<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997
REGISTRATION NO. 333-30581
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
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. [ ]
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 AUGUST 14, 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.
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============================================================================================================
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.
AUGUST , 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.
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 broad range
of therapeutic expertise; (ii) offer its clients "one-stop shopping" with a full
range of services that
3
<PAGE> 5
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. The implementation of this strategy will require Kendle to spend
significant amounts of capital. In 1997 alone, the Company required over $23.6
million to fund acquisitions and expects to spend another $3 million to $4
million for capital expenditures relating to facilities and investments in
information technology.
ACQUISITIONS
U-Gene Acquisition
On July 1, 1997, Kendle acquired U-Gene for 30 million Dutch guilders
($15.5 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 clinical trials, 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 20 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 $9.3 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
19, 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 CRO in Europe, based on total revenues, and is one of a small number of
CROs able to offer clients the full range of Phase I through Phase IV clinical
trials in North America and 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.
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
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<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................................... 7,346,937 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 417,560 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: (i) 3,650,000 shares of Common Stock outstanding prior to the
Offering; (ii) 3,000,000 shares of Common Stock offered by the Company in
the Offering; (iii) 153,738 Common Stock Purchase Warrants issued in
connection with the U-Gene Acquisition; (iv) 213,750 shares of Common Stock
issued in connection with the gmi Acquisition; and (v) 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)
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SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------------------------------
------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(1) 1996
------------ ------ ------ ------ ------- -------- ------------
(UNAUDITED) (UNAUDITED)
-------------------------
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STATEMENT OF OPERATIONS DATA:
Net revenues...................... $2,468 $2,555 $4,431 $6,118 $12,959 $32,463 $4,693
------ ------ ------ ------ ------- ------- ------
Costs and expenses:
Direct costs.................... 1,689 1,548 2,760 3,564 8,176 21,178 3,176
Selling, general and
administrative................ 1,158 603 1,067 1,776 3,278 6,658 1,017
Depreciation and amortization... 81 111 127 168 316 1,585 92
------ ------ ------ ------ ------- ------- ------
Total costs and expenses........ 2,928 2,262 3,954 5,508 11,770 29,421 4,285
------ ------ ------ ------ ------- ------- ------
Income (loss) from operations..... (460) 293 477 610 1,189 3,042 408
Interest expense.................. (72) (61) (43) (69) (65) (65) (30)
Other income, net................. 37 20 24 6 10 62 4
------ ------ ------ ------ ------- ------- ------
Income (loss) before income
taxes........................... (495) 252 458 547 1,134 3,039 382
Income taxes...................... 1,383
------ ------ ------ ------ ------- ------- ------
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 1,656 $ 382
====== ====== ====== ====== ======= ======= ======
HISTORICAL PRO FORMA DATA (2):
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 382
Pro forma income tax expense
(benefit)....................... (198) 101 183 219 454 153
------ ------ ------ ------ ------- ------
Pro forma net income (loss)....... $ (297) $ 151 $ 275 $ 328 $ 680 $ 229
====== ====== ====== ====== ======= ======
Historical pro forma net income
(loss) per share................ $(0.07) $ 0.04 $ 0.07 $ 0.08 $ 0.16 $ 0.05
====== ====== ====== ====== ======= ======
PRO FORMA NET INCOME PER SHARE.... $ 0.22
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,022 4,022 4,022 4,071 4,230 7,444 4,173
Dividends declared per share
(4)............................. -- $ 0.02 $ 0.08 $ 0.10 $ 0.15 $ 0.06
<CAPTION>
PRO
FORMA
1997 1997(1)
------- -------
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STATEMENT OF OPERATIONS DATA:
Net revenues...................... $13,172 $23,488
------ -------
Costs and expenses:
Direct costs.................... 7,347 13,655
Selling, general and
administrative................ 4,024 5,783
Depreciation and amortization... 316 965
------ -------
Total costs and expenses........ 11,687 20,403
------ -------
Income (loss) from operations..... 1,485 3,085
Interest expense.................. (71) (34)
Other income, net................. 4
------ -------
Income (loss) before income
taxes........................... 1,418 3,051
Income taxes...................... 1,327
------ -------
Net income (loss)................. $ 1,418 $ 1,724
====== =======
HISTORICAL PRO FORMA DATA (2):
Net income (loss)................. $ 1,418
Pro forma income tax expense
(benefit)....................... 567
------
Pro forma net income (loss)....... $ 851
======
Historical pro forma net income
(loss) per share................ $ 0.19
======
PRO FORMA NET INCOME PER SHARE.... $ 0.23
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,433 7,647
Dividends declared per share
(4)............................. $ 0.28
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
--------------------------------------------
AS PRO FORMA
ACTUAL(5) ADJUSTED(6) AS ADJUSTED(1)
--------- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................................... $ (180) $19,145 $ 11,120
Total assets................................................. 33,597 52,922 58,216
Total debt, excludes current portion of long-term debt....... 18,355 2,610 2,610
Total shareholders' equity................................... 1,354 36,343 39,524
</TABLE>
- ---------------
(1) The pro forma data give effect to: (i) the acquisition of gmi; (ii) the
Offering; (iii) repayment of amounts borrowed under the Bank Credit
Facility; (iv) the recognition of an estimated $81 of deferred income taxes
upon the termination of Kendle's S corporation election; (v) the payment of
the S corporation distribution of approximately $700; and (vi) the assumed
exercise of the Warrants issued in connection with the U-Gene Acquisition.
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)
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 (ii) the Warrants issued in
connection with the U-Gene Acquisition. See "Termination of S Corporation
Status."
(4) 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.
(5) The actual data reflects the consolidated financial position of the Company
and its wholly-owned subsidiary U-Gene. The U-Gene Acquisition, which
occurred on July 1, 1997, has been given effect to as of June 30, 1997 since
a binding agreement was in place and consideration had been transferred.
(6) 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) repayment of amounts borrowed under the
Bank Credit Facility; (iii) the recognition of $81 of deferred income taxes
upon the termination of Kendle's S corporation election; and (iv) the
payment of the S corporation distribution of approximately $700. See "Use of
Proceeds."
6
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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 six months of 1997, revenues from G.D. Searle &
Co. accounted for approximately 48% and 64%, 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 six months of 1997. In addition, as of June 30, 1997, G.D. Searle & Co.
accounted for $13.9 million, or approximately 54%, 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 36%
of the Company's net revenues in 1996 and for the first six 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 benefited
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.
SUBSTANTIAL INTANGIBLE ASSETS
Following the closing of the Acquisitions, approximately 45% of Kendle's
assets will consist of intangible assets, primarily reflecting the excess of the
consideration paid for U-Gene and gmi over the value of assets acquired.
Material downturns in the business of U-Gene or gmi could erode the value of
those intangible assets and cause write-downs of assets and charges to earnings
thereby adversely affecting Kendle's financial condition and operating results.
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
8
<PAGE> 10
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.
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,
9
<PAGE> 11
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
result in the termination of ongoing research or the disqualification of data
for submission to regulatory authorities. See "Business -- General" and
"Business -- 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 have a material adverse effect on 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 34.9% 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
10
<PAGE> 12
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. 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 $9.85 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 3,650,000 shares will be eligible for
sale 180 days after the date of this Prospectus, in accordance with Rule 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 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."
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<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 ($15.5 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 $9.3 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 19, 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 clinical trials, 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 20
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. On a pro forma basis, the Company is the sixth
largest CRO in Europe, based on total revenues, and is one of a small number of
CROs able to offer clients the full range of Phase I through Phase IV clinical
trials in North America and 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.
U-Gene and gmi will also add a number of additional areas of therapeutic
expertise that complement Kendle's areas of proficiency.
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<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 is exercisable at $0.01 per share of Common Stock and expires 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 $9.3 million from the Senior Credit Facility, an 8% promissory
note of approximately $1.5 million payable to the U-Gene shareholders deposited
in an escrow account pursuant to the U-Gene purchase agreement 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.
The escrow agreement was established to provide protection for the Company
by the Sellers with regard to warranties and representations contained in the
purchase agreement, such as a recent claim by Collaborative Clinical Research,
Inc. ("Collaborative") (See "Business -- Litigation"). The escrow agreement is
in the form of an 8% interest bearing note and will be paid on January 1, 1999,
provided the Company has not delivered a claim with respect to breaches by the
Seller at that time.
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 19, 1997.
If the Offering is not completed by September 19, 1997, or a mutually agreed
upon later date, then the Company expects to borrow approximately $4.3 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 exchangeable 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.
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<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
$35.8 million (approximately $42.8 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 $14.3 million of
the proceeds in order to repay bank indebtedness incurred in connection with the
U-Gene Acquisition, and will use approximately $9.3 million to fund the cash
portion of the gmi Acquisition, which the Company expects to occur concurrently
with the Offering. The Company will also repay amounts outstanding under the
Senior Credit Facility utilized for working capital purposes and gmi Acquisition
costs totaling approximately $1.4 million at June 30, 1997. 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 approximately $1.0 million of the net proceeds from the Offering for
working capital and the remainder for general corporate purposes. A portion of
the amount designated for general corporate purposes may 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 will be used to make payments related to the termination
of the Company's S corporation status if needed to supplement other available
cash. 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 undistributed
Subchapter S earnings previously taxed to shareholders. The $700,000 represents
the maximum the Company may distribute at the time of the Offering in accordance
with the provisions of the Bank Credit Facility.
In addition, prior to the Offering, the Company plans to distribute an
amount to enable its shareholders to pay taxes on the S corporation earnings.
The amount of that distribution has not yet been determined.
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
June 30, 1997, such deferred income taxes would have totaled approximately
$81,000. 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.
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<PAGE> 16
DIVIDEND POLICY
The Company paid cash dividends of $253,225 in 1995 and $285,291 in 1996 to
enable its shareholders to pay federal, state and local income and earnings
taxes and, beginning in December 1996, to provide for routine, quarterly
distributions of undistributed S corporation earnings previously taxed to
shareholders. 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 results of
operations and earnings, capital requirements and surplus, general financial
conditions, contractual restrictions and such other factors as the Board of
Directors may deem relevant. In any event, the Subordinated Credit Facility
prohibits the declaration and payment of any cash dividends (other than
dividends to enable the Company's shareholders to pay federal, state and local
income and earnings taxes while the Company is an S corporation), excepting only
sums not to exceed $150,000 per quarter in 1997 after the closing of the U-Gene
Acquisition and, immediately prior to the Offering, a distribution equal to the
amount of all undistributed S corporation earnings previously taxed to
shareholders not to exceed $700,000. The Senior Credit Facility contains similar
prohibitions on the declaration and payment of cash dividends. Both facilities,
however, permit the declarations and payment of dividends in shares of the
Company's Company Stock.
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<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 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) repayment of
amounts borrowed under the Bank Credit Facility; (c) the recognition of an
estimated $81,000 of deferred income taxes upon the termination of the Company's
S corporation status, (d) the payment of the S corporation distribution of
approximately $700,000, and (e) 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 (e) above and the gmi
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>
JUNE 30, 1997
-----------------------------------
AS PRO FORMA AS
ACTUAL ADJUSTED ADJUSTED(1)
------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash......................................................... $ 21 $ 19,346 $ 11,797
======= ======= =======
Short-term debt:
Current portion of capital lease obligations............... $ 328 $ 328 $ 328
Note payable............................................... 740 740 740
Obligations under capital leases, less current portion....... 1,080 1,080 1,080
Senior debt.................................................. 10,745
Subordinated debt............................................ 3,500
Stock purchase warrants...................................... 1,500
Note payable -- escrow agreement............................. 1,530 1,530 1,530
Shareholders' equity:
Preferred stock; 100,000 shares authorized; no shares
issued or outstanding...................................
Common stock, 15,000,000 shares authorized; 3,650,000
shares issued and outstanding; 6,650,000 shares issued
and outstanding, as adjusted; and 7,017,488 shares
issued and outstanding, pro forma as adjusted (2)....... 75 75 77
Additional paid-in capital................................. 270 36,268 40,547
Retained earnings (deficit)................................ 1,009 (1,100) (1,100)
------- ------- -------
Total shareholders' equity.............................. 1,354 35,243 39,524
------- ------- -------
Total capitalization............................... $20,777 $ 38,921 $ 43,202
======= ======= =======
</TABLE>
- ---------------
(1) Pro forma as adjusted includes: (i) 213,750 shares issued in conjunction
with the gmi Acquisition; and (ii) 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.
16
<PAGE> 18
DILUTION
The net tangible book value of the Company at June 30, 1997, on a pro forma
basis to reflect the $700,000 S corporation distribution and the recognition of
$81,000 in deferred income taxes upon the termination of the Company's S
corporation election, was approximately $(13.7) million, or $(3.44) per share.
See "Termination of S Corporation Status." Without taking into account any other
changes in net tangible book value after June 30, 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 June 30, 1997 would have been approximately $22.0
million, or $3.15 per share. This amount represents an immediate increase in net
tangible book value of $6.59 per share to existing shareholders of the Company
and an immediate dilution in net tangible book value of $9.85 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.............................. $(3.44)
Increase per share attributable to new shareholders............ 6.59
-----
Pro forma net tangible book value per share...................... 3.15
------
Dilution per share to new shareholders........................... $ 9.85
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 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).......... 3,690,588 50.2 $ 120,038 0.3 $ 0.03
Options immediately exercisable at
the Offering(3)................. 288,861 3.9 295,276 0.7 1.02
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........ 213,750 2.9 2,778,750 6.6 13.00
New investors..................... 3,000,000 40.8 39,000,000 92.4 13.00
--------- ----- ----------- -----
Total................... 7,346,937 100.0 $42,195,601 100.0
========= ===== =========== =====
</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 3,090,588 or 42.1% 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 40,588 shares of Common Stock.
(3) Excludes 270,000 options which will be granted concurrently with the
Offering under the Company's 1997 Stock Option and Stock Incentive Plan.
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statements of operations for
the six month period ended June 30, 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 June 30, 1997
gives effect to the gmi Acquisition as if it had occurred on June 30, 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.
Kendle has received correspondence from Collaborative asserting claims
against U-Gene and its former shareholders for alleged wrongful termination of a
letter of intent relating to a proposed acquisition by Collaborative of U-Gene
and also alleging that Kendle may have tortiously interfered with
Collaborative's relationship with U-Gene under this letter of intent. Kendle
believes U-Gene has meritorious defenses to Collaborative's claims and further
does not believe that Kendle has engaged in any conduct that could result in
liability to Collaborative. See "Business -- Litigation".
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 SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
CONSOLIDATED
ACTUAL ACTUAL ACTUAL PRO FORMA PRO FORMA
KENDLE U-GENE GMI ADJUSTMENTS TOTALS(4)
------- ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $13,172 $6,443 $3,873 $ 23,488
Costs and expenses:
Direct costs......................... 7,347 4,147 2,161 13,655
Selling, general and
administrative.................... 4,024 1,500 259 5,783
Depreciation and amortization........ 316 186 41 $ 422(1) 965
------- ------ ------ ----- -------
Total costs and expenses.......... 11,687 5,833 2,461 422 20,403
------- ------ ------ ----- -------
Income from operations................. 1,485 610 1,412 (422) 3,085
Other income (expense):
Interest expense..................... (71) 12 25 (34)
Other................................ 4 (4)
------- ------ ------ ----- -------
Income before income taxes............. 1,418 622 1,433 (422) 3,051
Income taxes........................... 218 681 428(2) 1,327
------- ------ ------ ----- -------
Net income............................. $ 1,418 $ 404 $ 752 $(850) $ 1,724
======= ====== ====== ===== =======
Weighted average common and equivalent
shares outstanding................... 7,647(3)
Earnings per common and common
equivalent share..................... $ 0.23
</TABLE>
See notes on the following page
18
<PAGE> 20
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 (1)
------- ------- ------ ----------- ------------
<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 $ 844(2) 1,585
------- ------- ------ ------- -------
Total costs and expenses......... 11,770 11,211 5,596 844 29,421
------- ------- ------ ------- -------
Income from operations................ 1,189 1,297 1,400 (844) 3,042
Other income (expense):
Interest expense.................... (65) (65)
Other............................... 10 7 45 62
------- ------- ------ ------- -------
Income before income taxes............ 1,134 1,304 1,445 (844) 3,039
Income taxes.......................... 465 658 260(3) 1,383
------- ------- ------ ------- -------
Net income............................ $ 1,134 $ 839 $ 787 $(1,104) $ 1,656
======= ======= ====== ======= =======
Weighted average common and equivalent
shares outstanding.................. 7,444(4)
Earnings per common and common
equivalent share.................... $ 0.22
=======
</TABLE>
- ---------------
(1) Pro forma adjustments do not give effect to the extraordinary 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.
(2) 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 June 30, 1997.
(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
$475 and $238 for the year ended December 31, 1996 and the six months ended
June 30, 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 214 shares of the Company's Common Stock for
the gmi Acquisition; (iii) 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
(iv) the Warrants issued in connection with the U-Gene Acquisition.
19
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL TO REFLECT TO REFLECT GMI CONSOLIDATED
KENDLE GMI OFFERING ACQUISITION PRO FORMA
------- ------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................. $ 21 $1,785 $ 35,770(1) $ (9,336)(2) $ 11,797
(15,745)(3)
(700)(4)
2(3)
Receivables -- trade............. 9,729 1,551 11,280
Unreimbursed investigator and
project costs.................. 3,167 3,167
Other current assets............. 569 87 656
------- ------ -------- ------- -------
Total current assets........... 13,486 3,423 19,327 (9,336) 26,900
------- ------ -------- ------- -------
Property and equipment, net...... 4,360 149 4,509
Other assets..................... 1,499 1,499
Excess of purchase price over net
assets acquired................ 14,251(5) 11,057(5)(6) 25,308
------- ------ -------- ------- -------
Total assets................ $33,596 $3,572 $ 19,327 $ 1,721 $ 58,216
======= ====== ======== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Note payable..................... $ 739 $ 739
Amounts payable--outstanding
checks......................... 1,221 1,221
Current portion of obligations
under capital leases........... 328 328
Advances of investigator and
project costs.................. 1,360 1,360
Trade payables................... 3,358 $ 588 3,946
Income taxes payable............. 1,089 $ (400)(3) 689
Accrued liabilities.............. 1,534 748 2,282
Billings in excess of costs and
estimated earnings on
uncompleted contracts.......... 5,126 89 5,215
------- ------ -------- -------
Total current liabilities...... 13,666 2,514 (400) 15,780
------- -------- -------
Obligations under capital leases,
less current portion........... 1,080 1,080
Pension obligation............... 221 221
Deferred income taxes............ -- 81(2) 81
Senior debt...................... 10,745 (10,745)(3) --
Subordinated debt................ 3,500 (3,500)(3) --
Stock purchase warrants.......... 1,500 (1,500)(3) --
Note payable--excrow agreement... 1,530 1,530
------- ------ -------- -------
Total liabilities........... 32,242 2,514 (16,064) 18,692
------- ------ -------- -------
</TABLE>
See notes on the following page
20
<PAGE> 22
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
ACTUAL ACTUAL TO REFLECT TO REFLECT GMI CONSOLIDATED
KENDLE GMI OFFERING ACQUISITION PRO FORMA
------- ------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Shareholders' Equity:
Common Stock......................... $ 75 $ 32 $ 2(3) $ (32)(5) $ 77
Paid-in capital...................... 270 1,009(6) 2,779(7) 40,547
(81)(2)
35,770(1)
(700)(4)
1,500(3)
Retained earnings (deficit).......... 1,009 1,292 (1,009)(6) (1,292)(7) (1,100)
(1,100)(3)
Cumulative foreign currency
translation adjustments........... -- (266) 266(7)
------- ------ ------- ------- -------
Total shareholders' equity........... 1,354 1,058 35,391 1,721 39,524
------- ------ ------- ------- -------
Total Liabilities and Shareholders'
Equity............................... $33,596 $3,572 $ 19,327 $ 1,721 $ 58,216
======= ====== ======= ======= =======
</TABLE>
- ---------------
(1) To record the net proceeds from the initial public offering of $35,770,
consisting of 3,000 shares at an assumed price per share of $13.00, after
deducting underwriting commissions and discounts and estimated Offering
expenses of approximately $3,230.
(2) To record deferred income taxes upon the termination of the Company's S
corporation election.
(3) 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)
resulting from an extraordinary loss incurred on early extinguishment of the
subordinated debt; and (iii) the assumed exercise of the Warrants issued in
connection with the U-Gene Acquisition.
(4) To record payment of the S corporation distribution of $700 upon termination
of S corporation status.
(5) The Company follows the practice of allocating purchase price to
specifically identifiable intangible assets based on their estimated values
as determined by appropriate valuation methods. In the U-Gene and gmi
Acquisitions, no allocation of purchase price was made to specifically
identifiable intangible assets other than excess of purchase price over net
assets acquired as the Company believes it did not acquire any other
significant specifically identifiable intangible assets.
(6) To record the reclassification of the Company's retained earnings to
additional paid-in capital upon terminating S corporation status.
(7) To record the purchase of the net assets of gmi (including the recording of
the excess of acquisition costs over net assets acquired) and eliminate
shareholders' equity. The acquisition costs (converted to U.S. dollars using
an exchange rate of 0.57 (DM/U.S.$ as of June 30, 1997)) consist of
approximately $9,336 in cash and $2,779 in shares of Common Stock at an
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.
21
<PAGE> 23
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 June 30, 1997 and the statement of operations data for the six months
ended June 30, 1997 and 1996 are derived from unaudited consolidated 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 these periods. The balance
sheet date at June 30, 1997 reflects the consolidated financial position of the
Company and its wholly-owned subsidiary U-Gene. The U-Gene Acquisition, which
closed on July 1, 1997, has been given effect to as of June 30, 1997 since a
binding agreement was in place and consideration had been transferred. Operating
results for the six months ended June 30, 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 six month
period ended December 31, 1996 and June 30, 1997, respectively, give effect to
the Acquisitions as if they had occurred on January 1, 1996. The pro forma
balance sheet data at June 30, 1997 gives effect to the gmi Acquisition as if it
had occurred on June 30, 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>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------------------------
------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(1) 1996
------------ ------ ------ ------ ------- ------- ------------
(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 $4,693
------ ------ ------ ------ ------- ------- ------
Costs and expenses:
Direct costs.................... 1,689 1,548 2,760 3,564 8,176 21,178 3,176
Selling, general and
administrative................ 1,158 603 1,067 1,776 3,278 6,658 1,017
Depreciation and
amortization.................. 81 111 127 168 316 1,585 92
------ ------ ------ ------ ------- ------- ------
Total costs and expenses...... 2,928 2,262 3,954 5,508 11,770 29,421 4,285
------ ------ ------ ------ ------- ------- ------
Income (loss) from operations..... (460) 293 477 610 1,189 3,042 408
Interest expense.................. (72) (61) (43) (69) (65) (65) (30)
Other income, net................. 37 20 24 6 10 62 4
------ ------ ------ ------ ------- ------- ------
Income (loss) before income
taxes........................... (495) 252 458 547 1,134 3,039 382
Income taxes...................... 1,383
------ ------ ------ ------ ------- ------- ------
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $1,656 $ 382
====== ====== ====== ====== ======= ======= ======
HISTORICAL PRO FORMA DATA(2):
Net income (loss)................. $ (495) $ 252 $ 458 $ 547 $ 1,134 $ 382
Pro forma income tax expense
(benefit)....................... (198) 101 183 219 454 153
------ ------ ------ ------ ------- ------
Pro forma net income (loss)....... $ (297) $ 151 $ 275 $ 328 $ 680 $ 229
====== ====== ====== ====== ======= ======
Historical pro forma net income
(loss) per share................ $(0.07) $ 0.04 $ 0.07 $ 0.08 $ 0.16 $ 0.05
====== ====== ====== ====== ======= ======
PRO FORMA NET INCOME PER SHARE.... $ 0.22
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,022 4,022 4,022 4,071 4,230 7,444 4,173
Dividends declared per share(4)... $ 0.02 $ 0.08 $ 0.10 $ 0.15 $ 0.06
<CAPTION>
PRO
FORMA
1997 1997(1)
------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $13,172 $23,488
------- -------
Costs and expenses:
Direct costs.................... 7,347 13,655
Selling, general and
administrative................ 4,024 5,783
Depreciation and
amortization.................. 316 965
------- -------
Total costs and expenses...... 11,687 20,403
------- -------
Income (loss) from operations..... 1,485 3,085
Interest expense.................. (71) (34)
Other income, net................. 4
------- -------
Income (loss) before income
taxes........................... 1,418 3,051
Income taxes...................... 1,327
------- -------
Net income (loss)................. $ 1,418 $ 1,724
======= =======
HISTORICAL PRO FORMA DATA(2):
Net income (loss)................. $ 1,418
Pro forma income tax expense
(benefit)....................... 567
-------
Pro forma net income (loss)....... $ 851
=======
Historical pro forma net income
(loss) per share................ $ 0.19
=======
PRO FORMA NET INCOME PER SHARE.... $ 0.23
=======
Historical and pro forma weighted
average common and equivalent
shares outstanding (3).......... 4,433 7,647
Dividends declared per share(4)... $ 0.28
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ---------------------
---------------------------------------------------- PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(1)
------ ------ ------- ------- ------ ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ (972) $ (492) $ (208) $ (139) $ (294) $ (180) $11,120
Total assets............................ 832 2,181 1,874 2,432 8,623 33,597 58,216
Total debt.............................. 278 173 139 151 761 18,355 2,610
Total shareholders' equity (deficit).... (827) (343) 51 345 944 1,354 39,524
</TABLE>
- ---------------
(1) The pro forma data give effect to: (i) the gmi Acquisition; (ii) the
Offering; (iii) repayment of amounts borrowed under the Bank Credit
Facility; (iv) the recognition of an estimated $81 of deferred income taxes
upon the termination of Kendle's S corporation election; (v) the payment of
the S corporation distribution of approximately $700; and (vi) the assumed
exercise of the Warrants issued in connection with the U-Gene Acquisition.
