any
such consent.
28. RELOCATION OF LESSEE. Lessor reserves the right at its option,
which shall not be exercised more than one (1) time during the original Lease
Term, and upon giving not less than ninety (90) days written notice in advance
to Lessee, to remove Lessee from the Demised Premises and to transfer Lessee to
space of substantially equal size and equivalent rental in the building Lessor
shall bear all expense of such relocation of Lessee's furniture, fixtures and
equipment as well as the expense of any renovations or alterations necessary to
make the new space conform in arrangements and layout with the premises covered
by this Lease. In addition, Lessor shall bear the expense of reprinting
stationery, printing and marketing materials.
29. NOTICES. Any notice required or permitted to be given hereunder by
one party to the other shall be deemed to be given when deposited in the United
States Mail with sufficient postage prepaid, addressed to the respective party
to whom notice is intended to be given, if to Lessee, at the Demised Premises,
and if to Lessor at Belvedere Corporation, Managing Agent, 500 Carew Tower, 441
Vine Street, Cincinnati, Ohio 45202.
30. BROKERS. Lessee represents and warrants to Lessor that neither it
nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker in the negotiation or making of this lease, except CB
Commercial Real Estate Group, and Lessee agrees to indemnify and hold Lessor
harmless from the claim or claims of any other broker or brokers claiming to
have interested Lessee in the Building or Demised Premises or claiming to have
caused Lessee to enter into this Lease.
31. MOVING. Unless otherwise requested by Lessee and approved by
Lessor, all moving in or out of the Demised Premises must be done Monday through
Friday after 5:00 p.m. or anytime on Saturday and shall be scheduled with Lessor
in advance. The Lessee is responsible for any damage caused by Lessee, its
employees, agents or representatives during such move.
32. ESTOPPEL CERTIFICATES. Lessee shall, within ten (10) business days
after the request of Lessor, execute and deliver to Lessor a written statement
certifying that this Lease is unmodified and is in full force and effect, the
then existing Basic Rental and the dates to which the Basic Rental, additional
rent and other charges have been paid, that all improvements to be made by
Lessor have been satisfactorily completed, stating whether or not the Lessor is
in default of its obligations hereof and containing such other information as
Lessor may reasonably specify.
33. LESSOR'S LIABILITY. Lessee agrees that it will not seek or enforce
a personal judgment or any deficiency judgment against Lessor, or any of the
agents, employees, officers, directors, shareholders or partners of Lessor, for
any default by Lessor in the performance or observance of any of the terms or
conditions of this lease, but Lessee shall look solely to Lessor's interest in
the
<PAGE> 14
- 14 -
land and building containing the Demised Premises and the rents, issues and
profits thereof for satisfaction of any judgment or claim against Lessor.
34. RIGHT OF FIRST REFUSAL. If, during the initial term of this Lease
or any renewal term thereof, Lessor wishes to Lease all or a part of the 5th,
6th or 7th floors to a third party, then Lessor shall notify Lessee in writing,
delivered to the Leased Premises of its intent to so lease such space, and the
exact space to be leased. Thereafter Lessee shall be entitled to a period of
fifteen (15) days following receipt of such notice to elect to lease such space
upon the same terms and conditions as set forth in this Lease. In the event
Lessee fails to give Lessor written notice of its exercise of its right of first
refusal, Lessee agrees that the right of first refusal provided herein shall not
apply to the said space. This Right of First Refusal shall apply to existing
leases by contiguous tenants at their lease end, but shall exclude however,
existing tenants whose leases contain renewal options, until said renewal option
periods have been completed. All leases for space contiguous to Lessee contain
relocation clauses. In the event Lessee exercises its first refusal rights,
Lessor shall have sixty (60) days in which to relocate the existing tenant.
Lessor shall, at no cost to Lessee, renovate the expansion area for Lessee in
the same manner as that which exists in the Demised Premises as covered in this
base lease within a period of sixty (60) days after Lessee has relocated the
existing tenant. Lessee's right of refusal contained in this paragraph may be
exercised so long as Lessee's remaining term of the lease is extended at the
time of exercise to a full five (5) year term.
35. EXPANSION OPTION. Provided Lessee is not in default under the
terms of this Lease, Lessee shall have the right to expand into all or a portion
of Floors 5, 6, and 7 provided Lessee gives Lessor six (6) months prior written
notice of its election to exercise such option. Lessee's expansion option herein
shall be exercisable so long as Lessee's remaining term of the lease is extended
at the time of said exercise of this option to a full five (5) year term. Should
Lessee exercise its right to take additional space, rents for the expansion
space shall commence at the rate per square foot in effect at the time of taking
per the Lease Agreement and shall step in accordance with the same. Lessor
shall, at no cost to Lessee, relocate the existing tenant and renovate the
expansion area in the same manner as that which exists in the original Demised
Premises.
36. MOVING ALLOWANCE. Lessor shall pay to Lessee, no less than five
(5) days prior to the date of occupancy of the Demised Premises by Lessee, the
sum of Two Dollars ($2.00) per rentable square foot as a moving allowance.
37. RENEWAL OPTION. Lessee, at its option, which may not be exercised
more than two (2) time(s) during the term hereof, may extend the Lease for two
(2) additional period(s) of five (5) years. All the terms and conditions
contained in this Lease shall apply during the extension of the term, provided,
however, that the Annual Basic Rent for each one year period during such
extended term (commencing on any anniversary of the commencement date of this
Lease) shall increase by Fifty Cents ($0.50) per square foot per year over the
previous year's rate cumulative throughout the renewal periods.
<PAGE> 15
- 15 -
Lessee may exercise its right to extend the term hereof by serving
written notice of such extension upon Landlord at least six (6) months prior to
the expiration of the original term of this Lease; provided, however, that if,
at the date upon which Lessee exercises its option to extend the term, or at the
date in between, Lessee is in default in the performance of any or all of the
covenants, terms or provisions of this Lease, the right of Lessee to extend the
terms as set forth herein and any attempt by Lessee to extend the terms of the
Lease shall be null and void.
38. PARKING. On the commencement date of the Lease Term, Lessor shall
make available for lease by Lessee a number of parking spaces not to exceed one
space for each 1,000 square feet of area included in Demised Premises, such
parking spaces to be located in the Tower Place Garage. The monthly parking rate
for each space shall be at the rates as set forth by the operator of the Tower
Place Garage. So long as the owners of Tower Place Garage maintain and operate
this facility as a parking garage, Lessee hereby acknowledges that the use of
any such parking spaces that Lessee may elect to lease shall be governed by the
rules of the parking garage, and Lessee shall, and hereby does, indemnify and
hold harmless Lessor from and against any and all liability of any nature
whatsoever arising out of, relating to, or incurred in connection with the use
of said Garage or the violation of said rules by Lessee. In the event of the
closing of said Tower Place Garage by its owners because of condemnation by a
government entity or development of the property by its owners as a facility
other than a garage, Lessor shall not be required to provide said parking spaces
to Lessee.
39. STORAGE. Lessor shall provide up to 600 square feet of storage
space to Lessee for its archival storage on a month-to-month basis at a cost of
$4.00 per square foot per year. Said space shall be in an area of the Building
to be chosen by Lessor, shall be locked at all times and shall have limited
access to the same by Lessor and Lessee only.
40. SPACE PLANNING. Lessor shall provide, at no cost to Lessee, space
planning services by Lessor's designated space planner, which services shall
include the preparation of the original plan and up to four (4) revisions of the
plan thereafter. Said four (4) revision limitation shall be exclusive of any
revisions made at the request of Lessor or made in order to accommodate Fire
Codes.
41. BALCONY/SIXTH FLOOR ROOF. Lessor shall, within sixty (60) days
after occupancy of the Demised Premises by Lessee and with weather permitting,
prepare and make available for use by Lessee, a portion of the Sixth Floor Roof,
herein referred to as "Patio Area", said Patio Area not to exceed 800 square
feet. Lessee hereby agrees to indemnify and hold harmless Carew Realty and all
of its affiliates, shareholders, directors, officers and employees from any and
all claims, causes of action, damage to persons or to property, or liability
arising from Lessee's use, or its employees, agents, and invitees use of this
Sixth Floor Roof Patio Area.
Lessee agrees to maintain said Patio Area in a clean and orderly
manner and hereby agrees that its use of the same shall not interfere with or
cause a disturbance to Lessor's other tenants, and that all Rules and
Regulations as set forth in Exhibit E hereto shall apply.
<PAGE> 16
- 16 -
In addition to the above, Lessor's use of the Patio Area shall be
restricted to those areas designated as the Patio Area on the Sixth Floor Roof
and Lessee, its employees, and invitees shall refrain from using any other
portion of the Sixth Floor Roof which use might result in the damage of the roof
surface which would nullify Lessor's roofing surface guarantees and warranties.
Lessee agrees to make prompt repair for any damages caused by it's use of those
areas of the roof not designated Patio Area and Lessor, its successors and
assigns shall not be liable for any equipment or property left unattended by
Lessee on the Patio Area.
42. RECEPTION AREA. Lessee reserves the right, should the reception
area space plan be unacceptable, to choose to lease the entire seventh floor and
the majority of the sixth floor.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date and year first set forth above.
LESSEE: LESSOR:
KENDLE RESEARCH ASSOCIATES CAREW REALTY, INC.
By: Belvedere Corporation
Signed and Acknowledged in Signed and Acknowledged in
the Presence of: the Presence of:
STATE OF OHIO )
) ss.
COUNTY OF HAMILTON )
Before me, Patricia A. Leurance, a Notary Public on this day
personally appeared John M. Hensler, known to me to be the person whose name
is subscribed in the foregoing instrument, and acknowledged to me that he/she
executed the same for the purposes and consideration therein expressed.
Given under my hand and official seal this 10th day
-------------------
of December , 1990.
----------------------------------
Notary Public
<PAGE> 17
STATE OF OHIO )
) ss.
COUNTY OF HAMILTON )
Before me, Patricia A. Leurance, a Notary Public on this day
personally appeared Christopher Bergen, known to me to be the person whose
name is subscribed in the foregoing instrument, and acknowledged to me that
he/she executed the same for the purposes and consideration therein expressed.
Given under my hand and official seal this 9th day
---
of December, 1990.
-------- ----
Notary Public
<PAGE> 18
Exhibit "A"
FLOOR PLAN
<PAGE> 19
Exhibit "B"
The useable square footage as determined by using the standard BOMA
method of computation plus a common area load factor of 1.09%
<PAGE> 20
Exhibit "C"
DECLARATION OF COMMENCEMENT
This Declaration of Commencement is an amendment to the Lease
Agreement made and entered into as of the ____ day of _______________ 19____,
(the "Lease") between CAREW REALTY, INC., ("Lessor") and KENDLE RESEARCH
ASSOCIATES, the ("Lessee").
Lessor and Lessee hereby agree to amend, modify and supplement the
Lease as follows:
1. Except for those items show on the attached "punchlist", which
Lessor will remedy within _____ days hereof, Lessor has fully completed all
construction work, if any, required to be performed by Lessor pursuant to the
Lease.
2. The Demised Premises are tenantable, Lessor has no further
obligation for construction (except as specified in paragraph 1, above), and
Lessee acknowledges that both the building and the Demised Premises are
satisfactory in all respects and Lessee hereby unconditionally accepts the same
for the purposes set forth in the Lease.
3. The commencement date of the Lease is hereby agreed to be ____ day
of _____________________, 19____.
4. The expiration date of the Lease is hereby agreed to be ____ day of
_____________________, 19____.
5. The total number of square feet of Rentable Area included in the
Demised Premises is hereby stipulated to be ________________________.
6. Lessee's Share is hereby stipulated to be _____________________%.
7. Capitalized terms used herein within definition shall have the
meanings ascribed thereto in the Lease.
8. Except as specifically set forth herein, the terms and conditions
of the Lease shall remain unchanged and in full force and effect and are hereby
ratified and confirmed by Lessor and Lessee.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto nave caused this Declaration of
Commencement to be executed as of this _______ day of ____________________,
19____.
LESSEE: LESSOR:
KENDLE RESEARCH ASSOCIATES CAREW REALTY, INC.
By: Belvedere Corporation
By: By:
Its: Its:
<PAGE> 22
Exhibit "D"
IMPROVEMENTS
Lessor shall at no cost to Lessee, build out the Demised Premises on a
"turnkey basis", using the Tenant Finish Allowances ("Building Standard")
including, but not limited to: partitions, doors, ceiling, electrical outlets,
lights and light switches, HVAC system, wall and floor coverings. In addition,
Lessor shall install two building standard floor to ceiling double entry doors
of wood and one building standard single glass door floor to ceiling inside the
space, all of which shall conform with Fire Code regulations unless a waiver is
granted upon appeal to the Fire Department. The renovations shall be performed
in conformance with construction plans developed from a "Space Plan" approved by
both Lessee and Lessor.
The following above standard finishes shall be supplied without cost
to Lessee:
1. Thirty-Six (36) ounce Building Standard carpet and Building Standard
vinyl wallcovering in the conference room, the reception area, and up
to six (6) executive offices.
2. Installation of a private stairway between the 6th and 7th floors for
the exclusive use of Lessee, said stairway to meet all applicable
building codes and fire codes.
3. Installation of a partition around equipment on the 6th floor roof-top
area.
4. Installation of a door leading to the patio-area of the sixth floor
prior to occupancy. (Lessee hereby agrees not to use nor allow its
employees to use said patio area until such time as Lessor installs
protective flooring over its roof surface and completes its
renovations as set forth herein and in Paragraph 40).
Lessor agrees to substantially complete all improvements in the
Premises in a good and workmanlike manner (subject to Punchlist items) by the
commencement date, including the conference area, elevator lobby and common
hallways on the sixth and seventh floors. Lessor shall provide as a part of
Lessee's standard build out, if Lessee so decides in building standard:
1. Ceiling to floor double glass doors;
2. Glass wall in reception area; and
3. Built-in wood reception desk; all in conformance with Fire
Codes.
<PAGE> 23
Exhibit "E"
RULES AND REGULATIONS
1. Tenant shall not permit or conduct any fire, bankruptcy, auction or
"going out of business" sale in the Demised Premises.
2. Directories will be placed by Lessor, at its own expense, in
conspicuous places in the building. No other directories shall be permitted in
common areas of the building, or which can be seen from outside or from common
areas of the building, unless previously consented to by Lessor in writing,
which consent shall not be unreasonably withheld or delayed.
3. Tenant will refer all contractors, contractor's representatives and
installation technicians, rendering service to Tenant, to Lessor for Lessor's
supervision, approval (which approval will not be unreasonably withheld or
delayed), and control before performance of any contractual service. This
provision shall apply to all work performed which relates in any way, to the
building systems.
4. Canvassing and soliciting are prohibited.
5. No awnings or other projections shall be attached to the exterior
surface of the walls enclosing tenant's space. No screens shall be attached to
or hung in, or used in connection with, any window or door of Tenant's space
without the prior written approval (which approval will not be unreasonably
withheld or delayed) of Lessor as to quality, type, design, color and manner of
attaching the same. Tenant shall not erect, install or maintain any sign,
decoration, lettering, advertising or other graphics matter on or in the
building which is visible from outside the Demised Premises without first
obtaining Lessor's written approval thereof, which approval shall not be
withheld unreasonably.
6. Tenant shall maintain any such sign, decoration, lettering,
advertising matter or other graphics, as may be reasonably approved by Lessor,
in good condition at all times. Lessor may permit signs on doors or directory
tablets, and such signs or tablets shall be inscribed, painted, or affixed for
Tenant by Lessor at the expense of Tenant, and shall be of a size, color and
style reasonably acceptable to Lessor. The style of listings for Tenant on the
directory tablets shall be at the reasonable discretion of Lessor.
7. No Tenant shall mark, paint, drill into or in any way deface any
part of the Demised Premises or the building and no boring, cutting or stringing
of wires shall be permitted, except with the prior written consent of Lessor,
which shall not be unreasonably withheld, and as Lessor may reasonably direct.
8. Tenant shall not place, install or operate in the Demised Premises
or in any part of the building, any engine or machinery, or maintain, use or
keep any flammable, explosive, or hazardous material without consent of Lessor,
which shall not be unreasonably withheld
<PAGE> 24
- 2 -
9. Lessor will not be responsible for lost or stolen personal
property, equipment, money, or jewelry from Tenant's area or public areas
regardless of whether such loss occurs when area is locked against entry or not,
unless caused by or arising out of Lessor's negligence or willful misconduct.
10. Lessor will not permit entrance to Tenant's offices by use of pass
keys controlled by Lessor to any person, at any time, without written permission
of Tenant, except employees, contractors, or service personnel directly
supervised by Lessor, or agents of Lessor.
11. The Lessor desires to maintain the highest standards of
environmental comfort and convenience for the tenants. It will be appreciated if
any undesirable conditions or lack of courtesy or attention are reported
directly to management.
12. The entries, passages, doors, elevators, closets, hallways or
stairways shall not be blocked or obstructed, and no sweepings, rubbish, rags,
litter, trash, or material of any nature shall be placed, emptied or thrown into
these areas; and such areas shall not be used at any time, except for egress or
ingress by Tenant, Tenant's agents, employees, or invitees to or from the
Demised Premises.
13. The water and wash closets and other plumbing fixtures in the
building shall not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags or other substance shall be thrown
therein. All damage resulting from any misuse of such fixtures shall be borne by
Tenant who, or whose servants, employees, agents, guests or licensees, shall
have caused the same.
14. Tenant shall not do, or permit anything to be done in or about the
building, or bring or keep anything therein, that will in any way increase the
rate of fire or other insurance on the building, or on property kept therein, or
obstruct tenants, or do anything in conflict with the valid pertinent laws,
rules or regulations of any governmental authority.
15. Lessor shall have the right to determine and prescribe the right
and proper position of any unusually heavy equipment including safes, large
files, etc. that are to be placed in the building, and only those which in the
opinion of Lessor will not, with reasonable probability, do damage to the
floors, structure and/or freight elevator, may be moved into said building. Any
damage occasioned with the moving or installing of such aforementioned articles
in said building or the existence of same in said building shall be paid for by
Tenant, unless otherwise covered by insurance.
16. The work of the janitor or cleaning personnel shall not be
hindered by Tenant after 5:30 P.M. and such work may be done at any time when
the offices are vacant. The windows, doors and fixtures may be cleaned at any
time, with notice to the Tenant. Tenant shall provide adequate waste and rubbish
receptacles, cabinets, bookcases, map cases, etc., necessary to prevent
unreasonable hardship to Lessor in discharging its obligation regarding cleaning
service.
<PAGE> 25
- 3 -
17. Lessor shall have the right to prohibit the use of the name of the
building or any other publicity by the Tenant, which in Lessor's reasonable
opinion, tends to impair the reputation of the building or its desirability for
the executive offices of Lessor or of other tenants; and, upon written notice
from Lessor, Tenant will refrain or discontinue such publicity.
18. Unless Tenant is specifically permitted by Lease to operate a
restaurant, no cooking shall be done or permitted by the Tenant on the Demised
Premises without the prior written consent of the Lessor. Normal office cooking
equipment, i.e. coffee pot, microwave shall be permitted. Under no circumstances
shall Tenant cause or permit any unusual or objectionable noise or odor to be
produced upon or emitted from the Demised Premises. Lessee may, however, have
normal office appliances such as coffee maker and microwave oven in the Demised
Premises.
19. Tenant, when closing the Demised Premises, shall see that all
windows and exit doors from Tenant's Demised Premises are closed and locked.
Tenant will furnish Lessor with "after-hours" emergency telephone numbers for
the sole use of the Lessor at its discretion.
20. Tenant agrees that it shall not willfully do or omit to do any act
or thing which shall discriminate or segregate upon the basis of race, color,
sex, creed or national origin in the use and occupancy of the Demised Premises.
21. The Leased Premises shall not be used for lodging, sleeping, or
for any immoral or illegal purpose or for any purpose that will damage the
premises or the reputation thereof, or for any purpose other than specified in
the Lease covering the premises.
22. Lessor reserves the right to waive any rule in any particular
instance or as to any particular person or occurrence, provided Lessor does so
in a uniform and nondiscriminatory manner, and further, Lessor reserves the
right to amend or rescind any of these rules or make, amend or rescind new rules
to the extent Lessor in its reasonable judgment, deems suitable for the safety,
care and cleanliness of the building and the conduct of high standards of use
and operation thereof, provided Lessor enforces such new rules and amends or
rescinds rules in a uniform and nondiscriminatory manner. Tenant agrees to
conform to such new or amended rules upon written notice of the same, or by the
date stated in the notice.