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 includes: (i)
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 (ii) the exercise of the
Warrants issued in connection with the U-Gene Acquisition.
(4) 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.
23
<PAGE> 25
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 most 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 June 30, 1997,
Kendle's backlog was approximately $26.0 million compared to $7.8 million at
June 30, 1996, a 234% increase. At June 30, 1997, U-Gene's and gmi's backlogs
were approximately $8.4 million and $5.7 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 indirect costs
including 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.
ACQUISITIONS
U-Gene's net revenues increased $3.4 million, or 37.3%, from approximately
$9.1 million in 1995 to approximately $12.5 million in 1996. This increase was
primarily due to an increase in the number of projects, which increased from 69
as of December 31, 1995 to 117 as of December 31, 1996. Net income increased
approximately $254,000, or 43.4% from approximately $584,000 for 1995 to
$838,000 for 1996, due primarily to the increase in net revenues.
24
<PAGE> 26
gmi's net revenues increased $1.7 million, or 32.1%, from approximately
$5.3 million for 1995 to $7.0 million for 1996. The increase in net revenues was
primarily due to an increase in the number of projects, which increased from 81
as of December 31, 1995 to 116 as of December 31, 1996. Net income increased
approximately $182,000, or 30.1%, from approximately $604,000 for 1995 to
approximately $786,000 for 1996, due primarily to the increase in net revenues.
Management believes that the Acquisitions will establish the Company as a
full-service international CRO. The U-Gene Acquisition provides the Company with
Phase I capabilities and a European presence, while the gmi Acquisition is
expected to strengthen its European presence and will add a number of additional
areas of therapeutic expertise that complement Kendle's areas of proficiency.
The Acquisitions will increase both the number and geographic scope of the
clients served by the Company, enabling the Company to cross-sell its services
and enhance its relationships with existing clients.
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.
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 ------------------------------
---------------------------------------------
SIX MONTHS YEAR YEAR SIX MONTHS
ENDED ----- ----- ----------
YEAR ENDED DECEMBER 31, JUNE 30, 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% 180.6
Costs and expenses
Direct costs................. 62.3 58.3 63.1 67.7 55.8 29.1 129.4 131.4
Selling, general and
administrative............. 24.1 29.0 25.3 21.7 30.6 66.4 84.6 295.5
Depreciation and
amortization............... 2.9 2.7 2.4 2.0 2.4 32.5 88.1 242.5
Income from operations......... 10.7 10.0 9.2 8.7 11.3 27.9 94.8 263.7
Other income (expenses), net... (0.4) (1.0) (0.4) (0.6) (0.5) 232.6 (13.1) 157.5
Net income..................... 10.3 9.0 8.8 8.1 10.8 19.4 107.2 270.9
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net revenues increased by $8.5 million, or 180.6%, from $4.7 million for
the six months ended June 30, 1996 to $13.2 million for the six months ended
June 30, 1997. The increase in net revenues was primarily due to 68 new projects
started by the Company during the six months ended June 30, 1997, increases in
revenues recognized on existing projects resulting from increases in costs
incurred relative to total estimated costs, as well as expansions of existing
projects. Revenues from G.D Searle & Co. and The Procter & Gamble Company
accounted for approximately 64% and 13%, respectively, of net revenues for the
six months ended June 30, 1997. Net revenues from clients other than G.D. Searle
& Co. increased $1.9 million, or 67.9%, from $2.8 million for the six months
ended June 30, 1996 to $4.7 million for the six months ended June 30, 1997.
Direct costs increased by $4.2 million, or 131.4%, from $3.2 million for
the six months ended June 30, 1996 to $7.4 million for the six months ended June
30, 1997. This increase is primarily comprised of an increase of: (i)
approximately $2.4 million in direct salaries and fringe benefits to support the
increases in net revenues for the period; and (ii) an increase of approximately
$1.7 million in indirect costs in connection with projects, including allocated
facility, reimbursed project-related and other costs which also increased to
support the growth in business activity. Direct costs expressed as a percentage
of net revenues decreased from 67.7% for the six months ended June 30, 1996 to
55.8% for the six months ended June 30, 1997. The decrease in those costs as a
percentage of net revenues is due primarily to the absorption of direct
project-related costs over a larger revenue base, as net revenues increased by
180.6% for the six months ended June 30, 1997 as
25
<PAGE> 27
compared to the six months ended June 30, 1996, while direct costs increased by
131.4% over the same periods.
Selling, general and administrative expenses increased by $3.0 million, or
295.5%, from $1.0 million for the six months ended June 30, 1996 to $4.0 million
for the six months ended June 30, 1997. Selling, general and administrative
expenses as a percentage of net revenues increased from 21.7% for the six months
ended June 30, 1996 to 30.6% for the six months ended June 30, 1997. The
increase is primarily comprised of: (i) an increase of approximately $983,000 in
salaries and fringe benefits, which is the result of the Company's continued
efforts to increase its infrastructure in order to support the growth in
business activity for the six months ended June 30, 1997 as compared to the same
period in 1996; and (ii) increases in training ($479,000), contractual services
($361,000), recruiting ($256,000), conferences and seminars ($153,000) and
marketing and advertising ($146,000) expenses for the six months ended June 30,
1997 as compared to the same period in 1996.
Depreciation and amortization expense increased $223,000, or 242.5%, from
$92,000 for the six months ended June 30, 1996 to $315,000 for the six months
ended June 30, 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 47 new projects started by the
Company during the year ended December 31, 1996, increases in revenues
recognized on existing projects resulting from increases in costs incurred
relative to total estimated costs, as well expansions of existing 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.
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. This increase is primarily comprised of: (i) an increase of approximately
$1.9 million in direct salaries and fringe benefits to support the increase in
net revenues for the period; and (ii) an increase of approximately $2.1 million
in indirect costs in connection with projects including allocated facility,
unreimbursed project-related and other costs, which increased to support the
increase in net revenues. 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 these costs as a percentage of net
revenues is due primarily to the hiring and contracting of additional
project-related personnel to meet the needs of current and future projects,
increased occupancy and other costs associated with three additional offices
opened by the Company during 1996. This is evidenced by the increase in net
revenues of 111.8% for the year ended December 31, 1996 as compared to the year
ended December 31, 1995, while direct costs increased by 129.4% over the same
periods.
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: (i) an increase of approximately
$292,000 in salaries and benefits as the Company began to increase its
infrastructure in order to support the growth in business activity for the year
ended December 31, 1996 as compared to 1995; and (ii) increases in contractual
services ($324,000), marketing and advertising ($124,000), recruiting ($334,000)
and training ($190,000) costs for the year ended December 31, 1996 as compared
to the year ended December 31, 1995. 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.
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<PAGE> 28
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 primarily due to 18
new projects started by the Company during the year ended December 31, 1995,
increases in revenues recognized on existing projects due to increases in costs
incurred relative to total estimated costs, as well as expansions of existing
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. This increase is primarily comprised of: (i) an increase
of approximately $272,000 in direct salaries and fringe benefits as a result of
increases in project related employees to support the increase in net revenues
for the period; and (ii) an increase of approximately $382,000 in indirect costs
in connection with projects including allocated facility, unreimbursed
project-related costs and other costs, which also increased to support the
increase in net revenues. 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. This is evidenced by the increase in net
revenues of 38.1% for the year ended December 31, 1995 as compared to 1994,
while direct costs increased by 29.1% over the same periods.
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 increases in: (1) salaries and fringe benefits of $384,000;
and (ii) conferences and seminars ($121,000) and recruiting ($100,000) costs for
the year ended December 31, 1995 as compared to 1994.
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. Accordingly, the relationship between net
revenues and direct costs may vary.
The following table presents unaudited quarterly operating results for the
Company for each of the nine most recent quarters in the period ended June 30,
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
27
<PAGE> 29
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
------------------------------------------------------------------------------
JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
30, 30, 31, 31, 30, 30, 31, 31, 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $1,638 $1,453 $1,429 $2,063 $2,630 $3,607 $4,659 $5,962 $7,210
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Direct costs.................... 852 866 971 1,395 1,781 2,441 2,560 3,376 3,971
Selling, general and
administrative................ 510 507 323 372 646 818 1,442 1,893 2,131
Depreciation and amortization... 42 47 40 45 46 51 173 150 166
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses............... 1,404 1,420 1,334 1,812 2,473 3,310 4,175 5,419 6,268
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations............ 234 33 95 251 157 297 484 543 942
Other expense, net................ 17 19 18 16 10 3 26 14 53
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income........................ $ 217 $ 14 $ 77 $ 235 $ 147 $ 294 $ 458 $ 529 $ 889
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Direct costs as a percentage of net revenues increased from 52.0% in the
quarter ended June 30, 1995, to 67.9% in the quarter ended December 31, 1995,
followed by a decline to 50.9% for the quarter ended June 30, 1997. The increase
from the quarter ended June 30, 1995 to the quarter ended December 31, 1995, was
due primarily to increases in salaries and benefits, contractual services and
rent and utilities. The decline through the quarter ended June 30, 1997 is due
primarily to the absorption of direct project-related costs over a larger
revenue base.
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 six months
ended June 30, 1997 as a result of cash used by operating and investing
activities of $1.7 million and $14.8 million, respectively, and cash provided by
financing activities of $14.5 million. Net cash used by operating activities
resulted primarily from net income offset by the net change in working capital
items.
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<PAGE> 30
Investing activities for the six months ended June 30, 1997 consisted
primarily of costs related to the U-Gene Acquisition of $14.3 million. Financing
activities for the six months ended June 30, 1997 consisted of borrowings under
the Bank Credit Facility for the U-Gene Acquisition and working capital purposes
totaling $15.7 million and debt issue costs relating to the Bank Credit Facility
of $917,000.
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 $9.3 million from the Senior Credit Facility, a 8% promissory note
of approximately $1.5 million payable to the U-Gene shareholders deposited in an
escrow account pursuant to the U-Gene purchase agreement 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
19, 1997. If the Offering is not completed by September 19, 1997, or a mutually
agreed upon later date, then the Company expects to borrow approximately $4.3
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 exchangeable preferred stock) 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 all 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 which was terminated on June 26, 1997. The line was collateralized
by all the Company's assets, other than assets leased under the Company's
capital lease line, and was subject to various covenants and restrictions
relating to, among others, minimum tangible capital base, other liabilities and
indebtedness. Amounts borrowed under the line were payable upon demand and bore
interest at either the bank's prime rate or LIBOR plus 2.5%, at the election of
Company management, for each borrowing.
The Company had amounts outstanding for working capital and gmi Acquisition
costs at June 30, 1997 under the Senior Credit Facility totaling approximately
$1.4 million. Such borrowings will be repaid with the proceeds of the Offering.
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
29
<PAGE> 31
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 June 30, 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. At June 30, 1997, the Company had approximately $740,000
outstanding with the same bank in the form of a note payable which is expected
to be funded on the lease line of credit during the third quarter of 1997.
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. The effect of the adoption of this statement
would have increased the Company's 1996 earnings per share calculation by 12%.
The effect on the six months ended June 30, 1997 is to increase earnings per
share by approximately 21%.
30
<PAGE> 32
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.
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<PAGE> 33
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.
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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
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sixth largest CRO in Europe, 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."
The implementation of this strategy will require Kendle to spend
significant amounts of capital. In 1997 alone, the Company required over
$23.6 million to fund acquisitions and expects to spend another $3 million
to $4 million for capital expenditures related to facilities and
investments in information technology.
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 a 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.
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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
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
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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.
- 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 TrialWare(SM) 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
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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 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 20
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 six months of 1997, revenues from G.D. Searle &
Co. accounted for approximately 48% and 64%, 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 six months of 1997. In addition, as of June 30, 1997, G.D. Searle & Co.
accounted for $13.9 million, or approximately 54%, 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 this 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 36% of the Company's
net revenues in 1996 and for the first six months of 1997, respectively, and no
other client would have accounted for more than 10% of the Company's net
revenues. Backlog, as of June, 1997, on a pro forma combined basis, was
approximately $40.1 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
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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.
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 June 30, 1997 was approximately $26.0 million, as compared to
approximately $10.2 million at June 30, 1996.
At June 30, 1997, U-Gene's and gmi's backlog was approximately $8.4 million
and $5.7 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."
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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 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. U-Gene carries professional
liability insurance in connection with its Phase I facility to protect it from
the risk of professional malpractice of Phase I medical care providers. 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.
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- 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 an NDA to the FDA requesting that the
product be approved for marketing. The NDA is a comprehensive, multi-volume
filing that includes, among other things, the results of all pre-clinical and
clinical studies, information about the drug's composition and the sponsor's
plans for producing, packaging and labeling the drug. In addition, while the FDA
does not use price as a criterion for approving a new drug, advisory panels of
scientists that help the FDA evaluate new types of therapies have started taking
cost into consideration. The FDA's review of an NDA can last from a few months,
for drugs related to life threatening circumstances, to many years, with the
average review lasting two and one-half years. Drugs that successfully complete
this review may be marketed in the United States, subject to the conditions
imposed by the FDA.
- 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 June 30, 1997, the Company had 298 full-time employees, approximately 16
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 June 30, 1997, U-Gene and gmi had
112 and 58 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 lease requires annual base
rentals of approximately $775,000 increasing to approximately $970,000 by May
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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. The latter operating lease, for U-Gene's main premises,
calls for annual base rental of $232,000 (excluding value added tax). 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.
Kendle's facilities and those of U-Gene and gmi are well maintained and
suitable for their current and reasonably foreseeable uses.
LITIGATION
On July 16, 1997, Kendle received a letter from Collaborative. The letter
communicated Collaborative's intention to commence legal action in the
Netherlands against U-Gene for damages of at least $1,250,000 based upon an
alleged breach by U-Gene and its former shareholders of a February 7, 1997
letter of intent relating to a proposed acquisition of U-Gene by Collaborative.
As of August 13, 1997, U-Gene management indicated that U-Gene had not, to their
knowledge, been served with papers with respect to any such legal action by
Collaborative.
Kendle believes that U-Gene has meritorious defenses to Collaborative's
claims. Even if there were to be an outcome adverse to U-Gene in any such legal
action, Kendle believes that such outcome would not have a material effect on
its financial position or results of operations because, among other things,
claims of this nature are the subject of an indemnification from the former
U-Gene shareholders that is secured, in part, by a bank guarantee.
The July 16, 1997 letter further alleges that Kendle may have engaged in
improper conduct in its acquisition of U-Gene by tortiously interfering with
Collaborative's relationship with U-Gene under the February 7, 1997 letter of
intent. Kendle does not believe that it engaged in any improper conduct that
would result in liability to Collaborative and has communicated this belief to
Collaborative. A second letter from Collaborative dated July 25, 1997 requested
that Kendle provide documentary support for its position. Certain information
has been provided to Collaborative in response to that request.
41
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and other key employees of the Company as
of June 30, 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....................... 40 Director, Safety Surveillance
Jere M. Hardy........................ 53 Director, Clinical Data Management
Lois B. Rosenberger, Ph.D............ 47 Director, Regulatory Affairs
Stephen G. Scheurer.................. 48 Director, Human Resources
William K. Sietsema, Ph.D............ 41 Director, Clinical Research
Mandyam K. Srirama, Ph.D............. 64 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.
42
<PAGE> 44
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 antiarrhythmia 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 Projects 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.
43
<PAGE> 45
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
19 employees, including Dr. Bryan and Mr. Bergen. These agreements expire
December 31, 1999 and the term of these agreements will be automatically
extended in one year increments, subject to review and approval by the Board of
Directors. 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 of Control (as defined in
the
44
<PAGE> 46
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 July 15, 1997, 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 $670,000 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 $3,522,000,
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.
45
<PAGE> 47
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 6,000 shares to
certain executive officers.
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
37 employees for the purchase of an aggregate of 747,009 shares of Common Stock
at prices ranging from $0.91 to $2.01. Of these options, 40,588 are immediately
exercisable (as of June 30, 1997) at prices ranging from $0.91 to 1.21 per
share, while 329,449 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.
Each non-employee director will also receive a ten year option to purchase
10,000 shares of Common Stock concurrently with the closing of the Offering at
the initial public offering price, and ten year options to purchase Common Stock
at fair market value on the date of grant to the extent of 5,000 shares on the
next annual election to the Board and 1,000 shares on each subsequent election.
46
<PAGE> 48
CERTAIN TRANSACTIONS
The Company made payments in 1996 and for the first six months of 1997 of
approximately $97,500 and $185,900, respectively, 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) SHARES TO AFTER OFFERING(1)
------------------- BE SOLD -------------------
NUMBER OF IN THIS NUMBER OF
NAME SHARES PERCENT OFFERING(1) SHARES PERCENT
- ----------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Dr. Candace Kendle Bryan (2)(3)................ 1,706,740 46.8 338,024 1,368,716 19.5
Christopher C. Bergen (2)(3)................... 1,322,760 36.2 261,976 1,060,784 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
(3 persons)(5)............................... 3,056,510 83.1 600,000 2,564,550 35.9
</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 30, 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 213,750 shares of the Company's Common
Stock to be issued in connection with the gmi Acquisition (based on an
assumed initial public offering price of $13 per share). 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 30, 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. Such
powers are held by a trust committee composed of William J. Keating, Jr.,
Kendle Bryan and Mark Brettschneider. Mr. Keating is a partner of Keating,
Muething & Klekamp, P.L.L., counsel to Kendle.
(3) Individual is considered a Selling Shareholder.
(4) Represents currently outstanding exercisable stock options for the purchase
of shares of Common Stock, of which 108,040 options will immediately vest
upon the Offering.
(5) Includes outstanding exercisable stock options for the purchase of shares of
Common Stock.
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, without par value, 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.
48
<PAGE> 50
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 and officers 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 The
Fifth Third Bank.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
7,346,937 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 will be eligible for sale in the public market without
restriction. Beginning 90 days later, approximately 3,650,000 shares previously
outstanding will become eligible for sale under Rule 144. The 3,650,000
previously outstanding 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). If the shares are held by 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 1% of the
then-outstanding shares of the Common Stock (approximately 6,980,000 shares
immediately after the Offering) or 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.
Approximately 367,000 shares will be eligible for sale outside the United
States under Regulation S one year after the date of this Prospectus. 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.
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 1997 Stock Option and Incentive 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 6,000 shares under the Plan to certain key
employees and 10,000 options to purchase 10,000 shares to each non-employee
director.
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.
50
<PAGE> 52
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.
51
<PAGE> 53
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.
52
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
KENDLE INTERNATIONAL INC. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996; and June 30, 1997
(Unaudited)...................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996; and for the six months ended June 30, 1996 and 1997 (Unaudited)........ F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the years
ended December 31, 1994, 1995 and 1996; and for the six months ended June 30,
1997 (Unaudited)................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996; and for the six months ended June 30, 1996 and 1997 (Unaudited)........ F-6
Notes to Consolidated Financial Statements............................................ F-8
GMI GESELLSCHAFT FUR ANGEWANDTE MATHEMATIK UND INFORMATIK MBH FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-18
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996; and June 30, 1997 (Unaudited)...... F-19
Statements of Operations for the years ended December 31, 1995 and 1996; and for the
six months ended June 30, 1996 and 1997 (Unaudited).............................. F-20
Statements of Changes in Shareholders' Equity for the years ended December 31, 1995
and 1996; and for the six months ended June 30, 1997 (Unaudited)................. F-21
Statements of Cash Flows for the years ended December 31, 1995 and 1996; and for the
six months ended June 30, 1996 and 1997 (Unaudited).............................. F-22
Notes to Financial Statements......................................................... F-23
U-GENE RESEARCH B.V. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-26
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996........................ F-27
Consolidated Statements of Operations for the years ended December 31, 1995 and
1996; and for the six months ended June 30, 1996 and 1997 (Unaudited)............ F-28
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1995 and 1996; and for the six months ended June 30, 1997
(Unaudited)...................................................................... F-29
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1996; and for the six months ended June 30, 1996 and 1997 (Unaudited)............ F-30
Notes to Consolidated Financial Statements............................................ F-31
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Kendle International Inc.
We have audited the accompanying consolidated balance sheets of Kendle
International Inc. (formerly Kendle Research Associates, Inc.) as of December
31, 1995 and 1996, and the related consolidated statements of operations,
changes in shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of 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 consolidated 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 affect the accompanying
consolidated financial statements.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
August 13, 1997.
F-2
<PAGE> 56
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
---------- ---------- ----------- ------------
(UNAUDITED)
(NOTE 8)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 15,267 $2,047,476 $ 21,096
Accounts receivable........................... 1,655,289 3,583,210 9,729,407 $ 9,729,407
Unreimbursed investigator and project costs... 88,191 980,597 3,167,336 3,167,336
Other current assets.......................... 37,812 12,806 568,793 568,793
---------- ---------- ---------- ----------
Total current assets.................. 1,796,559 6,624,089 13,486,632 13,465,536
---------- ---------- ---------- ----------
Property and equipment:
Furnishings, equipment and other.............. 770,443 1,177,416 3,505,855 3,505,855
Equipment under capital leases................ 471,716 1,588,135 2,089,074 2,089,074
Less: accumulated depreciation and
amortization............................... (617,008) (930,550) (1,234,765) (1,234,765)
---------- ---------- ---------- ----------
Net property and equipment................. 625,151 1,835,001 4,360,164 4,360,164
---------- ---------- ---------- ----------
Excess of purchase price over net assets
acquired...................................... 14,250,113 14,250,113
Other assets.................................... 9,829 164,020 1,499,683 1,499,683
---------- ---------- ---------- ----------
Total assets.......................... $2,431,539 $8,623,110 $33,596,592 $ 33,575,496
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable................................. $ 320,000 $ 739,684 $ 739,684
Current portion of obligations under capital
leases..................................... 129,265 $ 360,203 328,059 328,059
Amounts payable -- book overdraft............. 1,220,929 1,220,929
Trade payables................................ 253,550 913,371 3,357,636 3,357,636
Dividends payable............................. 250,000
Advances against investigator and project
costs...................................... 723,016 776,565 1,360,075 1,360,075
Advance billings.............................. 397,235 4,303,809 5,126,211 5,126,211
Accrued compensation and related payroll
withholdings and taxes..................... 79,225 250,758 745,235 745,235
Other accrued liabilities..................... 33,144 62,914 788,619 788,619
---------- ---------- ---------- ----------
Total current liabilities.................. 1,935,435 6,917,620 13,666,448 13,666,448
---------- ----------
Obligations under capital leases, less current
portion....................................... 112,041 761,029 1,079,726 1,079,726
Pension obligation.............................. 220,663 220,663
Senior debt..................................... 10,745,439 11,424,343
Subordinated debt............................... 3,500,000 3,500,000
Stock purchase warrants......................... 1,500,000 1,500,000
Note payable -- escrow agreement................ 1,530,000 1,530,000
Deferred taxes.................................. 81,000
Deferred rent................................... 38,667
---------- ---------- ---------- ----------
Total liabilities.......................... 2,086,143 7,678,649 32,242,276 33,002,180
---------- ---------- ---------- ----------
Shareholders' equity:
Preferred stock -- no par value; 100,000
shares authorized; no shares issued and
outstanding................................