23. Whenever any notice, approval, consent, request or election is
given or made pursuant to these Rules and Regulations, it shall be in writing.
No consent, waiver, express or implied, by Lessor or Tenant to or any breach of
any Rules or Regulations shall be construed as a consent or waiver of any other
breach of the same or any other rule or duty. Whenever any approval or consent
by Lessor or Tenant is expressly required by these Rules and Regulations, the
approval or consent shall not be withheld unreasonably.
24. Movement in or out of the building of furniture or office
equipment, or dispatch or receipt by Tenant of any merchandise or materials
which require use of elevators or stairways, or movement through building
entrances or lobby shall be restricted to hours reasonably designated by Lessor.
All such movement shall be under supervision of Lessor and in the manner agreed
<PAGE> 26
- 4 -
between Tenant and Lessor by prearrangement before performance. Such
prearrangement initiated by Tenant will include determination by Lessor and is
subject to its decision and control, as to time, method, and routine of movement
and as to limitations imposed for safety or other concerns which may prohibit
any articles, equipment or any other item from being brought into the building.
Tenant is to assume all risk as to damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including equipment,
property, and personnel of Lessor if damaged or injured as a result of acts in
connection with carrying out this service for Tenant, from time of entering
property to completion of work; and Lessor shall not be liable for acts of any
person engaged in, or any damage or loss to any said property or persons
resulting from any act in connection with such service performed by Tenant,
unless arising out of Lessor's negligence or willful misconduct.
<PAGE> 27
Exhibit "F"
JANITORIAL CLEANING WORK SCHEDULE
GENERAL OFFICE AREAS
A. NIGHTLY
1. Dust all desks, furniture, files cabinets, etc.
2. Dust ledges, picture frames, partition tops and
other horizontal surfaces.
3. Empty and damp wipe ashtrays.
4. Empty waste cans and replace liners if required.
5. Vacuum carpets and replace chairs under desks.
6. Spot clean carpets by bonnet cleaning.
7. Dust mop and spot damp mop tile floors.
8. Remove fingerprints from doors, frames, walls, etc.
9. Spot clean partition glass.
10. Remove trash to freight elevator, transporting in brutes.
B. WEEKLY
1. Clean telephones with separate cloth.
2. Spray buff tile floors.
3. Dust window sills, door frame tops, mullions, etc.
C. MONTHLY
1. Use furniture polish on wooden surfaces.
2. Dust vertical surfaces of all furniture.
3. Polish metal surfaces with "Twinkle".
4. Vacuum or brush upholstery.
5. Feather dust Venetian blinds.
RESTROOMS AND LOUNGES
A. NIGHTLY
1. Clean wash basins, dispenser and chrome fittings.
2. Clean mirrors and frames.
3. Wet mop floors, using disinfectant.
4. Sanitize toilets, toilet seats and urinals.
5. Dust ledges and partitions, spot wash.
6. Report any fixture not working properly.
7. Restock dispensers.
B. WEEKLY
<PAGE> 28
- 2 -
1. spray buff tile floors where applicable.
2. Spot wash partitions, walls and doors.
C. BI-MONTHLY
1. Recoat resilient tile floors, rinse to neutralize, apply
one (1) coat of sealer
and two C2) coats of wax.
MAIN LOBBY, ELEVATOR LOBBIES AND ENTRANCE WAYS
A. NIGHTLY
1. Clean glass doors and metal frames, inside and out.
2. Clean all horizontal surfaces including mullions.
3. Polish all metalwork.
4. Dust mop hard surface floors and spot damp mop using clean
cold water.
5. Empty sand urns and wipe sides.
6. Vacuum carpets and spot clean.
7. Sweep sidewalks outside of entrance.
8. Spray buff hard surface floors.
B. MONTHLY
1. Recoat floors.
CAFETERIA
A. NIGHTLY
1. Dust all horizontal surfaces.
2. Damp wipe tables and chairs.
3. Clean trash receptacles.
4. Dust mop and damp mop floors.
5. Empty trash.
B. WEEKLY
1. Spray buff tile floor.
C. AS REQUIRED
1. Strip floor and rewax.
<PAGE> 29
EXHIBIT "G"
CAREW TOWER OFFICE BUILDING
HVAC PERFORMANCE SPECIFICATIONS
The heating and air conditioning system shall accommodate a comfort
range of a minimum temperature of 68 degrees and a maximum temperature of 74
degrees.
The System is a two pipe system which cools and heats on a seasonal
schedule. The exterior offices are heated and cooled by individual perimeter
units. The interior offices are heated and cooled via ducting controlled from
the building's fan rooms which control three floors on each zone.
NOTE: The HVAC system may vary with individual tenants whose HVAC
systems have been individualized by the installation of
separate units as provided under their construction
drawings.
KENDLE VARIANCE: Lessor shall install an individual temperature
control to include a humidifier control in the drug storage
room.
In addition, Lessor shall install individual temperature controls in
the computer room, in the conference rooms, and in two executive offices on the
seventh floor.
473133.1
<PAGE> 30
AMENDMENT NO. ONE TO LEASE
--------------------------
This Amendment One to Lease (the "Amendment"), made effective this
19th day of December, 1991, is by and between Carew Realty, Inc. ("Lessor"), a
Delaware corporation, whose address is c/o Belvedere Corporation, 500 Carew
Tower, 441 Vine Street, Cincinnati, Ohio 45202, and Kendle Research Associates
("Lessee"), whose address is 105 West Fourth Street, Cincinnati, Ohio 45202.
W I T N E S S E T H:
WHEREAS, effective as of December 9, 1991, Lessor and Lessee entered
into a Lease (the "Lease") with respect to approximately 19,000 rentable square
feet of space on the 6th and 7th floors of the Carew Tower Building (the
"Building") located at 441 Walnut Street, Cincinnati, Ohio.
WHEREAS, the premises leased by Lessee in the Building (the "Demised
Premises") encompasses approximately 20,000 useable square feet:
WHEREAS, the Lessor and Lessee desire to make certain amendments in and
to the Lease, and specifically Exhibit D.
NOW, THEREFORE, effective December 19, 1991, Lessor and Lessee hereby
agree and acknowledge to delete the last Paragraph of Exhibit D in its entirety
(see attached) and add the following:
1. Lessee is obligated to sign off on space plans for the Demised Premises
no later than December 31, 1991.
2. Lessee shall approve and sign off on all construction drawings and the
room finish schedule no later than January 10, 1992.
3. Provided Lessee complies with Paragraphs 1 and 2 hereof, Lessor hereby
agrees to have the Demised Premises ready for occupancy by Lessee
(exclusive of punchlist items as set forth in Exhibit C of the Lease)
by April 1, 1992.
4. Lessor shall pay an additional One Dollar ($1.00) per square foot to
Lessee as a penalty to change the occupancy date from March 1, 1992 to
April 1, 1992.
5. Provided Lessee does not delay the construction for any reason, if the
Demised Premises are not ready for occupancy by April 1, 1992 Lessor
shall, for each day beyond April 1, 1992, reimburse Lessee for its rent
and holdover penalties if any, which Lessee pays after April 1, 1992
for its space at 105 West Fourth Street, upon presentation to Lessor by
Lessee of its rental invoice and cancelled check for said rents and
penalties.
All other terms and conditions of the Lease shall remain in full force
and effect.
<PAGE> 31
- 2 -
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the
date set forth below.
WITNESSETH: CAREW REALTY, INC.
By: Belvedere Corporation,
Managing Agent
By: /s/
- ------------------------------- ------------------------
Its: Vice President
- ------------------------------- -----------------------
Date: 12/30/91
----------------------
WITNESSETH: KENDLE RESEARCH ASSOCIATES
By: /s/ Christopher Bergen
- ------------------------------- ---------------------------------
Its: Exec VP
- ------------------------------- --------------------------------
Date: 12/30/91
-------------------------------
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the ____ day of _______________, 19__, before
me a Notary Public in and for said county and state, personally appeared Carew
Realty, Inc., the corporation, which executed the following instrument by Joan
M. Hensler, the Vice President of Belvedere Corporation, Managing Agent, who
acknowledged that he/she is authorized to sign on behalf of said corporation,
and the signing thereof to be its and his/her voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
------------------------------------
Notary Public
<PAGE> 32
- 3 -
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the ____ day of _______________, 19__, before
me a Notary Public in and for said county and state, personally appeared Kendle
Research Associates, the corporation, which executed the following instrument by
_______________, its _______________ who acknowledged that he/she is authorized
to sign on behalf of said corporation, and the signing thereof to be its and
his/her voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
-----------------------------------
Notary Public
<PAGE> 33
AMENDMENT NO. TWO TO LEASE
--------------------------
This Amendment No. Two to Lease (the "Amendment"), made effective this
18th day of March, 1996, is by and between CAREW REALTY, INC. ("Lessor"), a
Delaware corporation, whose address is c/o Belvedere Corporation, 500 Carew
Tower, 441 Vine Street, Cincinnati, Ohio 45202, and KENDLE RESEARCH ASSOCIATES,
("Lessee"), whose address is Suite 700 Carew Tower, 441 Vine Street, Cincinnati,
Ohio 45202.
W I T N E S S E T H :
WHEREAS, effective as of December 9, 1991, Lessor and Lessee entered
into a Lease (the "Lease") with respect to approximately 21,694 rentable square
feet or space on the 6th and 7th floors of the Carew Tower Building (the
"Building") located at 441 Walnut Street, Cincinnati, Ohio.
WHEREAS, the premises leased by Lessee in the Building (the "Demised
Premises") encompasses 21, 694 rentable square feet.
WHEREAS, the Commencement Date of the Lease was June 1, 1992.
WHEREAS, the Lessor and Lessee desire to make certain amendments in and
to the Lease, as amended on December 30, 1991.
NOW THEREFORE, effective upon execution of this Amendment No. Two to
Lease Lessor and Lessee hereby agree and acknowledge the following:
1. Lessee shall expand into an additional 6,326 square feet on the
sixth floor of the Building (the "Expansion Space") for a total Demised Premises
of 27,921 square feet. The Lease for the Expansion Space shall commence on the
earlier of: (a) ninety (90) days after Lessor relocates the existing tenants
from the sixth floor of the Building or the date Lessee takes occupancy of the
Expansion Space.
2. The Lease shall be extended for an additional five (5) years,
commencing on June 1, 1998 and ending on May 31, 2003 (the "Five Year Extension
Term"). Commencing on May 1, 1996, the Basic Rental in Paragraph 1 (e) of the
Lease Agreement shall be changed to the following for the original lease term
and each lease year of the Five Year Extension Term:
<PAGE> 34
- 2 -
May 1, 1996 to May 31, 1997 $13.60 per square foot;
June 1, 1997 to June 1, 1998 $14.00 per square foot;
June 1, 1998 to May 31, 1999 $14.42 per square foot;
June 1, 1999 to May 31, 2000 $14.85 per square foot;
June 1, 2000 to May 31, 2001 $15.30 per square foot;
June 1, 2001 to May 31, 2002 $15.75 per square foot;
June 1, 2002 to May 31, 2003 $16.23 per square foot.
3. Paragraph 4 (c) and Paragraph 4 (d) of the Lease shall be deleted in
its entirety.
4. Lessor shall build out the Expansion Space in accordance with a plan
to be mutually approved by Lessor and Lessee using similar construction
materials, finishes and systems as the existing Demised Premises.
5. Lessor shall also re-paint the entire Demised Premises, including
the HVAC covers using Building Standard paint. Such work shall be scheduled, in
advanced with Lessee.
6. Lessee shall be responsible for any "dry" sprinkler systems needed
for the Demised Premises, as well as, any additional air-conditioning needed for
Lessee's drug storage area (location to be determined).
7. Lessee, at its option and its expense, shall have the right to
install glass doors to the 6th and/or 7th floors off of the elevator lobby area.
Such installation must be in accordance with all applicable codes and
regulations.
All other terms and conditions of the Lease shall remain in full force
and effect as amended.
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the
date set forth below.
WITNESSETH: CAREW REALTY, INC.
By: Belvedere Corporation
Managing Agent
By /s/
- --------------------------- -------------------------------
Its: VP
- --------------------------- -----------------------------
Date:
----------------------------
<PAGE> 35
- 3 -
WITNESSETH: KENDLE RESEARCH ASSOCIATES
By /s/ Christopher Bergen
- --------------------------- -------------------------------
Its: Exec VP
- --------------------------- -----------------------------
Date: 3/18/96
----------------------------
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 18th day of March, 1996, before me a
Notary Public in and for said county and state, personally appeared Carew
Realty, Inc., the corporation, which executed the foregoing instrument by Joan
M. Hensler-Bittner, the Vice President of Belvedere Corporation, Managing Agent,
who acknowledged that he/she is authorized to sign on behalf of said
corporation, and the signing thereof to be its and his/her voluntary act and
deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
-----------------------------
Notary Public
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 18th day of March, 1996, before me a
Notary Public in and for said county and state, personally appeared Kendle
Research Associates, the corporation which executed the foregoing instrument by
Candace R. Bryan , its CEO who acknowledged that he/she is authorized to sign on
behalf of said corporation, and the signing thereof to be its and his/her
voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
-----------------------------
Notary Public
<PAGE> 36
AMENDMENT NO. THREE TO LEASE
----------------------------
This Amendment No. Three to Lease (the "Amendment"), made effective
this 8th day of October, 1996, is by and between CAREW REALTY, INC. ("Lessor"),
a Delaware Corporation whose address is c/o Belvedere Coporation, 500 Carew
Tower, 441 Vine Street, Cincinnati, Ohio 45202, and KENDLE RESEARCH ASSOCIATES,
("Lessee"), whose address is Suite 700 Carew Tower, 441 Vine Street, Cincinnati,
Ohio 45202.
W I T N E S S E T H:
WHEREAS, effective as of December 9, 1991, Lessor and Lessee entered
into Lease (the "Lease") with respect to approximately 21,694 rentable square
feet of space on the 6th and 7th floors of the Carew Tower Building (the
"Building") located at 441 Walnut Street, Cincinnati, Ohio.
WHEREAS, the premises leased by Lessee in the Building (the "Demised
Premises") encompasses 21,694 rentable square feet.
WHEREAS, the Commencement Date of the Lease was June 1, 1992.
WHEREAS, effective as of December 30, 1991 Lessor and Lessee entered
into Amendment No. One To Lease which made certain amendments in and to the
Lease.
WHEREAS, effective as of March 18, 1996, Lessor and Lessee entered into
Amendment No. Two To Lease which made certain amendments in and to the Lease,
including Lessee's expansion into 6,326 square feet of additional space for a
total Demised Premises of 27,921 square feet.
NOW, THEREFORE, effective upon execution of this Amendment No. Three to
Lease Lessor and Lessee hereby agree and acknowledge the following:
1. Lessee shall expand into an additional 13,955 square feet of space on the 9th
floor of the Building (the "Expansion Space") for a total Demised Premises of
41,876 square feet. The Lease for the Expansion Space shall commence on the
earlier of: (a) ninety (90) days after Lessor relocates the existing tenant,
Barnes, Dennig Company from the 9th floor of the Building or the date Lessee
takes occupancy of the Expansion Space. Barnes, Dennig is scheduled to relocate
from the 9th floor to the 15th floor of the building the weekend of November 22,
1996. Lessor shall try and coordinate the delivery of the southwest area of the
floor Lessee as early as possible. The Basic Rental establisher in Paragraph 2
of Amendment No. Two to Lease shall apply to the Expansion Space on the 9th
floor.
2. The Lease shall be extended for an additional one (1) year, commencing on
June 1, 2003 and ending on May 31, 2004 (the "One Year Extension Term").
Commencing on June 1, 2003, the Basic Rental in Paragraph 1 (e) of the Lease
Agreement shall be the following for each year of the Two Year Extension Term:
<PAGE> 37
June 1, 2003 to May 31, 2004 $16.75 per square foot.
3. The cost of sprinklering the floor shall be herein by Lessor. Lessor shall
provide a build- out allowance of $7.50 per square for the Expansion Space. Such
allowance shall be paid to Lessee within thirty (30) days of occupancy of the
Expansion Space. Lessor shall provide mini-blinds mutually acceptable to Lessor
and Lessee on the 6th floor and 9th floor.
4 Lessee shall be responsible for any "dry" sprinkler systems needed for the
Demised Premises, as well as, any additional air-conditioning needed for
Lessee's specific business use.
5. Paragraph 34 of the Lease, RIGHT OF FIRST REFUSAL, shall be amended to state
that the the Right of First Refusal no longer applies to 5th, 6th and 7th floors
of the Building but shall apply to the 8th floor of the Building.
6. Lessee and Lessor represent and warrant to each other that neither has dealt
with any other broker or finder who shall be entitled to any commission or fee
by reason of the execution of this Amendment, and each party agrees to indemnify
and hold the other harmless from any liability or expense that the other may
suffer or incur with respect to any claim for a commission or fee by any other
broker or finder claiming by, through or under the other party.
All other terms and conditions of the Lease shall remain in full force
and effect as amended.
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the
date set forth below.
WITNESSETH: CAREW REALTY, INC.
By: Belvedere Coporation
Managing Agent
By: /s/
- ---------------------------- --------------------------------
Its: V.P.
- ---------------------------- -------------------------------
Date: 10/8/96
------------------------------
<PAGE> 38
WITNESSETH: KENDLE RESEARCH ASSOCIATES
By: Christopher Bergen
- ----------------------------- --------------------------------
Its: VP
- ----------------------------- -------------------------------
Date: 10/8/96
------------------------------
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 8th day of October, 1996, before me a
Notary Public in and for said county and state, personally appeared Carew
Realty, Inc., the corporation, which executed the foregoing instrument by Joan
M. Hensler-Bittner, the Vice President of Belvedere Corporaton, Managing Agent,
who acknowledged that he/she is authorized to sign on behalf of said
corporation, and the signing thereof to be its and his/her voluntary act and
deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
----------------------------
Notary Public
STATE OF OHIO )
) SS.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 8th day of October, 1996, before me a
Notary Public in and for said county and state, personally appeared Kendle
Research Associates, the corporation which executed the foregoing instrument by
Christopher Bergen, its President who acknowledged that he/she is authorized to
sign on behalf of said corporation, and the signing thereof to be its and
his/her voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
----------------------------
Notary Public
<PAGE> 39
AMENDMENT NO. FOUR TO LEASE
---------------------------
This Amendment No. Four to Lease (the "Amendment"), made effective this
29th day of January, 1997, is by and between CAREW REALTY, INC. ("Lessor"), a
Delaware corporation, whose address is c/o Belvedere Corporation, 500 Carew
Tower, 441 Vine Street, Cincinnati, Ohio 45202, and KENDLE RESEARCH ASSOCIATES,
("Lessee"), whose address is Suite 700 Carew Tower, 441 Vine Street, Cincinnati,
Ohio 45202.
W I T N E S S E T H :
WHEREAS, effective as of December 9, 1991, Lessor and Lessee entered
into a Lease (the "Lease") with respect to approximately 21,694 rentable square
feet of space on the 6th and 7th floors of the Carew Tower Building (the
"Building") located at 441 Walnut Street, Cincinnati, Ohio.
WHEREAS, the premises leased by Lessee in the Building (the "Demised
Premises") encompasses 21,694 rentable square feet.
WHEREAS, the Commencement Date of the Lease was June 1, 1992.
WHEREAS, effective as of December 30, 1991, Lessor and Lessee entered
into Amendment No. One To Lease which made certain amendments in and to the
Lease.
WHEREAS, effective as of March 18, 1996, Lessor and Lessee entered into
Amendment No. Two To Lease which made certain amendments in and to the Lease,
including Lessee's expansion into 6,326 square feet of additional space for a
total Demised Premises of 27,921 square feet.
WHEREAS, effective as of October 8, 1996, Lessor and Lessee entered
into Amendment No. Three To Lease which made certain amendments in and to the
Lease, including Lessee's expansion into 13,955 square feet of space on the
ninth floor of the Building for a total Demised Premises of 41,876 square feet.
NOW, THEREFORE, effective upon execution of this Amendment No. Four to
Lease Lessor and Lessee hereby agree and acknowledge the following:
1. Lessee shall expand into an additional 13,620 square feet of space on
the eighth floor of the Building (the "Expansion Space") for a total
Demised Premises of 55,496 square feet. Lessee shall begin paying rent
on each portion of the Expansion Space on the earlier date of: (a)
ninety (90) days after Lessor relocates the existing tenants, Mass
Mutual (2174 sf), Thoma Opticians (2,150 sf), Rothchild & Associates
(3625 sf) and Alex Gortas (623 sf) from the eighth floor of the
Building or the date Lessee takes occupancy of each respective portion
of the Expansion Space.