Common stock -- no par value; 15,000,000
shares authorized; 3,650,000 shares issued
and outstanding............................ 75,000 75,000 75,000 75,000
Additional paid-in capital.................... 270,396 270,396 270,396 498,316
Retained earnings............................. 599,065 1,008,920
---------- ---------- ---------- ----------
Total shareholders' equity................. 345,396 944,461 1,354,316 573,316
---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity.............................. $2,431,539 $8,623,110 $33,596,592 $ 33,575,496
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 57
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............... $4,431,160 $6,117,679 $12,959,054 $4,693,392 $13,171,711
---------- ---------- ----------- ---------- ----------
Cost and expenses:
Direct costs............. 2,759,901 3,563,849 8,176,375 3,175,505 7,347,086
Selling, general and
administrative........ 1,067,396 1,775,613 3,277,931 1,017,491 4,024,224
Depreciation and
amortization.......... 126,620 167,769 315,541 92,107 315,452
---------- ---------- ----------- ---------- ----------
3,953,917 5,507,231 11,769,847 4,285,103 11,686,762
---------- ---------- ----------- ---------- ----------
Income from
operations.......... 477,243 610,448 1,189,207 408,289 1,484,949
---------- ---------- ----------- ---------- ----------
Other income (expense):
Interest income.......... 23,644 6,276 14,746 4,694 13,256
Interest expense......... (42,609) (69,361) (65,127) (30,291) (71,224)
Other.................... (4,470) (323) (8,778)
---------- ---------- ----------- ---------- ----------
(18,965) (63,085) (54,851) (25,920) (66,746)
---------- ---------- ----------- ---------- ----------
Net income............ $ 458,278 $ 547,363 $ 1,134,356 $ 382,369 $ 1,418,203
========== ========== =========== ========== ==========
Pro forma (unaudited) (Note
1):
Net income, as
reported.............. $ 458,278 $ 547,363 $ 1,134,356 $ 382,369 $ 1,418,203
Pro forma income tax
expense............... 183,311 218,945 453,742 152,948 567,281
---------- ---------- ----------- ---------- ----------
Pro forma net income..... $ 274,967 $ 328,418 $ 680,614 $ 229,421 $ 850,922
========== ========== =========== ========== ==========
Pro forma earnings per
share................. $ 0.07 $ 0.08 $ 0.16 $ 0.05 $ 0.19
========== ========== =========== ========== ==========
Pro forma weighted
average number of
common and equivalent
shares outstanding.... 4,022,722 4,071,427 4,231,064 4,174,321 4,433,720
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 58
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<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)......... 1,418,203 1,418,203
Distributions to shareholders
(unaudited)................. (1,008,348) (1,008,348)
------- ------- --------- ---------- ----------
Balance, June 30, 1997
(unaudited).................... 3,650,000 $75,000 $ 270,396 $1,008,920 $1,354,316
======= ======= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 59
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31,
JUNE 30,
-------------------------------------- ---------------------------
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 $ 382,369 $ 1,418,203
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization.................. 126,620 167,769 315,541 92,107 315,452
Changes in assets and liabilities, net of effects
from acquisition of U-Gene:
Accounts receivable............................ (408,432) (691,144) (1,927,921) 132,025 (2,039,890)
Other current assets........................... 47,690 (37,812) 25,007 (27,757) (42,683)
Other assets................................... (1,163) 2,191 (116,186) (15,888) (289,097)
Investigator and project costs................. (167,319) 267,927 (838,857) (432,025) (1,603,230)
Trade payables................................. 79,380 94,471 659,821 88,143 1,218,426
Advance billings............................... (294,786) (254,972) 3,906,574 846,404 (1,347,697)
Accrued liabilities............................ 106,931 (137,834) 201,303 112,074 681,400
Deferred rent.................................. (33,143) (33,144) (38,667) (16,571)
---------- ----------- ----------- --------- -----------
Net cash provided by (used in) operating
activities....................................... (85,944) (75,185) 3,320,971 1,160,881 (1,689,116)
---------- ----------- ----------- --------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment........... (95,129) (165,928) (406,974) (115,151) (458,481)
Additions to software costs...................... (40,005) (84,432)
Acquisition of U-Gene............................ (14,303,041)
---------- ----------- ----------- --------- -----------
Net cash used in investing activities.............. (95,129) (165,928) (446,979) (115,151) (14,845,954)
---------- ----------- ----------- --------- -----------
Cash flows from financing activities:
Borrowings under line of credit.................. 1,825,000 4,267,000 1,555,000 3,100,000
Repayments under line of credit.................. (1,505,000) (4,587,000) (1,875,000) (3,100,000)
Borrowings under senior credit facility.......... 10,745,439
Proceeds from subordinated debt borrowings....... 5,000,000
Debt issue costs................................. (917,133)
Net cash advanced to shareholders................ (121,763)
Distributions to shareholders.................... (304,067) (253,225) (285,291) (219,290) (1,258,351)
Payments on capital lease obligations............ (90,495) (155,238) (236,492) (69,231) (214,386)
Amounts payable -- book overdraft................ 1,153,121
---------- ----------- ----------- --------- -----------
Net cash provided by (used in) financing
activities....................................... (516,325) (88,463) (841,783) (608,521) 14,508,690
---------- ----------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (697,398) (329,576) 2,032,209 437,209 (2,026,380)
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 $ 452,476 $ 21,096
========== =========== =========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest......... $ 42,609 $ 69,361 $ 65,127 $ 30,291 $ 71,224
========== =========== =========== ========= ===========
</TABLE>
Continued
F-6
<PAGE> 60
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31,
JUNE 30,
-------------------------------------- ---------------------------
1994 1995 1996 1996 1997
-------- ---------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental schedule of noncash investing and
financing activities and other information:
Acquisition of equipment under capital leases.... $105,523 $ 240,976 $1,116,418 $ 500,939
========== =========== =========== ===========
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
===========
Note payable under escrow agreement for
acquisition of U-Gene.......................... $ 1,530,000
===========
Acquisition of U-Gene (Note 10)
Fair value of assets aquired................... $ 20,056,233
Fair value of liabilities assumed or
incurred..................................... 5,753,192
-----------
Net cash payments.............................. $ 14,303,041
===========
Equipment acquired for note payable.............. $ 739,684
===========
Issuance of stock purchase warrants accounted for
as discount on subordinated debt............... $ 1,500,000
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 61
KENDLE INTERNATIONAL INC.
(FORMERLY KENDLE RESEARCH ASSOCIATES, INC.)
NOTES TO CONSOLIDATED 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.
Principles of Consolidation
The consolidated financial statements include the financial information of
Kendle International Inc. and its wholly-owned subsidiary U-Gene Research B.V.
("U-Gene"), based in Utrecht, The Netherlands. The U-Gene Acquisition, which
closed on July 1, 1997, has been given effect to as of June 30, 1997 since a
binding agreement was in place and consideration had been transferred.
All intercompany accounts and transactions have been eliminated. The
results of operations of U-Gene will be included in the consolidated financial
statements of the Company from the date of acquisition (See Note 10).
Foreign Currency Translation
Assets and liabilities of U-Gene are translated into U.S. dollars at
period-end exchange rates. Operating statement accounts will be translated at
average exchange rates for the year. These translation adjustments will be
recorded as a separate component of shareholders' equity. Foreign currency
transaction gains and losses will be included in the consolidated statement of
operations.
Subsequent to the U-Gene Acquisition, 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 to
the U.S., the Company will be subject to the risks of currency exchange rate
fluctuations.
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 certain financial
institutions. The balances of one account from time-to-time exceeds the maximum
U.S. federally insured amount. Additionally, there is no state insurance
coverage on bank balances held 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,
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
F-8
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 three 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 $575,677
(unaudited) at December 31, 1995 and 1996 and June 30, 1997, respectively.
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 $13,012 (unaudited) at December 31,
1996 and June 30, 1997, respectively.
Excess of Purchase Price Over Net Assets Acquired
The excess of cost of the U-Gene Acquisition over the value of the net
assets acquired is being amortized on a straight-line basis over a thirty year
period.
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, $1,840,576 (unaudited) and
$14,335,527 (unaudited) for years ended December 31, 1994, 1995 and 1996 and the
six months ended June 30, 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.
F-9
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Income Taxes
The consolidated 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 June 30, 1997, the estimated net deferred tax liabilities would have been
approximately $81,000 (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.
U-Gene is subject to corporate income tax in The Netherlands and recognizes
deferred taxes in accordance with SFAS 109. Dutch Corporation Tax Law provides
for a tax rate of 35%.
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.
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. The adoption of this statement would have increased the
Company's earnings per share for 1996, by 12%, and would have had an immaterial
impact on 1995 and 1994 earnings per share.
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
F-10
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 June 30, 1997 and for the six month
periods ended June 30, 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 six months ended June 30, 1997 may not be indicative
of operating results for the full year.
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Billed......................................... $1,133,146 $1,958,436 $5,132,290
Unbilled....................................... 507,927 1,603,154 4,522,435
Travel and other advances...................... 14,216 21,620 74,682
---------- ---------- ----------
$1,655,289 $3,583,210 $9,729,407
========== ========== ==========
</TABLE>
Accounts receivable are billed when certain milestones defined in customer
contracts are achieved. All unbilled accounts receivable are expected to be
collected within one year.
3. DEBT:
The Company had a $2,000,000 demand line of credit with a bank, which was
terminated in June 1997. Interest was charged at prime or LIBOR plus 2.5% at the
discretion of management for each borrowing. Advances under the line were
evidenced by a note which was collateralized by all of the Company's assets
other than assets under the Company's capital lease line of credit (see below),
and was 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.
U-Gene has a $1,275,000 (NLG 2,500,000) bank overdraft facility which is
collateralized by U-Gene's accounts receivable. There were no outstanding
borrowings at June 30, 1997.
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 June
30, 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.
The Company acquired additional assets which have not been added to the
lease line of credit for a total of $739,684 as of June 30, 1997. These assets
are included in furnishings, equipment and other and have been acquired with a
note payable to the same bank due December 31, 1997. Upon adding these assets to
the lease lines of credit, these assets are expected to be capital leases and
will be included in capital lease commitments.
F-11
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. DEBT, CONTINUED:
In addition, in June 1997 the Company entered into a new borrowing
arrangement with a bank. Refer to Note 10.
4. EMPLOYEE BENEFIT PLANS:
Profit Sharing and 401(k) Plan
The Company has a profit sharing plan covering substantially all full-time
U.S. 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 six months ended
June 30, 1997.
The profit sharing plan also has a 401(k) salary reduction provision, which
allows U.S. 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 3,650,000 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.
Incentive Stock Option and Stock Incentive Plan, continued
Aggregate stock option activity during 1995, 1996 and the six months ended
June 30, 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)............................ (160,965) 0.91-1.21 1.21
-------- ---------- -----
Options outstanding, at June 30, 1997
(unaudited)..................................... 757,412 $0.91-2.01 $1.39
======== ========== =====
</TABLE>
Options exercisable at December 31, 1996 and June 30, 1997 were zero and
40,588 (unaudited), respectively. The weighted average exercise price of the
options exercisable at June 30, 1997 was $1.11 (unaudited).
F-12
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. EMPLOYEE BENEFIT PLANS, CONTINUED:
Options exercisable:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------ JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C> <C>
Year first exercisable:
1997...................................................... 97,236 66,503
1998...................................................... 130,634 99,901
1999...................................................... 133,554 102,781
2000...................................................... 133,554 152,895
2001...................................................... 133,554 152,895
Thereafter................................................ 39,236 189,537
</TABLE>
Of the options outstanding, 329,449 will vest immediately upon consummation
of an initial public offering.
The weighted-average life of the stock options was approximately 9, 9 and
8 1/2 (unaudited) years as of December 31, 1995, 1996 and June 30, 1997,
respectively. The weighted-average exercise price and weighted-average fair
value of options granted are as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICE FAIR VALUE
---------------- ----------------
<S> <C> <C>
1995............................................... $ 0.91(1) $ 0.37
1996............................................... $ 1.21(2) $ 0.89
1997 (unaudited)................................... $ 2.01(3) $ 0.69
</TABLE>
- ---------------
(1) Equals estimated fair value of the stock at date of grant for all options
granted during the period.
(2) Less than estimated fair value of the stock at date of grant for all options
granted during the period.
(3) Greater than estimated fair value of the stock at date of grant for all
options granted during the period.
The fair value of stock options is the estimated present value at grant
date using the Black-Scholes option-pricing model with the following
assumptions: expected dividend yield -- zero; risk-free interest rate -- ranges
from 5.60% to 7.685%; and an expected holding period of seven years.
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.
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
F-13
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LEASES, CONTINUED:
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 six months ended June 30,
1996 and 1997 was $238,578, $235,852 and $502,628, $198,345 (unaudited) and
$701,080 (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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
CLIENTS 1994 1995 1996 1996 1997
----------------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A................ $2,238,608 $2,542,424 $6,274,368 $1,868,203 $8,427,777
B................ * * 2,468,759 875,581 1,717,598
C................ * * 1,681,787 510,912 *
D................ * 725,083 * * *
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 stock
dividend of 999 shares per share accounted for as a stock split. As a result, at
December 31, 1996 and June 30, 1997, there were 100,000 shares issued and
outstanding. Refer to Note 11 regarding a subsequent stock split.
8. PRO FORMA FINANCIAL INFORMATION:
In connection with termination of the Company's S corporation election, the
consolidated statements 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.
F-14
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. PRO FORMA FINANCIAL INFORMATION, CONTINUED:
The consolidated pro forma balance sheet as of June 30, 1997 reflects: (i)
the reclassification of S corporation retained earnings to additional paid-in
capital of $1,008,920; (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 $81,000 in connection with the
termination of the Company's S Corporation election.
9. RELATED PARTY TRANSACTION:
The Company made payments in 1996 and in the first six months of 1997
totaling approximately $97,500 and 185,900 (unaudited), respectively, 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:
Effective June 30, 1997, the Company acquired U-Gene Research B.V.
("U-Gene") and in July 1997, 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 ($15,525,439). The purchase price for the gmi acquisition ("gmi
Acquisition") is 19.5 million Deutsch marks (total acquisition costs are
expected to approximate $9.3 million in cash and $2.8 million in the Company's
Common Stock, with the number of shares determined by the initial public
offering price; which amounts were calculated using an exchange rate of 0.57
DM/U.S.$ as of June 30, 1997). The U-Gene Acquisition has been 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"). At June 30, 1997, amounts
outstanding under the Senior Credit Facility and Subordinated Credit Facility
were $10,745,439 and $5,000,000, respectively.
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 $9,300,000 from the
Senior Credit Facility, a note payable to an escrow account provided under the
U-Gene purchase agreement of approximately $1,530,000 and $5,000,000 from the
Series A Note.
The escrow agreement was established to provide protection for the Company
by the Sellers with regard to warranties and representations contained in the
purchase agreement, including a claim by Collaborative Clinical Research Inc.
("Collaborative") (See Litigation). The escrow agreement is in the form of an 8%
F-15
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. SUBSEQUENT EVENT -- ACQUISITIONS AND FINANCING, CONTINUED:
interest bearing note and will be paid on January 1, 1999, provided the Company
has not delivered a claim with respect to breaches by the Seller at that time.
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.
Amounts borrowed under the Series A Note have been recorded in the consolidated
financial statements as a liability, less a debt discount of $1,500,000. The
amount of the debt discount was determined based on the estimated fair value of
the warrants given in connection with the Note and will be amortized into
operations over the life of the Note.
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 19, 1997. If the initial public offering is
not consummated by September 19, 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.
The Warrants have been recorded in the consolidated financial statements at
their estimated fair value as a liability and increases or decreases in the
estimated fair value of the warrants will be amortized to operations until the
warrants are exercised or the put rights expire. Estimated fair value was
determined based on a third-party appraisal of the warrants.
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.
Allocation of Purchase Price
The Company follows the practice of allocating purchase price to
specifically identifiable intangible assets based on their estimated values as
determined by appropriate valuation methods. In the U-Gene Acquisition, no
allocation of purchase price was made to specifically identifiable intangible
assets other than excess of purchase price over net assets acquired as the
Company believes it did not acquire any other significant specifically
identifiable intangible assets.
F-16
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. SUBSEQUENT EVENT -- ACQUISITIONS AND FINANCING, CONTINUED:
Supplemental Information
The following unaudited pro forma results of operations assume the
acquisition of U-Gene occurred as of January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net revenues.............. $25,466,819 $ 11,451,553 $ 19,614,343
Net income................ $ 1,497,630 $ 679,267 $ 1,584,602
Earnings per Share........ $ 0.35 $ 0.16 $ 0.36
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the U-Gene Acquisition been
consummated as of January 1, 1996, nor are they necessarily indicative of future
operating results.
Litigation
On July 16, 1997, Kendle received a letter from Collaborative. The letter
communicated Collaborative's intention to commence legal action in the
Netherlands against U-Gene for damages of at least $1,250,000 based upon an
alleged breach by U-Gene and its former shareholders of a February 7, 1997
letter of intent relating to a proposed acquisition of U-Gene by Collaborative.
As of August 13, 1997, U-Gene management indicated that U-Gene had not, to their
knowledge, been served with papers with respect to any such legal action by
Collaborative.
Kendle believes that U-Gene has meritorious defenses to Collaborative's
claims. Even if there were to be an outcome adverse to U-Gene in any such legal
action, Kendle believes that such outcome would not have a material effect on
its financial position or results of operations because, among other things,
claims of this nature are the subject of an indemnification from the former
U-Gene shareholders that is secured, in part, by a bank guarantee.
The July 16, 1997 letter further alleges that Kendle may have engaged in
improper conduct in its acquisition of U-Gene by tortiously interfering with
Collaborative's relationship with U-Gene under the February 7, 1997 letter of
intent. Kendle does not believe that it engaged in any improper conduct that
would result in liability to Collaborative and has communicated this belief to
Collaborative. A second letter from Collaborative dated July 25, 1997 requested
that Kendle provide documentary support for its position. Certain information
has been provided to Collaborative in response to that request.
Preferred Stock
In 1997, the Company 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.
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 $35,770,000 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-17
<PAGE> 71
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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, 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 accounting
principles generally accepted in the United States of America.
Coopers & Lybrand
Wirtschaftsprufungsgesellschaft GmbH
Munich, Germany
May 7, 1997
F-18
<PAGE> 72
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- ------------
USD
USD USD (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $1,187,977 $1,667,097 $1,785,336
Accounts receivable................................... 1,553,491 1,770,528 1,550,793
Other current assets.................................. 130,221 58,992 87,175
---------- ---------- ----------
Total current assets............................... 2,871,689 3,496,617 3,423,304
---------- ---------- ----------
Equipment:
Equipment............................................. 615,793 691,919 652,636
Less: accumulated depreciation........................ (455,393) (521,430) (504,230)
---------- ---------- ----------
Net equipment...................................... 160,400 170,489 148,406
---------- ---------- ----------
Total assets $3,032,089 $3,667,106 $3,571,710
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 486,075 $ 413,044 $ 588,557
Advance billings...................................... 701,988 403,267 88,871
Taxes on income....................................... 203,526 860,613 1,088,954
Other accrued liabilities............................. 44,181 165,745 170,932
Other liabilities..................................... 631,132 779,952 575,954
---------- ---------- ----------
Total current liabilities.......................... 2,066,902 2,622,621 2,513,268
---------- ---------- ----------
Deferred tax liability.................................. 238,611
Total liabilities.................................. 2,305,513 2,622,621 2,513,268
---------- ---------- ----------
Shareholders' equity:
Common stock.......................................... 32,283 32,283 32,283
Retained earnings..................................... 664,358 1,051,682 1,292,124
Currency translation adjustments...................... 29,935 (39,480) (265,965)
---------- ---------- ----------
Total shareholders' equity......................... 726,576 1,044,485 1,058,442
---------- ---------- ----------
Total liabilities and shareholders' equity.... $3,032,089 $3,667,106 $3,571,710
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 73
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
DECEMBER 31, SIX MONTHS ENDED
------------------------ JUNE 30,
1995 1996 ------------------------
---------- ---------- 1996 1997
USD USD ---------- ----------
USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................... $5,294,434 $6,996,307 $2,832,941 $3,872,674
Cost and expenses:
Direct costs............................. 3,396,801 4,894,183 2,062,113 2,161,134
Selling, general and administrative...... 551,410 597,132 244,376 259,325
Depreciation............................. 143,898 105,016 52,844 40,738
---------- ---------- ---------- ----------
4,092,109 5,596,331 2,359,333 2,461,197
---------- ---------- ---------- ----------
Income from operations................ 1,202,325 1,399,976 473,608 1,411,477
---------- ---------- ---------- ----------
Other income (expense):
Interest income.......................... 28,645 48,899 12,195 25,292
Other.................................... (3,285) (4,292) (4,458) (3,814)
---------- ---------- ---------- ----------
25,360 44,607 7,737 21,478
---------- ---------- ---------- ----------
Income before taxes................... 1,227,685 1,444,583 481,345 1,432,955
---------- ---------- ---------- ----------
Income taxes
Current.................................. 424,610 885,715 389,713 680,513
Deferred................................. 198,767 (227,472) (232,924)
---------- ---------- ---------- ----------
623,377 658,243 156,789 680,513
---------- ---------- ---------- ----------
Net income............................ $ 604,308 $ 786,340 $ 324,556 $ 752,442
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE> 74
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)................... 752,442 752,442
Distribution to shareholders
(unaudited)........................... (512,000) (512,000)
Translation adjustments (unaudited)...... (226,485) (226,485)
------- ---------- --------- ----------
Balance, March 31, 1997 (unaudited)........ $32,283 $1,292,124 $(265,965) $1,058,442
======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE> 75
GMI
GESELLSCHAFT FUR ANGEWANDTE
MATHEMATIK UND INFORMATIK MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
USD USD USD USD
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income.................................. $ 604,308 $ 786,340 $ 324,556 $ 752,442
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation............................. 143,898 105,016 52,844 40,738
Changes in:
Accounts receivable.................... (411,951) (524,546) 173,382 32,091
Other current assets................... (214,786) 223,927 52,596 (38,837)
Accounts payable....................... (3,747) 42,040 122,753 266,131
Advance billings....................... (23,384) (264,597) (567,447) (296,504)
Accrued taxes.......................... 159,909 729,912 302,760 173,291
Other accrued liabilities.............. 11,807 135,589 105,772 20,815
Deferred taxes......................... 184,008 (238,611) (238,611) 45,701
Other liabilities...................... 80,631 134,698 180,407 (172,837)
---------- ---------- ---------- ----------
Net cash provided by operating activities..... 530,693 1,129,768 509,012 823,031
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net acquisitions of property and
equipment................................ (174,996) (134,675) (62,750) (37,551)
Proceeds from disposals of fixed assets..... 728
---------- ---------- ---------- ----------
Net cash used in investing activities......... (174,268) (134,675) (62,750) (37,551)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Distributions to shareholders............... (278,979) (399,016) (248,749) (512,000)
---------- ---------- ----------
Net cash used in financing activities......... (278,979) (399,016) (248,749) (512,000)
---------- ---------- ----------
Net effect of exchange rate changes on cash
and cash equivalents........................ 53,598 (116,957) (85,595) (155,241)
---------- ---------- ---------- ----------
Net increase in cash and cash equivalents..... 131,044 479,120 111,918 118,239
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 $1,299,895 $1,785,336
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE> 76
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 demand deposits and money market funds held
with a financial institution, with an initial maturity of three months or less.
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-23
<PAGE> 77
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 $1,358,000 (unaudited) for the years ended December
31, 1995 and 1996 and the six months ended June 30, 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
<S> <C> <C> <C>
---- ----- -----------
<CAPTION>
(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 is based on distributions made in 1996
of $328,865 relative to the year ended December 31, 1995 and intended
distributions of $606,417 at December 31, 1996 and $752,442 (unaudited) at June
30, 1997.
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-24
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ ----------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
USD USD USD
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Billed............................ $1,293,921 $1,070,731 $ 644,881
Unbilled.......................... 259,570 699,797 905,912
--------- ---------
$1,553,491 $1,770,528 $1,550,793
========= =========
</TABLE>
Accounts receivable are billed when certain milestones defined in customer
contracts are achieved. All unbilled accounts receivable are expected to be
collected within one year.
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, JUNE 30,
---------------------- ----------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
USD USD USD
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Sales tax liabilities............... $ 121,707 $ 174,109 *
Wages and Salaries.................. 352,459 468,290 $ 232,955
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>
SIX MONTHS ENDED
JUNE 30,
--------------------
CLIENTS 1996 1997
------------------------ -------- --------
YEAR ENDED
DECEMBER 31,
------------------------
1995 1996
---------- ----------
USD USD USD
(UNAUDITED)
<S> <C> <C> <C> <C>
A....................... * $1,398,969 $519,192 $874,268
B....................... * 1,024,344 434,241 838,325
C....................... $ 564,893 * * *
D....................... * * 453,334 *
E....................... * * 435,731 397,719
F....................... * * 393,759 *
</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-25
<PAGE> 79
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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 accounting principles
generally accepted in the United States of America.
Coopers & Lybrand N.V.
Utrecht, The Netherlands
June 17, 1997
F-26
<PAGE> 80
U-GENE RESEARCH B.V.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996
----------
1995 USD
----------
USD
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 777,005 $2,022,645
Accounts receivable................................................. 2,994,446 2,899,576
Other current assets................................................ 287,034 405,033
---------- ----------
Total current assets...................................... 4,058,485 5,327,254
---------- ----------
Deferred tax asset.................................................. 24,000 92,946
Property and equipment
Furnishings, equipment and other.................................... 1,135,760 1,803,492
Less: accumulated depreciation...................................... (407,780) (685,426)
---------- ----------
Net property and equipment.......................................... 727,980 1,118,066
---------- ----------
Total assets.............................................. $4,810,465 $6,538,266
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996
----------
1995 USD
----------
USD
<S> <C> <C>
Current liabilities:
Trade payables...................................................... $1,519,745 $1,265,114
Dividends payable................................................... 147,526 266,335
Advance billings.................................................... 841,709 2,076,320
Accrued compensation and related payroll withholdings and taxes..... 783,529 651,577
Other accrued liabilities........................................... 538,833 753,576
---------- ----------
Total current liabilities................................. 3,831,342 5,012,922
---------- ----------
Pension liabilities................................................. 95,857 170,777
---------- ----------
Total liabilities......................................... 3,927,199 5,183,699
---------- ----------
Shareholders' equity:
Common stock........................................................ 172,235 172,235
Additional paid-in capital.......................................... 14,448 14,448
Retained earnings................................................... 648,406 1,211,029
Accumulated translation adjustment.................................. 48,177 (43,145)
---------- ----------
Total shareholders' equity................................ 883,266 1,354,567
---------- ----------
Total liabilities and shareholders' equity................ $4,810,465 $6,538,266
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 81
U-GENE RESEARCH B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ---------------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
USD USD USD USD
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................. $9,115,192 $12,507,765 $ 6,758,161 $ 6,442,632
---------- ----------- ---------- ----------
Cost and expenses:
Direct costs........................... 5,917,585 8,107,770 4,613,216 4,146,666
Selling, general and administrative.... 2,038,345 2,783,333 1,174,022 1,499,754
Depreciation........................... 278,257 319,764 144,324 186,468
---------- ----------- ---------- ----------
8,234,187 11,210,867 5,931,562 5,832,888
---------- ----------- ---------- ----------
Income from operations................... 881,005 1,296,898 826,599 609,744
---------- ----------- ---------- ----------
Other income:
Interest income........................ 6,222 6,623 150 12,454
---------- ----------- ---------- ----------
Income before tax........................ 887,227 1,303,521 826,749 622,198
Tax on income............................ 302,735 465,243 292,349 218,297
---------- ----------- ---------- ----------
Net income............................... $ 584,492 $ 838,278 $ 534,400 $ 403,901
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 82
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)......... 403,901 403,901
Translation adjustments
(unaudited).................. (175,540) (175,540)
--- -------- ------- ---------- ---------- ----------
Balance June 30, 1997
(unaudited).................. 299 $172,235 $ 14,448 $ 1,614,930 $ (218,685) $ 1,582,928
=== ======== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 83
U-GENE RESEARCH B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOR THE
DECEMBER 31, SIX MONTHS SIX MONTHS
------------------------- ENDED ENDED
1995 1996 JUNE 30, 1996 JUNE 30, 1997
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
USD USD USD USD
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 584,492 $ 838,278 $ 534,400 $ 403,901
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation.......................... 278,257 319,764 114,324 186,468
Changes in:
Accounts receivable................... (688,280) 94,870 (115,360) (1,206,730)
Other current assets.................. 146,613 (117,999) (105,247) (108,272)
Advance billings...................... (579,848) 1,234,611 (262,781) 93,778
Trade payables........................ 1,007,664 (254,631) (644,529) (39,275)
Accrued liabilities and dividends
payable............................. 828,344 201,600 (23,316) (1,132,704)
Pension liability..................... 74,920 (12,149) 49,886
Deferred taxes........................ (312,672) (68,946) 24,000 36,712
---------- ---------- --------- -----------
Net cash provided by (used in)
operating activities................ 1,264,570 2,322,467 (490,658) (1,716,236)
---------- ---------- --------- -----------
Cash flows from investing activities
in tangible fixed assets:
Additions............................. (474,786) (709,850) (464,241) (198,677)
Disposals............................. 132,476
---------- ---------- --------- -----------
Net cash used in investing
activities.......................... (342,310) (709,850) (464,241) (198,677)
---------- ---------- --------- -----------
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) 28,487 (175,540)
---------- ---------- --------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 685,920 1,245,640 (926,412) (2,090,453)
Cash and cash equivalents:
Beginning of period................... 91,085 777,005 777,005 2,022,645
---------- ---------- --------- -----------
End of period......................... $ 777,005 $2,022,645 $ (149,407) $ (67,808)
========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 84
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 demand deposits and money market funds
held with a financial institution with an initial maturity of three months or
less.
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. The
Company changed from Crediet-en Effectenbank N.V. to ABN AMRO Bank N.V. on July
1, 1997.
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-31
<PAGE> 85
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 nibbled 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,
-------------------------
1995 1996
---------- ----------
USD USD
<S> <C> <C>
Billed.................................................... $1,522,952 $1,346,515
Unbilled.................................................. 1,471,494 1,553,061
---------- ----------
$2,994,446 $2,899,576
========== ==========
</TABLE>
Accounts receivable are billed when certain milestones defined in customer
contracts are achieved. All unbilled accounts receivable are expected to be
collected within one year.
3. DEBT
The Company had a USD 573,000 (NLG 1 million) overdraft facility with a
bank on which there were no outstanding borrowings at December 31, 1995 and
1996. The Company's receivables serve as collateral.
On July 1, 1997 the Company agreed on an overdraft facility of NLG 2.5
million with ABN AMRO Bank N.V. The Company's receivables serve as collateral.
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-32
<PAGE> 86
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 SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -------------
<S> <C> <C>
USD USD
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Service cost-benefits earned during the year............... $ 92 $ 69
Interest cost on the projected benefit obligations......... 19 13
Actual return on plan assets............................... (27) (2)
Net total of other components.............................. 35 5
--- ---
Net periodic pension cost.................................. $119 $ 85
=== ===
</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 SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
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 $ 253
Accumulated................................... 123 201 229
Projected..................................... 217 375 428
Plan assets at fair value..................... 42 120 132
---- ---- ----
Plan assets less than projected benefit
obligation.................................. (175) (255) (296)
Unrecognized transition obligation............ 79 61 56
Unrecognized net loss......................... 23 19
---- ---- ----
Accrued pension cost.......................... $(96) $ (171) $(221)
==== ==== ====
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-33
<PAGE> 87
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
---- ---- SIX MONTHS
ENDED
% % JUNE 30,
1997
-------------
%
(UNAUDITED)
<S> <C> <C> <C>
The Netherlands........................................... 62 40 25
Other European Community countries........................ 26 28 23
Other (mainly USA)........................................ 12 32 52
--- --- ---
100 100 100
=== === ===
</TABLE>
F-34
<PAGE> 88
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 JUNE 30,
---------------------------------------------- 1997
YEAR ENDED -----------
DECEMBER 31,
------------------------- USD
1995 1996
-------- ---------- (UNAUDITED)
USD USD
<S> <C> <C> <C>
A............................................. $933,288 $2,114,293 $ 1,720,995
B............................................. 980,204 2,041,000 643,667
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
SIX MONTHS SIX MONTHS
ENDED ENDED
1995 1996 JUNE 30, 1996 JUNE 30, 1997
---- ---- -------------- --------------
<S> <C> <C> <C> <C>
% % % %
<CAPTION>
(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 0.4 0.1
---- ---- ---- ----
34.1 35.6 35.4 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
SIX MONTHS SIX MONTHS
ENDED ENDED
1995 1996 JUNE 30, 1996 JUNE 30, 1997
--------- -------- -------------- --------------
<S> <C> <C> <C> <C>
USD USD USD USD
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current tax..................... $ 615,407 $534,189 $268,349 $181,585
Deferred tax (benefit).......... (312,672) (68,946) 24,000 36,712
-------- -------- -------- --------
$ 302,735 $465,243 $292,349 $218,297
======== ======== ======== ========
</TABLE>
The deferred tax asset relates to temporary differences mainly relating to
the recognition of pension costs.
10. SHAREHOLDERS' EQUITY:
At December 31, 1995 and 1996 and June 30, 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-35
<PAGE> 89
======================================================
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....................... 15
Capitalization........................ 16
Dilution.............................. 17
Unaudited Pro Forma Condensed
Consolidated Financial Statements... 18
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 31
Management............................ 42
Certain Transactions.................. 47
Principal and Selling Shareholders.... 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
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 LOGO]
KENDLE
INTERNATIONAL INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
LEHMAN BROTHERS
J.C. BRADFORD & CO.
======================================================
<PAGE> 90
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 June 30, 1997, the Registrant had outstanding 757,412 options granted
to employees 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 164,068.
In addition, the Registrant issues promissory notes and guarantees of
indebtedness in the ordinary course of business.
II-1
<PAGE> 91
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 -- Escrow Agreement dated June 27, 1997 among the Company, Keating Muething &
Klekamp, P.L.L., Bio-Medical Research Holdings B.V., Utrechtse
Participatiemaatschappij B.V., P.J. Morrison, T.S. Schwarz, I.M. Hoepelman, Ph.K.
Peterson, J. Remington, M. Rozenberg-Arska and L.G.W. Sterkman.**
2.3 -- Share Purchase Agreement dated July 2, 1997 by and among the Company and
Shareholders of gmi**
3.1 -- Form of Restated and Amended 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*
10.13 -- Clinical Development Services Agreement dated January 8, 1996 by and between the
Company and Amgen Inc.**
10.14 -- Clinical Trial Services Agreement dated April 26, 1996 by and between the Company
and G.D. Searle & Co.**
10.15 -- Clinical Development Agreement dated August 12, 1995 by and between the Company
and Procter & Gamble Pharmaceuticals, Inc.**
</TABLE>
II-2
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
10.16 -- 1995 Stock Option and Stock Incentive Plan*
10.17 -- 1995 Stock Option and Stock Incentive Plan -- Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.13)*
10.18 -- 1997 Stock Option and Stock Incentive Plan**
10.19 -- 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**
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*
27.3 -- Financial Data Schedule for quarter ended June 30, 1997**
</TABLE>
- ---------------
* Previously filed
** Filed herewith
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> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to 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 14th day of August, 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 Amendment
to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ CANDACE KENDLE BRYAN Chairman of the Board of August 14, 1997
- ---------------------------------------- Directors and Chief Executive
Candace Kendle Bryan Officer (principal executive
officer)
* President, Chief Operating August 14, 1997
- ---------------------------------------- Officer, Secretary and Director
Christopher C. Bergen
* Vice President -- Finance, Chief August 14, 1997
- ---------------------------------------- Financial Officer, Treasurer,
Timothy M. Mooney Assistant Secretary (principal
financial officer and principal
accounting officer) and Director
* Director August 14, 1997
- ----------------------------------------
Philip E. Beekman
* Director August 14, 1997
- ----------------------------------------
Charles A. Sanders
*By: /s/ CANDACE KENDLE BRYAN Attorney-in-fact August 14, 1997
-----------------------------------
Candace Kendle Bryan
</TABLE>
II-4
<PAGE> 94
EXHIBIT INDEX
<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 -- Escrow Agreement dated June 27, 1997 among the Company, Keating Muething &
Klekamp, P.L.L., Bio-Medical Research Holdings B.V., Utrechtse
Participatiemaatschappij B.V., P.J. Morrison, T.S. Schwarz, I.M. Hoepelman, Ph.K.
Peterson, J. Remington, M. Rozenberg-Arska and L.G.W. Sterkman.**
2.3 -- Share Purchase Agreement dated July 2, 1997 by and among the Company and
Shareholders of gmi**
3.1 -- Form of Restated and Amended 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 -- Clinical Development Services Agreement dated January 8, 1996 by and between the
Company and Amgen Inc.**
10.14 -- Clinical Trial Services Agreement dated April 26, 1996 by and between the Company
and G.D. Searle & Co.**
10.15 -- Clinical Development Agreement dated August 12, 1995 by and between the Company
and Procter & Gamble Pharmaceuticals, Inc.**
10.16 -- 1995 Stock Option and Stock Incentive Plan*
10.17 -- 1995 Stock Option and Stock Incentive Plan -- Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.13)*
10.18 -- 1997 Stock Option and Stock Incentive Plan**
10.19 -- 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.**
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<C> <S>
23.3 -- Consent of Coopers & Lybrand GmbH**
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*
27.3 -- Financial Data Schedule for quarter ended June 30, 1997**
</TABLE>
- ---------------
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 1
KLN&F Draft 8/12/97
3,600,000 SHARES
KENDLE INTERNATIONAL INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
[_______], 1997
LEHMAN BROTHERS INC.
J.C. BRADFORD & CO.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Kendle International Inc., an Ohio corporation (the
"Company"), and certain shareholders of the Company named in Schedule 2 hereto
(the "Selling Shareholders"), propose to sell an aggregate of 3,600,000 shares
(the "Firm Stock") of the Company's common stock, no par value per share (the
"Common Stock"). Of the 3,600,000 shares of the Firm Stock, 3,000,000 are being
sold by the Company and 600,000 by the Selling Shareholders. In addition, the
Company proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 540,000 shares of the
Common Stock on the terms and for the purposes set forth in Section 5 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters.
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 (No.
333-30581), including Amendments No. 1, [____] thereto, with respect to
the Stock has (i) been prepared by the Company in conformity with the
requirements of the Securities Act of 1933 (the "Securities Act") and
the rules and regulations (the "Rules and
<PAGE> 2
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act, and (iii) become effective under the Securities Act; a
final prospectus is now proposed to be filed with the Commission.
Copies of such registration statement, Amendments No. 1, [___] thereto
and the form of such final prospectus have been delivered by the
Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the
date and the time as of which such registration statement was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus included
in such registration statement or amendments thereof before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at the
Effective Time, including all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 6(a) hereof and deemed
to be a part of the Registration Statement as of the Effective Time
pursuant to paragraph (b) of Rule 430A of the Rules and Regulations;
and "Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules
and Regulations with any changes thereto made by the Company with the
consent of the Representatives. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus. "Rule
462(b) Registration Statement" means a registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the
offering covered by the Registration Statement.
(b) The Registration Statement conforms, and any Rule
462(b) Registration Statement and the Prospectus and any post-effective
amendments or supplements to the Registration Statement or the
Prospectus when they become effective or are filed with the Commission,
as the case may be, conform in all respects to the requirements of the
Securities Act and the Rules and Regulations and do not and will not,
as of the applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein (as to the Prospectus, in light of the circumstances under
which they were made) not misleading; provided that no representation
or warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
(c) The Company and each of its subsidiaries (as
defined in Section 17) have been duly incorporated and are validly
existing as corporations in good standing (or the local law equivalent)
under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing (or the local
law equivalent) as foreign corporations in each jurisdiction in which
their
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<PAGE> 3
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified or in good standing would not have a
material adverse effect on the Company and its subsidiaries (taken as a
whole), and have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which they are
engaged. The only subsidiaries of the Company are the subsidiaries
listed on Exhibit 21 to the Registration Statement.
(d) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) The shares of the Stock to be issued and sold by
the Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable; and the Stock will conform to the description thereof
contained in the Prospectus.
(f) This Agreement has been duly authorized, executed
and delivered by the Company.
(g) The execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby and the amendment of the Company's charter and the
transactions each of which are described in the Registration Statement
and the Prospectus under the caption "Termination of S Corporation
Status" (hereinafter, the "Reorganization") will not conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the charter, code
of regulations or by-laws of the Company or any of its subsidiaries or
any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties or assets; and except
for the registration of the Stock under the Securities Act and the
Rules and Regulations and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
Exchange Act of 1934 (the "Exchange Act") and applicable state or
foreign securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or
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<PAGE> 4
body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby and the Reorganization, other than such actions as
are contemplated in the Prospectus or such actions as have already been
taken.
(h) There are no contracts, agreements or
understandings between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(i) Except as described in the Registration
Statement, (i) the Company has not sold or issued any shares of Common
Stock during the six-month period preceding the date of the Prospectus,
including any sales pursuant to Rule 144A under, or Regulations D or S
of, the Securities Act and (ii) there is no commitment, plan or
arrangement to issue, and no outstanding option, warrant or other right
calling for the issuance of, any share of capital stock of the Company
or of any subsidiary or any security or other instrument that by its
terms is convertible into exercisable for, or exchangeable for capital
stock of the Company.
(j) Neither the Company nor any of its subsidiaries
has sustained, since the date of the latest audited financial
statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus nor has the Company
incurred or undertaken any liability or obligation, direct or
contingent, that are material to the Company except for liabilities or
obligations (i) incurred or undertaken in the ordinary course of
business or (ii) described in the Registration Statement, and, since
such date, there has not been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries
(taken as a whole), otherwise than as set forth or contemplated in the
Prospectus.
(k) The financial statements (including the related
notes and supporting schedules) filed as part of the Registration
Statement or included in the Prospectus present fairly the financial
condition and results of operations of the entities purported to be
shown thereby, at the dates and for the periods indicated, and have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved. The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the
Registration Statement and the Prospectus (i) present fairly
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<PAGE> 5
the information shown therein, (ii) have been prepared in accordance
with the applicable requirements of Rule 11-02 of the Rules and
Regulations, (iii) have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and (iv) have been properly compiled on the basis described
therein and the assumptions used in the preparation of the pro forma
financial statements and other pro forma information (including the
notes thereto) and included in the Registration Statement and the
Prospectus are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances
referred to therein.
(l) Coopers & Lybrand L.L.P., who have certified
certain financial statements of the Company, whose report appears in
the Prospectus and who have delivered the initial letter referred to in
Section 9(g) hereof, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(m) The Company and each of its subsidiaries do not
own any real property. The Company and each of its subsidiaries have
good and marketable title to all personal property owned by them, in
each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company
and its subsidiaries; and all real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries.
(n) The Company and each of its subsidiaries carry,
or are covered by, insurance in such amounts and covering such risks as
is adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for companies
engaged in similar businesses in similar industries.
(o) The Company and each of its subsidiaries own or
possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses
necessary for the conduct of their respective businesses. The Company
has no reason to believe that the conduct of its business will conflict
with, and has not received any notice of any claim of conflict with,
any such rights of others, nor, to the best of the Company's knowledge
is there an infringement by others of such rights of the Company which
would result in a material adverse effect on the stockholders' equity,
assets, liabilities, business, results of operations, condition
(financial or otherwise), cash flows, affairs or prospects of the
Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect").
(p) There are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or
of which any property or
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<PAGE> 6
assets of the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its subsidiaries,
might have a Material Adverse Effect; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(q) There are no contracts or other documents which
are required to be described in the Prospectus or filed as exhibits to
the Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed as
exhibits to the Registration Statement.
(r) No relationship, direct or indirect, exists
between or among the Company on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company on the
other hand, which is required to be described in the Prospectus which
is not so described.
(s) No labor disturbance by the employees of the
Company exists or, to the knowledge of the Company, is imminent which
might be expected to have a Material Adverse Effect.
(t) The Company is in compliance in all material
respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company would
have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination
of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971
of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability that
is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(u) The Company has filed all federal, state, local
and foreign income and franchise tax returns required to be filed
through the date hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company or any of its
subsidiaries which has had (nor does the Company have any knowledge of
any tax deficiency which, if determined adversely to the Company or any
of its subsidiaries, might have) a Material Adverse Effect.
(v) Since the date as of which information is given
in the Prospectus through the date hereof, and except as may otherwise
be disclosed in the Prospectus, the Company has not (i) issued or
granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which were
incurred in the ordinary course of business, (iii) entered into any
transaction not in
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<PAGE> 7
the ordinary course of business or (iv) declared or paid any dividend
on its capital stock.
(w) The Company (i) makes and keeps accurate books
and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial statements
and to maintain accountability for its assets, (C) access to its assets
is permitted only in accordance with management's authorization and (D)
the reported accountability for its assets is compared with existing
assets at reasonable intervals.
(x) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter, code of regulations or by-laws,
(ii) is in default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or
condition contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is a party
or by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation in any respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any license,
permit, certificate, franchise or other governmental authorization or
permit necessary to the ownership of its property or to the conduct of
its business where such violation or failure would have a Material
Adverse Effect. Each such indenture, mortgage, deed of trust, loan
agreement, lease license or other agreement is in full force and
effect.
(y) Neither the Company nor any of its subsidiaries,
nor any director, officer, agent, employee or other person associated
with or acting on behalf of the Company or any of its subsidiaries, has
used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of
1977; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(z) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous substances by the
Company or any of its subsidiaries (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or from any of
the property now or previously owned or leased by the Company or its
subsidiaries in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require
remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial
action which would not have, or could not be reasonably likely to have,
singularly or in the aggregate with all such violations and remedial
actions, a Material Adverse Effect; there has been no material spill,
discharge, leak,
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<PAGE> 8
emission, injection, escape, dumping or release of any kind onto such
property or into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its subsidiaries
or with respect to which the Company or any of its subsidiaries have
knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would not
be reasonably likely to have, singularly or in the aggregate with all
such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a Material Adverse Effect; and the terms
"hazardous wastes", "toxic wastes", "hazardous substances" and "medical
wastes" shall have the meanings specified in any applicable local
state, federal and foreign laws or regulations with respect to
environmental protection.
(aa) Neither the Company nor any subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
(bb) The Company and each of its subsidiaries possess
such permits, licenses, approvals, consents, orders and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or
bodies, court, department, commission or any board, bureau, review
board or similar organization (collectively, "Authority") necessary to
conduct the business now operated by them, except where the failure to
possess the same would not, singly or in the aggregate, have a Material
Adverse Effect; the Company and each of its subsidiaries are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses, which
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(cc) The Company and each of its subsidiaries are in
compliance with all applicable laws, statutes, ordinances, rules
regulations, injunctions or decrees, certificates of need, or any other
published requirements or mandatory policies of any Authority
(collectively, "Laws") of any applicable jurisdiction, the enforcement
of which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
of its subsidiaries has received any written notice from any Authority
to the effect that the Company or any subsidiary is not in compliance
with any Laws, nor that the Company or any subsidiary is the subject or
target of any investigation with respect to any violation or possible
violation of any Laws, the violation of or non-compliance with which
would reasonably be expected to have a Material Adverse Effect.
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<PAGE> 9
(dd) The Company has been advised that the Common
Stock (including the Stock) has been approved for quotation on the
Nasdaq National Market, upon official notice of issuance thereof, with
trading scheduled to begin at the Effective Time, or at such later time
as the Underwriters may request.
2. Representations, Warranties and Agreements of the Selling
Shareholders. Each Selling Shareholder severally represents, warrants and agrees
that:
(a) Such Selling Shareholder has, and immediately
prior to the First Delivery Date (as defined in Section 5
hereof) will have, good and valid title to the shares of Stock
to be sold by such Selling Shareholder hereunder on such date,
free and clear of all liens, encumbrances, equities or claims;
and upon delivery of such shares and payment therefor pursuant
hereto, good and valid title to such shares, free and clear of
all liens, encumbrances, equities or claims, will pass to the
several Underwriters.
(b) Such Selling Shareholder has full right, power
and authority to enter into this Agreement; the execution,
delivery and performance of this Agreement by such Selling
Shareholder and the consummation by such Selling Shareholder
of the transactions contemplated hereby will not conflict with
or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of the
property or assets of such Selling Shareholder is subject, nor
will such actions result in any violation of any statute or
any order, rule or regulation of any court or governmental
agency or body having jurisdiction over such Selling
Shareholder or the property or assets of such Selling
Shareholder; and, except for the registration of the Stock
under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement by such Selling Shareholder and the consummation by
such Selling Shareholder of the transactions contemplated
hereby.
(c) The Registration Statement and the Prospectus and
any further amendments or supplements to the Registration
Statement or the Prospectus when they become effective or are
filed with the Commission, as the case may be, do not and will
not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not
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<PAGE> 10
misleading; provided that no representation or warranty is
made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and
in conformity with written information furnished to the
Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(d) Such Selling Shareholder has no reason to believe
that the representations and warranties of the Company
contained in Section 1 hereof are not materially true and
correct, is familiar with the Registration Statement and the
Prospectus (as amended or supplemented) and has no knowledge
of any material fact, condition or information not disclosed
in the Registration Statement, as of the effective date, or
the Prospectus (or any amendment or supplement thereto), as of
the applicable filing date, which has adversely affected or
may adversely affect the business of the Company and is not
prompted to sell shares of Common Stock by any information
concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
(e) Such Selling Shareholder has not taken and will
not take, directly or indirectly, any action which is designed
to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 3,000,000 shares of
the Firm Stock and each Selling Shareholder hereby agrees to sell the number of
shares of the Firm Stock set forth opposite his or her name in Schedule 2
hereto, severally and not jointly, to the several Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Stock set opposite that Underwriter's name in Schedule 1 hereto.
Each Underwriter shall be obligated to purchase from the Company, and from each
Selling Shareholder, that number of shares of the Firm Stock which represents
the same proportion of the number of shares of the Firm Stock to be sold by the
Company, and by each Selling Shareholder, as the number of shares of the Firm
Stock set forth opposite the name of such Underwriter in Schedule 1 represents
of the total number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option
to purchase up to 540,000 shares of Option Stock. Such option is granted solely
for the purpose of covering overallotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters
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<PAGE> 11
in Schedule 1 hereto. The respective purchase obligations of each Underwriter
with respect to the Option Stock shall be adjusted by the Representatives so
that no Underwriter shall be obligated to purchase Option Stock other than in
100 share amounts. The price of both the Firm Stock and any Option Stock shall
be [$_____] per share.