Lessee shall continue to pay its month-to-month rental rate of $1217.67
per month for
<PAGE> 40
1124 square feet of space that it is currently occupying today on the
eighth floor (Dr. Malone's) and commencing on 2/1/97, Lessee shall pay
the Basic Rental as stipulated in the Lease on 2651 square feet of the
Expansion Space which Lessee has already taken occupancy of.
2. The Lease shall be extended for an additional two (2) years, commencing
on June 1, 2004 and ending on May 31, 2006 (the "Two Year Extension
Term"). Commencing on June 1, 2004 the Basic Rental in Paragraph 1 (e)
of the Lease Agreement shall be the following for each year of the Two
Year Extension Term:
June 1, 2004 to May 31, 2006 $17.50 per square foot.
3. The Basic Rental established in Paragraph 2 of Amendment No. Two To
Lease and Paragraph 2 of Amendment No. Three to Lease and Paragraph 2
herein shall apply to Lessee's total Demised Premise, at this time, of
55,496 square feet.
4. Lessor, on behalf of Lessee, shall relocate each of the existing
tenants from the eighth floor, if needed. In addition to this cost,
Lessor shall provide to Lessee a build-out allowance of $15.00 per
square foot for the Expansion Space. Such allowance shall be paid to
Lessee within thirty (30) days after written notice from Lessee
requesting such allowance for the Expansion Space and with the
appropriate waiver of liens from Lessee's contractor, perform the inter
improvements. Lessor, at its cost and with its contractors, shall have
the eighth floor sprinklered.
5. Lessee shall be responsible for any "dry" sprinkler systems needed for
the Demised Premises, as well as, any additional air-conditioning
needed for Lessee's specific business use.
6. Lessee and Lessor represent and warrant to each other that neither has
dealt with any other broker or finder who shall be entitled to any
commission or fee by reason of the execution of this Amendment, and
each party agrees to indemnify and hold the other harmless from any
liability or expense that the other may suffer or incur with respect to
any claim for a commission or fee by any other broker or finder
claiming by, through or under the other party.
All other terms and conditions of the Lease shall remain in full force
and effect as amended.
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the
date set forth below.
<PAGE> 41
WITNESSETH: CAREW REALTY, INC.
By: Belvedere Corporation
Managing Agent
By /s/
- ------------------------------ ----------------------------------
Its: V.P.
- ------------------------------ --------------------------------
Date: 11/28/97
-------------------------------
WITNESSETH: KENDLE RESEARCH ASSOCIATES
By /s/ Timothy M. Mooney
- ------------------------------ ----------------------------------
Its: V.P. - Finance
- ------------------------------ --------------------------------
Date: 1/28/97
-------------------------------
STATE OF OHIO )
) ss.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 30th day of January, 1997, before me a
Notary Public in and for said county and state, personally appeared Carew
Realty, Inc., the corporation, which executed the foregoing instrument by Joan
M. Hensler-Bittner, the Vice President of Belvedere Corporation, Managing Agent,
who acknowledged that he/she is authorized to sign on behalf of said
corporation, and the signing thereof to be its and his/her voluntary act and
deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed by
official seal on the day and year aforesaid.
------------------------------------
Notary Public
STATE OF OHIO )
) ss.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 29th day of January, 1997, before me a
Notary Public in and for said county and state, personally appeared Kendle
Research Associates the corporation which executed the foregoing instrument by
Timothy M. Mooney, its V.P. Finance
<PAGE> 42
who acknowledged that he/she is authorized to sign on behalf of said
corporation, and the signing thereof to be its and his/her voluntary act and
deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
------------------------------------
Notary Public
<PAGE> 1
EXHIBIT 10.8
------------
INDEMNITY AGREEMENT
-------------------
THIS INDEMNITY AGREEMENT ("Agreement") is made effective as of June 21,
1996 by and between KENDLE RESEARCH ASSOCIATES, INC., an Ohio corporation (the
"Company"), and CANDACE KENDLE BRYAN (the "Indemnitee").
RECITALS:
---------
A. The Company and the Indemnitee recognize the difficulty and expense
of obtaining adequate directors' and officers' liability insurance;
B. The Company and the Indemnitee recognize the substantial increase
in corporate litigation in general, subjecting directors and officers to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited;
C. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company, it is necessary for the Company contractually to indemnify its
directors and officers with respect to claims against such directors and
officers in connection with their service to or on behalf of the Company, and
that the failure to provide such contractual indemnification could result in
great harm to the Company and the Company's shareholders;
D. Section 1701.13(E) ("Section 1701.13(E)") of the General
Corporation Law of Ohio, under which the Company is organized, empowers the
Company to indemnify its directors and officers by agreement and to indemnify
persons who serve, at the request of the Company, as the directors, officers,
employees or agents of other corporations or enterprises, and expressly provides
that the indemnification provided by Section 1701.13(E) is not exclusive;
E. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company is inadequate or inordinately expensive and that the Indemnitee and
other directors or officers of the Company may not be willing to continue to
serve as directors or officers without additional protection;
F. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company; and,
<PAGE> 2
- 2 -
G. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he is furnished the indemnity provided for herein;
NOW, THEREFORE, based upon the foregoing premises and in consideration
of the mutual covenants contained herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
1.1 Agent. For the purposes of this Agreement, "Agent" means any
person who is a director or officer of the Company; or is serving at the request
of, for the convenience of or to represent the interests of the Company as a
director, officer, manager, employee or agent of another foreign or domestic
corporation (for profit or nonprofit), partnership, limited liability company,
joint venture, trust or other enterprise (specifically including employee
benefit plans).
1.2 Expenses. For purposes of this Agreement, "Expenses" includes all
direct costs (including, without limitation, all attorneys' fees and related
disbursements and other out-of-pocket costs) actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense or appeal of a
Proceeding, as that term is defined in Section , or establishing or enforcing a
right to indemnification under this Agreement; provided, however, that
"Expenses" shall not include any judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement of a Proceeding, or prepaid retainers
for attorneys or other professionals engaged by or on behalf of the Indemnitee.
1.3 Liability. For purposes of this Agreement, "Liability" or
"Liabilities," includes any judgment, fine, ERISA excise tax or penalty or any
amount paid, with the Company's written consent, in settlement of a Proceeding.
1.4 Proceeding. For the purposes of this Agreement, "Proceeding"
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or to
continue to serve as an Agent in the capacity the Indemnitee currently serves as
an Agent, as long as such service is mutually agreeable to Indemnitee and the
Company.
3. MAINTENANCE OF LIABILITY INSURANCE.
<PAGE> 3
- 3 -
3.1 Maintenance of Insurance. As long as the Indemnitee shall continue
to serve as an Agent and thereafter as long as the Indemnitee shall be subject
to any possible Proceeding by reason of the fact that the Indemnitee was an
Agent, the Company, subject to the provisions of Section with respect to the
unavailability of satisfactory insurance coverage, shall promptly obtain and/or
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
If D&O Insurance is obtained, the Company covenants that the Indemnitee shall be
named as an insured.
3.2 Indemnitee Named as Insured. In all policies of D&O Insurance, if
any, the Indemnitee shall be named as an insured in such a manner as to provide
the Indemnitee the same rights and benefits as are accorded to the Company's
most favorably insured directors.
3.3 Unavailability of Satisfactory Coverage. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, or that the premium costs for such insurance are
disproportionate to the amount of coverage provided or that the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit. The failure of the Company to obtain D&O Insurance or the
decision by the Company not to obtain such coverage shall not have any
detrimental effect on the Indemnitee's rights hereunder.
4. MANDATORY INDEMNIFICATION.
4.1 Third Party Actions. The Company shall indemnify the Indemnitee
when the Indemnitee is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason of
the fact that he is or was an Agent, or by reason of anything done or not done
by him in any such capacity, against any and all Expenses and Liabilities of any
type whatsoever actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of that Proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement, conviction or upon
a plea of NOLO CONTENDERE or its equivalent shall not create a presumption that
the Indemnitee did not satisfy the foregoing standard of conduct.
<PAGE> 4
- 4 -
4.2 Proceedings by or in the Right of the Company. The Company shall
indemnify the Indemnitee when the Indemnitee is a party or is threatened to be
made a party to any Proceeding by or in the right of the Company to procure a
judgment in its favor by reason of the fact that he is or was an Agent, or by
reason of anything done or not done by him in any such capacity, against any
amounts paid in settlement of any such proceeding and all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of that Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company; except that no indemnification under this subsection shall be made
in respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to the Company under the standards of the Ohio
General Corporation Law by a court of competent jurisdiction in the performance
of his duty to the Company unless and only to the extent that the court in which
such Proceeding was brought shall determine, upon application, that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such amounts
which such court shall deem proper.
4.3 Expenses or Liabilities Paid by D&O Insurance or the Trust.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for Expenses or Liabilities of any type whatsoever which have
been paid directly to, or for the benefit of, the Indemnitee by D&O Insurance or
out of any trust that may be established pursuant to Section 9 hereof.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a part, but
not the total amount, of any Expenses or Liabilities of any type whatsoever
incurred by him in the investigation, defense, settlement or appeal of a
Proceeding, the Company shall indemnify the Indemnitee only for such amount to
which the Indemnitee is entitled as indemnification hereunder.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Sections and hereof,
the Company shall advance all Expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any Proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an Agent, or in connection with any action
brought by the Indemnitee to establish or enforce a right to indemnification
under this Agreement pursuant to Section hereof, in advance of the final
disposition thereof. Indemnitee hereby undertakes: (x) to repay all such amounts
advanced if (but only if) it shall be proved by clear and convincing evidence in
a court of
<PAGE> 5
- 5 -
competent jurisdiction that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company; and
(y) to cooperate reasonably with the Company in connection with such Proceeding.
The advances to be made hereunder shall be paid by the Company to or for the
benefit of the Indemnitee within twenty (20) days following delivery of a
written request therefor, accompanied by true and complete copies of invoices
therefor, by the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Notice to Company. Promptly after receipt by the Indemnitee of
notice of the commencement or the threatened commencement of any Proceeding, the
Indemnitee shall notify the Company of such commencement or threatened
commencement. The Indemnitee shall also provide the Company such information and
cooperation as the Company from time to time may reasonably request and as shall
reasonably be within the Indemnitee's power to provide. The Company shall have
no obligation to indemnify the Indemnitee under this Agreement if (but only if)
the Indemnitee's delay or failure to provide notice, information or cooperation
as required under this Section results in a material impairment of the Company's
ability to defend the Proceeding or in the loss of coverage under any applicable
insurance policy.
7.2 Notice to Insurance Carriers. If the Company has any applicable
insurance policy in effect at the time it receives notice pursuant to Section of
the commencement or threatened commencement of a Proceeding, the Company shall
give prompt notice thereof to the insurer(s) in accordance with the procedure
set forth in the respective policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such Proceeding in accordance
with the terms of such policies.
7.3 Choice of Counsel. In the event the Company shall be
obligated to advance the Expenses of any Proceeding against the Indemnitee, the
Company shall be entitled, in lieu thereof, to assume the defense of such
proceeding upon the delivery to the Indemnitee of written notice of the
Company's election to do so, which notice shall contain the name, address and
phone number of counsel engaged by the Company to handle such defense and
confirmation that the Company has undertaken to pay that counsel's reasonable
fees and expenses therefor. After delivery of such notice, the Company shall not
be liable to the Indemnitee under this Agreement for any fees or expenses of
counsel for the Indemnitee (other than the counsel engaged by the Company)
subsequently incurred by the Indemnitee with respect to the same
<PAGE> 6
- 6 -
Proceeding; PROVIDED, however, that the fees and expenses of such counsel for
the Indemnitee shall be at the expense of the Company if 7.2.0.0.2. the
employment of separate counsel by the Indemnitee has been previously authorized
by the Company, or 7.2.0.0.3. the Indemnitee shall have reasonably concluded,
and either the Company shall have agreed, or independent counsel (as defined
herein) shall have determined, that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense; and FURTHER
PROVIDED, however, that, the Indemnitee's counsel shall have been approved by
any carrier of an applicable insurance policy if required under the terms of
that policy. As used in this Section , "independent counsel" shall mean counsel
selected and compensated by the Company, and reasonably approved by the
Indemnitee, to determine whether a conflict of interest may exist, which counsel
shall not represent the Company, the Indemnitee or any other party to the
Proceeding for which indemnification is sought. Independent counsel shall be
selected promptly following notice from the Indemnitee to the Company of the
Indemnitee's belief that a conflict of interest may exist. Nothing herein shall
limit the right of the Indemnitee to employ counsel at the Indemnitee's sole
expense.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections or hereof or in the defense of any claim, issue or matter described
therein, the Company shall indemnify the Indemnitee against Expenses actually
and reasonably incurred by him in connection with the investigation, defense or
appeal of such Proceeding.
8.2 Satisfaction of Standard of Conduct. In the event that Section
8.1 is inapplicable, (i) indemnification under Section 4.1 hereof shall be made
by the Company only upon a determination in accordance with this Section 8 that
the Indemnitee is entitled to indemnification hereunder, and (ii)
indemnification under Section 4.2 shall be made, if at all, in accordance with
the procedure set forth in Section 4.2. If the Indemnitee believes, upon the
disposition of any Proceeding described in Section 4.1 (whether by judgment,
settlement or otherwise), that the Indemnitee is entitled to indemnification
pursuant to this Agreement, the Indemnitee shall make written demand therefor
upon the Company. The Company shall indemnify the Indemnitee in accordance with
such demand unless, within forty-five (45) days after receipt of the
Indemnitee's demand, the Company notifies the Indemnitee that it has determined
that the Indemnitee has not met the applicable standard of conduct required to
entitle the Indemnitee to such indemnification (the "Notice of Denial"). The
Notice of Denial shall set forth, in
<PAGE> 7
- 7 -
reasonable detail, the basis for such determination by the Company and the name
of counsel selected by the Board pursuant to Section 8.3.2 hereof.
8.3 Forum for Determination of Satisfaction of Standard of Conduct.
Provided the Indemnitee notifies the Company of his choice of forum within
thirty (30) days after the receipt of a Notice of Denial, the Indemnitee shall
be entitled to select one of the following forums to determine whether he met
the applicable standard of conduct specified in Section 4.1 and is therefore
entitled to indemnification under this Agreement:
8.3.1 Quorum of Disinterested Directors. A vote of a majority of a
quorum (more than fifty percent (50%)) of the Board consisting of
directors who are not parties to the Proceeding for which
indemnification is being sought, based upon written submissions by the
Company and the Indemnitee and, if the Indemnitee or directors so
request, an oral presentation by the Indemnitee and by such other
persons as such directors may request; PROVIDED, however, that the
Indemnitee shall not have the right to be present during such
directors' deliberations nor during presentations made to such
directors by any person other than the Indemnitee;
8.3.2 Counsel. Legal counsel selected by the Board (other than
counsel to any party to the Proceeding for which indemnification is
sought), and reasonably approved by the Indemnitee, which counsel
shall make such determination in a written opinion based upon written
submissions by the Company and the Indemnitee and responses to such
questions as that counsel may have in such form as that counsel may
request;
8.3.3 Arbitration Panel. A majority vote of a panel of three
arbitrators, one of whom is selected by the first two arbitrators so
selected, which arbitration shall be conducted in accordance with the
rules of the American Arbitration Association and such rules of
procedure as may be established by the panel; or
8.3.4 Court. The court in which the Proceeding is or was pending, in
accordance with such rules of procedure as may be applicable to or
established by that court.
8.4 Submission to Forum. As soon as practicable, and in no event
later than thirty (30) days after the Indemnitee's written notice to the Company
of the Indemnitee's choice of forum pursuant to Section above, the Company
shall, at its expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification. The Indemnitee shall be afforded
an adequate
<PAGE> 8
- 8 -
opportunity to defend against that claim. A presumption shall exist that the
Indemnitee is entitled to indemnification hereunder, and the Company shall
indemnify the Indemnitee unless the Company shall prove to the selected forum,
by clear and convincing evidence, that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
The decision of the selected forum shall constitute a binding and final
adjudication between the Company and the Indemnitee as to the Indemnitee's right
to indemnification under Section of this Agreement.
8.5 Expenses of Determination. Notwithstanding any other provision in
this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless the
Company shall be deemed the prevailing party in any such proceeding.
9. INDEMNIFICATION TRUST AGREEMENT. In order to secure the obligations
of the Company to advance to the Indemnitee certain amounts under Section
hereof, the Company may establish a trust fund naming the Indemnitee as a
beneficiary (in addition to all other directors, officers and other agents with
whom the Company enters into Indemnity Agreements, whether before, on, or after
the date hereof). The Indemnitee shall not seek any amount from the Trust, if
established, 8.4.4.0.2. unless entitled to an advance of Expenses pursuant to
this Agreement and 8.4.4.0.3. unless and until the Indemnitee has made demand
for payment of Expenses pursuant to Section hereof and, after twenty (20) days,
the Company has failed to advance such Expenses. The Indemnitee shall not be
entitled to receive a reimbursement or advance from the Trust, if established,
for a liability or other amount not expressly covered by Section hereof.
10. EXCEPTIONS. Notwithstanding any other provision herein to the
contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
10.1 Claims Initiated by the Indemnitee. To indemnify or advance
Expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement; or
<PAGE> 9
- 9 -
10.2 The Company Prevails in Action to Enforce or Interpret
Agreement. To indemnify the Indemnitee for any Expenses incurred by the
Indemnitee with respect to any Proceeding instituted by the Indemnitee
to enforce or interpret this Agreement, if the Company is deemed to be
the prevailing party in such proceeding; or
10.3 Unauthorized Settlements. To indemnify the Indemnitee for any
amounts paid in settlement of a Proceeding unless the Company expressly consents
in writing to such settlement; or
10.4 Failure to Settle Proceeding. To indemnify the Indemnitee for
Liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any Expenses incurred by the Indemnitee following the
time such settlement reasonably could have been effected, if the Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any Proceeding (or investigation or appeal thereof) recommended in good-faith,
in writing, by the Company.
11. NO RESTRICTION OF OTHER INDEMNIFICATION RIGHTS. The Company shall
not adopt any amendment to its Articles of Incorporation or Regulations, the
effect of which would be to deny, diminish or encumber the Indemnitee's rights
to indemnity pursuant to the Articles of Incorporation, the Regulations, the
Ohio General Corporation Law or any other applicable law as applied to any act
or failure to act occurring in whole or in part prior to the date (the
"Effective Date") upon which the amendment shall apply only to acts or failures
to act occurring entirely after the Effective Date thereof, unless the
Indemnitee shall have voted in favor of the amendment as a director or holder of
record of the Company's common stock, as the case may be.
12. MERGER OR CONSOLIDATION. In the event that the Company shall be a
constituent corporation in a merger, consolidation or other reorganization, the
Company, if it shall not be the surviving, resulting or acquiring corporation
therein, shall require, as a condition thereto, that the surviving, resulting,
or acquiring corporation agree to indemnify the Indemnitee to the full extent
provided in this Agreement and to adopt and assume the Company's obligations
under this Agreement. Whether or not the Company is the surviving, resulting or
acquiring corporation in any such transaction, the Indemnitee shall also stand
in the same position under this Agreement as he would have with respect to the
Company if its separate existence had continued.
13. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Articles of Incorporation
<PAGE> 10
- 10 -
or Regulations, the vote of the Company's shareholders or disinterested
directors, other agreements or otherwise, whether as to actions in his official
capacity or actions in another capacity while occupying his position as an
Agent. The Indemnitee's rights hereunder shall continue after the Indemnitee has
ceased acting as an Agent and shall inure to the benefit of the successors,
heirs, executors, administrators, estates, legal representatives and assigns of
the Indemnitee.
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law; PROVIDED, however, that no change in any applicable law,
statute or rule which has the effect of narrowing the right of an Ohio
corporation to indemnify any Agent shall, unless otherwise required thereby,
affect this Agreement or the parties' rights or obligations hereunder.
15. HEADINGS. Descriptive headings in this Agreement are solely for
convenience and shall not control or affect the construction or interpretation
of any provision herein.
16. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, (i) the validity, legality and enforceability of the
remaining provisions of the Agreement (including without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby,
and (ii) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable and to give effect to Section 13 hereof.
17. MODIFICATION AND WAIVER. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
18. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind,
and shall inure to the benefit of, the successors, heirs, executors,
administrators, estates, legal representatives and assigns of the parties
hereto; PROVIDED, however, that the
<PAGE> 11
- 11 -
Indemnitee may not delegate his duties hereunder; and provided further, that no
assignment shall obligate the Company to provide any indemnification with
respect to the actions or failures to act of any person other than the
Indemnitee specifically named herein.
19. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been given when delivered personally by
overnight carrier or by telecopy with telephonic confirmation of receipt or by
two (2) business days after being deposited in the U.S. mail, certified or
registered, return receipt requested with postage prepaid, and addressed to the
party to whom such notice, request, demand, waiver or other communication is to
be given as follows, or at such other address as either party shall designate by
notice to the other party pursuant to this section:
The Company: Kendle Research Associates, Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Christopher C. Bergen
President
with a required copy to:
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: William J. Keating, Jr., Esq.
Indemnitee: Candace Kendle Bryan
c/o Kendle Research Associates, Inc.
700 Carew Tower
Cincinnati, Ohio 45202
20. GOVERNING LAW. This Agreement, and the rights and duties of the
parties hereto under this Agreement, shall be governed exclusively by and
construed in accordance with the laws of the State of Ohio, as applied to
contracts between Ohio residents entered into and to be performed entirely
within Ohio.
21. CONSENT TO JURISDICTION. Except as expressly provided in Section
hereof, the Company and the Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of Ohio for all purposes in connection
with any action or proceeding which arises out of or relates to this Agreement
and agree that any action instituted under this Agreement shall be brought only
in the state courts of the State of Ohio.
<PAGE> 12
- 12 -
22. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, and by each party on separate counterparts, each of which
counterparts shall be deemed an original, but all of which counterparts taken
together shall be one and the same document.
23. PUBLIC POLICY DETERMINATIONS. The Company and the Indemnitee
acknowledge that, in certain circumstances, federal law or applicable public
policy may prohibit the Company from indemnifying the Indemnitee under this
Agreement or otherwise. The Indemnitee understands and acknowledges that the
Company has undertaken, and may in the future be required to undertake, to
submit the question of the Company's right under public policy to indemnify the
Indemnitee to a court of appropriate jurisdiction under certain circumstances,
unless, in the opinion of counsel, such matter has been settled by controlling
precedent, and that such determination shall be binding on the Company and the
Indemnitee.
The parties hereto have entered into this Indemnity Agreement
effective as of the date first above written.
KENDLE RESEARCH ASSOCIATES, INC.
By:/s/ Christopher C. Bergen
-----------------------------
Christopher C. Bergen,
President and Chief
Operating Officer
INDEMNITEE:
/s/Candace Kendle Bryan
--------------------------------
Candace Kendle Bryan
370035.1
<PAGE> 1
EXHIBIT 10.9
INDEMNITY AGREEMENT
-------------------
THIS INDEMNITY AGREEMENT ("Agreement") is made effective as of June
21, 1996 by and between KENDLE RESEARCH ASSOCIATES, INC., an Ohio corporation
(the "Company"), and CHRISTOPHER C. BERGEN (the "Indemnitee").
RECITALS:
---------
A. The Company and the Indemnitee recognize the difficulty and expense
of obtaining adequate directors' and officers' liability insurance;
B. The Company and the Indemnitee recognize the substantial increase
in corporate litigation in general, subjecting directors and officers to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited;
C. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company, it is necessary for the Company contractually to indemnify its
directors and officers with respect to claims against such directors and
officers in connection with their service to or on behalf of the Company, and
that the failure to provide such contractual indemnification could result in
great harm to the Company and the Company's shareholders;
D. Section 1701.13(E) ("Section 1701.13(E)") of the General
Corporation Law of Ohio, under which the Company is organized, empowers the
Company to indemnify its directors and officers by agreement and to indemnify
persons who serve, at the request of the Company, as the directors, officers,
employees or agents of other corporations or enterprises, and expressly provides
that the indemnification provided by Section 1701.13(E) is not exclusive;
E. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company is inadequate or inordinately expensive and that the Indemnitee and
other directors or officers of the Company may not be willing to continue to
serve as directors or officers without additional protection;
F. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company; and,
<PAGE> 2
- 2 -
G. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he is furnished the indemnity provided for herein;
NOW, THEREFORE, based upon the foregoing premises and in consideration
of the mutual covenants contained herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
1.1 Agent. For the purposes of this Agreement, "Agent" means any
person who is a director or officer of the Company; or is serving at the request
of, for the convenience of or to represent the interests of the Company as a
director, officer, manager, employee or agent of another foreign or domestic
corporation (for profit or nonprofit), partnership, limited liability company,
joint venture, trust or other enterprise (specifically including employee
benefit plans).
1.2 Expenses. For purposes of this Agreement, "Expenses" includes all
direct costs (including, without limitation, all attorneys' fees and related
disbursements and other out-of-pocket costs) actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense or appeal of a
Proceeding, as that term is defined in Section 1.4, or establishing or
enforcing a right to indemnification under this Agreement; PROVIDED, however,
that "Expenses" shall not include any judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement of a Proceeding, or prepaid retainers
for attorneys or other professionals engaged by or on behalf of the Indemnitee.
1.3 Liability. For purposes of this Agreement, "Liability" or
"Liabilities," includes any judgment, fine, ERISA excise tax or penalty or any
amount paid, with the Company's written consent, in settlement of a Proceeding.
1.4 Proceeding. For the purposes of this Agreement, "Proceeding" means
any threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative, investigative or any other type whatsoever.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or to
continue to serve as an Agent in the capacity the Indemnitee currently serves as
an Agent, as long as such service is mutually agreeable to Indemnitee and the
Company.
3. MAINTENANCE OF LIABILITY INSURANCE.
<PAGE> 3
- 3 -
3.1 Maintenance of Insurance. As long as the Indemnitee shall continue
to serve as an Agent and thereafter as long as the Indemnitee shall be subject
to any possible Proceeding by reason of the fact that the Indemnitee was an
Agent, the Company, subject to the provisions of Section 3.3 with respect to the
unavailability of satisfactory insurance coverage, shall promptly obtain and/or
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
If D&O Insurance is obtained, the Company covenants that the Indemnitee shall be
named as an insured.
3.2 Indemnitee Named as Insured. In all policies of D&O Insurance, if
any, the Indemnitee shall be named as an insured in such a manner as to provide
the Indemnitee the same rights and benefits as are accorded to the Company's
most favorably insured directors.
3.3 Unavailability of Satisfactory Coverage. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, or that the premium costs for such insurance are
disproportionate to the amount of coverage provided or that the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit. The failure of the Company to obtain D&O Insurance or the
decision by the Company not to obtain such coverage shall not have any
detrimental effect on the Indemnitee's rights hereunder.
4. MANDATORY INDEMNIFICATION.
4.1 Third Party Actions. The Company shall indemnify the Indemnitee
when the Indemnitee is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason of
the fact that he is or was an Agent, or by reason of anything done or not done
by him in any such capacity, against any and all Expenses and Liabilities of any
type whatsoever actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of that Proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement, conviction or upon
a plea of NOLO CONTENDERE or its equivalent shall not create a presumption that
the Indemnitee did not satisfy the foregoing standard of conduct.
<PAGE> 4
- 4 -
4.2 Proceedings by or in the Right of the Company. The Company shall
indemnify the Indemnitee when the Indemnitee is a party or is threatened to be
made a party to any Proceeding by or in the right of the Company to procure a
judgment in its favor by reason of the fact that he is or was an Agent, or by
reason of anything done or not done by him in any such capacity, against any
amounts paid in settlement of any such proceeding and all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of that Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company; except that no indemnification under this subsection shall be made
in respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to the Company under the standards of the Ohio
General Corporation Law by a court of competent jurisdiction in the performance
of his duty to the Company unless and only to the extent that the court in which
such Proceeding was brought shall determine, upon application, that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such amounts
which such court shall deem proper.
4.3 Expenses or Liabilities Paid by D&O Insurance or the Trust.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for Expenses or Liabilities of any type whatsoever which have
been paid directly to, or for the benefit of, the Indemnitee by D&O Insurance or
out of any trust that may be established pursuant to Section 9 hereof.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a part, but
not the total amount, of any Expenses or Liabilities of any type whatsoever
incurred by him in the investigation, defense, settlement or appeal of a
Proceeding, the Company shall indemnify the Indemnitee only for such amount to
which the Indemnitee is entitled as indemnification hereunder.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Sections 7 and 10
hereof, the Company shall advance all Expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
Proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an Agent, or in
connection with any action brought by the Indemnitee to establish or enforce a
right to indemnification under this Agreement pursuant to Section 8 hereof, in
advance of the final disposition thereof. Indemnitee hereby undertakes: (x) to
repay all such amounts advanced if (but only if) it shall be proved by clear and
convincing evidence in a court of
<PAGE> 5
- 5 -
competent jurisdiction that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company; and
(y) to cooperate reasonably with the Company in connection with such Proceeding.
The advances to be made hereunder shall be paid by the Company to or for the
benefit of the Indemnitee within twenty (20) days following delivery of a
written request therefor, accompanied by true and complete copies of invoices
therefor, by the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Notice to Company. Promptly after receipt by the Indemnitee of
notice of the commencement or the threatened commencement of any Proceeding, the
Indemnitee shall notify the Company of such commencement or threatened
commencement. The Indemnitee shall also provide the Company such information and
cooperation as the Company from time to time may reasonably request and as shall
reasonably be within the Indemnitee's power to provide. The Company shall have
no obligation to indemnify the Indemnitee under this Agreement if (but only if)
the Indemnitee's delay or failure to provide notice, information or cooperation
as required under this Section 7.1 results in a material impairment of the
Company's ability to defend the Proceeding or in the loss of coverage under any
applicable insurance policy.
7.2 Notice to Insurance Carriers. If the Company has any applicable
insurance policy in effect at the time it receives notice pursuant to Section
7.1 of the commencement or threatened commencement of a Proceeding, the Company
shall give prompt notice thereof to the insurer(s) in accordance with the
procedure set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Proceeding in
accordance with the terms of such policies.
7.3 Choice of Counsel. In the event the Company shall be obligated to
advance the Expenses of any Proceeding against the Indemnitee, the Company shall
be entitled, in lieu thereof, to assume the defense of such proceeding upon the
delivery to the Indemnitee of written notice of the Company's election to do so,
which notice shall contain the name, address and phone number of counsel engaged
by the Company to handle such defense and confirmation that the Company has
undertaken to pay that counsel's reasonable fees and expenses therefor. After
delivery of such notice, the Company shall not be liable to the Indemnitee under
this Agreement for any fees or expenses of counsel for the Indemnitee (other
than the counsel engaged by the Company) subsequently incurred by the Indemnitee
with respect to the same
<PAGE> 6
- 6 -
Proceeding; PROVIDED, however, that the fees and expenses of such counsel for
the Indemnitee shall be at the expense of the Company if (A) the employment of
separate counsel by the Indemnitee has been previously authorized by the
Company, or (B) the Indemnitee shall have reasonably concluded, and either the
Company shall have agreed, or independent counsel (as defined herein) shall have
determined, that there may be a conflict of interest between the Company and the
Indemnitee in the conduct of any such defense; and FURTHER PROVIDED, however,
that, the Indemnitee's counsel shall have been approved by any carrier of an
applicable insurance policy if required under the terms of that policy. As used
in this Section 7.3, "independent counsel" shall mean counsel selected and
compensated by the Company, and reasonably approved by the Indemnitee, to
determine whether a conflict of interest may exist, which counsel shall not
represent the Company, the Indemnitee or any other party to the Proceeding for
which indemnification is sought. Independent counsel shall be selected promptly
following notice from the Indemnitee to the Company of the Indemnitee's belief
that a conflict of interest may exist. Nothing herein shall limit the right of
the Indemnitee to employ counsel at the Indemnitee's sole expense.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections 4.1 or 4.2 hereof or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against Expenses
actually and reasonably incurred by him in connection with the investiga tion,
defense or appeal of such Proceeding.
8.2 Satisfaction of Standard of Conduct. In the event that Section 8.1
is inapplicable, (i) indemnification under Section 4.1 hereof shall be made by
the Company only upon a determination in accordance with this Section 8 that the
Indemnitee is entitled to indemnification hereunder, and (ii) indemnification
under Section 4.2 shall be made, if at all, in accordance with the procedure
set forth in Section 4.2. If the Indemnitee believes, upon the disposition of
any Proceeding described in Section 4.1 (whether by judgment, settlement or
otherwise), that the Indemnitee is entitled to indemnification pursuant to this
Agreement, the Indemnitee shall make written demand therefor upon the Company.
The Company shall indemnify the Indemnitee in accordance with such demand
unless, within forty-five (45) days after receipt of the Indemnitee's demand,
the Company notifies the Indemnitee that it has determined that the Indemnitee
has not met the applicable standard of conduct required to entitle the
Indemnitee to such indemnification (the "Notice of Denial"). The Notice of
Denial shall set forth, in
<PAGE> 7
- 7 -
reasonable detail, the basis for such determination by the Company and the name
of counsel selected by the Board pursuant to Section 8.3.2 hereof.
8.3 Forum for Determination of Satisfaction of Standard of Conduct.
Provided the Indemnitee notifies the Company of his choice of forum within
thirty (30) days after the receipt of a Notice of Denial, the Indemnitee shall
be entitled to select one of the following forums to determine whether he met
the applicable standard of conduct specified in Section 4.1 and is therefore
entitled to indemnification under this Agreement:
8.3.1 Quorum of Disinterested Directors. A vote of a majority of a
quorum (more than fifty percent (50%)) of the Board consisting of
directors who are not parties to the Proceeding for which
indemnification is being sought, based upon written submissions by the
Company and the Indemnitee and, if the Indemnitee or directors so
request, an oral presentation by the Indemnitee and by such other
persons as such directors may request; PROVIDED, however, that the
Indemnitee shall not have the right to be present during such
directors' deliberations nor during presentations made to such
directors by any person other than the Indemnitee;
8.3.2 Counsel. Legal counsel selected by the Board (other than counsel
to any party to the Proceeding for which indemnification is sought),
and reasonably approved by the Indemnitee, which counsel shall make
such determination in a written opinion based upon written submissions
by the Company and the Indemnitee and responses to such questions as
that counsel may have in such form as that counsel may request;
8.3.3 Arbitration Panel. A majority vote of a panel of three
arbitrators, one of whom is selected by the first two arbitrators so
selected, which arbitration shall be conducted in accordance with the
rules of the American Arbitration Association and such rules of
procedure as may be established by the panel; or
8.3.4 Court. The court in which the Proceeding is or was pending, in
accordance with such rules of procedure as may be applicable to or
established by that court.
8.4 Submission to Forum. As soon as practicable, and in no event later
than thirty (30) days after the Indemnitee's written notice to the Company of
the Indemnitee's choice of forum pursuant to Section 8.3 above, the Company
shall, at its expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification. The Indemnitee shall be afforded
an adequate
<PAGE> 8
- 8 -
opportunity to defend against that claim. A presumption shall exist that the
Indemnitee is entitled to indemnification hereunder, and the Company shall
indemnify the Indemnitee unless the Company shall prove to the selected forum,
by clear and convincing evidence, that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
The decision of the selected forum shall constitute a binding and final
adjudication between the Company and the Indemnitee as to the Indemnitee's right
to indemnification under Section 4.1 of this Agreement.
8.5 Expenses of Determination. Notwithstanding any other provision in
this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless the
Company shall be deemed the prevailing party in any such proceeding.
9. INDEMNIFICATION TRUST AGREEMENT. In order to secure the obligations
of the Company to advance to the Indemnitee certain amounts under Section 6
hereof, the Company may establish a trust fund naming the Indemnitee as a
beneficiary (in addition to all other directors, officers and other agents with
whom the Company enters into Indemnity Agreements, whether before, on, or after
the date hereof). The Indemnitee shall not seek any amount from the Trust, if
established, (i) unless entitled to an advance of Expenses pursuant to this
Agreement and (ii) unless and until the Indemnitee has made demand for payment
of Expenses pursuant to Section 6 hereof and, after twenty (20) days, the
Company has failed to advance such Expenses. The Indemnitee shall not be
entitled to receive a reimbursement or advance from the Trust, if established,
for a liability or other amount not expressly covered by Section 6 hereof.
10. EXCEPTIONS. Notwithstanding any other provision herein to the
contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
10.1 Claims Initiated by the Indemnitee. To indemnify or advance
Expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement; or
<PAGE> 9
- 9 -
10.2 The Company Prevails in Action to Enforce or Interpret Agreement.
To indemnify the Indemnitee for any Expenses incurred by the Indemnitee with
respect to any Proceeding instituted by the Indemnitee to enforce or interpret
this Agreement, if the Company is deemed to be the prevailing party in such
proceeding; or
10.3 Unauthorized Settlements. To indemnify the Indemnitee for any
amounts paid in settlement of a Proceeding unless the Company expressly consents
in writing to such settlement; or
10.4 Failure to Settle Proceeding. To indemnify the Indemnitee for
Liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any Expenses incurred by the Indemnitee following the
time such settlement reasonably could have been effected, if the Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any Proceeding (or investigation or appeal thereof) recommended in good-faith,
in writing, by the Company.
11. NO RESTRICTION OF OTHER INDEMNIFICATION RIGHTS. The Company shall
not adopt any amendment to its Articles of Incorporation or Regulations, the
effect of which would be to deny, diminish or encumber the Indemnitee's rights
to indemnity pursuant to the Articles of Incorporation, the Regulations, the
Ohio General Corporation Law or any other applicable law as applied to any act
or failure to act occurring in whole or in part prior to the date (the
"Effective Date") upon which the amendment shall apply only to acts or failures
to act occurring entirely after the Effective Date thereof, unless the
Indemnitee shall have voted in favor of the amendment as a director or holder of
record of the Company's common stock, as the case may be.
12. MERGER OR CONSOLIDATION. In the event that the Company shall be a
constituent corporation in a merger, consolidation or other reorganization, the
Company, if it shall not be the surviving, resulting or acquiring corporation
therein, shall require, as a condition thereto, that the surviving, resulting,
or acquiring corporation agree to indemnify the Indemnitee to the full extent
provided in this Agreement and to adopt and assume the Company's obligations
under this Agreement. Whether or not the Company is the surviving, resulting or
acquiring corporation in any such transaction, the Indemnitee shall also stand
in the same position under this Agreement as he would have with respect to the
Company if its separate existence had continued.
13. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Articles of Incorporation
<PAGE> 10
- 10 -
or Regulations, the vote of the Company's shareholders or disinterested
directors, other agreements or otherwise, whether as to actions in his official
capacity or actions in another capacity while occupying his position as an
Agent. The Indemnitee's rights hereunder shall continue after the Indemnitee has
ceased acting as an Agent and shall inure to the benefit of the successors,
heirs, executors, administrators, estates, legal representatives and assigns of
the Indemnitee.
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law; PROVIDED, however, that no change in any applicable law,
statute or rule which has the effect of narrowing the right of an Ohio
corporation to indemnify any Agent shall, unless otherwise required thereby,
affect this Agreement or the parties' rights or obligations hereunder.
15. HEADINGS. Descriptive headings in this Agreement are solely for
convenience and shall not control or affect the construction or interpretation
of any provision herein.
16. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
17. MODIFICATION AND WAIVER. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
18. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind,
and shall inure to the benefit of, the successors, heirs, executors,
administrators, estates, legal representatives and assigns of the parties
hereto; PROVIDED, however, that the
<PAGE> 11
- 11 -
Indemnitee may not delegate his duties hereunder; and PROVIDED FURTHER, that no
assignment shall obligate the Company to provide any indemnification with
respect to the actions or failures to act of any person other than the
Indemnitee specifically named herein.
19. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been given when delivered personally by
overnight carrier or by telecopy with telephonic confirmation of receipt or by
two (2) business days after being deposited in the U.S. mail, certified or
registered, return receipt requested with postage prepaid, and addressed to the
party to whom such notice, request, demand, waiver or other communication is to
be given as follows, or at such other address as either party shall designate by
notice to the other party pursuant to this section:
The Company: Kendle Research Associates, Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Candace Kendle Bryan
Chairman of the Board
and Chief Executive Officer
with a required copy to:
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: William J. Keating, Jr., Esq.
Indemnitee: Christopher C. Bergen
c/o Kendle Research Associates, Inc.
700 Carew Tower
Cincinnati, Ohio 45202
20. GOVERNING LAW. This Agreement, and the rights and duties of the
parties hereto under this Agreement, shall be governed exclusively by and
construed in accordance with the laws of the State of Ohio, as applied to
contracts between Ohio residents entered into and to be performed entirely
within Ohio.