The Company and the Selling Shareholders shall not be
obligated to deliver any of the Stock to be delivered on the First Delivery Date
or the Second Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of
the Firm Stock, the several Underwriters propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and
payment for the Firm Stock shall be made at the offices of Lehman Brothers Inc.,
Three World Financial Center, New York, New York 10285, at 10:00 A.M., New York
City time, on the third full business day following the Effective Date or at
such other date or place as shall be determined by agreement between the
Representatives, the Company and the Selling Shareholders. This date and time
are sometimes referred to as the "First Delivery Date." On the First Delivery
Date, the Company and the Selling Shareholders shall deliver or cause to be
delivered certificates representing the Firm Stock to the Representatives for
the account of each Underwriter against payment to or upon the order of the
Company and the Selling Shareholders of the purchase price by certified or
official bank check or checks payable in New York Clearing House (next-day)
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in
such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Stock, the Company and the Selling Shareholders shall make the
certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement the option granted in Section 3 may be exercised by written
notice being given to the Company by the Representatives. Such notice shall set
forth the aggregate number of shares of Option Stock as to which the option is
being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock
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<PAGE> 12
are delivered are sometimes referred to as the "Second Delivery Date" and the
First Delivery Date and the Second Delivery Date are sometimes each referred to
as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this Section
5 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in New York Clearing House (next-day) funds. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names and
in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by
the Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may
be required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement or to
the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with
copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose,
or of any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop order or of
any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending any such qualification, to
use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the
Representatives and to counsel for the Underwriters a signed copy of
the Registration Statement as originally
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<PAGE> 13
filed with the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such
number of the following documents as the Representatives shall
reasonably request: (i) conformed copies of the Registration Statement
as originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement) and any Rule
462(b) Registration Statement and (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus; and, if the
delivery of a prospectus is required at any time after the Effective
Time in connection with the offering or sale of the Stock or any other
securities relating thereto and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to file such document and to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect such
compliance;
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or any
supplement to the Prospectus that may, in the judgment of the Company
or the Representatives, be required by the Securities Act or requested
by the Commission;
(e) Prior to filing with the Commission any amendment
to the Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing, which consent shall not be unreasonably withheld or delayed;
(f) As soon as practicable after the Effective Date,
to make generally available to the Company's security holders and to
deliver to the Representatives an earnings statement of the Company and
its subsidiaries (which need not be audited) complying with Section
11(a) of the Securities Act and the Rules and Regulations (including,
at the option of the Company, Rule 158);
(g) For a period of five years following the
Effective Date, to furnish to the Representatives copies of all
materials furnished by the Company to its shareholders and all public
reports and all reports and financial statements furnished by the
Company to the principal national securities exchange upon which the
Common Stock may be listed pursuant to requirements of or agreements
with such
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<PAGE> 14
exchange (or the Nasdaq National Market if the Common Stock is so
listed thereon) or to the Commission pursuant to the Exchange Act or
any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as
the Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock; provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale, sell, grant
any option to purchase or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any shares of Common Stock (other than the Stock and shares issued
pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights), sell or
grant options, rights or warrants with respect to any shares of Common
Stock (other than the grant of options pursuant to option plans
existing on the date hereof), or waive the restrictions on sale
contained in any agreement or award letter to which the options or
shares of Common Stock of any officer or director of the Company are
subject without the prior written consent of Lehman Brothers Inc. on
behalf of the Representatives; and to cause each person that was a
shareholder of the Company prior to the issuance of the Stock to be
sold hereunder to furnish to the Representatives, prior to the First
Delivery Date, a letter or letters, in form and substance satisfactory
to counsel to the Underwriters, pursuant to which each such person
shall agree not to, directly or indirectly, offer for sale, sell, grant
any option to purchase or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any shares of Common Stock for a period of 180 days from the date of
the Prospectus, without the prior written consent of Lehman Brothers
Inc. on behalf of the Representatives;
(j) Prior to the Effective Date, to apply for the
inclusion of the Stock on the Nasdaq National Market and to use its
best efforts to complete that inclusion, subject only to official
notice of issuance or the effectiveness of the Registration Statement
and evidence of satisfactory distribution, prior to the First Delivery
Date;
(k) Prior to filing with the Commission any reports
on Form SR pursuant to Rule 463 of the Rules and Regulations, to
furnish a copy thereof to the counsel for the Underwriters and receive
and consider its comments thereon, and to
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<PAGE> 15
deliver promptly to the Representatives a signed copy of each report on
Form SR filed by it with the Commission;
(l) To apply the net proceeds from the sale of the
Stock being sold by the Company as set forth in the Prospectus;
(m) To comply with all registration, filings and
reporting requirements of the Exchange Act, which may from time to time
be applicable to the Company and to comply with all provisions of all
undertakings contained in the Registration Statement; and
(n) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall become an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
7. Further Agreements of the Selling Shareholders. Each
Selling Shareholder agrees:
(a) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale,
sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result
in the disposition by any person at any time in the future of)
any shares of Common Stock (other than the Stock), without the
prior written consent of Lehman Brothers Inc.
(b) That the Stock to be sold by such Selling
Shareholder hereunder is subject to the interest of the
Underwriters and that the obligations of such Selling
Shareholder hereunder shall not be terminated by any act of
such Selling Shareholder, by operation of law, by the death or
incapacity of such Selling Shareholder or, in the case of a
trust, by the death or incapacity of any executor or trustee
or the termination of such trust, or the occurrence of any
other event.
(c) To deliver to the Representatives prior to the
First Delivery Date a properly completed and executed United
States Treasury Department Form W-9.
8. Expenses. (1) The Company agrees to pay (a) the costs
incident to the authorization, issuance, sale and delivery of the Stock and
any taxes payable in that connection; (b) the costs incident to the
preparation, printing and filing under the Securities
- ------------
1 Expenses could be be borne entirely by the Company, instead of by the
Company and the Selling Shareholders in proportion to the shares to be
sold by each, if determined by the Company's Board of Directors.
- 15 -
<PAGE> 16
Act of the Registration Statement and any amendments and exhibits thereto; (c)
the costs of distributing the Registration Statement as originally filed and
each amendment thereto and any post-effective amendments thereof (including, in
each case, exhibits), any Preliminary Prospectus, the Prospectus and any
amendment or supplement to the Prospectus, all as provided in this Agreement;
(d) the costs of printing and distributing this Agreement and any other related
documents in connection with the offering, purchase, sale and delivery of the
stock; (e) the filing fees and expenses (including related fees and expenses of
counsel to the Underwriters) incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of sale of the
Stock; (f) any applicable listing or other related fees; (g) the fees and
expenses of qualifying the Stock under the securities laws of the several
jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters, which fees shall not exceed $15,000); (h) the fees
and expenses of any transfer agent or registrar for the Stock; and (i) all other
costs and expenses incident to the performance of the obligations of the Company
and the Selling Shareholders under this Agreement; provided that, except as
provided in this Section 8 and in Section 13, the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters and the Selling Shareholders
shall pay the fees and expenses of their counsel and any transfer taxes payable
in connection with their respective sales of Stock to the Underwriters and
reimburse the Company for their pro rata share of the fees and expenses paid by
the Company in connection with the offering of the Stock.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Shareholders contained herein, to the performance by the Company
and the Selling Shareholders of their obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely filed with
the Commission in accordance with Section 6(a) hereof, and the
Representatives shall have received notice thereof, not later than the
first full business day next following the date of this Agreement or
such later date as shall be consented to in writing by the
Representatives; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened
by the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus
or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date that the
Registration Statement or the Prospectus or any amendment or supplement
thereto contains an untrue statement of a fact which, in the reasonable
opinion of Kramer, Levin, Naftalis & Frankel, counsel for the
Underwriters, is material or omits to state a fact which in the
reasonable opinion of such counsel, is material and is required to be
stated therein or is necessary to make the statements therein not
misleading.
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<PAGE> 17
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Agreement, the
Stock, the Registration Statement and the Prospectus, and all other
legal matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material
respects to counsel for the Underwriters, and the Company shall have
furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Keating, Muething & Klekamp P.L.L. shall have
furnished to the Representatives their written opinion, as counsel to
the Company, addressed to the Underwriters and dated such Delivery
Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) The Company and each of its subsidiaries
have been duly incorporated and are validly existing as
corporations in good standing (or the local law equivalent)
under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in
good standing (or the local law equivalent) as foreign
corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their
respective businesses requires such qualification, except
where the failure to be so qualified or in good standing would
not have a Material Adverse Effect, and have all power and
authority necessary to own or hold their respective properties
and conduct the businesses in which they are engaged;
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and all of the
issued shares of capital stock of the Company have been duly
and validly authorized and issued, are fully paid and
nonassessable and conform to the description thereof contained
in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid,
nonassessable and (except for directors' qualifying shares)
are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(iii) Other than as set forth in the
Prospectus, there are (A) no preemptive or other rights to
subscribe for or to purchase the capital stock of the Company
arising under the Ohio General Corporation Law, or, to the
knowledge of such counsel, otherwise, (B) to the knowledge of
such counsel no outstanding options, warrants or other rights
calling for the issuance of any share of capital stock of the
Company or other instrument that by its terms is convertible
into, exercisable for or exercisable for capital stock of the
Company, and no rights, by contract or otherwise, to require
registration under the Securities Act of shares of Stock, and
(C) no restriction upon the voting or transfer of, any shares
of the Stock pursuant to the Company's charter or by-laws or
any agreement or other instrument known to such counsel;
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<PAGE> 18
(iv) To the best of such counsel's knowledge
and other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any
of its subsidiaries, might have a material adverse effect on
the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company
and its subsidiaries (taken as a whole); and, to the best of
such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by
others;
(v) This Agreement has been duly authorized,
executed and delivered by the Company;
(vi) The shares of Stock being delivered on
such Delivery Date have been duly and validly authorized, and,
when issued and delivered to and paid for by the Underwriters
pursuant to the terms of this Agreement, will be validly
issued, fully paid and non-assessable; and the shares of Stock
being delivered on such Delivery Date conform to the
description thereof contained in the Prospectus under the
caption "Description of Capital Stock". Upon delivery of the
payment for the Stock to be sold by the Company to the
Underwriters pursuant to this Agreement, each Underwriter
(assuming that it acquires such Shares without notice of any
adverse claim, as such term is used in Section 8-302 of the
Uniform Commercial Code in effect in the State of New York)
will acquire good and marketable title to the Stock so sold
and delivered to it, free and clear of all liens, pledges,
charges, claims, security interests, restrictions on transfer,
agreements or other defects of title whatsoever (other than
those resulting from any action taken by such Underwriter);
(vii) The Registration Statement, including
any Rule 462(b) Registration Statement, was declared effective
under the Securities Act as of the date and time specified in
such opinion, the Prospectus was filed with the Commission
pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified
therein and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge
of such counsel, no proceeding for that purpose is pending or
threatened by the Commission;
(viii) The Registration Statement, including
any Rule 462(b) Registration Statement, and the Prospectus and
any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act
and the Rules and Regulations;
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<PAGE> 19
(ix) All descriptions in the Prospectus of
contracts and other documents to which the Company or any of
its subsidiaries is a party are accurate as summaries in all
material respects. To the best of such counsel's knowledge,
there are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules
and Regulations which have not been described or filed as
exhibits to the Registration Statement;
(x) To the best of such counsel's knowledge,
there are no contracts, agreements or understandings between
the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company
to include such securities in the securities registered
pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement
filed by the Company under the Securities Act;
(xi) The Common Stock (including the Stock)
is duly authorized for listing on the Nasdaq National Market,
subject only to official notice of issuance;
(xii) Except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations and qualifications as may be
required under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the consummation of the Reorganization; and the
Reorganization has been consummated;
(xiii) The issue and sale of the shares of
Stock being delivered on such Delivery Date by the Company and
the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions
contemplated hereby and the Reorganization will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is
subject, nor will such actions result in any violation of the
provisions of the charter, code of regulations, or by-laws of
the Company or any of its subsidiaries, nor will such actions
result in any violation of any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties or assets; and
except for the registration of the Stock under the Securities
Act and the Rules
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<PAGE> 20
and Regulations and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby and
the Reorganization;
(xiv) To the best of such counsel's
knowledge, neither the Company nor any subsidiary of the
Company is in violation of its charter, code of regulations or
by-laws and no default by the Company or any subsidiary exists
in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any
material contract or other agreement or instrument that is
described or referred to in the Registration Statement or the
Prospectus or filed as an exhibit to the Registration
Statement;
(xv) To the best of such counsel's
knowledge, the Company and its subsidiaries are in compliance
in all material respects with all applicable and material
laws, statutes, injunctions or decrees, certificates of need,
ordinances, rules or regulations of any Authority of any
applicable jurisdiction except as reflected in the Prospectus
or where the failure to comply would not have a Material
Adverse Effect; and
(xvi) The Company is not, and upon the
issuance and sale of the Stock as contemplated in the
Agreement and the application of the net proceeds therefrom as
described in the Prospectus will not be, an "investment
company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the
Commission thereunder.
In rendering such opinion, such counsel may (i) state
that their opinion is limited to matters governed by the Federal laws
of the United States of America, the laws of the State of Ohio and the
General Corporation Law of the State of Delaware; and (ii) in respect
of matters of fact, rely upon certificates of officers of the Company
or its subsidiaries, provided that such counsel shall state that they
believe that both the Underwriters and they are justified in relying
upon such certificates. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as
counsel to the Company on certain other matters and has acted as
counsel to the Company in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have
come to the attention of such counsel which lead them to believe that
the Registration Statement, as of the Effective Date and as of such
Delivery Date, contains any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the
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<PAGE> 21
statements therein not misleading, or that the Prospectus, as of its
date and as of such Delivery Date, contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus except for the statements made
in the Prospectus under the captions "Shares Eligible for Future Sale"
and "Description of Capital Stock," insofar as such statements relate
to the Stock and concern legal matters.
(e) Keating, Muething & Klekamp, P.L.L. shall have
furnished to the Representatives their written opinion, as counsel to the
Selling Shareholders, addressed to the Underwriters and dated the First Delivery
Date, in form and substance reasonably satisfactory to the Representatives, to
the effect that:
(i) Each Selling Shareholder has full right,
power and authority to enter into this Agreement; the
execution, delivery and performance of this Agreement
by each Selling Shareholder and the consummation by
each Selling Shareholder of the transactions
contemplated hereby will not conflict with or result
in a breach or violation of any of the terms or
provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to
such counsel to which any Selling Shareholder is a
party or by which any Selling Shareholder is bound or
to which any of the property or assets of any Selling
Shareholder is subject, nor will such actions result
in any violation of any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over
any Selling Shareholder or the property or assets of
any Selling Shareholder; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or
filing or registration with, any such court or
governmental agency or body is required for the
execution, delivery and performance of this Agreement
by any Selling Shareholder and the consummation by
any Selling Shareholder of the transactions
contemplated hereby;
(ii) This Agreement has been duly executed
and delivered by each Selling Shareholder;
(iv) Immediately prior to the First Delivery
Date, each Selling Shareholder had good and valid
title to the shares of Stock to be
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<PAGE> 22
sold by such Selling Shareholder under this
Agreement, free and clear of all liens, encumbrances,
equities or claims, and full right, power and
authority to sell, assign, transfer and deliver such
shares to be sold by such Selling Shareholder
hereunder; and
(v) Good and valid title to the shares of
Stock to be sold by each Selling Shareholder under
this Agreement, free and clear of all liens,
encumbrances, equities or claims, has been
transferred to each of the several Underwriters.
In rendering such opinion, such counsel may (i) state that
their opinion is limited to matters governed by the Federal
laws of the United States of America, the laws of the State of
Ohio and the General Corporation Law of the State of Delaware
and (ii) in rendering the opinion in Section 9(e)(iv) above,
rely upon a certificate of each Selling Shareholder in respect
of matters of fact as to ownership of and liens, encumbrances,
equities or claims on the shares of Stock sold by such Selling
Shareholder, provided that such counsel shall furnish copies
thereof to the Representatives and state that they believe
that both the Underwriters and they are justified in relying
upon such certificate. Such counsel shall also have furnished
to the Representatives a written statement, addressed to the
Underwriters and dated the First Delivery Date, in form and
substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to each Selling
Shareholder on a regular basis and has acted as counsel to
each Selling Shareholder in connection with the preparation of
the Registration Statement, and (y) based on the foregoing, no
facts have come to the attention of such counsel which lead
them to believe that the Registration Statement, as of the
Effective Date, contained any untrue statement of a material
fact relating to any Selling Shareholder or omitted to state
such a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue
statement of a material fact relating to any Selling
Shareholder or omits to state such a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that such counsel
does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus.
(f) The Representatives shall have received from
Kramer, Levin, Naftalis & Frankel, counsel for the Underwriters, such
opinion or opinions, dated such Delivery Date, with respect to the
issuance and sale of the Stock, the Registration Statement, the
Prospectus and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
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<PAGE> 23
(g) At the time of execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, in form and substance satisfactory to the Representatives,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, and (ii) stating, as of the date
hereof (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five days prior
to the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in connection
with registered public offerings.
(h) At each such Delivery Date, the Representatives
shall have received from Coopers & Lybrand L.L.P. a letter (the
"bring-down letter") of such accountants, addressed to the Underwriters
and dated such Delivery Date (i) confirming that they are independent
public accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the
date of the bring-down letter), the conclusions and findings of such
firm with respect to the financial information and other matters
covered by the letter furnished pursuant to clause (g) of this Section
9 and (iii) confirming in all material respects the conclusions and
findings set forth in the letter furnished pursuant to clause (g) of
this Section 9.
(i) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of its Chief
Executive Officer and its chief financial officer stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and correct as
of such Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set forth in
Sections 9(a) and 9(k) have been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in their
opinion (A) as of the Effective Date, the Registration
Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading (as to the Prospectus, in
light of the circumstances under which they were made), and
(B) since the Effective Date no event has occurred which
should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus.
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<PAGE> 24
(j) Each Selling Shareholder shall have furnished to
the Representatives on the First Delivery Date a certificate, dated the
First Delivery Date, signed by, or on behalf of, such Selling
Shareholder stating that the representations, warranties and agreements
of such Selling Shareholder contained herein are true and correct as of
the First Delivery Date and that such Selling Shareholder has complied
with all agreements contained herein to be performed by such Selling
Shareholder at or prior to the First Delivery Date.
(k) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest audited
financial statements included in the Prospectus any loss or
interference with its business from fire, explosion flood, or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change,
or any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in clause (i) or (ii), is, in the
judgment of the Representatives, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Stock being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i)
trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market, or trading
in any securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or minimum prices
shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking moratorium
shall have been declared by Federal or state authorities, (iii) the
United States shall have become engaged in hostilities, there shall
have been an escalation in hostilities involving the United States or
there shall have been a declaration of a national emergency or war by
the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions
(or the effect of international conditions on the financial markets in
the United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(l) The Nasdaq National Market shall have approved
the Stock for inclusion subject only to official notice of issuance or
effectiveness of the Registration Statement and evidence of
satisfactory distribution.
- 24 -
<PAGE> 25
(m) The National Association of Securities Dealers,
Inc., upon review of the terms of the underwriting arrangements for the
public offering of the Stock, shall have raised no objection thereto.
(n) Prior to any Delivery Date, the Company shall
have furnished to the Representatives such other information,
certificates and documents as they may reasonably request.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or
- 25 -
<PAGE> 26
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer, employee or controlling person of that Underwriter.
(b) The Selling Shareholders, severally in proportion to the
number of shares of Stock to be sold by each of them hereunder, shall indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be stated therein
or necessary to make the statements therein not misleading, and shall reimburse
each Underwriter, its officers and employees and each such controlling person
for any legal or other expenses reasonably incurred by that Underwriter, its
officers and employees or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Selling
Shareholders shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or in any such amendment or supplement in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Selling Shareholders may otherwise have to any Underwriter
or any officer, employee or controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors, and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the
- 26 -
<PAGE> 27
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information concerning such Underwriter furnished to the Company through
the Representatives by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director, officer,
employee or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure; and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnifying party, otherwise than under this Section
10. If any such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that the Representatives shall have the right to employ counsel to represent
jointly the Representatives and those other Underwriters and their respective
officers, employees and controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriters against the Company or the Selling Shareholders under this Section
10 if, in the reasonable judgment of the Representatives, it is advisable for
the Representatives and those Underwriters, officers, employees and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company or the
Selling Shareholders. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or
- 27 -
<PAGE> 28
(ii) be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with the consent of the indemnifying party or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b) or 10(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company and the Selling
Shareholders, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the shares of the Stock
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Shareholders or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 10(e) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 10 shall be deemed to include, for
purposes of this Section 10(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(e), unless
guilty of a fraudulent misrepresentation (within the meaning of Section 11(F) of
the Securities Act), no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the Stock underwritten
by it and distributed to the public was offered to the public exceeds the amount
of any damages which such Underwriter has otherwise paid or
- 28 -
<PAGE> 29
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 10(e) are several in proportion to their respective underwriting
obligations and not joint.
(f) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of, and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
11. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting Underwriters in Schedule
1 hereto; provided, however, that the remaining non-defaulting Underwriters
shall not be obligated to purchase any of the Stock on such Delivery Date if the
total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such date exceeds 9.09% of the
total number of shares of the Stock to be purchased on such Delivery Date, and
any remaining non-defaulting Underwriter shall not be obligated to purchase more
than 110% of the number of shares of the Stock which it agreed to purchase on
such Delivery Date pursuant to the terms of Section 3. If the foregoing maximums
are exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Stock to be purchased on such Delivery Date. If
the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Stock)
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company or the Selling Shareholders, except that the Company will
continue to be liable for the payment of expenses to the extent set forth in
Sections 8 and 13. As used in this Agreement, the term "Underwriter" includes,
for all purposes of this Agreement unless the context requires otherwise, any
party not listed in Schedule 1 hereto who, pursuant to this Section 11,
purchases Firm Stock which a defaulting Underwriter agreed but failed to
purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company and the Selling
Shareholders for damages caused by its default.
- 29 -
<PAGE> 30
If other underwriters are obligated or agree to purchase the Stock of a
defaulting or withdrawing Underwriter, either the Representatives or the Company
may postpone the Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or counsel for
the Underwriters may be necessary in the Registration Statement, the Prospectus
or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company and the Selling Shareholders prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Sections 9(i)
or 9(j) shall have occurred or if the Underwriters shall decline to purchase the
Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If the Company or
any Selling Shareholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, the Company
will reimburse the Underwriters for all reasonable out-of-pocket expenses
(including fees and disbursements of counsel) incurred by the Underwriters in
connection with this Agreement and the proposed purchase of the Stock, and upon
demand the Company shall pay the full amount thereof to the Representatives. If
this Agreement is terminated pursuant to Section 11 by reason of the default of
one or more Underwriters, neither the Company nor any Selling Shareholder shall
be obligated to reimburse any defaulting Underwriter on account of those
expenses.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(o) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman Brothers Inc.,
Three World Financial Center, New York, New York 10285, Attention:
Syndicate Department (Fax: 212-526- 6588), with a copy, in the case of
any notice pursuant to Section 10(c), to the Director of Litigation,
Office of the General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285;
(p) if to the Company, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: Timothy Mooney (Fax:
513-562-1797), with a copy to Keating, Meuthing & Klekamp, P.L.L. 1800
Provident Tower, One East Fourth Street, Cincinnati, Ohio 45202,
Attention: William J. Keating, Jr.;
(c) if to any Selling Shareholder, shall be
delivered or sent by mail, telex or facsimile transmission to such
Selling Shareholder at the address set forth on Schedule 2 hereto;
- 30 -
<PAGE> 31
provided, however, that any notice to an Underwriter pursuant to Section 10(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company
and the Selling Shareholders, and their respective successors. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except that (A) the representations, warranties, indemnities and
agreements of the Company and the Selling Shareholders contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Underwriters contained in
Section 10(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 15, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Shareholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary".
For purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK.
19. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
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<PAGE> 32
[Balance of Page Intentionally Blank]
- 32 -
<PAGE> 33
If the foregoing correctly sets forth the agreement of the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
KENDLE INTERNATIONAL INC.
By:
---------------------------------------
Name:
Title:
The Selling Shareholders:
By:
---------------------------------------
Name: Candace Kendle Bryan
By:
---------------------------------------
Name: Christopher C. Bergen
Accepted:
LEHMAN BROTHERS INC.
J.C. BRADFORD & CO.
For themselves and as Representatives
of the Several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
------------------------------
Authorized Representative
- 33 -
<PAGE> 34
SCHEDULE 1
----------
Number of
Underwriter Shares
- -----------
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . .
J.C. Bradford & Co.. . . . . . . . . . . . . . . . . . . .
Total
- 34 -
<PAGE> 35
SCHEDULE 2
----------
Name and Address Number of Shares
of Selling Shareholder of Firm Stock
- ---------------------- -------------
Candace Kendle Bryan...................................................
Address:
Christopher C. Bergen..................................................
Address:
Total
- 35 -
<PAGE> 1
Exhibit 2.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is dated as of the 27th day
of June, 1997 among KENDLE INTERNATIONAL INC., an Ohio corporation ("Kendle") ,
BIO-MEDICAL RESEARCH HOLDINGS B.V., UTRECHTSE PARTICIPATIEMAATSCHAPPIJ B.V.,
P.J. MORRISON, T.S. SCHWARZ, I.M. HOEPELMAN, Ph. K. PETERSON, J. REMINGTON, M.
ROZENBERG-ARSKA and L.G.W. STERKMAN (collectively, "Sellers"), and KEATING,
MUETHING & KLEKAMP, P.L.L. as the escrow agent hereunder ("Escrow Agent").
BACKGROUND
----------
A. Kendle and the Sellers are parties to the Stock Purchase Agreement
dated as of June 27, 1997 (the "Purchase Agreement"). Pursuant to the terms of,
and on the conditions set forth in, the Purchase Agreement, Kendle or a wholly
owned subsidiary thereof shall acquire all of the issued and paid up capital
stock of U-Gene Research B.V., a Netherlands corporation ("U-Gene").
B. The parties desire to enter into this Escrow Agreement to provide
for an escrow of an Eight Percent (8%) Promissory Note in the principal amount
of NLG 3,000,000 (the "Escrow Note"; the Escrow Note is sometimes referred as
the "Deposit") to be released, subject to the terms of this Escrow Agreement, to
the Sellers on January 1, 1999 and to serve, in the interim, as security for the
Sellers' indemnification obligations under the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth
below and other good and valuable consideration, the parties hereto agree as
follows:
1. DESIGNATION AND DELIVERY. Kendle and the Sellers hereby designate
Keating, Muething & Klekamp, P.L.L. as "Escrow Agent" under this Escrow
Agreement. Kendle and the Sellers hereby deliver to the Escrow Agent a copy of
the Purchase Agreement, which agreement is attached hereto as Exhibit "A."
Kendle, in accordance with the Purchase Agreement, hereby delivers to the Escrow
Agent the Deposit.
2. ESCROW AGENT AS CUSTODIAN; EXPENSES. The Escrow Agent shall, for all
purposes of this Escrow Agreement, be treated as and considered legally a
custodian. The Escrow Agent shall be entitled to rely conclusively upon the
written notice provided in Section 4 and may assume the genuineness of all
signatures and documents and the authority of all signatories. The Escrow Agent
shall have no liability except for gross negligence or willful misconduct in the
performance of its duties under this Escrow Agreement and shall not have any
liability for any action taken (or any failure to act) in good faith. Kendle
shall assume and pay all costs and expenses of the Escrow Agent incurred in its
capacity as the Escrow Agent under this Escrow Agreement.
<PAGE> 2
- 2 -
3. RESIGNATION; DISAGREEMENTS.
(a) Escrow Agent (and any successor Escrow Agent) may at any
time resign as such by delivering the Escrow Fund to any successor
Escrow Agent designated by the other parties hereto in writing, or to
any court of competent jurisdiction as provided below. The resignation
of Escrow Agent will take effect on the earlier of: (a) the appointment
of a successor (including a court of competent jurisdiction); or (b)
the day which is thirty (30) days after the date of delivery of its
written notice of resignation to the other parties hereto. If at that
time Escrow Agent has not received a designation of a successor Escrow
Agent, Escrow Agent's sole responsibility after that time shall be to
retain and safeguard the Escrow Fund until receipt of a designation of
successor Escrow Agent or a joint written disposition instruction by
the other parties hereto or a final non-appealable order of a court of
competent jurisdiction.
(b) In the event of any disagreement between the other parties
hereto resulting in adverse claims or demands being made in connection
with the Escrow Fund or in the event that Escrow Agent is in doubt as
to what action it should take hereunder, Escrow Agent shall be entitled
to retain the Escrow Fund until Escrow Agent shall have received: (i) a
final non-appealable order of a court of competent jurisdiction
directing delivery of the Escrow Fund; or (ii) a written agreement
executed by the other parties hereto directing delivery of the Escrow
Fund, in which event Escrow Agent shall disburse the Escrow Fund in
accordance with such order or agreement. Any court order shall be
accompanied by a legal opinion by counsel for the presenting party
satisfactory to Escrow Agent to the effect that the order is final and
non-appealable. Escrow Agent shall act on such court order and legal
opinion without further question.
4. TERMINATION AND DISTRIBUTION OF THE ESCROW NOTE.
(a) This Escrow Agreement with respect to the Escrow Note
shall terminate upon the earlier of (i) January 1, 1999, or (ii) the
date upon which the Escrow Agent shall have distributed the proceeds of
the Escrow Note as provided herein;
(b) If, on or prior to January 1, 1999, Kendle shall not have
delivered to the Escrow Agent and the Sellers a notice of claim with
respect to the Escrow Note based on breaches by the Sellers of
warranties and representations contained in the Purchase Agreement
("Notice of Claim-Representations"), the proceeds of the Escrow Note
shall be promptly released to the Sellers by the Escrow Agent;
(c) If, on or prior to January 1, 1999, Kendle shall have
delivered a Notice of Claim-Representations to the Escrow Agent and the
Sellers, and the Sellers shall not have disputed the Notice of
Claim-Representations within fifteen (15) business days after its
receipt of the Notice of Claim-Representations, the Regular Escrow Note
(or such lesser amount as may be specified in Kendle's Notice of
Claim-Representations) shall promptly be
<PAGE> 3
- 3 -
released to Kendle by the Escrow Agent (with any residue proceeds being
released to the Sellers);
(d) If, on or prior to January 1, 1999, Kendle shall have
delivered a Notice of Claim-Representations to the Escrow Agent and the
Sellers which is timely disputed by the Sellers, the Escrow Agent shall
hold the Escrow Note until the dispute is resolved by a court of
competent jurisdiction and shall distribute the proceeds of the Regular
Escrow Note either pursuant to joint written instructions from Kendle
and the Sellers or pursuant to court order or provided in Article 10 of
the Purchase Agreement.
(e) Kendle's Notice of Claim-Representations shall include the
amount claimed and the basis for such claim.
5. DUTIES OF ESCROW AGENT. The duties of Keating, Muething & Klekamp,
P.L.L. under this Escrow Agreement shall be entirely administrative and the
Escrow Agent shall not be liable to any third party as a result of any action or
omission taken or made by it, except for gross negligence or willful misconduct
in performing its duties. In the event of disagreement or dispute between Kendle
and the Sellers with respect to disposition of the Escrow Note, the Escrow Agent
shall promptly initiate an appropriate legal proceeding to obtain a judicial
determination of the respective parties' rights to the Escrow Note. No rights
are intended to be granted to any third party hereunder. Kendle and the Sellers
shall severally, and not jointly, (each being responsible for 50% of the
indemnity amount) indemnify, defend and hold harmless the Escrow Agent and
reimburse the Escrow Agent from and for any and all liability, costs and
expenses the Escrow Agent may suffer or incur by reason of its execution and
performance of this Escrow Agreement. The Escrow Agent shall have no duties
except those which are expressly set forth herein, and it shall not be bound by
any notice of a claim, or demand with respect thereto, or any waiver,
modification, amendment, termination or recision of this Escrow Agreement,
unless in writing received by it and signed by Kendle and/or the Sellers.
In the event that the Escrow Agent shall find it necessary to
consult with counsel of its own choosing in connection with this Escrow
Agreement, the Escrow Agent shall not incur any liability for any action taken
in good faith in accordance with such advice. Kendle and the Sellers, jointly
and severally, shall indemnify and hold harmless the Escrow Agent for any
liability, loss, claim or damage incurred by the Escrow Agent in connection with
this Escrow unless such liability, loss, claim or damage is the result of Escrow
Agent's own gross negligence or willful misconduct. This indemnification shall
survive termination of this Escrow Agreement.
Escrow Agent is not a party to, and is not bound by, any
agreement which may be evidenced by, or arise out of, the foregoing instruction,
other than as expressly set forth herein. In the event that any of the terms and
provisions of any other agreement (excluding any amendment to this Escrow
Agreement) between any of the parties hereto, conflict or are inconsistent with
any of the provisions of this Escrow Agreement, the terms and provisions of this
Escrow Agreement shall govern and control in all respects.
<PAGE> 4
- 4 -
6. NOTICES. All notices, consents or other communications required or
permitted to be given under this Escrow Agreement shall be in writing and shall
be deemed to have been duly given:
(a) when delivered personally,
(b) one (1) business day after being sent by an overnight
delivery service, postage or delivery charges prepaid, or
(c) on the date on which a telegram or facsimile is
transmitted to the parties at their respective addresses stated in the
Purchase Agreement.
Any party may change its address for notice and the address to which copies must
be sent by giving notice of the new addresses to the other parties in accordance
with this Section 6, except that any such change of address notice shall not be
effective unless and until received.
7. AMENDMENT. No amendment or modification of this Escrow Agreement
shall be effective unless in writing and signed by the parties. This Escrow
Agreement may not be terminated except in a written document signed by the
parties.
8. PARTIES IN INTEREST. This Escrow Agreement shall bind, benefit, and
be enforceable by and against each party hereto and their successors, assigns,
heirs and personal representatives. No party shall in any manner assign any of
its rights or obligations under this Escrow Agreement without the express prior
written consent of the other parties.
9. NO WAIVERS. No waiver with respect to this Escrow Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought. Except as otherwise expressly provided herein, no failure to
exercise, delay in exercising, or single or partial exercise of any right, power
or remedy by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or further
exercise of the same or any other right, power or remedy.
10. SEVERABILITY. If any provision of this Escrow Agreement is
construed to be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without regard
thereto.
11. COUNTERPARTS. This Escrow Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall constitute
an original hereof, and it shall not be necessary in making proof of this Escrow
Agreement to produce or account for more than one original counterpart hereof.
12. CONTROLLING LAW. This Escrow Agreement is made under, and shall be
construed and enforced in accordance with, the laws of the State of Ohio
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of law.
<PAGE> 5
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13. DEFINITIONS. To the extent not specifically defined herein, all
terms used herein shall have the meanings ascribed to them in the Purchase
Agreement.
IN WITNESS WHEREOF, the parties have executed, or caused their duly
authorized representatives to execute, this Escrow Agreement on the date first
written above.
KENDLE INTERNATIONAL INC.
By:/s/ Kendle International Inc.
-------------------------------------------
Name:
Title:
BIO-MEDICAL RESEARCH HOLDINGS B.V.
By:/s/ Bio-Medical Research Holdings B.V.
-------------------------------------------
Name:
Title:
UTRECHTSE PARTICIPATIEMAATSCHAPPIJ
B.V.
By:/s/ Utrechtse Participatiemaatschappij B.V.
-------------------------------------------
Name:
Title:
/s/ P.J. Morrison
----------------------------------------------
P.J. MORRISON
/s/ T.S. Schwarz
----------------------------------------------
T.S. SCHWARZ
<PAGE> 6
- 6 -
/s/ I.M. Hoepelman
----------------------------------------------
I.M. HOEPELMAN
/s/ Ph.K. Peterson
----------------------------------------------
Ph.K. PETERSON
/s/ J. Remington
----------------------------------------------
J. REMINGTON
/s/ M. Rozenberg-Arska
----------------------------------------------
M. ROZENBERG-ARSKA
/s/ L.G.W. Sterkman
----------------------------------------------
L.G.W. STERKMAN
Received and accepted:
KEATING, MUETHING & KLEKAMP, P.L.L.
Escrow Agent
By:
--------------------------------
Name:
Title:
<PAGE> 1
Exhibit 2.2
SHARE PURCHASE AGREEMENT
between
1. AB9707 Vermoegensverwaltungs GmbH, a German corporation with its
registered office in Munich, registered in the commercial register of
Munich under No. HRB 116718 ("Kendle GmbH").
AND
2. Dr. Dagmar Margarete Chase, Von-der-Vring-Strasse 31, D-81929 Munich,
Germany ("Dagmar Chase") and Prof. Dr. Albrecht Nei ,
Robert-Koch-Strasse 4, 82031 Grunewald, Germany ("Albrecht Neiss")
(Dagmar Chase and Albrecht Neiss collectively, the "Sellers").
PREAMBLE
1. The registered share capital of GMI Gesllschaft fur Angewandte
Mathematik und Informatik mbH ("gmi") with its registered office in
Munich, registered in the commercial register of Munich under No. HRB
70970, amounts to a nominal value of DM 50,000. It is divided into two
shares, both of which have been fully paid in.
gmi was founded by Albrecht Neiss as sole shareholder on August 23,1983
by the notarial deed of the notary public in Munich Josef Polsterl,
URNr. P 3699. On February 22, 1994 Albrecht Neiss divided his one share
into two shares and transferred one share of DM 12,400 to Dagmar Chase
by notarial deed of the notary public Josef Polsterl, URNr.
0463/1994.
2. All the issued and outstanding shares in gmi are held as follows:
2.1 Professor Neiss holds one share with a nominal value of DM 37,600;
2.2 Dagmar Chase holds one share with a nominal value of DM 12,400.
3. Kendle GmbH desire to purchase from Sellers and Sellers desire to sell
and transfer to Kendle GmbH all their respective shares in gmi
(collectively the "gmi Shares").
Now, therefore, the parties agree as follows:
<PAGE> 2
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ARTICLE 1
SALE AND TRANSFER OF THE GMI SHARE
1.1 Albrecht Neiss hereby sells and transfers to Kendle GmbH his share
with a nominal value of DM 37,600 as stated in no. 2.1 of the Preamble together
with all ancillary rights, including, without limitation, the rights to vote
such shares and the rights to all profits the distribution of which is resolved
in the future. Kendle GmbH hereby accepts such sale and transfer.
Dagmar Chase hereby sells and transfers to Kendle GmbH her share
with a nominal value of DM 12,400 as stated in no. 2.2 of the Preamble together
with all ancillary rights, including, without limitation, the rights to vote
such shares and the rights to all profits the distribution of which is resolved
in the future. Kendle GmbH hereby accepts such sale and transfer.
1.2 The transfer of gmi Shares pursuant to Section 1.1 above shall be
subject to the satisfaction of the condition precedent (Aufschiebende Bedingung)
that Kendle GmbH shall have:
(1) fully paid the cash portion of the Purchase Price as
set forth in Section 2.1 and 2.2 below. Payments
under the Standby Letters of Credit will be deemed
payment of the purchase price with regard to this
condition precedent insofar as the actual cash
portion of the purchase price has been satisfied.
and, cumulatively,
(2) fully delivered the Kendle Stock as set forth in
Section 2.4 below.
The transfer of gmi Share pursuant to Section 1.1 above shall
furthermore be subject to the condition (Bedingung) that this Agreement shall
not have been canceled and/or terminated by either party to this Agreement prior
to the satisfaction of the condition precedent set out above.
1.3 This Agreement is subject to the condition precedent that the
original Letters of Credit as attached to this Agreement as Exhibit B will be
delivered to Bayerische Vereinsbank Aktiengesellschaft, Munich on behalf of
Sellers by July 3, 1997.
1.4 Upon satisfaction of the conditions precedent set out above, title
will pass automatically to Kendle GmbH.
<PAGE> 3
- 3 -
ARTICLE 2
PURCHASE PRICE
2.1 The purchase price to be paid to Albrecht Nei for the sale and
transfer of his share as stated in no. 2.1 of the Preamble shall be DM
10,998,000 (in words: Deutsche Mark ten million nine hundred ninety eight
thousand) and a number of shares in Kendle International Inc., an Ohio
corporation with its registered office in Cincinnati, Ohio, U.S.A. ("Kendle
Inc.") as set out in Section 2.4 below. The case portion of the purchase price
shall be paid to the following account of Albrecht Nei :
Bayerische Hypotheken- und Wechsel-Bank Aktiengesellschaft, Munich, Max
Weber-Platz, Munich
Bank Code No. 700 200 01
Account-No. 6400256908
2.2 The purchase price to be paid to Dagmar Chase for the sale and
transfer of her share as stated in No. 2.2 of the Preamble shall be DM 3,627,000
(in words: Deutsche Mark three million six hundred twenty seven thousand) and a
number of shares in Kendle Inc. as set out in Section 2.4 below. The case
portion of the purchase price shall be paid to the following account of Dagmar
Chase:
Bayerische Vereinsbank Aktiengesellschaft, Munich, Mauerkircherstasse,
Munich, Germany
Bank Code No. 700 202 70
Account-No. 7332653
2.3 The cash portion of the purchase price to be paid to Albrecht Neiss
and Dagmar Chase respectively shall be due within five (5) business days after
the completion of the IPO but not later than September 19, 1997, 6 p.m. New
York time, or a later date as mutually agreed in notarial form (Sec. 15 GmbHG,
German Act on Limited Liability Companies) by all parties to this Agreement
(the "Closing Date"). Albrecht Nei and Dagmar Chase shall both have the right
to demand payment of the purchase price for the sale and transfer of their
respective share (Teilglaeubigerschaft).
2.4 In addition to the cash portion of the purchase price set out in
Section ? and Section 2.2 above, the purchase price for the transfer of the gmi
Shares shall include the following items:
(1) If Kendle Inc. pursuant to a registration statement (the
"Registration Statement") filed with the U.S. Securities and
Exchange
<PAGE> 4
- 4 -
Commission ("SEC") completes its initial public
offering ("IPO") of shares of common stock on or
prior to September 18, 1997, 6 p.m. New York time
(the "Agreed Date") the purchase price to be paid to
Albrecht Neiss shall include shares of Kendle Inc.
common stock, no par value per share ("Kendle
Shares"), having a value (calculated utilizing the
initial IPO offer price and the exchange rate quoted
by Chase Manhattan Bank in New York as of 4 p.m. New
York time at the offering date of the IPO) of DM
3,666,000 (in words: Deutsche Mark three million six
hundred sixty six thousand) and the purchase price to
be paid to Dagmar Chase shall include Kendle Shares,
having a value (calculated utilizing the initial IPO
offer price and the exchange rate quoted by Chase
Manhattan Bank in New York as of 4 p.m. New York time
at the offering date of the IPO) of DM 1,209,000 (in
words: Deutsche Mark one million two hundred nine
thousand).
(2) If Kendle Inc. does not complete its IPO by the
Agreed Date, then the purchase price to be paid to
Albrecht Nei shall include shares of Kendle Inc.'s
Mandatory Convertible Exchangeable Preferred Stock
having the terms and condition set forth on Exhibit A
("Kendle Preferred Shares") and having a liquidation
value (calculated utilizing the exchange rate quoted
by Chase Manhattan Bank in New York as of 4 p.m. New
York as of 4 p.m. New York time as of the Agreed
Date) of DM 3,666,000 (in words: Deutsche Mark three
million six hundred sixty six thousand), and the
purchase price to be paid to Dagmar Chase shall
include Kendle Preferred Shares having a liquidation
value (calculated utilizing the exchange rate quoted
by Chase Manhattan Bank in New York as of 4 p.m. New
York time as of the Agreed Date) of DM 1,209,000 (in
words: Deutsche Mark one million two hundred nine
thousand).
(3) The Kendle Shares or Kendle Preferred Shares
respectively, as the case may be, (collectively,
"Kendle Stock") included in the Purchase Price will
be duly authorized, validly issued, fully paid and
non-assessable shares of Kendle Inc.'s Capital Stock
and will be delivered to the Sellers free and clear
of any and all liens, hypothecations, encumbrances or
restrictions of any kind other than restrictions of
any kind other than restrictions on transfer imposed
by United Stated Federal Securities Laws and
regulations and by other applicable laws under the
restrictions set forth in Article 7 of this Agreement
(collectively, the "Permitted Restrictions").
<PAGE> 5
- 5 -
(4) Kendle GmbH shall deliver at the Closing Date the
respective number of Kendle Shares of Kendle Shares
or Kendle Preferred Shares, as the case may be, to
Albrecht Nei and Dagmar Chase. In the even that it is
not possible to deliver whole shares of Kendle Stock
in the proportion as set forth in this Article 2.4,
any remaining fractional amount shall be paid in cash
at the Closing Date to Albrecht Neiss and Dagmar
Chase.
(5) As used in this Agreement, the term "complete" as it
pertains to the IPO includes the following events:
consummation of the IPO which includes closing of the
transaction and distribution of the proceeds of the
offering to Kendle. Within 48 hours after completion
of the IPO, Kendle GmbH shall notify Sellers in
writing of the completion of the IPO.
2.5 Albrecht Nei and Dagmar Chase shall each have the right to exercise their
respective rights under the Standby Letters of Credit issued by the
Nationsbank, N.A. on July 1, 1997, copies of which are attached hereto and
incorporated herein as Exhibit B, if full payment of the respective purchase
price pursuant to section 2.1 and 2.2 was not credited to Albrecht Nei ' and/or
Dagmar Chase's account by September 21, 1997, 6 p.m. New York time, or a later
date as mutually agreed in notarial form by all parties to this Agreement. The
rights under the respective Letters of Credit shall be exercisable by Albrecht
Nei and Dagmar Chase, as the case may be, on or after September 22, 1997 under
presentation of a document containing the following statement: "I have not
received the purchase price under the Share Purchase Agreement dated July 1,
1997, by and among the Shareholders of GMI Gesellschaft fur Angewandte
Mathematik und Informatik mbH and AB9707 Vermogensverwaltungs GmbH, a German
corporation". If the Purchase Price is credited to the Albrecht Neiss' and
Dagmar Chase's accounts later than the Closing Date, interest shall be payable
thereon with effect from this date at an annual rate of three percent (3%)
above the respective discount rate of the German Federal Bank, calculated on
the basis of 30 interest days per month and 360 interest days per annum.
2.6 Kendle GmbH shall bear all of its costs and expenses and all costs
and bank charges connected with the Standby Letters of Credit referred to in
section 2.5, including but not limited to issuance and delivery costs as well as
the costs of Sellers for the exercise of rights under the Standby Letters of
Credit. Kendle GmbH shall also bear up to a total amount of US$ 500,000 (US
Dollars five hundred thousand) plus reasonable expenses of Sellers' investment
banking costs with regard to Smith Barney. Kendle GmbH shall also bear the costs
of notarization of this Agreement. Kendle GmbH shall also bear the costs and
expenses of Seller's legal advisers up to DM 150,000 (Deutsche Mark hundred
fifty thousand) plus value added tax.
2.7 Simultaneously with the payment of the cash portion of the purchase
price and the delivery of Kendle Shares or Kendle Preferred Shares respectively,
Albrecht Neiss and
<PAGE> 6
- 6 -
Dagmar Chase shall each confirm without undue delay in writing to Kendle GmbH
that each of the conditions precedent pursuant to sections 1.2 and 1.3 of this
Agreement have been satisfied; furthermore, simultaneously the Standby Letters
of Credit shall be delivered to Kendle GmbH. The notary shall receive copies of
the confirmations, which shall be attached to this document as proof that the
transfer of the shares has been effected.
ARTICLE 3
GUARANTEES OF SELLERS
3.1 Guarantees with Respect to the gmi Shares and the Sellers
As an inducement to Kendle GmbH and recognizing Kendle GmbH's
reliance thereupon, the Sellers, jointly and severally, guarantee in the form of
an independent guarantee ("Garantieversprechen") to Kendle GmbH with respect to
the gmi Shares that as of the date of this Agreement and as of the Closing Date:
(1) each Seller has full power and authority to enter
into and perform this Agreement, which constitutes a
binding obligation on him or her in accordance with
its terms;
(2) The statements in the preamble hereto are complete
and correct. The registered share capital of gmi
stated in the preamble has been fully paid in; no
refunds have been made (Sec. 30 paragraph 1 GmbHG,
German Act on Limited Liability Companies).
There is no liability to effect further contributions
(Nachschuesse) pursuant to section 26 GmbHG (German
Act on Limited Liability Companies);
(3) Sellers hold each of their shares in gmi as
sole owner in their own name and on their own
account and can dispose of them freely and without
consent of any third party. The consent to the
execution of this Agreement by Albrecht Neiss' wife,
Mrs. Inge Neiss, and the consent to the
execution of this Agreement by Dagmar Chase's
husband, Mr. Stephen Chase, have been given and will
be attached to this Agreement. The shares are free
of any encumbrances for the benefit of third parties
or other rights of third parties and there is no
agreement or arrangement to give or create any such
encumbrance or right;
<PAGE> 7
- 7 -
(4) the Sellers are entitled to transfer the gmi Shares
to Kendle GmbH on the terms of this Agreement without
the consent of any third party;
(5) each Seller represents that no "Sperrbetrag" (amount
of blockage) according to Section 4 paragraph 5 of
the German Reorganization Tax Act
(Umwandlungssteuergesetz) in connection with Section
50(c) of the German Income Tax act
(Einkommensteuergesetz) exists and that since the
installation of gmi none of the shares have been
owned by a taxpayer that was not entitled to
participate in the German corporate imputation system
(Anrechnungsverfahren).
(6) each Seller acknowledges and understands that he or
she is responsible for obtaining independent legal
advice with respect to the Kendle Stock included in
the Purchase Price and the restrictions attached to
Sellers' right to resell or transfer in any way said
Kendle Stock; that such Seller has been given the
opportunity to ask questions of, and receive answers
from, the officers of Kendle Inc. concerning Kendle
Inc. and its business and the terms and conditions of
the transactions contemplated by this Agreement; and
that in view of Seller's extensive discussions with
representatives of Kendle Inc concerning such
transactions and such Seller's direct access to
Kendle Inc., disclosures by Kendle Inc. to Seller
shall constitute disclosure to each Seller and all
Sellers for all purposes, including without
limitation for purposes of compliance with all
applicable securities laws regarding disclosure;
(7) the gmi Shares sold by each Seller do not constitute
the entire assets of that Seller within the meaning
of Section 419 BGB (German Civil Code);
(8) each Seller acknowledges and understands that the
Kendle Stock included in the Purchase Price have not
been and will not be registered under the United
States federal Securities Act of 1933 (the
"Securities Act"), or any other applicable securities
laws, (except to the extent required under Sec.
2.2(3) hereof or should Sellers exercise their
registration rights under the Registration Rights
Agreement in the form attached hereto and
incorporated herein as Exhibit C (the "Registration
Rights Agreement") and are being offered only outside
the United States to non-U.S. persons within the
meaning of and in accordance with Regulation S under
the Securities Act;
<PAGE> 8
- 8 -
(9) each Seller represents and warrants that he or she is
not a U.S. person and is acquiring the Kendle Stock
included in the Purchase Price in a transaction
outside the United States in accordance with Rules
903 and 904 of Regulation S under the Securities Act.
(10) Sellers have been informed that Candace Kendle Bryan
and Christopher C. Bergen will sell part of their
current shareholding in Kendle Inc. in connection
with the IPO but not more than 30% of their current
shareholding.
3.2 Guarantees With Respect to gmi
As an inducement to Kendle GmbH and recognizing Kendle GmbH's
reliance thereupon, the Sellers, jointly and severally, guarantee in the form of
an independent guarantee ("Garantieversprechen") to Kendle GmbH with respect to
gmi that as of the date of this Agreement unless stipulated herein otherwise:
(1) As of the date of this Agreement and of the Closing
Date gmi is a limited liability company (Gesellschaft
mit beschraenkter Haftung, GmbH), duly organized
under the laws of the Federal Republic of Germany and
validly existing. The Commercial Register, Law Court
of Munich, HRB 71970, was inspected by the notary. A
copy of the registration is attached to this
document. gmi has full corporate power and authority
to own its assets and to carry on its contract
research organization business ("CRO Business") as
now being conducted.
(2) As of the date of this Agreement and of the Closing
Date the Articles of Association (Satzung) of gmi
will not be changed by Sellers. A copy of the
Articles of Association has been handled over to
Kendle GmbH. There exist no shareholders' resolutions
and/or obligations concerning any amendments of the
Satzung.