21. CONSENT TO JURISDICTION. Except as expressly provided in Section 8
hereof, the Company and the Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of Ohio for all purposes in connection
with any action or proceeding which arises out of or relates to this Agreement
and
<PAGE> 12
- 12 -
agree that any action instituted under this Agreement shall be brought only in
the state courts of the State of Ohio.
22. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, and by each party on separate counterparts, each of which
counterparts shall be deemed an original, but all of which counterparts taken
together shall be one and the same document.
23. PUBLIC POLICY DETERMINATIONS. The Company and the Indemnitee
acknowledge that, in certain circumstances, federal law or applicable public
policy may prohibit the Company from indemnifying the Indemnitee under this
Agreement or otherwise. The Indemnitee understands and acknowledges that the
Company has undertaken, and may in the future be required to undertake, to
submit the question of the Company's right under public policy to indemnify the
Indemnitee to a court of appropriate jurisdiction under certain circumstances,
unless, in the opinion of counsel, such matter has been settled by controlling
precedent, and that such determination shall be binding on the Company and the
Indemnitee.
The parties hereto have entered into this Indemnity Agreement
effective as of the date first above written.
KENDLE RESEARCH ASSOCIATES, INC.
By: /S/CANDACE KENDLE BRYAN
------------------------------
Candace Kendle Bryan,
Chairman of the Board
and Chief Executive Officer
INDEMNITEE:
/S/CHRISTOPHER C. BERGEN
---------------------------------
Christopher C. Bergen
370036.1
<PAGE> 1
EXHIBIT 10.10
-------------
INDEMNITY AGREEMENT
-------------------
THIS INDEMNITY AGREEMENT ("Agreement") is made effective as of June 21,
1996 by and between KENDLE RESEARCH ASSOCIATES, INC., an Ohio corporation (the
"Company"), and TIMOTHY M. MOONEY (the "Indemnitee").
RECITALS:
---------
A. The Company and the Indemnitee recognize the difficulty and expense
of obtaining adequate directors' and officers' liability insurance;
B. The Company and the Indemnitee recognize the substantial increase in
corporate litigation in general, subjecting directors and officers to expensive
litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited;
C. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company, it is necessary for the Company contractually to indemnify its
directors and officers with respect to claims against such directors and
officers in connection with their service to or on behalf of the Company, and
that the failure to provide such contractual indemnification could result in
great harm to the Company and the Company's shareholders;
D. Section 1701.13(E) ("Section 1701.13(E)") of the General Corporation
Law of Ohio, under which the Company is organized, empowers the Company to
indemnify its directors and officers by agreement and to indemnify persons who
serve, at the request of the Company, as the directors, officers, employees or
agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 1701.13(E) is not exclusive;
E. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company is inadequate or inordinately expensive and that the Indemnitee and
other directors or officers of the Company may not be willing to continue to
serve as directors or officers without additional protection;
F. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company; and,
<PAGE> 2
- 2 -
G. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he is furnished the indemnity provided for herein;
NOW, THEREFORE, based upon the foregoing premises and in consideration
of the mutual covenants contained herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
1.1 Agent. For the purposes of this Agreement, "Agent" means any person
who is a director or officer of the Company; or is serving at the request of,
for the convenience of or to represent the interests of the Company as a
director, officer, manager, employee or agent of another foreign or domestic
corporation (for profit or nonprofit), partnership, limited liability company,
joint venture, trust or other enterprise (specifically including employee
benefit plans).
1.2 Expenses. For purposes of this Agreement, "Expenses" includes all
direct costs (including, without limitation, all attorneys' fees and related
disbursements and other out-of-pocket costs) actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense or appeal of a
Proceed ing, as that term is defined in Section 1.4, or establishing or
enforcing a right to indemnification under this Agreement; PROVIDED, however,
that "Expenses" shall not include any judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement of a Proceeding, or prepaid retainers
for attorneys or other professionals engaged by or on behalf of the Indemnitee.
1.3 Liability. For purposes of this Agreement, "Liability" or
"Liabilities," includes any judgment, fine, ERISA excise tax or penalty or any
amount paid, with the Company's written consent, in settlement of a Proceeding.
1.4 Proceeding. For the purposes of this Agreement, "Proceeding" means
any threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative, investigative or any other type whatsoever.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or to
continue to serve as an Agent in the capacity the Indemnitee currently serves as
an Agent, as long as such service is mutually agreeable to Indemnitee and the
Company.
3. MAINTENANCE OF LIABILITY INSURANCE.
<PAGE> 3
- 3 -
3.1 Maintenance of Insurance. As long as the Indemnitee shall continue
to serve as an Agent and thereafter as long as the Indemnitee shall be subject
to any possible Proceeding by reason of the fact that the Indemnitee was an
Agent, the Company, subject to the provisions of Section 3.3 with respect to the
unavailability of satisfactory insurance coverage, shall promptly obtain and/or
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
If D&O Insurance is obtained, the Company covenants that the Indemnitee shall be
named as an insured.
3.2 Indemnitee Named as Insured. In all policies of D&O Insurance, if
any, the Indemnitee shall be named as an insured in such a manner as to provide
the Indemnitee the same rights and benefits as are accorded to the Company's
most favorably insured directors.
3.3 Unavailability of Satisfactory Coverage. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, or that the premium costs for such insurance are
disproportionate to the amount of coverage provided or that the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit. The failure of the Company to obtain D&O Insurance or the
decision by the Company not to obtain such coverage shall not have any
detrimental effect on the Indemnitee's rights hereunder.
4. MANDATORY INDEMNIFICATION.
4.1 Third Party Actions. The Company shall indemnify the Indemnitee
when the Indemnitee is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason of
the fact that he is or was an Agent, or by reason of anything done or not done
by him in any such capacity, against any and all Expenses and Liabilities of any
type whatsoever actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of that Proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement, conviction or upon
a plea of NOLO CONTENDERE or its equivalent shall not create a presumption that
the Indemnitee did not satisfy the foregoing standard of conduct.
<PAGE> 4
- 4 -
4.2 Proceedings by or in the Right of the Company. The Company shall
indemnify the Indemnitee when the Indemnitee is a party or is threatened to be
made a party to any Proceeding by or in the right of the Company to procure a
judgment in its favor by reason of the fact that he is or was an Agent, or by
reason of anything done or not done by him in any such capacity, against any
amounts paid in settlement of any such proceeding and all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of that Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company; except that no indemnification under this subsection shall be made
in respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable to the Company under the standards of the Ohio
General Corporation Law by a court of competent jurisdiction in the performance
of his duty to the Company unless and only to the extent that the court in which
such Proceeding was brought shall determine, upon application, that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such amounts
which such court shall deem proper.
4.3 Expenses or Liabilities Paid by D&O Insurance or the Trust.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for Expenses or Liabilities of any type whatsoever which have
been paid directly to, or for the benefit of, the Indemnitee by D&O Insurance or
out of any trust that may be established pursuant to Section 9 hereof.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a part, but
not the total amount, of any Expenses or Liabilities of any type whatsoever
incurred by him in the investigation, defense, settlement or appeal of a
Proceeding, the Company shall indemnify the Indemnitee only for such amount to
which the Indemnitee is entitled as indemnification hereunder.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Sections 7 and 10
hereof, the Company shall advance all Expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
Proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an Agent, or in
connection with any action brought by the Indemnitee to establish or enforce a
right to indemnification under this Agreement pursuant to Section 8 hereof, in
advance of the final disposition thereof. Indemnitee hereby undertakes: (x) to
repay all such amounts advanced if (but only if) it shall be proved by clear and
convincing evidence in a court of
<PAGE> 5
- 5 -
competent jurisdiction that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company; and
(y) to cooperate reasonably with the Company in connection with such Proceeding.
The advances to be made hereunder shall be paid by the Company to or for the
benefit of the Indemnitee within twenty (20) days following delivery of a
written request therefor, accompanied by true and complete copies of invoices
therefor, by the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Notice to Company. Promptly after receipt by the Indemnitee of
notice of the commencement or the threatened commencement of any Proceeding, the
Indemnitee shall notify the Company of such commencement or threatened
commencement. The Indemnitee shall also provide the Company such information and
cooperation as the Company from time to time may reasonably request and as shall
reasonably be within the Indemnitee's power to provide. The Company shall have
no obligation to indemnify the Indemnitee under this Agreement if (but only if)
the Indemnitee's delay or failure to provide notice, information or cooperation
as required under this Section 7.1 results in a material impairment of the
Company's ability to defend the Proceeding or in the loss of coverage under any
applicable insurance policy.
7.2 Notice to Insurance Carriers. If the Company has any applicable
insurance policy in effect at the time it receives notice pursuant to Section
7.1 of the commencement or threatened commencement of a Proceeding, the Company
shall give prompt notice thereof to the insurer(s) in accordance with the
procedure set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Proceeding in
accordance with the terms of such policies.
7.3 Choice of Counsel. In the event the Company shall be obligated to
advance the Expenses of any Proceeding against the Indemnitee, the Company shall
be entitled, in lieu thereof, to assume the defense of such proceeding upon the
delivery to the Indemnitee of written notice of the Company's election to do so,
which notice shall contain the name, address and phone number of counsel engaged
by the Company to handle such defense and confirmation that the Company has
undertaken to pay that counsel's reasonable fees and expenses therefor. After
delivery of such notice, the Company shall not be liable to the Indemnitee under
this Agreement for any fees or expenses of counsel for the Indemnitee (other
than the counsel engaged by the Company) subsequently incurred by the Indemnitee
with respect to the same
<PAGE> 6
- 6 -
Proceeding; PROVIDED, however, that the fees and expenses of such counsel for
the Indemnitee shall be at the expense of the Company if (A) the employment of
separate counsel by the Indemnitee has been previously authorized by the
Company, or (B) the Indemnitee shall have reasonably concluded, and either the
Company shall have agreed, or independent counsel (as defined herein) shall have
determined, that there may be a conflict of interest between the Company and the
Indemnitee in the conduct of any such defense; and FURTHER PROVIDED, however,
that, the Indemnitee's counsel shall have been approved by any carrier of an
applicable insurance policy if required under the terms of that policy. As used
in this Section 7.3, "independent counsel" shall mean counsel selected and
compensated by the Company, and reasonably approved by the Indemnitee, to
determine whether a conflict of interest may exist, which counsel shall not
represent the Company, the Indemnitee or any other party to the Proceeding for
which indemnification is sought. Independent counsel shall be selected promptly
following notice from the Indemnitee to the Company of the Indemnitee's belief
that a conflict of interest may exist. Nothing herein shall limit the right of
the Indemnitee to employ counsel at the Indemnitee's sole expense.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections 4.1 or 4.2 hereof or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against Expenses
actually and reasonably incurred by him in connection with the investigation,
defense or appeal of such Proceeding.
8.2 Satisfaction of Standard of Conduct. In the event that Section 8.1
is inapplicable, (i) indemnification under Section 4.1 hereof shall be made by
the Company only upon a determination in accordance with this Section 8 that the
Indemnitee is entitled to indemnification hereunder, and (ii) indemnification
under Sec tion 4.2 shall be made, if at all, in accordance with the procedure
set forth in Section 4.2. If the Indemnitee believes, upon the disposition of
any Proceeding described in Section 4.1 (whether by judgment, settlement or
otherwise), that the Indemnitee is entitled to indemnification pursuant to this
Agreement, the Indemnitee shall make written demand therefor upon the Company.
The Company shall indemnify the Indemnitee in accordance with such demand
unless, within forty-five (45) days after receipt of the Indemnitee's demand,
the Company notifies the Indemnitee that it has determined that the Indemnitee
has not met the applicable standard of conduct required to entitle the
Indemnitee to such indemnification (the "Notice of Denial"). The Notice of
Denial shall set forth, in
<PAGE> 7
- 7 -
reasonable detail, the basis for such determination by the Company and the name
of counsel selected by the Board pursuant to Section 8.3.2 hereof.
8.3 Forum for Determination of Satisfaction of Standard of Conduct.
Provided the Indemnitee notifies the Company of his choice of forum within
thirty (30) days after the receipt of a Notice of Denial, the Indemnitee shall
be entitled to select one of the following forums to determine whether he met
the applicable standard of conduct specified in Section 4.1 and is therefore
entitled to indemnification under this Agreement:
8.3.1 Quorum of Disinterested Directors. A vote of a majority of a
quorum (more than fifty percent (50%)) of the Board consisting of
directors who are not parties to the Proceeding for which
indemnification is being sought, based upon written submissions by the
Company and the Indemnitee and, if the Indemnitee or directors so
request, an oral presentation by the Indemnitee and by such other
persons as such directors may request; provided, however, that the
Indemnitee shall not have the right to be present during such
directors' deliberations nor during presentations made to such
directors by any person other than the Indemnitee;
8.3.2 Counsel. Legal counsel selected by the Board (other than counsel
to any party to the Proceeding for which indemnification is sought),
and reasonably approved by the Indemni tee, which counsel shall make
such determination in a written opinion based upon written submissions
by the Company and the Indemnitee and responses to such questions as
that counsel may have in such form as that counsel may request;
8.3.3 Arbitration Panel. A majority vote of a panel of three
arbitrators, one of whom is selected by the first two arbitrators so
selected, which arbitration shall be conducted in accordance with the
rules of the American Arbitration Association and such rules of
procedure as may be established by the panel; or
8.3.4 Court. The court in which the Proceeding is or was pending, in
accordance with such rules of procedure as may be applicable to or
established by that court.
8.4 Submission to Forum. As soon as practicable, and in no event later
than thirty (30) days after the Indemnitee's written notice to the Company of
the Indemnitee's choice of forum pursuant to Section 8.3 above, the Company
shall, at its expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification. The Indemnitee shall be afforded
an adequate
<PAGE> 8
- 8 -
opportunity to defend against that claim. A presumption shall exist that the
Indemnitee is entitled to indemnification hereunder, and the Company shall
indemnify the Indemnitee unless the Company shall prove to the selected forum,
by clear and convincing evidence, that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
The decision of the selected forum shall constitute a binding and final
adjudication between the Company and the Indemnitee as to the Indemnitee's right
to indemnification under Section 4.1 of this Agreement.
8.5 Expenses of Determination. Notwithstanding any other provision in
this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless the
Company shall be deemed the prevailing party in any such proceeding.
9. INDEMNIFICATION TRUST AGREEMENT. In order to secure the obligations
of the Company to advance to the Indemnitee certain amounts under Section 6
hereof, the Company may establish a trust fund naming the Indemnitee as a
beneficiary (in addition to all other directors, officers and other agents with
whom the Company enters into Indemnity Agreements, whether before, on, or after
the date hereof). The Indemnitee shall not seek any amount from the Trust, if
established, (i) unless entitled to an advance of Expenses pursuant to this
Agreement and (ii) unless and until the Indemnitee has made demand for payment
of Expenses pursuant to Section 6 hereof and, after twenty (20) days, the
Company has failed to advance such Expenses. The Indemnitee shall not be
entitled to receive a reimbursement or advance from the Trust, if established,
for a liability or other amount not expressly covered by Section 6 hereof.
10. EXCEPTIONS. Notwithstanding any other provision herein to the
contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
10.1 Claims Initiated by the Indemnitee. To indemnify or advance
Expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement; or
<PAGE> 9
- 9 -
10.2 The Company Prevails in Action to Enforce or Interpret Agreement.
To indemnify the Indemnitee for any Expenses incurred by the Indemnitee with
respect to any Proceeding instituted by the Indemnitee to enforce or interpret
this Agreement, if the Company is deemed to be the prevailing party in such
proceeding; or
10.3 Unauthorized Settlements. To indemnify the Indemnitee for any
amounts paid in settlement of a Proceeding unless the Company expressly consents
in writing to such settlement; or
10.4 Failure to Settle Proceeding. To indemnify the Indemnitee for
Liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any Expenses incurred by the Indemnitee following the
time such settlement reasonably could have been effected, if the Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any Proceeding (or investigation or appeal thereof) recommended in good-faith,
in writing, by the Company.
11. NO RESTRICTION OF OTHER INDEMNIFICATION RIGHTS. The Company shall
not adopt any amendment to its Articles of Incorporation or Regulations, the
effect of which would be to deny, diminish or encumber the Indemnitee's rights
to indemnity pursuant to the Articles of Incorporation, the Regulations, the
Ohio General Corporation Law or any other applicable law as applied to any act
or failure to act occurring in whole or in part prior to the date (the
"Effective Date") upon which the amendment shall apply only to acts or failures
to act occurring entirely after the Effective Date thereof, unless the
Indemnitee shall have voted in favor of the amendment as a director or holder of
record of the Company's common stock, as the case may be.
12. MERGER OR CONSOLIDATION. In the event that the Company shall be a
constituent corporation in a merger, consolidation or other reorganization, the
Company, if it shall not be the surviving, resulting or acquiring corporation
therein, shall require, as a condition thereto, that the surviving, resulting,
or acquiring corporation agree to indemnify the Indemnitee to the full extent
provided in this Agreement and to adopt and assume the Company's obligations
under this Agreement. Whether or not the Company is the surviving, resulting or
acquiring corporation in any such transaction, the Indemnitee shall also stand
in the same position under this Agreement as he would have with respect to the
Company if its separate existence had continued.
13. NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Articles of Incorporation
<PAGE> 10
- 10 -
or Regulations, the vote of the Company's shareholders or disinterested
directors, other agreements or otherwise, whether as to actions in his official
capacity or actions in another capacity while occupying his position as an
Agent. The Indemnitee's rights hereunder shall continue after the Indemnitee has
ceased acting as an Agent and shall inure to the benefit of the successors,
heirs, executors, administrators, estates, legal representatives and assigns of
the Indemnitee.
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law; PROVIDED, however, that no change in any applicable law,
statute or rule which has the effect of narrowing the right of an Ohio
corporation to indemnify any Agent shall, unless otherwise required thereby,
affect this Agreement or the parties' rights or obligations hereunder.
15. HEADINGS. Descriptive headings in this Agreement are solely for
convenience and shall not control or affect the construction or interpretation
of any provision herein.
16. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
17. MODIFICATION AND WAIVER. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
18. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors, heirs, executors, administrators,
estates, legal representatives and assigns of the parties hereto; PROVIDED,
however, that the
<PAGE> 11
- 11 -
Indemnitee may not delegate his duties hereunder; and PROVIDED FURTHER, that no
assignment shall obligate the Company to provide any indemnification with
respect to the actions or failures to act of any person other than the
Indemnitee specifically named herein.
19. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been given when delivered personally by
overnight carrier or by telecopy with telephonic confirmation of receipt or by
two (2) business days after being deposited in the U.S. mail, certified or
registered, return receipt requested with postage prepaid, and addressed to the
party to whom such notice, request, demand, waiver or other communication is to
be given as follows, or at such other address as either party shall designate by
notice to the other party pursuant to this section:
The Company: Kendle Research Associates, Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Candace Kendle Bryan
Chairman of the Board
and Chief Executive Officer
with a required copy to:
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: William J. Keating, Jr., Esq.
Indemnitee: Timothy M. Mooney
c/o Kendle Research Associates, Inc.
700 Carew Tower
Cincinnati, Ohio 45202
20. GOVERNING LAW. This Agreement, and the rights and duties of the
parties hereto under this Agreement, shall be governed exclusively by and
construed in accordance with the laws of the State of Ohio, as applied to
contracts between Ohio residents entered into and to be performed entirely
within Ohio.
21. CONSENT TO JURISDICTION. Except as expressly provided in Section 8
hereof, the Company and the Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of Ohio for all purposes in connection
with any action or proceeding which arises out of or relates to this Agreement
and
<PAGE> 12
- 12 -
agree that any action instituted under this Agreement shall be brought only in
the state courts of the State of Ohio.
22. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, and by each party on separate counterparts, each of which
counterparts shall be deemed an original, but all of which counterparts taken
together shall be one and the same document.
23. PUBLIC POLICY DETERMINATIONS. The Company and the Indemnitee
acknowledge that, in certain circumstances, federal law or applicable public
policy may prohibit the Company from indemnifying the Indemnitee under this
Agreement or otherwise. The Indemnitee understands and acknowledges that the
Company has undertaken, and may in the future be required to undertake, to
submit the question of the Company's right under public policy to indemnify the
Indemnitee to a court of appropriate jurisdiction under certain circumstances,
unless, in the opinion of counsel, such matter has been settled by controlling
precedent, and that such determination shall be binding on the Company and the
Indemnitee.
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
KENDLE RESEARCH ASSOCIATES, INC.