(3) A copy of the annual accounts as of December 31, 1996
of gmi, (hereinafter, the "gmi Financial Statement"),
initialed by Sellers, has been handed over to Kendle
GmbH, which has acknowledges receipt, during the
notarization. The gmi Financial Statement has been
prepared with the care of an ordinary businessman in
accordance with the German principles of accounting
and bookkeeping ("GOB") pursuant to Sec. 243 HGB
(German Commercial Code). The gmi Financial Statement
fairly presents in all material respect the financial
and profit situation of gmi at the
<PAGE> 9
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respective dates of and for the periods referred to
in such gmi Financial Statement, observing continuity
in the accounting and evaluation methods. The gmi
Financial Statement was delivered to Kendle Inc.
prior to execution of this Agreement and audited on
Kendle Inc.'s behalf by Coopers & Lybrand,
independent certified public accountants and that in
view of gmi's extensive discussions with
representatives of Coopers & Lybrand concerning such
transactions and Coopers & Lybrand's direct access to
gmi, disclosures by Sellers and/or gmi to Coopers &
Lybrand shall constitute disclosure to Kendle GmbH
for all purposes. gmi is in good financial standing.
(4) Except as set forth in Schedule 3.2(4), which is
attached to this Agreement, gmi has, to the best of
Sellers' knowledge and belief after due
investigation, no liabilities or obligations of any
nature as of December 31, 1996 except for liabilities
reflected or reserved against in the gmi Financial
Statement and gmi is not liable for any indemnity or
warranty risks with respect to services performed
prior to January 1, 1997 unless sufficient reserves
have been created in respect thereof in the gmi
Financial Statement.
(5) As of the date of this Agreement and of the Closing
Date, gmi has duly withheld or collected, and to the
extent required, paid to the proper governmental
authority or other person all taxes due as of the
date of this Agreement, including all VAT, that gmi
is legally required to withhold, collect and pay.
In the event that an external tax audit (Steuerliche
Auss enpruefung) for the period up to December 31,
1996, gives rise to subsequent tax claims, after
set-off of excess taxes and reduced taxes (Mehrund
Mindersteuern), of more than DM 50,000 shall be borne
by the Sellers. The last external tax audit took
place in respect of the years 1991 to 1993. The audit
report of 21.03.1995 has been given to Kendle GmbH.
All deficiencies proposed as a result of any such
audit have been paid. There are no ongoing tax audits
of ro relating to gmi and there is no tax sharing
agreement that will require any payment by gmi after
the date of this Agreement. As of December 31, 1996,
tax reporting and financial reporting are identical
(Die Handelsbilanz entspricht den steuerlichen
Voraussetzungen).
<PAGE> 10
- 10 -
(6) The business of gmi has been properly conducted since
January 1, 1997 in accordance with the ordinary
course of business. To the best of Sellers' knowledge
and belief after due investigation, since then there
has not been any material adverse change in the
business, operations, properties, prospects, assets
or condition, financial or otherwise, of gmi, and no
event has occurred or circumstance exists that may
result in such a material adverse change, in
particular:
(a) No liabilities of any kind have been created
for which there has not been a reasonable
quid pro quo; in particular no contracts
with danger of losses at the time the
contracts were awarded have been accepted;
(b) No assets have been assigned without
reasonable consideration;
(c) No liabilities have been created which fall
outside the ordinary course of business;
(d) No substantial agreements of gmi have been
concluded, changed or terminated which fall
outside the ordinary course of business;
(e) There has been no damage or loss which
either individually or cumulatively could
have a substantial effect on the existence
of gmi or its financial situation.
(7) As of the date of this Agreement and of the Closing
Date, gmi has paid, or has made provision for the
payment of, all employee's contributions and
employer's contributions to social insurance and
pension, deferred compensation and other employee
benefit payments required to be made by gmi with
respect to its employees and agents and which are due
as of the date of this Agreement. The consummation of
the transactions contemplated by this Agreement will
not result in the payment, vesting or acceleration of
any benefit available to the employee benefit plan or
under any employment contracts or other arrangements.
(8) Schedule 3.2(8), which is attached to this Agreement,
contains a complete and correct list of all
industrial property rights (patents, trademarks,
copyrights and design patents) and intellectual
property
<PAGE> 11
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rights, which are owned by gmi. To the best of
Sellers' knowledge and belief after due
investigation, gmi is not in violation of and has not
breached any licensing agreement with respect to
patents, trademarks, copyrights or other intellectual
property. All of the patents, trademarks, copyrights
and other intellectual property used by gmi in the
conduct of its CRO Business are either owned by gmi
or can be used according to licensing agreements to
which gmi is party and which, to the best of Sellers'
knowledge and belief after due investigation, are
valid. To the best of Sellers' knowledge and belief
after due investigation, none of the patents,
trademarks, copyrights or other intellectual property
utilized by gmi in the conduct of its CRO Business
infringes on the intellectual property rights of any
third party.
(9) As of the date of this Agreement and as of the
Closing Date, to the best of Sellers' knowledge and
belief after due investigation, the conduct and
operation of gmi's CRO Business have been and are in
conformity with all applicable laws and regulations,
including the German Medication Act (Gesetz uber den
Verkehr mit arzneimitteln) and the Guideline for Good
Clinical Practice as adopted by the European Agency
for the Evaluation of Medicinal Products and gmi has
not received any notice asserting or suggesting any
failure, or potential failure, to comply with or
confirm to any such laws or regulations;
(10) As of the date of this Agreement and of the Closing
Date, all assets of gmi which can be included in a
balance sheet are fully owned by gmi without being
subject to any charges. gmi is not subject to any
restrictions on disposal in relation to these items.
Excepted are reservations of title or other security
rights in accordance with normal business practice.
Schedule 3.2(10), which is attached to this
Agreement, contains a complete and correct list of
all assets which are subject to reservations of title
or other security rights.
All objects in the asset side of the attached gmi
Financial Statement and used by it in its CRO
Business are in an operational state.
(11) Each contract, agreement, commitment or understanding
to which gmi is a party that is material to gmi's CRO
Business or that involves the payment by, or to, gmi
is more than DM 20,000 in any twelve (12) months
period (collectively, the "Material Contracts") is
listed on Schedule 3.2(11) which is attached to this
<PAGE> 12
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Agreement. gmi has not received notice of default
with respect to and gmi is not in default under any
of the Material Contracts. Copies of all contracts
with clients of gmi for the planning, implementation
and evaluation of clinical research initialed by
Sellers have been handed over to Kendle GmbH which
acknowledged receipt. The contracts contain no
unusual obligations for gmi that could result in a
material loss under such contract.
(12) As of the date of this Agreement and of the Closing
Date gmi has not entered into any agreements,
undertakings or commitments which would in any
material way prevent or restrict the CRO Business in
continuing or further developing its business
currently conducted in Germany or any other country
where gmi has conducted its CRO Business during the
last two (2) years or would legally prevent or
restrict its ability to compete with other companies.
(13) Unless otherwise listed in Schedule 3.2(13), which is
attached to this Agreement, no lawsuits with a value
of DM 20,000 or more, administrative proceedings or
investigations against gmi and/or representatives
and/or employees of gmi, the latter two only with
respect to the business of gmi, and/or gmi's CRO
Business has been initiated, notified, or to the best
knowledge of Sellers threatened to, gmi or gmi's CRO
Business, nor are any material circumstances known
that would make the initiation of any such lawsuits,
administrative proceedings or investigations appear
likely to occur.
(14) None of the information concerning gmi, gmi's CRO
Business or the Sellers that gmi or the Sellers would
supply Kendle Inc. for use in Kendle Inc.'s
Registration Statement will contain any untrue
statement of a material fact or, to the best of
Sellers' knowledge and belief after due
investigation, omit to state a material fact
necessary in order to make the statements made
therein, in light of the circumstances under which
they will be made, not misleading.
(15) Schedule 3.2(15), which is attached to this
Agreement, contains a complete and accurate list of
the following information for each employee or
director of gmi, including each employee on leave of
absence or layoff status: name; job title;
professional qualifications; permits held; current
compensation paid or payable and any change
<PAGE> 13
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in compensation since January 1, 1996; vacation
accrued; and service credited for purposes of
eligibility and vesting under any social insurance or
employee benefit plan or under any employment
contracts for the gmi's employees initialed by
Sellers have been handed over to Kendle GmbH which
has acknowledged the receipt.
(16) As of the date of this Agreement and of the Closing
Date gmi does not have any real property rights or
similar rights.
(17) Notwithstanding any other guarantees of Sellers, to
the best of Sellers' knowledge and belief after due
investigation, no guarantee of Sellers in this
Agreement and no statement in any Schedule or Exhibit
hereto omits to state a material fact necessary to
make the statements herein or therein, in light of
the circumstances in which they were made, not
misleading. None of the Sellers knows of any
information which is, or which may reasonably be
regarded as, material to an accurate appraisal of the
CRO Business, assets, liabilities and affairs of gmi
and which has not been disclosed to Kendle GmbH.
(18) As of the date of this Agreement and of the Closing
Date none of gmi's contracts with third parties
contains any change of control provisions
(Kundigungsrecht oder auflosende Bedingung bei
Wechsel des Mehrheitsgesellschafters) which could
trigger a termination of the respective contract in
consequence of the signing of this Agreement and/or
the transactions contemplated by this Agreement.
(19) Complete and correct copies of all insurance
contracts of gmi initialed by Sellers have been
handed over to Kendle GmbH which has acknowledged the
receipt.
(20) Schedule 3.2(20), which is attached to this
Agreement, contains a complete and correct list of
all bank accounts of gmi and all of persons
authorized to sign.
(21) Schedule 3.2(21), which is attached to this
Agreement, contains a complete and correct list of
all powers of attorney issued by gmi.
(22) Sellers will use best reasonable efforts to cause gmi
to obtain, without undue delay, risk life insurance
for DM ten (10) million
<PAGE> 14
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each on the lives of Mrs. Inge Nei and Dagmar Chase,
beneficiary being gmi. The rates have to be agreed
upon with Kendle GmbH.
3.3 No Representation, Warranties and/or Guarantees Other than as
Contained in Agreement
No representation, warranties and/or guarantees, express or
implied, statutory or otherwise, made by the Sellers or their professional
advisers on their behalf to Kendle GmbH in connection with, or arising out of,
the acquisition of the gmi Shares and which are not contained in this Agreement,
shall give rise to any liability on the part of the Sellers and Kendle GmbH
acknowledges that they have not entered into this Agreement in reliance upon any
guarantee or promise other than those in this Agreement.
ARTICLE 4
GUARANTEES OF KENDLE GMBH
4.1 Guarantees
As an inducement to the Sellers and recognizing the Sellers'
reliance thereupon, Kendle GmbH guarantees in the form of an inidependent
guarantee ("Garantieversprechen") to the Sellers that:
(1) Kendle Inc. is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Ohio, U.S.A. Kendle Inc. has full power and
authority to own its assets and to carry on its
contract research organization business as now being
conducted. Kendle Inc. is duly qualified or licensed
to do business as a foreign corporation in all
jurisdictions in which the present conduct of its
business requires such qualification or licensing.
Kendle Inc. changed during 1997 its name from Kendle
Research Associates, Inc. to Kendle International Inc.
(2) Kendle GmbH is a corporation duly organized, validly
existing and in good standing under the laws of
Germany.
(3) The copy of the Articles of Incorporation and
Regulations of Kendle Inc. as currently in effect,
previously delivered to the Sellers, is complete and
correct.
(4) Kendle Inc. has delivered to the Sellers audited
balance sheets of Kendle Inc. as at December 31 in
each of the years 1994, 1995 and 1996 and the
<PAGE> 15
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related statements of income, changes in stockholders'
equity and cash flow for each of the fiscal years then
ended, together with a report thereon of Coopers &
Lybrand, independent certified public accountants,
including in each case the notes thereto
(collectively, the "Kendle Inc. Financial
Statements"). The Kendle Inc. Financial Statements
fairly present in all material respects the financial
condition, results of operations, changes in
stockholders' equity and cash flow of Kendle Inc. as
at the respective dates of and for the periods
referred to in such Kendle Inc. Financial Statements,
all in accordance with United States Generally
Accepted Accounting Principles ("GAAP").
(5) To the best of Kendle GmbH's knowledge and belief
after due investigation except as set forth in
Schedule 4.1(5), which is attached to this Agreement,
Kendle Inc. has no liabilities or obligations of any
nature (whether absolute, accrued, contingent or
otherwise) except for liabilities reflected or
reserved against in the Kendle Inc. Financial
Statements and current liabilities incurred in the
ordinary course of Kendle Inc.'s business since
December 31, 1996. Kendle Inc. is in good financial
standing.
(6) Kendle Inc. has duly filed all required tax returns
and paid all material taxes due and payable with
respect to Kendle Inc., both with respect to its
contract research organization business and otherwise.
(7) Unless otherwise listed in Schedule 4.1(7), which is
attached to this Agreement, no lawsuits with a value
of Thirty Five Thousand Dollars ($35,000) or more,
administrative proceedings or investigations against
Kendle Inc. or its business have been initiated,
notified or to the best knowledge of Kendle Inc.
threatened to Kendle Inc. or Kendle Inc.'s business,
nor are any material circumstances known to Kendle
Inc.'s management that would make the initiation of
any such lawsuits, administrative proceedings or
investigations appear likely to occur.
(8) To the best of Kendle GmbH's knowledge and belief
after due investigation, since December 31, 1996 there
has not been any material adverse change in the
business, operations, properties, prospects, assets or
condition, financial or otherwise, of Kendle Inc., and
no event has occurred or circumstance exists that may
result in such a material adverse change.
<PAGE> 16
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(9) The execution, delivery and performance of this
Agreement by Kendle GmbH has been authorized by all
necessary corporate action. This Agreement constitutes
the legal, valid and binding obligation of Kendle
GmbH, enforceable against Kendle GmbH in accordance
with its terms. Kendle GmbH has the absolute and
unrestricted right, power, authority and capacity to
execute and deliver this Agreement and the other
documents to be delivered by Kendle GmbH hereunder and
to perform the obligations under this Agreement and
such other documents.
(10) The authorized equity securities of Kendle Inc.
consist of two hundred thousand (200,000) shares of
common stock, no par value per share, of which one
hundred thousand (100,000) shares are issued and
outstanding as of the date of this Agreement. The
shares and issued shares will be increased as a result
of the IPO. All of the outstanding equity securities
of Kendle Inc. have been duly authorized and validly
issued and are fully paid and non-assessable. When
issued to the Sellers pursuant to this Agreement, the
Kendle Shares included in the Purchase Price will be
duly authorized, validly issued and fully paid and
non-assessable shares of Kendle Inc.'s common stock
free and clear of any and all liens, hypothecations
and encumbrances of any kind other than the Permitted
Restrictions.
(11) No guarantee of Kendle GmbH in this Agreement and no
statement in any Schedule or Exhibit hereto contains
an untrue statement of a material fact or omits to
state a material fact necessary to make the statements
herein or therein, in light of the circumstances in
which they were made, not misleading. Kendle GmbH does
not know of any information which is, or which may
reasonably be regarded as, material to an accurate
appraisal of the business, assets, liabilities and
affairs of Kendle GmbH and Kendle Inc. and Kendle Inc.
and which has not been disclosed to Sellers.
(12) None of Kendle GmbH or Kendle Inc. are in default
under, or have received notice of default with respect
to any contract, agreement, commitment or
understanding to which any of the Kendle GmbH or
Kendle Inc. is a party that is material to the
business of Kendle GmbH or Kendle Inc. or that
involves the payment by, or to, that Kendle GmbH or
Kendle Inc. of more than DM 20,000 (or the U.S.
currency equivalent) in any twelve (12) month period.
<PAGE> 17
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4.2 No Representation, Warranties and/or Guarantees Other than as
Contained in Agreement
No representation, warranties and/or guarantees, express or
implied, statutory or otherwise, made by Kendle GmbH or their professional
advisers on their behalf to the Sellers in connection with, or arising out of,
the acquisition of the gmi Shares and which are not contained in this Agreement,
shall give rise to any liability on the part of Kendle GmbH and the Sellers
acknowledge that they have not entered into this Agreement in reliance upon any
guarantees or promises other than those in this Agreement.
ARTICLE 5
OPERATION OF BUSINESS
5.1 Preservation of gmi's Business and Assets
Sellers shall use their best efforts to cause gmi to operate
its CRO Business strictly in the ordinary course and as previously conducted,
shall use their best efforts to cause gmi to keep available to Kendle the
services of gmi's present key employees and shall use their reasonable best
efforts to cause gmi to preserve for Kendle GmbH the goodwill of gmi's
suppliers, customers and others having business relations with gmi.
5.2 Transactions Subject to Consent
Between the execution of this Agreement and the Closing Date
the Sellers shall cause gmi to undertake the following transactions only upon
the prior consent of Kendle GmbH:
(1) purchase, disposal and mortgaging of real property
and rights equivalent to real property;
(2) formation of branch offices;
(3) taking out loans over and above normal operations of
gmi;
(4) granting or accepting loans over and above normal
operations of gmi;
(5) providing collateral for any third party, including,
but not limited to, sureties and warranties over and
above normal operations of gmi;
(6) granting and withdrawing powers of commercial
representation or agency provided, however, that
Sellers may appoint Dagmar Chase as Managing Director
without obtaining prior consent;
<PAGE> 18
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(7) declaring or paying any dividends or other
distributions for the financial year 1997 to Sellers
or purchasing or redeeming any of its shares of
capital stock. Dividends for the financial year 1996
have been declared and a signed copy of the
respective shareholders resolution has been handed
over to Kendle GmbH which has acknowledged the
receipt.
(8) making any expenditure for, or incurring any
obligations in respect of fixed assets, fixtures and
other items provided that the expenditure or
obligation is in excess of DM 20,000 on any
individual item;
(9) entering into any employment or consulting agreement
with an annual salary of more than DM 100,000. Per
the request of Kendle GmbH, gmi has entered as of the
date of this Agreement into employment contracts with
Dagmar Chase and Inge NeiB and into a consultancy
contract with Albrecht NeiB. Initialed copies of
these contracts have been handed over to Kendle GmbH
which has acknowledged the receipt;
(10) entering into licensing or selling agreements on any
inventions, know-how or other intellectual property
in excess of DM 10,000 on any individual item;
(11) paying and/or agreeing on any bonus.
5.3 Notification
Between the date of this Agreement and the Closing Date, each
Seller will promptly notify Kendle GmbH in writing if such Seller or gmi becomes
aware of any material adverse change of gmi's CRO Business. Sellers shall cause
gmi to provide representatives of Kendle full access to all offices, books,
records, files, agreements and computer databases and information pertaining to
gmi's CRO Business, its assets and liabilities.
5.4 Preservation of Kendle Inc.'s Business and Assets
Kendle GmbH guarantees that Kendle Inc. shall use its
reasonable best efforts to operate its CRO Business strictly in the ordinary
course and as previously conducted (including the right to finance and make
acquisitions), shall use its reasonable best efforts to keep available the
services of the Kendle Inc.'s present key employees and shall use its reasonable
best efforts to preserve the goodwill of suppliers, customers and others having
business relations with Kendle Inc.
<PAGE> 19
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ARTICLE 6
LIABILITY
6.1 Liability
Unless stipulated otherwise in this Agreement, in the event of
a breach of representations, warranties and/or guarantees under this Agreement,
the breaching party shall put the other party into the position the other party
would have been in if such representations, warranties and/or guarantees had not
been breached. If it is not possible to do this within four weeks after the
breaching party has received such request from the other party, the other party
and/or - if the breaching party are the Sellers - gmi can request full pecuniary
compensation from the breaching party, in particular, all claims, demands,
losses, costs, expenses, obligations, liabilities, actions, suits, damages,
including, without limitation, interests and penalties, counsel fees, but
excluding any consequential and/or indirect damages (Folgeschaden). Any further
statutory remedies, including, but not limited to, cancellation of contract
(Wandelung, Rucktritt) and diminution of the purchase price (Minderung), are
excluded to the extent possible under statutory law. This limitation shall not
be applicable in case of defects of title (Rechtsmangel) of the gmi Shares.
Claims shall be excluded if such claims are not raised until
September 30, 1998; provided that in respect of the representations regarding
taxes the expiry date shall not be until 6 months after the assessment by the
respective governmental authority has become final and binding. Sellers shall be
given the opportunity at their own cost to take part in an external tax audit
and to file an appeal against tax demands with which they are charged or to
demand the filing of such an appeal.
The aforementioned expiry dates are deadlines
(AusschluBfristen) within which the party making a claim must have sent a
written notification of the claims explaining the grounds herefor in reasonable
detail.
6.2 Liability Limitation
With the exception of the obligation under section 3.2(5)
above, no party hereto shall have an obligation towards the others under a
warranty or related statutory claim unless and until the aggregate amount of
such claims against such party exceeds DM 100,000 or the equivalent in any other
currency, and if so, then the whole amount shall be payable to the other party.
<PAGE> 20
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No Seller shall be liable to Kendle GmbH under any provision
of this Agreement or a related statutory provision for an amount in excess of
that portion of the purchase price actually received by that Seller.
These limitations are not applicable in case of liability
arising form the defects of title ("Rechtsmangel) of the sold gmi Shares.
6.3 Constructive Knowledge
To the extent that any representations, warranties and/or
guarantees depend on whether or not Sellers knew or should have known certain
facts or circumstances, any knowledge or negligent ignorance of certain facts or
circumstances by gmi's managing director Inge NeiB will be attributable (wird
zugerechnet) to Sellers.
ARTICLE 7
RESTRICTIONS ON TRANSFER
7.1 Restrictions
(1) Each Seller agrees that such Seller shall not sell,
transfer, pledge or otherwise dispose of such
Seller's interests in the Kendle Stock included in
the Purchase Price issued to such Seller for a period
up to one hundred eighty (180) days after the
completion of Kendle Inc.'s IPO, but in no event for
any longer than any of the current management,
directors or other significant shareholders of Kendle
Inc. are under a similar restriction.
(2) Kendle Inc. shall not be bound by any attempted
transfer, sale or other disposition in violation of
any of the restrictions set forth herein, and Kendle
Inc. shall be entitled to deliver to Kendle Inc.'s
transfer agent an appropriate stop transfer order in
connection therewith, pursuant to which such transfer
agent shall refrain from registering any such
attempted transfer, sale or disposition.
7.2 Certificate Legends
Each Seller agrees that the certificates representing any
share of Kendle Stock included in the Purchase Price issued to Sellers shall
bear legends in substantially the following forms:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
<PAGE> 21
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UNDER ANY FEDERAL OR STATE SECURITIES LAWS AND HAVE
BEEN ISSUED UNDER EXEMPTIONS THAT DEPEND IN PART ON
THE INTENT OF THE HOLDER HEREOF NOT TO SELL OR
TRANSFER SUCH SHARES IN ANY MANNER WHATSOEVER NOT
PERMITTED BY SUCH LAW. THESE SHARES MAY NOT BE SOLD
OR TRANSFERRED EXCEPT UPON REGISTRATION UNDER ALL
APPLICABLE FEDERAL OR STATE SECURITIES LAWS OF THE
UNITED STATES OF AMERICA OR PURSUANT TO AN EXEMPTION
THEREFROM. THE HOLDER OF THIS CERTIFICATE
ACKNOWLEDGES THAT STOP TRANSFER INSTRUCTIONS TO THIS
EFFECT HAVE BEEN PLACED WITH THE TRANSFER AGENT.
The above legends will be removed at the request of
the relevant holder of the Kendle Shares included in
the Purchase Price at the expiration of the
applicable restricted periods set forth in the said
legends.
ARTICLE 8
NON-COMPETE UNDERTAKING
Until June 30, 1999, Sellers shall neither directly nor
indirectly develop, market, sell, purchase or otherwise deal with any such
products or services that compete with gmi in Germany in the contract research
organization business. Within this purview and until June 30, 1999, Sellers
shall not solicit any employees or clients of gmi without the prior written
consent of Kendle Inc. Notwithstanding the aforementioned, Albrecht NeiB shall
have the right to take part in any activities and/or projects of the Technical
University of Munich and also to be a member of steering committees and other
activities, insofar as they are consistent with prior activities.
<PAGE> 22
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ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Further Assistance
Each party agrees to make all reasonable efforts to cooperate
with the other in post-Closing matters that may arise in regard to taxes and the
like and to provide gmi with the benefits of all contracts or permits which may
be affected by the change of control of gmi.
Sellers shall use its best efforts to assist and to cause
gmi's independent tax advisers to assist and to cause gmi's independent tax
advisers to assist Kendle Inc. in preparation of such audited financial
statements for gmi as are necessary to enable Kendle Inc. to comply with the
accounting and/or reporting requirements promulgated under the Securities Act
and Securities and Exchange Act of 1934, as amended, in the United States.
Kendle Inc. shall be responsible and pay for all fees to gmi's independent tax
advisers for such assistance.
9.2 Notices
All notices made pursuant to this Agreement shall be valid
only if made by a person authorized to receive notices as per below by Kendle
GmbH or the Sellers, as the case may be, and sent by registered mail, return
receipt requested or facsimile, to the parties at the addresses set forth below,
or as set forth in any notice of change of address given in writing in the
manner prescribed herein to all other parties.
If to Kendle GmbH: KENDLE INTERNATIONAL, INC.
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Timothy M. Mooney
Fax: +1(513)381-5870
with a required copy to: KEATING, MUETHING & KLEKAMP, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: William J. Keating, Jr., Esq.