By: /s/Candace Kendle Bryan
-------------------------------
Candace Kendle Bryan,
Chairman of the Board
and Chief Executive Officer
INDEMNITEE:
/s/Timothy M. Mooney
-------------------------------
Timothy M. Mooney
<PAGE> 1
EXHIBIT 10.13
-------------
KENDLE RESEARCH ASSOCIATES, INC.
1995 STOCK OPTION
AND STOCK INCENTIVE PLAN
(1) ESTABLISHMENT OF THE PLAN
Kendle Research Associates, Inc., an Ohio corporation (hereinafter
referred to as the "Company"), herein sets forth the terms of its 1995 Stock
Option and Stock Incentive Plan (hereinafter referred to as the "Plan").
(2) DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the U.S. Internal Revenue Code of 1986 and the
Regulations thereunder, as now or hereafter amended.
(c) "COMMON STOCK" or "SHAMS" means shares of the no par value
common stock of the Company.
(d) "COMPANY" means Kendle Research Associates, Inc., an Ohio
corporation, and any of its parent corporations or
wholly-owned or majority-owned subsidiary corporations.
(e) "FAIR MARKET VALUE," when used in reference to Shares of
Common Stock shall mean: (i) the value determined by the
application of the following formula (the "Fair Market Value
Formula"):
A. First, the Company's "Debt-Free Cash Flow" for the
fiscal year ending immediately prior to the date of
the event in question (i.e., a grant or award
<PAGE> 2
- 2 -
under the Plan, the Company's exercise of a purchase
option, or any other event requiring a determination
of the Shares' Fair Market Value) shall be determined
by the Board. For purposes of this Plan, the
Company's "Debt-Free Cash Flow" shall mean the
Company's net income after income taxes, PLUS
depreciation, amortization, interest income and
interest expense, AS ADJUSTED for any extraordinary
gains, losses or other items, discontinued
operations, and non-operating income or losses.
B. Second, the Company's Fair Market Value shall be
determined by multiplying the Company's "Debt-Free
Cash Flow" as determined above by a valuation
multiple determined by the Board in good faith on an
annual basis and based on reasonable business and
economic factors.
C. Third, the Fair Market Value per Share shall be
determined by dividing the Corporation's Fair Market
Value as determined above by the number of shares
which are issued and outstanding on the date of the
event in question.
or (ii) such value as is determined by the Board in good faith
using any reasonable valuation method.
(f) "PARTICIPANT" means an officer, employee, director, consultant
or advisor of the Company who has been granted an option or
award under the Plan.
(g) "PLAN SHAMS" means any Shares of Common Stock issued to a
Participant in connection with an option, grant or award under
the Plan.
<PAGE> 3
- 3 -
(3) PURPOSES OF THE PLAN
The purposes of the Plan are to provide the Participants with
additional incentive and motivation to contribute to the Company's future growth
and continued success, by providing them with the opportunity to obtain a stock
ownership interest in the Company, and to enable the Company to attract and
retain the services of qualified officers, employees, directors, consultants and
advisors. The Plan is also intended to reinforce the commonality of interest
between the Company's shareholders and the Participants in the Plan.
(4) ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors of the
Company.
(b) Subject to any specific limitations contained in the Plan, the
Board shall have the sole and complete authority: (i) to select the officers,
employees, directors, consultants and advisors who shall participate in the
Plan; (ii) to make awards in such forms and amounts as it shall determine; (iii)
to impose such limitations, restrictions or conditions upon awards as it shall
deem appropriate; (iv) to modify, amend, cancel or suspend awards, with the
consent of any Participant affected thereby; (v) to interpret the Plan and to
adopt, amend and rescind administrative guidelines and other rules and
regulations relating to the Plan; and (vi) to make all other determinations and
to take all other actions necessary or advisable for the proper administration
of the Plan. The Board's interpretation and construction of any provision of the
Plan, or of any award granted under it, and any actions taken by the Board under
the Plan, shall be final and conclusive upon the Company, the Participants and
all other parties.
(c) With respect to actions taken affecting the Plan, a majority of the
Board shall constitute a quorum, and the acts of a majority of the members
present at any meeting of the Board
<PAGE> 4
- 4 -
at which a quorum is present, or acts approved in writing by a majority of the
Board, shall be considered as valid actions by the Board. The Board may
designate one or more officers or employees of the Company to execute documents
on its behalf or to perform such other nondiscretionary, ministerial duties as
the Board may determine,
(5) TYPES OF AWARDS
The following kinds or types of awards may be granted under the Plan:
(a) Incentive Stock Options; (b) Non-Qualified Stock Options; (c) Restricted
Stock; (d) Performance Units; and (e) other stock awards or bonuses valued in
whole or in pan by reference to or which relay be payable in Shares. In
connection with any award or any deferred award granted under the Plan, payments
may also be made representing dividends, interest, or their equivalent.
(6) ELIGIBILITY TO PARTICIPATE
Only persons who are officers, employees, directors, consultants or
advisors of the Company shall be eligible to participate in and to receive
awards under the Plan. For purposes of this Plan, the term "consultant" or
"advisor" shall mean a consultant or advisor who has or will render bona fide
services to the Company other than in connection with the offer or sale of
securities in a capital raising transaction. An individual Participant may hold
more than one award under the Plan or under any similar plans adopted by the
Company.
(7) SHARES SUBJECT TO THE PLAN
(a) The Shares to be issued and delivered by the Company upon the
exercise of options or the payment of other awards granted under the Plan shall
be Shares of the no par value Common Stock, which may be either authorized but
unissued shares or treasury shares as determined by the Board.
<PAGE> 5
- 5 -
(b) The maximum number of Shares of Common Stock which may be issued
under the Plan shall be One Hundred Thousand (100,000) Shares. In the event of a
change in the number or nature of the Shares of outstanding Common Stock by
reason of a stock dividend, stock split, reverse stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital
adjustments: (i) equitable proportionate adjustments may be made by the Board in
the number or kind of reserved for issuance pursuant to awards granted under the
Plan; and (ii) with to any outstanding options or other awards granted under the
Plan, equitable proportionate adjustments shall be made by the Board to the
number, class, exercise price, or other price of Shares subject to such
outstanding options or awards as the Board shall deem to be appropriate in order
to maintain the purpose of the original grant. The determination of the Board as
to any such adjustment shall be final, binding and conclusive
(c) If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, the Shares subject to such
option shall again be available for issuance in connection with the grant of any
type of award under the Plan. If any Shares subject to any other type of award
are forfeited, or the award is terminated without issuance of the Shares or
other consideration, the Shares subject to such award shall again be available
for issuance in connection with the grant of any type of award under the Plan.
(8) STOCK OPTIONS
All Stock Options granted under the Plan shall be subject to the
following terms and conditions:
(a) The Board may, from time to time in its discretion, subject to the
provisions of the Plan, grant to any eligible Participant options to purchase
Shares of Common Stock in such amounts
<PAGE> 6
- 6 -
as it shall determine, which options may be "Incentive Stock Options" (as
defined in Section 422 of the Code and hereinafter referred to as "ISOs") or
"Non-Qualified Stock Options" (all other options granted hereunder); provided,
that ISOs may only be granted to a person who is a bona fide "employee" of the
Company at the time of the grant, as that term is defined in the Code. All
options granted pursuant to the Plan shall be evidenced by a written Stock
Option Agreement between the Company and the Participant. The Stock Option
Agreement shall be in such form and shall contain such terms and conditions as
the Board shall determine. The Stock Option Agreement shall indicate whether the
option is an ISO or a Non-Qualified Stock Option.
(b) The purchase price per share payable by a Participant upon the
exercise of each option granted under the Plan shall be determined by the Board
at the time of the grant of the option; provided, that: (i) the exercise or
purchase price per share of each Non-Qualified Stock Option shall not be less
than ninety percent (90%) of the Fair Market Value of the Shares on the date of
the grant, and (ii) the exercise or purchase price per share of each ISO shall
not be less than One Hundred (100%) percent of the Fair Market Value of the
Shares on the date of the grant, except as hereinafter provided. The exercise or
purchase price per share of each ISO granted to a Participant who, at the time
of the grant, owns more than Ten (10%) percent of the total combined voting
power of all classes of stock of the Company, shall not be less than One Hundred
Ten (110%) percent of the Fair Market Value of the Shares on the date of the
grant. An option shall be considered granted on the effective date of the Stock
Option Agreement, or on such later date as the Board shall specify in the Stock
Option Agreement.
(c) The term during which each option granted under the Plan may be
exercised shall be determined by the Board at the time of the grant of the
option; provided, that in no event shall an
<PAGE> 7
- 7 -
ISO granted under the Plan be exercisable in whole or in part more than ten (10)
years from the date it is granted. In addition, in the case of the grant of an
ISO to a Participant who, at the time of the grant, owns more than Ten (10%)
percent of the total combined voting power of all classes of stock of the
Company, in no event shall such ISO be exercisable in whole or in part more than
five (5) years from the date it is granted. Each Stock Option Agreement shall
set forth a termination date on which the option shall expire in all events.
The date(s) on which each option granted under the Plan shall become
exercisable shall be determined by the Board at the time of the grant of the
option. Options granted under the Plan may be exercisable immediately, or after
some specified period of time, or according to some specified schedule of
exercise, as determined by the Board. The Board may, in its sole discretion,
accelerate the date(s) on which an option may be exercised.
(d) More than one (1) option may be granted to any individual
Participant under the Plan, and the terms and conditions of options granted to
the same Participant or to other Participants may differ. Other than the overall
limit on the number of Shares reserved for issuance under the Plan, there is no
specific limitation on the number of Shares for which options may be granted to
any individual Participant, except as hereinafter provided. No option which is
intended to be an ISO shall be granted to a Participant during any calendar year
if the aggregate fair market value (determined at the time the option is
granted) of Shares with respect to which ISOs are exercisable for the first time
by such Participant during that calendar year under this or any other stock
option plan of the Company exceeds One Hundred Thousand ($100,000.00) Dollars.
(e) An option granted under the Plan shall be exercised by the
Participant or by such other person as may be entitled to exercise the option,
by sending or delivering a written notice to
<PAGE> 8
- 8 -
the Board, or to such officer or other person as the Board shall designate. The
written notice shall state the number of Shares with respect to which the option
is being exercised, and shall be accompanied by the payment of the full exercise
or purchase price for such Shares. The exercise or purchase price for the Shares
may be paid in cash, or in the discretion of the Board with shares of Common
Stock or any other property, or in any combination thereof. In addition, the
Board, in its discretion, may allow for the cashless exercise or conversion of
an option, in which the Participant sells or the Company retains option shares
equal in Fair Market Value to the exercise price. Any Shares of Common Stock
that are delivered in total or partial payment of the exercise or purchase price
shall be valued at the Shares' Fair Market Value on the date of the exercise of
the option, or on such other date as the Board may determine. A stock
certificate(s) for the Shares purchased by the exercise of an option shall be
issued in the regular course of the Company's business, subsequent to the
exercise of the option and the payment of the purchase price. No Participant
entitled to exercise an option granted under the Plan shall have any of the
rights or privileges of a shareholder of the Company with respect to any Shares
issuable upon exercise of such option, until certificates representing such
Shares shall have been issued and delivered and the Participant's name entered
as a shareholder of record on the books of the Company.
(f) Options granted under the Plan shall not be assigned, transferred,
pledged or otherwise encumbered in any way, except in the event of the death of
a Participant, by the Participant's Will or by the applicable laws of descent
and distribution, or except pursuant to a qualified domestic relations order. In
the event of the death of a Participant, the Participant's estate, personal
representative, or the person or persons who acquire (by bequest or inheritance)
the rights to exercise any options granted under the Plan, may exercise any
available options or parts thereof,
<PAGE> 9
- 9 -
prior to the expiration of the exercise period described in Paragraph (8)(g) of
the Plan. Each option granted under the Plan shall be exercisable during the
Participants lifetime only by the Participant or, if permissible under
applicable law, by the Participant's guardian or legal representative.
(g) (i) events upon the date determined by the Board at the time of the
grant of the option and specified in the Stock Option Agreement, which date with
respect to ISOs shall not exceed the periods described in Paragraph (8)(c) of
the Plan.
(ii) Unless otherwise specified in the Stock Option Agreement between
the Company and the Participant, if a Participant's employment, directorship, or
consulting relationship with the Company (hereinafter referred to as the
"Company Relationship") is terminated for any reason, other than "for cause," as
hereinafter defined, or other than because of the Participant's permanent
disability or death, any outstanding vested options may be exercised, to the
extent such options were vested and exercisable on the date the Participant's
Company Relationship was terminated, for a period of 90 days following the date
of such termination. If not exercised within such 90 day period, such options
shall terminate. Any options which were not vested or exercisable on the date
the Participant's Company Relationship was terminated shall terminate
immediately on that date. The Board may, in its sole discretion, grant options
under the Plan which survive, either in whole or in part, the termination of a
Participants Company Relationship for a period shorter or longer than 90 days,
upon such terms and conditions as the Board may determine. In addition, the
Board may, in its sole discretion, at the time of the termination of a
Participants Company Relationship, extend the exercise period of any option that
would otherwise have terminated. In no event, however, shall any option granted
under the Plan survive beyond the date described in Paragraph (8)(g)(i) above.
<PAGE> 10
- 10 -
(iii) All options granted to a Participant under the Plan, whether or
not vested or exercisable, shall terminate immediately on the date the
Participant's Company Relationship is terminated "for cause' as hereinafter
defined. For purposes of the Plan, a Participant's Company Relationship shall be
deemed terminated "for cause" if terminated because of: (i) the Participant's
material breach of an employment agreement, consulting agreement, agreement not
to compete, confidentiality agreement or other agreement with the Company, (ii)
the Participants theft of Company property, (iii) the Participant's conviction
of a felony or of a misdemeanor which materially impairs the Participant's
ability to perform his duties with the Company, (iv) the willful and continued
failure by the Participant to substantially perform his duties with the Company,
(v) a material misrepresentation in or omission from a Participant's job
application or job interview, (vi) unlawful possession or use of drugs, or (vii)
willful and continued conduct by the Participant which is demonstrably and
materially injurious to the Company, monetarily or otherwise.
(iv) Unless otherwise specified in the Stock Option Agreement between
the Company and the Participant, if a Participant's Company Relationship is
terminated by reason of the Participant's permanent disability or death, any
outstanding vested options may be exercised, to the extent such options were
vested and exercisable on the date of the Participant's permanent disability or
death, for a period of 12 months following the date of permanent disability or
death. If not exercised within such 12 month period, such options shall
terminate. Any options which were not vested or exercisable on the date of the
Participant's death or permanent disability shall terminate immediately on that
date. The Board may, in its sole discretion, grant options under the Plan which
survive, either in whole or in part, the permanent disability or death of a
Participant for a period of up to 36 months,
<PAGE> 11
- 11 -
upon such terms and conditions as the Board may determine. In no event, however,
shall any option granted under the Plan survive beyond the date described in
Paragraph (8)(g)(i) above.
(9) RESTRICTED STOCK
All awards of Restricted Stock made under the Plan shall be subject to
the following terms and conditions:
(a) The Board may, from time to time in its discretion, subject to the
provisions of the Plan, award Shares of Restricted Stock to any Participant in
such amounts as it shall determine. The Company shall issue and deliver to a
Participant to whom an award of Restricted Stock has been made, the number of
Shares specified by the Board. A Participant to whom an award of Restricted
Stock has been made shall not be required to provide and consideration for the
Shares, other than the rendering of services or the payment of any minimum
amount required by applicable law, unless otherwise determined by the Board.
Each award of Restricted Stock made under the Plan shall be evidenced by a
written Restricted Stock Agreement between the Company and the Participant. The
Restricted Stock Agreement shall be in such form and shall contain such terms
and conditions as the Board shall determine More than one (1) award of
Restricted Stock may be granted to an individual Participant under the Plan, and
the terms and conditions of Restricted Stock Awards granted to the same
Participant or to other Participants may differ.
(b) Except as hereinafter provided, Shares of Restricted Stock may not
be sold, assigned, transferred, pledged or otherwise encumbered by a Participant
during the "Restricted Period." The Restricted Period is the period of time, if
any, determined by the Board in its discretion, during which the Participant may
not sell, assign, transfer, pledge, or otherwise encumber the Shares and during
which the Shares are subject to forfeiture back to the Company. The Board may
impose such
<PAGE> 12
- 12 -
additional limitations on the ownership of Restricted Stock during the
Restricted Period as it may determine. The Restricted Period shall commence upon
the date of the award of the Restricted Stock to the Participant and shall
terminate on the date(s) determined by the Board in its discretion. The
termination date(s) of the Restricted Period may be a single date on which all
of the Shares subject to the award are released from the transfer and other
restrictions or may be several dates on which a specified percentage of such
Shares are released from such restrictions. Except as hereinafter provided, the
Board may, in its sole discretion, accelerate the date(s) on which the
Restricted Period will terminate. Except for the restrictions on transfer and
unless otherwise determined by the Board, any Participant who owns Shares of
Restricted Stock shall have all of the rights of a shareholder with respect to
such Shares, Including but not limited to, the right to vote and the right to
receive dividends.
(c) Each stock certificate issued by the Company evidencing Shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Participant and shall bear the following or a similar legend: "The shares of
stock represented by this Certificate are subject to the terms and conditions
(including forfeiture) contained in the Kendle Research Associates, Inc. 1995
Stock Option and Stock Incentive Plan and may not be sold, assigned,
transferred, pledged or otherwise encumbered in any manner until _____________,
_______.
(d) If a Participant's Company Relationship is terminated during the
Restricted Period for any reason, all of the Shares of Restricted Stock which
are not then vested shall be forfeited back to the Company, subject to such
exceptions, if any, as are authorized by the Board with respect to the
termination of a Participant's Company Relationship due to normal retirement,
permanent disability, death, change of control, or other special circumstances.
Awards of Restricted Stock made
<PAGE> 13
- 13 -
under the Plan shall not be assigned, transferred, pledged or otherwise
encumbered in any way. except in the event of the death of a Participant, by the
Participants Will or by the applicable laws of descent and distribution, or
except pursuant to a qualified domestic relations order.
(e) Upon the lapse of the Restricted Period, the Shares of Restricted
Stock shall no longer be subject to the restrictions described in this Paragraph
(9) and the Company shall issue new stock certificates for the Shares registered
in the name of the Participant without the legend described in Paragraph (9)(c)
hereof.
(f) Any Shares of the Company's Common Stock issued to a Participant
with respect to Restricted Stock as a result of a stock split, stock dividend or
similar transaction shall be restricted to the same extent as such Restricted
Stock, unless otherwise determined by the Board.
(g) All other terms and conditions of an award of Restricted Stock
shall be determined by the Board.
(10) PERFORMANCE UNIT AWARDS
All awards of Performance Units made under the Plan shall be subject to
the following terms and conditions:
(a) The Board may, from time to time in its discretion, subject to the
provisions of the Plan, award Performance Units to any Participant in such
amounts as it shall determine. Each Performance Unit shall represent the right
of a Participant to receive an amount equal to a Payment Value, which Payment
Value shall be determined by the Board and shall be based upon the performance
of the Participant, the Company, or a division of the Company over a Performance
Period. A Participant to whom an award of Performance Units has been made shall
not be required to provide any consideration for a Performance Unit other than
the rendering of services or the
<PAGE> 14
- 14 -
payment of any minimum amount required by applicable law, unless otherwise
determined by the Board. Each Performance Unit awarded under the Plan shall be
evidenced by a written Performance Unit Agreement between the Company and the
Participant. The Performance Unit Agreement shall be in such form and shall
contain such terms and conditions as the Board shall determine.
(b) The Performance Period for each Performance Unit awarded under the
Plan shall be of such duration as the Board shall establish at the time of the
award. The performance criteria for each Performance Unit awarded under the Plan
shall be determined by the Board. More than one award of Performance Units may
be granted to any individual Participant under the Plan, and the terms and
condition of Performance Units granted to the same Participant or to other
Participants, such as the Performance Periods and performance criteria, may
differ. If during a Performance Period there should occur, in the opinion of the
Board, significant changes in economic conditions or in the nature of the
operations of the Company which the Board did not foresee in establishing the
performance criteria for such Performance Period, and which in the Board's sole
judgment, have, or are expected to have, a substantial effect on the
Participant's or the Company's ability to meet the performance criteria, the
Board may revise the performance criteria formerly determined by it in such a
manner as the Board, in its sole judgment, may deem appropriate
(c) An award of Performance Units to a Participant shall terminate for
all purposes if the Participant does not remain, during the Performance Period,
continuously in the employ or other service of the Company, subject to such
exceptions, if any, as are authorized by the Board, with respect to the
termination of a Participants Company Relationship due to normal retirement,
permanent disability, death or other special circumstances. Performance Units
awarded under the Plan shall not be assigned, transferred, pledged or otherwise
encumbered in any way, except in the
<PAGE> 15
- 15 -
event of the death of a Participant, by the Participant's Will or by the
applicable laws of descent and distribution, or except pursuant to a qualified
domestic relations order.
(d) The Payment Value of a Performance Unit shall be paid to a
Participant in cash, in Shares of Common Stock, or in a combination of cash and
Shares as determined by the Board in its sole discretion. The Payment Value of a
Performance Unit shall be paid to the Participant on such date following the
conclusion of the Performance Period as the Board shall designate at the time of
the award.
(e) All other terms and conditions of an award of Performance Units
shall be determined by the Board.
(11) OTHER STOCK UNIT AWARDS
(a) The Board may, from time to time in its discretion, subject to the
provisions of the Plan, grant to any Participant, either alone or in addition to
other awards made under the Plan, awards of Shares of the Company's Common Stock
and other awards that are valued in whole or in part by reference to or
otherwise based on Shares of the Company's Common Stock. Other Stock Unit Awards
may be paid in cash, in Shares of the Company's Common Stock, or in a
combination of cash and Shares, as determined by the Board in its sole
discretion.
(b) The Board shall determine the Participants to whom other Stock Unit
Awards are to be granted, the times at which such awards are to be made, the
number of Shares to be granted pursuant to such awards, and all other terms and
conditions of such awards. More than one Stock Unit Award may be granted to an
individual Participant under the Plan, and the terms and conditions of Stock
Unit Awards granted to the same Participant or to other Participants may differ.
A Participant shall not be permitted to sell, assign, transfer, pledge, or
otherwise encumber any Shares
<PAGE> 16
- 16 -
of Common Stock received pursuant to a Stock Unit Award prior to the later of
the date on which the Shares are issued, or the date on which any applicable
restriction, performance or deferral period determined by the Board lapses. A
Participant to whom an award of Shares has been made pursuant to a Stock Unit
Award shall not be required to provide any consideration for the Shares, other
than the rendering of services or the payment of any minimum amount required by
applicable law, unless otherwise determined by the Board,
(12) DEFERRALS OF AWARDS
The Board may permit Participants to defer the distribution of all or
any part of any award made under the Plan in accordance with such terms and
conditions as the Board shall establish.
(13) RESTRICTIONS ON TRANSFER OF SHARES
(a) Notwithstanding anything to the contrary contained in the Plan, the
Company shall not be obligated to issue Plan Shares to a Participant pursuant to
any option, award or other grant under the Plan, unless at the time of such
issuance, the Participant agrees not to sell, assign, give, encumber, pledge or
otherwise transfer legal or beneficial ownership of all or any of the Plan
Shares to any person, corporation or other entity, during life (whether
voluntarily or by involuntary legal action), or at death (whether by
testamentary disposition, intestate succession or contractual survivorship),
except as provided in this Paragraph (13). The Participant's acceptance of any
Plan Shares shall be deemed to constitute the Participant's agreement to comply
with the terms and conditions of this Paragraph (13). Any attempt to transfer
any interest in Plan Shares in violation of the restrictions contained in this
Paragraph (13), or in violation of the transfer restrictions and procedures
contained elsewhere in this Agreement, shall be ineffective and void, and the
Company shall refuse to register the Shares in the name of the transferee.
<PAGE> 17
- 17 -
(b) If a Participant should receive a bona fide offer for the purchase
of any Plan Shares or should otherwise desire to voluntarily sell or transfer
any Plan Shares, the Participant shall first give written notice to the Company
of his or her receipt of the bona fide offer or of his or her desire to sell or
transfer the Plan Shares. The written notice shall describe the offer or
proposed sale, including the name and address of the proposed transferee, the
number of Plan Shares to be transferred, the price per Share, the terms of
payment and all other material terms of the proposed transaction. The Company
shall have the first right, but not the obligation, to purchase the Participants
Plan Shares for the lesser of: (i) the price per Share being offered by the bona
fide offeror as described in the Participant's written notice to the Company; or
(ii) the amount determined under the Fair Market Value formula price described
in Paragraph (2)(e) hereof.
The Company shall exercise its option by sending a written notice to
the Participant within 30 days of the date of the Participant's notice to the
Company. If the Company exercises its option within such 30-day period, a
closing shall be held at the Company's principal place of business within 30
days thereafter on a mutually agreed-upon date and time. The Company may pay the
purchase price for the Plan Shares, as determined above, to the Participant (i)
in full in cash at the Closing, or (ii) at the election of the Company, in equal
monthly, quarterly or annual installments over a period not to exceed three
years from the date of Closing. If the Company elects to pay the purchase price
in installments, the Company shall deliver a promissory note (the "Note") to the
Participant at the Closing reflecting the payment terms and bearing interest on
the unpaid balance thereof at the "Prime Rate," plus two percent (2.0%) per
annum. Interest shall be payable on the same dates as the installments of
principal. The "Prime Rate" shall mean the prime rate announced
<PAGE> 18
- 18 -
by the ______________ Bank, Cincinnati, Ohio on the Closing date. The Note shall
be unsecured, The Note may be prepaid by the Company in whole or in part at any
time without penalty.
If the Company fails to exercise its option to purchase the Plan
Shares, the Plan Shares or any number of them may be sold at any time within 90
days from the date of the Participant's original notice to the Company, but only
for the price and on the terms specified in the original notice. No sale of the
Participants Plan Shares shall be made after the end of the 120-day period, nor
shall any change in the price or terms of sale or transfer be permitted, without
a new notice of intention to transfer in compliance with the requirements of
this Paragraph (13).
(c) For a period of 180 days after the termination of a Participants
Company Relationship with the Company, the Company shall have the right, but not
the obligation, to purchase all of the Participant's Plan Shares for the Fair
Market Value formula price described in Paragraph (2)(e) hereof. The Company may
exercise its option by sending a written notice to the Participant within the
180 day period. If the Company exercises its option within the 180 day period, a
closing shall be held at the Company's principal place of business within 30
days thereafter on a mutually agreed-upon date and time. The Company may pay the
purchase price for the Plan Shares to the Participant: (i) in full in cash at
the Closing, or (ii) at the election of the Company, in installments on the same
terms and conditions as provided in Paragraph (13)(b) hereof.
(d) All stock certificates now or hereafter issued by the Company to
any Participant under the Plan shall be subject to the transfer restrictions and
limitations of this Paragraph (13) and shall contain a restrictive legend to
that effect.
(e) The restrictions and provisions contained in this Paragraph (13)
shall terminate and be of no further force or effect with respect to Plan shares
on the earlier of: (i) the date the Company
<PAGE> 19
- 19 -
successfully completes an initial public offering of its Common Stock pursuant
to the Securities Act of 1933, as amended, or (ii) the effective date of the
Company's registration of its Common Stock as a Class under the Securities
Exchange Act of 1934, as amended.
(14) EFFECT OF PLAN ON EMPLOYMENT STATUS
The fact that the Participant has been granted an option or award
under the Plan shall not affect the right of the Company to terminate the
Participant's Company Relationship at any time, subject to the provisions of
any written employment agreement or other agreement between the Company and
such Participant.
(15) AMENDMENT, MODIFICATION OR TERMINATION OF THE PLAN
The Board of Directors may terminate, amend or modify the Plan in its
discretion, at any time; provided, however, that no amendment, modification or
termination of the Plan shall affect any outstanding options or awards
theretofore granted under the Plan in any manner, without the consent of the
Participant or his or her successor-in-interest. In addition, any amendment or
modification that would increase the number of Shares reserved for issuance
under the Plan or change the requirements as to eligibility for participation in
the Plan, must also be approved by the holders of a majority of the Company's
issued and outstanding Shares of Common Stock.
(16) WITHHOLDING
Upon the transfer of Common Stock as a result of the exercise of a
stock option, the payment of a Restricted Stock award, or the payment of any
other award or grant, the Company shall have the right to retain or sell without
notice, sufficient Shares to cover the amount of any tax required by any
governmental authority to be withheld or otherwise deducted and paid with
respect to such payment, remitting any balance to the Participant; provided,
however, that the Participant shall have
<PAGE> 20
- 20 -
the option to provide the Company with the funds, including previously acquired
Shares of the Company's Common Stock (if acceptable to the Board in its
discretion), to enable it to pay any such tax.
(17) SECURITIES LAWS
Notwithstanding anything to the contrary contained in the Plan, the
Company shall not be obligated to issue Shares of its Common Stock to a
Participant pursuant to any option, award or other grant under the Plan, unless
at the time of such issuance the Shares are registered, exempt, or the subject
matter of an exempt transaction under both federal and applicable state
securities laws. if requested to do so by the Board, as a condition to the
exercise of an option or the receipt of Shares, each Participant shall execute a
certificate indicating that he or she is purchasing the Common Stock for
investment and not with any present intention to sell or distribute the same.
(18) TERM OF THE PLAN
The Plan shall become effective on the date of its adoption by the
Company's shareholders. The Plan shall terminate ten years after its effective
date, or on such earlier date as may be determined by the Board of Directors. No
option shall be granted or other award made under the Plan following the Plan's
termination. The termination of the Plan shall not affect the rights of
Participants under outstanding options or awards previously granted under the
Plan, and all of such unexpired options and awards shall continue in full force
and effect after termination of the Plan, except as they may lapse or be
terminated under the terms and conditions of each individual grant or award.
<PAGE> 1
EXHIBIT 10.14
-------------
KENDLE RESEARCH ASSOCIATES, INC.
1995 STOCK OPTION AND STOCK INCENTIVE PLAN
INDIVIDUAL STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION
-----------------------------------------------------
This Agreement is made this ____ day of __________, 19___, between
Kendle Research Associates, Inc. (the "Company", an Ohio corporation, and
____________________, an employee of the Company (the "Optionee"). WHEREAS, the
Company has adopted and maintains the Kendle Research Associates, Inc. 1995
Stock Option and Stock Incentive Plan (the "Plan") for the benefit of its
directors, officers, employees, advisors and consultants; WHEREAS, the Plan
provides that the Company's Board of Director (the "Board"), may grant options
to purchase shares of the Company's common stock to its directors, officers,
employees, advisors and consultants; and WHEREAS, the Board has determined that
the Optionee should be given the opportunity to acquire a stock ownership
interest in the Company pursuant to the Plan, in order to provide the Optionee
with additional incentive and motivation to contribute to the Company's future
growth and continued success, and to encourage the Optionee to continue to
provide services to the Company, NOW, THEREFORE, the Company and the Optionee
agree as follows:
1. GRANT OF OPTION.
----------------
Pursuant to the provisions of the Plan, the Company hereby
grants to the Optionee the right and option (the "Option") to purchase from the
Company, on the terms and conditions hereinafter provided, up to a maximum
number of ______ shares of the Company's no par value common stock (the "Option
Shares"). This Option shall be an "Incentive Stock Option" as defined in the
Plan and in Section 422 of the Internal Revenue Code of 1986, as amended.
<PAGE> 2
-2-
2. EXERCISE PRICE.
---------------
The exercise or purchase to be paid by the Optionee for the
Option Shares shall be [Fair Market Value Formula price] per share. The Board
has determined that the fair market value of the Company's common stock on the
date of the grant of this option is [Fair Market Value Formula price] per share.
3. SCHEDULE OF EXERCISE.
---------------------
(a) Except as provided in Paragraphs 3(b) and (c) below, the
Optionee shall have the right to exercise the Option granted under this
Agreement in accordance with the following schedule:
<TABLE>
<CAPTION>
DATES Percentage of Option Shares
----- Eligible for Purchase
---------------------
<S> <C>
On or before [3rd anniversary of employment 0%
or promotion following grant date]
After [3rd anniversary of employment or 20%
promotion following grant date], but on or
before [4th anniversary]
After [4th anniversary of employment or 40%
promotion following grant date], but on or
before [5th anniversary]
After [5th anniversary of employment or 60%
promotion following grant date], but on or
before [6th anniversary]
After [6th anniversary of employment or 80%
promotion following grant date], but on or
before [7th anniversary]
After [7th anniversary of employment or 100%
promotion following grant date]
</TABLE>
(b) Notwithstanding any provisions to the contrary
contained in this Agreement,
<PAGE> 3
-3-
the Optionee's right to exercise the Option granted under this Agreement shall
vest immediately upon the occurrence of any of the following events: (i) the
sale of the Company or substantially all of its assets to a single purchaser or
to a group of associated purchasers; (ii) the sale, exchange, or other
disposition, in one transaction, of two-thirds of the outstanding corporate
shares of the Company, (iii) a bona fide decision by the Company's Board and
shareholders to terminate its business, dissolve and liquidate its assets; (iv)
the merger or consolidation of the Company in a transaction in which the
shareholders of the Company receive or hold less than 50% of the outstanding
voting shares of the new or surviving corporation, or (v) the successful
completion of an initial public offering of the Company's common stock pursuant
to the Securities Act of 1933, as amended, resulting in gross offering proceeds
to the Company of at least $7.5 million.
(c) Notwithstanding any provisions to the contrary contained
in this Agreement, the Optionee's right to exercise the Option granted under
this Agreement shall vest immediately upon the occurrence of any of the
following events: (i) the termination of the Optionee's employment with the
Company due to the Optionee's death, or (ii) the termination of the Optionee's
employment with the Company due to his permanent disability (physical or
mental).
4. METHOD OF EXERCISE.
-------------------
Subject to the schedule provided in Paragraph (3) of this
Agreement, the Option granted under this Agreement may be exercised by the
Optionee in whole or in part, and from time to time, by written notice signed by
the Optionee (or by such other person as may be entitled to exercise the option)
and delivered to the Company's chief executive officer or president at the
Company's principal executive offices. The written notice shall state the number
of shares with respect to which the Option is being exercised, and shall be
accompanied by the payment of the total
<PAGE> 4
-4-
exercise or purchase price for that number of shares. The exercise or purchase
price for the Option Shares shall be paid in cash (including certified check or
bank cashier's check), or in the discretion of the Company's Board of Directors
with shares of the Company's common stock or any other property, or in any
combination thereof. Any shares of the Company's common stock that may be
delivered in payment of the exercise or purchase price shall be valued at their
fair market value, as determined by the Board pursuant to the provisions of the
Plan, as of the date of delivery of the shares of the Company. Upon payment of
the full exercise or purchase price, the Option Shares shall be fully paid and
nonassessable, outstanding shares of the common stock. No partial exercise of
the option may be made for less than 10 shares, and the Company shall not be
required to issue any fractional shares.
5. TERMINATION OF OPTION.
----------------------
(a) Subject to the provisions of Subparagraph 5(b) hereof, the
Option and all rights granted under this Agreement, to the extent that those
rights have not been exercised, shall terminate on the earliest of: (i) the date
the Optionee's employment with the Company is terminated "for cause" as defined
in Paragraph (8)(g) of the Plan; (ii) the date which is 90 days from the date
that the Optionee is discharged or terminates his employment with the Company
for any reason, other than "for cause" as defined above or by reason of the
Optionee's death or permanent disability; or (iii) the date which is 10 years
from the date of the grant of this Option.
(b) If the Optionee dies or becomes permanently disabled while
serving as an employee of the Company, and prior to the 10 year termination date
described above, the Optionee or in the event of the Optionee's death, his
estate, personal representative or heirs, shall have the right to exercise the
Option granted under this Agreement, for a period of 12 months following the
<PAGE> 5
-5-
Optionee's date of death or in the event of permanent disability the last date
on which the Optionee provided services to the Company as an employee.
6. TRANSFERABILITY.
----------------
The Option and all rights granted this Agreement shall not be
transferred, assigned, pledged or otherwise encumbered in any manner (whether by
operation of law or otherwise) except, in the event of the Optionee's death, by
will or by the applicable laws of descent or distribution. Upon any attempt to
transfer, assign, pledge, encumber or otherwise dispose of this Option contrary
to the provisions of this Agreement, or upon the levy of any attachment or
similar process upon this Option, the Option shall immediately become null and
void. The Option and all rights granted under this Agreement shall be
exercisable during the Optionee's lifetime only by the Optionee, or if
permissible under applicable law, by the Optionee's guardian or legal
representative.
7. ADJUSTMENT TO OPTION SHARES.
----------------------------
(a) In the event that at any time prior to the termination
date of this Option and prior to the exercise thereof, the Company issues common
stock by way of stock dividend or other distributions, or subdivides or combines
its outstanding shares of common stock, the number of shares subject to this
Option and the exercise price shall be adjusted to be consistent with such
change or changes. In the event that at any time prior to the termination date
of this Option and prior to the exercise thereof, there is any reclassification,
capital reorganization or other change of outstanding shares of the Company's
common stock, or in case of any consolidation or merger of the Company with or
into another corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the
<PAGE> 6
-6-
Company shall cause effective provision to be made so that the Optionee shall
have the right thereafter, by exercising this Option, to purchase the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance. The determination of the Board as to any adjustments or
provisions to be made under this paragraph shall be final, binding and
conclusive.
(b) Except as provided above, the grant of the Option herein
shall not affect in any manner the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalization,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or to issue bonds,
debentures, preferred or prior preference stock ahead of or affecting the common
stock of the Company or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of the Company's assets
or business.
8. EFFECT OF AGREEMENT ON STATUS OF OPTIONEE.
------------------------------------------
(a) The fact that the Board has granted an Option to the
Optionee pursuant to the Plan, shall not confer on the Optionee any right to
employment with the Company or to a position as an officer or director of the
Company, nor shall it limit the right of the Company to terminate or remove the
Optionee from any position held by him at any time; provided, however, nothing
contained in this Paragraph 8(a) shall be deemed to affect any rights or
obligations of the Company or the Optionee contained in any separate employment
agreement or similar agreement.
(b) The Optionee shall not be or have any right or privileges
of a shareholder of the Company with respect to the Option Shares, unless and
until the Option has been exercised, the exercise or purchase price fully paid,
certificates representing such shares endorsed, transferred and
<PAGE> 7
-7-
delivered to the Optionee, and the Optionee's name entered as a shareholder of
record on the books of the Company.
9. SECURITIES LAWS.
----------------
Notwithstanding anything to the contrary contained in this
Agreement, this Option shall not be exercisable by the Optionee except for
shares of the Company's common stock which at the time of such exercise are
registered, exempt, or the subject matter of an exempt transaction, under both
federal and applicable state securities laws. By accepting and executing this
Option Agreement, the Optionee acknowledges and represents to the Company that
any and all shares of the common stock purchased under this Agreement will be
acquired by the Optionee as an Investment, and not with a view towards
subsequent distribution.
10. TAXES.
------
The Optionee agrees to pay all federal, state and local taxes,
withholding taxes, if any, resulting from the exercise of this Option subsequent
sale of the Option Shares.
11. CONDITIONS.
-----------
This Option is governed by the terms of this Agreement and the
Plan, the provisions of which are Incorporated herein and made a part hereof.
12. RESTRICTIONS ON TRANSFER.
-------------------------
The Optionee agrees that the Option Shares shall be subject to
the restrictions on transfer, repurchase option and other conditions of
Paragraph (13) of the Plan. In addition, if the restrictions and other
conditions contained in Paragraph (13) of the Plan should terminate as provided
therein, then following exercise of the Option, the Optionee agrees to notify
the Company promptly of any subsequent sale of the Option Shares if the sales
occurs within two years after the
<PAGE> 8
-8-
date of this Agreement or within one year after exercise.
13. ACKNOWLEDGMENT.
---------------
The Optionee's signature on this Agreement also constitutes
his acknowledgment that he has received a copy of the Plan and the Company's
Summary Plan Description of the Plan dated _________, 19____.
14. BINDING EFFECT.
---------------
This Agreement shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company, and shall be binding upon
and inure to the benefit of the Optionee's executors, administrators, heirs and
personal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
KENDLE RESEARCH ASSOCIATES, INC.
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
(Optionee)
-------------------------------
<PAGE> 1
EXHIBIT 10.16
-------------
June , 1997
TO: (name)
RE: KENDLE PROTECTIVE COMPENSATION AND BENEFIT AGREEMENT
----------------------------------------------------
Dear (salutation):
Kendle International, Inc. ("Kendle" or the "Company") believes it is
important to provide you, as a key member of Kendle's management, with a certain
degree of security in regard to your employment with Kendle in the event of a
change in control of Kendle. In accordance with this belief and in consideration
of your services, this letter, when accepted by you as provided below, will
constitute our agreement regarding certain benefits to be accorded to you in the
event of a "Change of Control" (as defined below).
1. If a Change in Control occurs on or before the expiration date of this
Agreement and
a. Within 12 months of the date of the occurrence, you
voluntarily resign your employment for "Good Reason" (as
defined below), or
b. Within 24 months of the date of the occurrence, your
employment is terminated by the Company, other than due to
death, "Disability", or
"Cause" (each as defined below),
you shall be entitled to receive the following compensation ("Change in Control
Compensation"):
i. Kendle shall pay you in cash a lump sum in an
amount equal to 2.00 times the sum of (x) your
annual base salary (including any deferrals) at
the rate in effect immediately preceding the date
of the Change in Control and (y) the "Bonus
Amount" which shall be equal to the average bonus
paid or payable to you (including any amounts
which were or will be deferred) in respect of the
two fiscal years immediately preceding the fiscal
year in which the Change in Control occurs. The
payment provided for in this subparagraph (i)
shall be made not later than 30 days after the
date of the termination of your employment.
ii. For a period of 2 years from the date of
termination of your employment, the Company, at
the Company's expense, shall provide you with
health, medical, dental, and life insurance
<PAGE> 2
coverage to the same extent to which you were
covered under the Company's group plans, policies
and programs (and any supplemental plans) on the
date immediately preceding the date of a Change in
Control if more favorable to you. The Company's
obligation with respect to such benefits shall be
satisfied to the extent that you obtain similar
benefits pursuant to a subsequent employer's
benefit plan. Also, you shall have the option to
have assigned to you at no cost and with no
apportionment of prepaid premiums, any assignable
insurance policy owned by the Company and relating
specifically to you. This subparagraph is not
intended as a limitation on any benefits you may
be entitled to under any plans, policies or
programs of the Company.
iii. If requested, the Company will pay the cost
of outplacement services, provided, however,
the amount payable by the Company for such
services shall not exceed $15,000.
If more than one Change in Control shall occur during the term of this
Agreement, you will be entitled to Change in Control Compensation only once.
2. For purpose of this Agreement, the term "Change in Control" shall
mean the first to occur of the following events:
a. The "acquisition" after the date hereof by any "Person" (as
such term is defined below) of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934
Act"), as in effect on the date hereof) of any securities of
Kendle (the "Voting Securities") which, when added to the
Voting Securities then "Beneficially Owned" by such Person,
would result in such Person "Beneficially Owning"
thirty-three and one-third percent (33-1/3%) or more of the
combined voting power of Kendle's then outstanding Voting
Securities; provided, however, that for purposes of this
paragraph (a), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (i)
acquires Voting Securities as a result of a stock split,
stock dividend of other corporate restructuring in which all
stockholders of the class of such Voting Securities are
treated on a pro rata basis; (ii) is generally engaged in
the business of underwriting securities and acquires the
Voting Securities ("Underwriting Securities") (x) pursuant
to the terms of an underwriting agreement (an "Underwriting
Agreement") to which Kendle and such underwriter are parties
and which Underwriting Agreement in accordance with Rule
10b-7 promulgated under the 1934 Act or (z) to cover over
allotments created in connection with a distribution of
Voting Securities pursuant to an Underwriting Agreement;
(iii) acquires the Voting Securities directly from Kendle;
(iv) becomes the Beneficial Owner of more than the permitted
percent of Voting Securities by Kendle which, by reducing
the number of Voting
<PAGE> 3
Securities outstanding, increases the proportional number of
shares Beneficially Owned by such Person; (v) is Kendle or
any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is
owned directly or indirectly by Kendle (a "Subsidiary") or
(vi) acquires Voting Securities in connection with a
"Non-Control Transaction" (as defined in paragraph (c)
below).
b. The individuals who, as of the date of the initial public
offering, are members of the Board of Directors of Kendle
(the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the Board of Directors of Kendle;
provided, however that if either the election of any new
director or the nomination for election of any new director
by Kendle's stockholders was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall
be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11) promulgated
under the 1934 Act, as in effect on the date hereof) or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of
Directors (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest
or Proxy Contest; or
c. Approval by stockholders of Kendle of:
(1) A merger, consolidation or reorganization
involving Kendle (a "Business Combination"),
unless
(i) the stockholders of Kendle, immediately
before the Business Combination, own,
directly or indirectly immediately
following the Business Combination, at
least 67% of the combined voting power
for the election of directors generally
of the outstanding securities of the
corporation resulting from the Business
Combination (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before the
Business Combination, and
(ii) the individuals who were members of the
Incumbent Board immediately prior to the
execution of the agreement providing for
the Business Combination constitute at
least two-thirds of the members of the
Board of Directors of the Surviving
Corporation,
<PAGE> 4
(iii) no Person (other than Kendle or any
Subsidiary, a trustee or other fiduciary
holding securities under one or more
employee benefit plans or arrangements
(or any trust forming a part thereof)
maintained by Kendle, the Surviving
Corporation, or any Subsidiary) or any
Person who, immediately prior to the
Business Combination, had Beneficial
Ownership of thirty-three and one-third
percent (33-1/3%) or more of the then
outstanding Voting Securities) upon
consummation of the Business Combination
is the Beneficial Owner of thirty-three
and one-third percent (33-1/3%) or more
of the combined voting power for the
election of directors generally of the
Surviving Corporation's then outstanding
securities (a transaction described in
clauses (i) through (ii) shall be
referred to as a "Non-Control
Transaction")
(2) A complete liquidation or dissolution of Kendle;
or
(3) An agreement for the sale or other disposition of
all or substantially all of the assets of Kendle
to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because thirty-three and one-third percent (33-1/3%) or more of
the then outstanding Voting Securities is Beneficially Owned by (i) a trustee or
other fiduciary holding securities under one or more employee benefit plans or
arrangements (or any trust forming a part thereof) maintained by Kendle or any
Subsidiary or (ii) any corporation which, immediately prior to its acquisition
of such interest, is owned directly or indirectly by the stockholders of Kendle
in the same proportion as their ownership of stock in Kendle immediately prior
to such acquisition. Furthermore, if an employee's employment is terminated and
the employee reasonably demonstrates that such termination (i) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who effectuates a Change
in Control or (ii) otherwise occurred in connection with, or in anticipation of,
a Change in Control which actually occurs, then for all purposes hereof, a
Change in Control shall be deemed to have occurred and the date of a Change in
Control with respect to the employment shall mean the date immediately prior to
the date of such termination of employment.
3. The impact of a Change in Control relative to your stock
options is covered under the terms of the stock option plan pursuant
to which such stock options were granted.
4. For the purpose of this Agreement, the following definitions
shall be used:
a. A voluntary resignation shall be deemed to be for "Good
Reason" if such
<PAGE> 5
resignation is based upon (i) a determination by you made in
good faith that as a result of a Change in Control and a
change in circumstances thereafter significantly affecting
your position, you have been rendered substantially unable
to carry out, or have been substantially hindered in the
performance of, any of your authorities, powers, functions,
responsibilities or duties in respect of the Company
immediately prior to the Change in Control, which situation
is not remedied within 10 calendar days after receipt by the
Company of written notice from you of such determination,
(ii) a reduction in your annual base salary (including any
deferrals), (iii) a change in any Company bonus plan in
which you participate which results in a reduction in your
reward opportunities thereunder in terms of the maximum
bonus that you may earn, or a change in the performance
targets applicable thereunder (unless such change in the
performance target applies to all employees generally), in
either case which adversely affects your ability to qualify
for the maximum bonus, (iv) action by the Company requiring
you be based in any place more than 30 miles from the
location of your employment immediately prior thereto, or
that the travel in connection with your employment is
required to a materially greater degree than was customary
for you immediately before the Change in Control, (v) the
failure by the Company to provide you with benefits
substantially similar in terms of benefit levels to those
provided to you immediately prior to the Change in Control
(other than a failure which is the result of a reduction or
change in benefits that applies to employees generally),
(vi) a reduction in the number of vacation days available to
you annually, or (vii) a material breach by the Company of
this Agreement or (viii) a failure or refusal by a successor
to assume the obligations of the Company under this
Agreement.
b. A termination for "Cause" shall mean that you have been
terminated from employment because: you have been convicted
of a felony, or you committed an act of fraud or
embezzlement against the Company, or you committed a willful
and substantial violation of established written Company
policy.
c. A termination for "Disability" shall mean that due to a
physical or mental illness or injury (regardless of whether
such illness or injury is job related), you have been unable
to perform on a full-time basis the duties of your position
for a consecutive period of 12 months.
5. (a) In the event that you become entitled to Change in
Control Compensation pursuant to Paragraph 2 hereinabove,
and any amount of the Change in Control Compensation may be
Subject to the tax (the "Excise Tax") imposed by section
4999 of the Internal Revenue Code (or any similar tax that
may hereafter be imposed), the Company shall pay to you at
the time specified below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by
you, after deduction of any Excise Tax on the
<PAGE> 6
"Total Payments" (as hereinafter defined) and any federal,
state and local income tax and Excise Tax upon the payment
provided for by this Paragraph 5, shall be equal to the
Total Payments. For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Change in Control
Compensation and any other payments or benefits received or
to be received by you in connection with a Change in Control
of the Company or termination of your employment (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose
actions result in a Change in Control of the Company or any
person affiliated with the Company or such person) (which
payments and benefits, together with the Change in Control
Compensation , shall constitute the "Total Payments") shall
be treated as "Parachute payments" within the meaning of
section 280G(b) (2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b) (1) shall be
treated as subject to the Excise Tax, except to the extent
that, in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you, the
Total Payments do not constitute parachute payments, or such
excess parachute payments represent reasonable compensation
for services actually rendered within the meaning of section
280G(b) (4) of the Code in excess of the base amount within
the meaning of section 280G(b) (3) of the Code, or are
otherwise not subject to the Excise Tax, and (ii) the value
of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d) (3) and
(4) of the Code.
b. For purposes of determining the amount of your Gross-Up
Payment, you shall be deemed to pay (i) federal income taxes
at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is made and
(ii) state and local income taxes at the highest marginal
rate of taxation in the calendar year in which the Gross-Up
Payment is made (but based on the rates of taxation of the
states and localities with respect to which the Gross-Up
Payment will be taxable), net of the maximum reduction in
federal income taxes which could be obtained from deduction
of such state and local taxes.
c. The Gross-Up Payment provided for in this paragraph shall be
an estimate. The Company will cause its independent auditors
to make an estimate of Excise Tax liability and Gross-Up
Payment within 60 days of the date of termination of your
employment (a copy of which is to be furnished to you as
soon as possible) and the Company shall pay to you the
Gross-Up Payment in cash in a lump sum within 30 days of
such estimate. In the event that the amount of the estimated
Excise Tax liability exceeds the amount of the actual Excise
Tax liability as conclusively and finally determined, you
shall promptly repay the portion
<PAGE> 7
of the Gross-Up Payment attributable to the reduced Excise
Tax and such excess shall constitute a loan by the Company
to you, payable on the fifth day after demand by the Company
(together with interest from the date you received the
Gross-Up Payment at the rate provided in section 1274(b) (2)
(B) of the Code).
d. In the event the Internal Revenue Service subsequently makes
a determination resulting in an Excise Tax in excess of the
estimate as determined by the Company's auditors, you shall
promptly notify the Company and the Company shall have the
right at its expense, to contest and participate. If any
additional Excise Tax is assessed in respect of you by the
Internal Revenue Service, such additional Excise Tax, plus
any penalties and interest assessed, shall be paid to you by
the Company (together with an amount sufficient for all
other federal, state and local taxes on the additional
Excise Tax and the payments provided for in this Paragraph)
within 10 days of the date that the Internal Revenue Service
makes such an assessment.
6. The payment provided in Paragraph 1 shall be offset by any other
severance pay to which you have be entitled under any other Company
plan, program or policy. However, in addition to any other payments
provided herein, you shall also be entitled upon termination of your
employment to the following:
a. A lump sum cash payment in an amount equal to any accrued
(but not taken) vacation calculated through the effective
date of termination of your employment.
b. A lump sum in an amount equal to a pro-rata portion of the
Bonus Amount, based on the number of days which have elapsed
in the fiscal year in which termination of your employment
occurs.
c. Any other payments or benefits which employees are entitled
to receive under the Company's plans, programs, and policies
in effect upon termination of your employment.
7. All amounts paid to you under this Agreement shall be subject to
withholding for federal, state, local and F.I.C.A. taxes and such
other payroll deductions as required pursuant to any applicable law
and regulation.
8. This Agreement shall not be assignable by you or the Company
without the written consent of the other party; provided, however,
that the Company shall assign this Agreement to any person or entity
which has acquired substantially all of the business or assets of the
Company and shall require such acquiror to expressly assume and agree
to perform this Agreement and all obligations of the Company under
this Agreement. All the terms and provisions hereof shall be binding
upon, inure to the benefit of, and be enforceable by you, your assigns
and your beneficiaries and the Company and its
<PAGE> 8
successors and assigns.
9. The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred by you
as a result of termination of your employment, including your seeking
to obtain or enforce any right or benefit in connection with
termination of your employment following a Change in Control as set
forth in this Agreement.
10. You shall have the right and option to elect (in lieu of
litigation) to have any dispute or controversy arising under or in
connection with this Agreement settled by arbitration, conducted
before a panel of three arbitrators sitting in a location you select
within fifty (50) miles from the location of your job in accordance
with the commercial rules of the American Arbitration Association then
in effect. Judgment may be entered on the award of the arbitrator in
any court having jurisdiction. The Company shall pay any fees and
expenses associated with the arbitration, including your attorney's
fees. Any determination by such panel of arbitrators shall be
consistent with the provisions of this Agreement as set forth herein.
11. You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking employment or otherwise and
no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to you in any subsequent employment
(other than as expressly set forth in Paragraph 1).
12. Notwithstanding anything to the contrary contained herein, this
Agreement is not intended to create, nor should it be interpreted to
create, any right on your part to be continued in employment with the
Company. In the event your employment shall terminate prior to a
Change in Control, this Agreement shall thereupon terminate and you
will have no rights or benefits under this Agreement.
13. This Agreement shall not be modified, waived, or discharged
unless such modification, waiver, or discharge is agreed to in writing
and signed by you and the Company's Chief Executive Officer.
14. Any waiver by you or the Company, at any time, of any breach by
the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall
not be deemed a waiver of any other provision or condition at the same
or at any prior or subsequent time.
15. You agree not to discuss this Agreement with any of your
associates within the Company as they may not have a similar
arrangement.
16. This agreement shall continue in effect until December 31, 1999;
provided however, that on each anniversary date of this Agreement, the
term of this Agreement shall automatically be extended for one (1)
year unless either you or the Company shall have given notice to the
other at least sixty (60) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, however,
that notwithstanding
<PAGE> 9
any notice by the Company not to extend this Agreement, this Agreement
shall not expire before the second anniversary of the date on which a
Change in Control occurs. Notwithstanding the expiration of this
Agreement, all of your rights and all obligations of the Company with
respect to any Change in Control which accrued on or prior to the
expiration of this Agreement shall survive until fully performed.
<PAGE> 10
17. This Agreement shall to the extent not preempted by federal law
be governed by the laws of the State of Ohio without giving effect to
the principals of conflict of law thereof.
Please confirm your agreement, to an acknowledgment of, the foregoing
by signing the enclosed copies of this Agreement and by returning one (1)
original executed copy to me.
Very truly yours,
Candace Kendle Bryan
Chairman and C.E.O.
This day of , 199 ,
------ -------------------------- ------
the undersigned hereby agrees to and acknowledges the foregoing.
Signed:__________________________________
(name)
477567.1
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PRO FORMA EARNINGS (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL PRO FORMA PRO FORMA
---------------------------------------------- PRO FORMA ------------------- PRO FORMA
1992 1993 1994 1995 1996 1996 3/31/96 3/31/97 3/31/97
------ ----- ----- ----- ----- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) for primary
and fully diluted
computation:............... $ (297) $ 151 $ 275 $ 328 $ 680 $ 1,585 $ 141 $ 317 $ 899
------ ----- ----- ----- ----- --------- ------- ------- ---------
PRIMARY
Weighted average common
shares and dilutive common
stock equivalents:
Common stock outstanding... 3,650 3,650 3,650 3,650 3,650 6,650 3,650 3,650 6,650
Shares to fund
S-corporation
distribution............. 2 2 2 2 2 2 2 2 2
Shares to be issued in
connection with gmi
Acquisition.............. 218 218
Warrants issued in
connection with
Subordinated debt........ 153 153 153 153 153 153 153 153 153
Stock options.............. 226 226 226 275 434 434 357 458 458
------ ----- ----- ----- ----- --------- ------- ------- ---------
4,031 4,031 4,031 4,080 4,239 7,457 4,162 4,263 7,481
====== ===== ===== ===== ===== ========== ======= ======= ==========
Primary earnings per common
share...................... $(0.07) $0.04 $0.07 $0.08 $0.16 $ 0.21 $0.03 $0.07 $0.12
FULLY DILUTED
Weighted average common
shares and dilutive common
stock equivalents:
Common stock outstanding... 3,650 3,650 3,650 3,650 3,650 6,650 3,650 3,650 6,650
Shares to fund
S-corporation
distribution............. 2 2 2 2 2 2 2 2 2
Shares to be issued in
connection with gmi
Acquisition.............. 218 218
Warrants issued in
connection with
Subordinated debt........ 153 153 153 153 153 153 153 153 153
Stock options.............. 226 226 226 305 465 465 361 459 459
------ ----- ----- ----- ----- --------- ------- ------- ---------
4,031 4,031 4,031 4,110 4,270 7,488 4,166 4,264 7,482
====== ===== ===== ===== ===== ========== ======= ======= ==========
Fully diluted earnings per
common share............... $(0.07) $0.04 $0.07 $0.08 $0.16 $ 0.21 $0.03 $0.07 $0.12
</TABLE>
<PAGE> 1
CONSENT-COOPERS & LYBRAND L.L.P.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 filed on
July 1, 1997 of our report to be dated March 21, 1997 on our audit of the
financial statements of Kendle International Inc. which report will be signed
upon consummation of the matters described in Notes 10 and 11 to such financial
statements. We also consent to the reference to our firm under the caption
"Experts" and "Selected Financial Data".
/s/ Coopers & Lybrand LLP
Cincinnati, Ohio
July 1, 1997
<PAGE> 1
CONSENT-COOPERS & LYBRAND N.V.
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 filed on
July 1, 1997 of our report dated June 17, 1997 on our audit of the consolidated
financial statements of U-Gene Research B.V. We also consent to the reference
to our firm under the caption "Experts" and "Selected Financial Data".
/s/ Coopers & Lybrand N.V.
Coopers & Lybrand N.V.
Utrecht, The Netherlands
June 27, 1997
<PAGE> 1
CONSENT-COOPERS & LYBRAND GmbH
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 filed on
July 1, 1997 of our report dated May 7, 1997 on our audit of the consolidated
financial statements of gesellschaft fur angewandte mathematik und
informatik mbH. We also consent to the reference to our firm under the caption
"Experts" and "Selected Financial Data".
/s/ Coopers & Lybrand GmbH
Coopers & Lybrand
Wirtschaftsprufungsgesellschaft GmbH
Munich, Germany
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039151
<NAME> KENDLE INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,047
<SECURITIES> 0
<RECEIVABLES> 3,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,624
<PP&E> 2,766
<DEPRECIATION> 931
<TOTAL-ASSETS> 8,623
<CURRENT-LIABILITIES> 6,918
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 869
<TOTAL-LIABILITY-AND-EQUITY> 8,623
<SALES> 12,959
<TOTAL-REVENUES> 12,959
<CGS> 8,176
<TOTAL-COSTS> 11,770
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 1,134
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,134
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>No earnings per share information as the Company is an S corporation.
However, assuming the Company was taxed as a C corporation for 1996, using an
assumed statutory combined federal and state tax rate of 40%, pro forma primary
and fully diluted earnings per share would have been $0.16 per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039151
<NAME> KENDLE INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 4,379
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,140
<PP&E> 3,519
<DEPRECIATION> 1,078
<TOTAL-ASSETS> 9,847
<CURRENT-LIABILITIES> 7,434
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 1,182
<TOTAL-LIABILITY-AND-EQUITY> 9,847
<SALES> 5,962
<TOTAL-REVENUES> 5,962
<CGS> 3,375
<TOTAL-COSTS> 5,418
<OTHER-EXPENSES> (17)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 529
<INCOME-TAX> 0
<INCOME-CONTINUING> 529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>No earnings per share information as the Company is an S corporation.
However, assuming the Company was taxed as a C corporation for the first three
months of 1997 using an assumed statutory combined federal and state tax rate
of 40%, pro forma primary and fully diluted earnings per share would have been
$0.07 per share
</FN>
</TABLE>