Fax: +1(513)579-6457
<PAGE> 23
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If to Dagmar Chase: Von-der-Vring-StraBe31
D-81929 Munich
Germany
Fax: +49(89)9305-448
If to Albrecht NeiB: Robert-Koch-Strasse 4
D-82031 Grunwald
Germany
Fax: +49(89)641-0691
9.3 Choice of Law, Venue
This Agreement shall be governed by and construed in
accordance with the substantive laws of Germany. The exclusive legal venue for
all disputes in connection with this Agreement in Munich/
9.4 Assignment
This Agreement may not be assigned by any party without the
prior written consent of the other party. Notwithstanding the aforementioned,
Kendle GmbH shall have the right to transfer all or parts of its rights -
including the right to receive the gmi Shares pursuant to Article 1 of this
Agreement - and obligations under this Agreement and to transfer the Agreement
in its totality (Vertragsubernahme) to a third party, which has to be a
subsidiary of Kendle GmbH and/or Kendle Inc. The Sellers hereby irrevocably
consent in advance to such transfer including a transfer of the Agreement
(Vertragsubernahme). If necessary, Sellers shall cause gmi to give its consent
to such transfer of rights and/or split of shares. Any costs of such an
agreement including any notarization costs shall not be borne by Sellers.
9.5 Waiver
No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or be construed as a further or continuing waiver of any such
term, provision or condition or as a waiver of any other terms, provisions or
conditions of this Agreement.
9.6 Severability
The invalidity or unenforceability of any provision of this
Agreement in any jurisdiction shall not invalidate or render unenforceable any
other provision herein. Any invalid or unenforceable provision shall be replaced
by such reasonable provision as comes closest to what the parties wanted or
would have wanted to apply in accordance with the meaning and
<PAGE> 24
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purpose of this Agreement if they had considered such invalidity or
unenforceability when entering into this transaction. The same shall apply
correspondingly to the filling of any gaps.
9.7 Announcements
Kendle GmbH and Sellers shall cooperate in the preparation of
any announcements regarding the transaction contemplated by this Agreement.
Except as required by applicable law (in which case such announcing party shall
prior thereto advise the other party), no party shall issue any announcement
regarding the transactions contemplated hereby without the prior consent of the
other, which consent shall not be unreasonably withheld.
9.8 Entire Agreement
This Agreement (including all attachments) constitutes the
entire understanding between the parties with respect to the subject matter
hereof, supersede all negotiations, prior discussions and preliminary
agreements. Neither party gives any warranty or accepts any liability in
addition to those expressly stated in this Agreement. Amendments and additions
to this Agreement are required to be in written form, to the extent no notarial
form is prescribed by statute. The requirement for written form can be lifted
only by written agreement of all the parties. The headings of this Agreement are
not a part of this Agreement but are for convenience purposes only.
9.9 Copies
Each party hereto and gmi shall receive certified copies (1
begl. Abschrift, 1 Ausfertigung) of this Deed. One certified copy shall be sent
to Finanzamt-Korperschaftsteuerstelle.
9.10 Attachments
All exhibits and Schedules are essential parts of this
document. They are referred to.
<PAGE> 25
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The notarization was started on 01 July, 1997 and was completed after midnight
on 02 July 1997.
This document was read aloud including the schedules and exhibits by the notary,
approved by the parties present and signed by than the notary.
/S/ Dr. Dagmar Margarete Chase, nee Kreuz
------------------------------------------
/S/ Prof. Dr. Dr. Albrecht N e i B
-----------------------------------
/S/ Mr. Timothy M. Mooney
-------------------------
<PAGE> 1
EXHIBIT 3.1
-----------
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF KENDLE INTERNATIONAL INC.
----------------------------
FIRST: The name of the corporation shall be KENDLE INTERNATIONAL INC.
(the "Corporation").
SECOND: The location of the Corporation's principal office is the City
of Cincinnati in Hamilton County, Ohio.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 et seq. of the Ohio Revised Code.
FOURTH: The maximum number of shares which the Company is authorized to
have outstanding is FIFTEEN Million ONE Hundred Thousand (15,100,000), of which:
(i) FIFTEEN Million (15,000,000) shares of no par value per share
are to be Common Stock; and,
(ii) ONE Hundred Thousand (100,000) shares of no par value per
share are to be Preferred Stock.
The Common Stock and Preferred Stock shall have the following
respective designations, preferences, dividend rights, voting rights, redemption
rights, conversion rights, restrictions on issuance of shares and other
relative, participating, optional or other special rights and preferences, and
qualifications, limitations or restrictions thereon, and are created on the
following terms, respectively:
PART ONE: COMMON STOCK
The shares of Common Stock may be issued at any time or from time to
time for such amount of lawful consideration as may be fixed by the Board of
Directors. Each holder of Common Stock shall be entitled to one (1) vote for
each share of Common Stock held by such holder.
<PAGE> 2
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PART TWO: PREFERRED STOCK
Clause 1. Except as otherwise provided by this Article Fourth or by the
amendment or amendments providing for the issue of any series of Preferred Stock
adopted by the Board of Directors pursuant to authority expressly vested in it
by this Article Fourth, the Preferred Stock may be issued at any time or from
time to time in any amount, not exceeding in the aggregate, including all shares
of any and all series thereof theretofore issued, the ONE Hundred Thousand
(100,000) shares of Preferred Stock hereinabove authorized, as Preferred Stock
of one or more series, as hereinafter provided, and for such lawful
consideration as shall be fixed from time to time by the Board of Directors. All
shares of any one series of Preferred Stock shall be alike in every particular,
each series thereof shall be distinctively designated by letter or descriptive
words, and all series of Preferred Stock shall rank equally and be identical in
all respects except as permitted by the provisions of Clause 2 of this Part Two
of Article Fourth.
Clause 2. Authority is hereby expressly granted to the Board of
Directors from time to time to adopt amendments to these Restated and Amended
Articles providing for the issue in one or more series of any unissued or
treasury shares of the Preferred Stock, and to fix, by the amendment creating
each such series of the Preferred Stock, the designation and number of shares,
voting rights, dividend rate or rates, dividend payment date or dates,
redemption rights and price, sinking fund requirements, conversion or exchange
rights and restrictions on issuance of shares of such series, to the fullest
extent now or hereafter permitted by the laws of the State of Ohio and
notwithstanding the provisions of any other Article of these Restated and
Amended Articles, in respect of the matters set forth in the following
subdivisions (a) to (i), inclusive:
(a) The designation and number of shares of such series;
(b) Voting rights (to the fullest extent now or hereafter
permitted by the laws of the State of Ohio);
(c) The dividend rate or rates of such series (which may be an
adjustable or variable rate and which may be cumulative);
(d) The dividend payment date or dates of such series;
(e) The price or prices at which shares of such series may be
redeemed;
(f) The amount of the sinking fund, if any, to be applied to
the purchase or redemption of shares of such series and the manner of
its application;
(g) The liquidation price or prices of such series;
<PAGE> 3
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(h) Whether the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same class of stock of the
Corporation, and if made so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the adjustments,
if any, of the price or rate at which such conversion or exchange may
be made; and,
(i) Whether the issue of any additional shares of such series
or any future series in addition to such series shall be subject to any
restrictions and, if so, the nature of such restrictions.
Any of the voting rights, dividend rate or rates, dividend payment date or
dates, redemption rights and price, sinking fund requirements, conversion rights
and restrictions on issuance of shares of any such series of Preferred Stock
may, to the fullest extent now or hereafter permitted by the laws of the State
of Ohio, be made dependent upon facts ascertainable outside these Restated and
Amended Articles or outside the amendment or amendments providing for the issue
of such Preferred Stock adopted by the Board of Directors pursuant to authority
expressly vested in it by this Article Fourth. If the then-applicable laws of
the State of Ohio do not permit the Board of Directors to fix, by the amendment
creating a series of Preferred Stock, the voting rights of shares of such
series, each holder of a share of such series of Preferred Stock shall be
entitled to one (1) vote for each share of Preferred Stock of such series held
by such holder.
Clause 3. Before any dividends shall be declared or paid upon or set
apart for, or distribution made on, the Common Stock and before any sum shall be
paid or set apart for the purchase or redemption of Preferred Stock of any
series or for the purchase of the Common Stock, the holders of Preferred Stock
of each series shall be entitled to receive, if and when declared by the Board
of Directors, dividends at the rate or rates fixed for such series in accordance
with the provisions of this Article Fourth, and no more, from the dividend
payment date of, or next preceding the date of, issue thereof, payable on the
payment date or dates fixed from time to time by the Board of Directors.
Clause 4. Upon at least thirty (30) days previous notice given by mail
to record holders of Preferred Stock to be redeemed at their respective
addresses as they appear on the books of the Corporation and by publication in a
newspaper of general circulation in the City of Cincinnati, Ohio, and in a
newspaper of general circulation in the Borough of Manhattan, City and State of
New York, the Corporation, at its election, by action of its Board of Directors
may redeem the whole of the Preferred Stock or any series thereof or any part of
any series thereof by lot or pro rata, at any time or from time to time and at
the prices fixed for the redemption of such shares in accordance with the
provisions of this Article Fourth (the price so fixed for any series being
herein called the redemption price of such series). If the Corporation shall
determine to redeem by lot less than all the shares of any series of Preferred
Stock, the selection by lot of the shares of such series so to be redeemed shall
be conducted by an independent bank or trust company. From and after the date
fixed in such notice
<PAGE> 4
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as the date of redemption, unless default shall be made by the Corporation in
providing moneys at the time and place specified for the payment of the
redemption price pursuant to such notice, or, if the Corporation shall so elect,
from and after a date, which shall be prior to the date fixed as the date of
redemption, on which the Corporation shall provide moneys for the payment of the
redemption price by depositing the amount thereof in trust for the account of
the holders of the Preferred Stock called for redemption with a bank or trust
company doing business in the City of Cincinnati, Ohio, and having capital and
surplus of at least Fifty Million Dollars ($50,000,000), pursuant to notice of
such election included in the notice of redemption specifying the date on which
such deposit will be made, all dividends on the Preferred Stock called for
redemption shall cease to accrue and all rights of the holders thereof as
shareholders of the Corporation, except the right to receive the redemption
price upon presentation and surrender of the respective certificates for the
Preferred Stock called for redemption, shall cease and terminate. Without
limiting the generality of Article Fifth hereof, the Corporation may, from time
to time, purchase the whole of the Preferred Stock or any series thereof, or any
part of any series thereof, upon the best terms reasonably obtainable. Preferred
Stock of any series redeemed or purchased may in the discretion of the Board of
Directors be reissued, at any time or from time to time, as stock of the same or
of a different series, or may be canceled and not reissued.
Clause 5. After full dividends as aforesaid upon the Preferred Stock of
all series then outstanding shall have been paid for all past dividend periods,
and after or concurrently with making payment of or provision for full dividends
on the Preferred Stock of all series then outstanding for the current dividend
period, then and not otherwise dividends may be declared upon the Common Stock
at such rate as the Board of Directors may determine and no holders of shares of
any series of the Preferred Stock, as such, shall be entitled to share therein.
Clause 6. If upon any dissolution, liquidation or winding up of the
Corporation or reduction of its capital stock, the assets so to be distributed
among the holders of the Preferred Stock pursuant to the provisions of this
Article Fourth or of the amendment or amendments providing for the issue of such
Preferred Stock adopted by the Board of Directors pursuant to authority
expressly vested in it by this Article Fourth shall be insufficient to permit
the payment to such holders of the full preferential amounts aforesaid, then the
entire assets of the Corporation shall be distributed ratably among the holders
of the Preferred Stock in proportion to the full preferential amounts to which
they are respectively entitled as aforesaid. After payment to the holders of the
Preferred Stock of the full preferential amounts hereinbefore provided for, the
holders of the Preferred Stock, as such, shall have no right or claim to any of
the remaining assets of the Corporation and the remaining assets to be
distributed, if any, shall be distributed to the holders of the Common Stock.
Clause 7. The term "accrued dividends", whenever used herein with
respect to the Preferred Stock of any series, shall be deemed to mean that
amount which would have been paid as dividends on the Preferred Stock of such
series to date had full dividends been paid thereon at the rate fixed for such
series in accordance with the provisions of this Article Fourth, less in each
case the amount
<PAGE> 5
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of all dividends paid upon the shares of such series and the dividends deemed to
have been paid as provided in Clause 3 of this Part Two of Article Fourth.
FIFTH: This Corporation, through its Board of Directors, shall have the
right and power to purchase any of its outstanding shares at such price and upon
such terms as may be agreed upon between the Corporation and any selling
shareholder.
SIXTH: No shareholder shall have the right to vote cumulatively in the
election of directors.
SEVENTH: No holder of any shares of this Corporation shall have any
preemptive rights to subscribe for or to purchase any shares of this Corporation
of any class, whether such shares or such class be now or hereafter authorized,
or to purchase or subscribe for any security convertible into or exchangeable
for shares of any class or to which shall be attached or appertained any
warrants or rights entitling the holder thereof to purchase or subscribe for
shares of any class.
EIGHTH: The provisions of Ohio Revised Code Section 1701.831 relating
to control share acquisitions shall not be applicable to this Corporation.
NINTH: The affirmative vote of shareholders entitled to exercise a
majority of the voting power of the Corporation shall be required to amend these
Restated and Amended Articles of Incorporation, to approve mergers and to take
any other action which by law must be approved by a specified percentage of all
outstanding shares entitled to vote or of the voting power of the Corporation.
TENTH: These Restated and Amended Articles of Incorporation take the
place of and supersede the existing Articles of Incorporation of the Corporation
as heretofore amended and/or restated.
<PAGE> 1
EXHIBIT 3.2
-----------
AMENDED AND RESTATED CODE OF REGULATIONS
OF
KENDLE INTERNATIONAL INC.
----------------------------------------
ARTICLE I.
OFFICES
The principal office of Kendle International Inc. (the "Corporation")
shall be located in the City of Cincinnati, Hamilton County, Ohio. The
Corporation may establish or discontinue, from time to time, such other offices
and places of business within or without the State of Ohio and within or without
the United States of America as may be deemed proper for the conduct of the
Corporation's business.
ARTICLE II.
MEETING OF SHAREHOLDERS
Section 1.
- ----------
ANNUAL MEETING. An annual meeting of shareholders shall be held on such
date each year and at such place as shall be determined from time to time by the
Board of Directors. At each annual meeting, the shareholders shall elect a Board
of Directors and transact such other business as may properly come before the
meeting. If the annual meeting is not held or if the Board of Directors is not
elected thereat, a special meeting may be called and held for that purpose.
Section 2.
- ----------
SPECIAL MEETINGS. Special meetings of the shareholders for any purpose
or purposes may be held on any business day when called by the Chairman of the
Board, the Chief Executive Officer, the President, a majority of the Board of
Directors or the holders of shares entitling them to exercise not less than
twenty-five percent of the voting power of the Corporation. Such request shall
state the purpose or purposes of the proposed meeting.
Section 3.
- ----------
PLACE OF MEETING. Meetings of the shareholders shall be held at such
place within or without the State of Ohio as shall be designated in the notice
of said meeting.
<PAGE> 2
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Section 4.
- ----------
NOTICE OF MEETINGS. Notice of each meeting of shareholders shall be
given by mailing a notice to each shareholder of record entitled thereto. The
notice shall be directed to the shareholder in a postage-prepaid envelope at his
address as it appears on the books of the Corporation. Notice shall be deemed to
have been given on the day mailed. All notices with respect to any shares to
which persons are entitled by joint or common ownership may be given to that
person who is first named upon the books of the Corporation, and notice so given
shall be sufficient notice to all the holders of such shares.
Notice of each meeting of shareholders shall be in such form as is
approved by the Board of Directors and shall state the purpose or purposes for
which the meeting is called, the time when and the place where it is to be held,
and shall be given not less than seven (7) nor more than sixty (60) days before
the day of the meeting.
Section 5.
- ----------
WAIVER OF NOTICE. Notice of any meeting of shareholders shall not be
required as to any shareholder who shall attend and participate in the business
transacted at such meeting in person or by proxy and who shall not have
protested the lack of proper notice prior to or at the commencement of such
meeting, or who shall, or whose proxy or attorney duly authorized shall, sign a
written waiver thereof, whether before or after the holding of such meeting.
Section 6.
- ----------
ORGANIZATION. The Chairman of the Board, or in his absence, the Chief
Executive Officer, or in the absence of both of them, the President shall act as
chairman at all meetings of shareholders, and as such chairman shall call such
meetings of shareholders to order and preside thereat. If the Chairman of the
Board, the Chief Executive Officer and the President shall be absent from any
meeting of shareholders, the duties otherwise provided in this Section 6 of
Article II to be performed by him at such meeting shall be performed at such
meeting by any Vice President of the Corporation. If no such officer is present
at such meeting, any shareholder or the proxy of any shareholder entitled to
vote at the meeting may call the meeting to order and a chairman shall be
elected who shall preside thereat. The Secretary of the Corporation shall act as
secretary at all meetings of the
<PAGE> 3
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shareholders, but in his absence the chairman of the meeting may appoint any
person present to act as secretary of the meeting.
Section 7.
- ----------
SHAREHOLDERS ENTITLED TO VOTE. The Board of Directors may close the
stock transfer books of the Corporation for a period not exceeding sixty (60)
days preceding the date of any meeting of shareholders. In lieu of closing the
stock transfer books of the Corporation as aforesaid, the Board of Directors may
fix a date not more than sixty (60) days prior to the date of any meeting of
shareholders as a record date for the determination of the shareholders entitled
to notice of, and to vote at, such meeting and any adjournment thereof, and in
such case such shareholders and only such shareholders as shall be shareholders
of record on the date so fixed shall be entitled to notice of, and to vote at,
such meeting and any adjournment thereof, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid. The Secretary shall prepare and make or cause to be prepared and
made, before every meeting of shareholders, a complete list of such shareholders
entitled to vote at such meeting, arranged in alphabetical order and showing the
address of each such shareholder and the number of shares registered in the name
of each such shareholder. Such list shall be produced and kept at the time and
place of such meeting during the whole time thereof, and subject to the
inspection of any shareholder who may be present.
Section 8.
- ----------
QUORUM AND ADJOURNMENT. The holders of shares entitling them to
exercise a majority of the voting power of the Corporation, present in person or
by proxy, shall constitute a quorum for any meeting of shareholders. The holders
of a majority of such shares of stock present in person or by proxy at a
meeting, whether or not a quorum may be present, may adjourn the meeting. At any
such adjourned meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as originally called.
No notice of any adjourned meeting need be given if the time and place to which
it is adjourned are fixed and announced at the meeting that is being adjourned.
Section 9.
- ----------
CONDUCT OF MEETING AND ORDER OF BUSINESS. The order of business at all
meetings of the shareholders, unless waived or otherwise changed by the chairman
of the meeting or the Board of Directors, shall be as follows:
<PAGE> 4
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(i) Call meeting to order.
(ii) Selection of chairman and/or secretary, if necessary.
(iii) Proof of notice of meeting and presentment of
affidavit thereof.
(iv) Roll call, including filing of proxies with secretary.
(v) Upon appropriate demand, appointment of inspectors of
election.
(vi) Reading, correction and approval of previously
unapproved minutes.
(vii) Reports of officers and committees.
(viii) If an annual meeting, or meeting called for that
purpose, election of Directors.
(ix) Unfinished business, if an adjourned meeting.
(x) Consideration in sequence of all other matters set
forth in the call for and written notice of the meeting.
(xi) Any new business other than that set forth in the
notice of the meeting which shall have been submitted to the Secretary
of the Corporation in writing at least fifteen (15) days prior to the
date of the meeting.
(xii) Adjournment.
Section 10.
- -----------
VOTE OF SHAREHOLDERS. Every shareholder of record, as determined
pursuant to Section 8 of this Article II, and who is entitled to vote, shall be
entitled at every meeting of the shareholders to one vote for every share of
voting stock standing in his name on the books of the Corporation. Every
shareholder entitled to vote shall have the right to vote in person or by proxy
duly appointed by an instrument in writing subscribed by such shareholder or by
his duly authorized attorney, which proxy may be transmitted physically or by
mail, by facsimile or other electronic medium. No vote on any question upon
which a vote of the shareholders may be taken need be by ballot unless the
chairman of the meeting shall determine that it shall be by ballot. All
<PAGE> 5
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elections of Directors shall be by a plurality vote. Except as otherwise
provided by law or by the Articles of Incorporation, all other elections and all
questions shall be decided by the vote of the holders of a majority of the
voting power of the Corporation present in person or by proxy at the meeting and
entitled to vote in the election or on the question.
ARTICLE III.
DIRECTORS
Section 1. General Powers.
---------------
The authority of this Corporation shall be exercised by or under the
direction of the Board of Directors, except where the law, the Articles of
Incorporation or these Regulations require action to be authorized or taken by
the shareholders.
Section 2. Election, Number and Qualification of Directors.
------------------------------------------------
2.1 ELECTION. The Directors shall be elected at the annual meeting of
the Shareholders, or if not so elected, at a special meeting of Shareholders
called for that purpose. Only persons nominated by an officer, director or in
writing by a shareholder at least fifteen (15) days prior to the meeting at
which directors are to be elected shall be eligible for election.
2.2 NUMBER. The number of Directors, which shall not be less than the
lesser of three (3) or the number of shareholders of record, may be fixed or
changed at a meeting of the shareholders called for the purpose of electing
Directors at which a quorum is present, by a majority of votes cast at the
meeting. In addition, the number of Directors may be fixed or changed by action
of the Directors at a meeting called for that purpose at which a quorum is
present by a majority vote of the Directors present at the meeting. The
Directors then in office may fill any Director's office that is created by an
increase in the number of Directors. The number of Directors elected shall be
deemed to be the number of Directors fixed unless otherwise fixed by resolution
adopted at the meeting at which such Directors are elected.
2.3 QUALIFICATIONS. Directors need not be shareholders of the
Corporation.
<PAGE> 6
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Section 3. Term of Office of Directors.
----------------------------
3.1 TERM. Each Director shall hold office until the next annual meeting
of the shareholders and until his successor has been elected or until his
earlier resignation, removal from office, or death. Directors shall be subject
to removal as provided by statute or by other lawful procedures and nothing
herein shall be construed to prevent the removal of any or all Directors in
accordance therewith.
3.2 RESIGNATION. A resignation from the Board of Directors shall be
deemed to take effect immediately upon its being received by any incumbent
corporate officer other than an officer who is also the resigning Director,
unless some other time is specified therein.
3.3 VACANCY. In the event of any vacancy in the Board of Directors for
any cause, the remaining Directors, though less than a majority of the whole
Board, may fill any such vacancy for the unexpired term.
Section 4. Meetings of Directors.
----------------------
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held immediately following the adjournment of the meeting of shareholders at
which Directors are elected. The holding of such shareholders' meeting shall
constitute notice of such Directors' meeting and such meeting shall be held
without further notice. Other regular meetings shall be held at such other times
and places as may be fixed by the Directors.
4.2 SPECIAL MEETINGS. Special Meetings of the Board of Directors may be
held at any time upon call of the Chairman of the Board, the Chief Executive
Officer, the President or any two (2) Directors.
4.3 PLACE OF MEETING. Any meeting of Directors may be held at such
place within or without the State of Ohio as may be designated in the notice of
said meeting.
4.4 NOTICE OF MEETING AND WAIVER OF NOTICE. Notice of the time and
place of any regular or special meeting of the Board of Directors shall be given
to each Director by personal delivery, telephone, facsimile transmission or mail
at least forty-eight (48) hours before the meeting, which notice need not
specify the purpose of the meeting.
<PAGE> 7
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Section 5. Quorum and Voting.
------------------
At any meeting of Directors, not less than one-half of the whole
authorized number of Directors is necessary to constitute a quorum for such
meeting, except that a majority of the remaining Directors in office constitutes
a quorum for filling a vacancy in the Board. At any meeting at which a quorum is
present, all acts, questions, and business which may come before the meeting
shall be determined by a majority of votes cast by the Directors present at such
meeting, unless the vote of a greater number is required by the Articles of
Incorporation, these Regulations or any By-Laws that may be adopted by the
Board of Directors.
Section 6. Committees.
-----------
6.1 APPOINTMENT. The Board of Directors may from time to time appoint
certain of its members to act as a committee or committees in the intervals
between meetings of the Board and may delegate to such committee or committees
power to be exercised under the control and direction of the Board. Each
committee shall be composed of at least three (3) Directors unless a lesser
number is allowed by law. Each such committee and each member thereof shall
serve at the pleasure of the Board.
6.2 EXECUTIVE COMMITTEE. In particular, the Board of Directors may
create from its membership and define the powers and duties of an Executive
Committee. During the intervals between meetings of the Board of Directors, the
Executive Committee shall possess and may exercise all of the powers of the
Board of Directors in the management and control and the business of the
Corporation to the extent permitted by law. All action taken by the Executive
Committee shall be reported to the Board of Directors at its first meeting
thereafter.
6.3 COMMITTEE ACTION. Unless otherwise provided by the Board of
Directors, a majority of the members of any committee appointed by the Board of
Directors pursuant to this Section shall constitute a quorum at any meeting
thereof and the act of a majority of the members present at a meeting at which a
quorum is present shall be the act of such committee. Action may be taken by any
such committee without a meeting by a writing signed by all its members. Any
such committee shall prescribe its own rules for calling and holding meetings
and its method of procedure, subject to any rules prescribed by the Board of
Directors, and shall keep a written record of all action taken by it.
<PAGE> 8
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Section 7. Action of Directors Without a Meeting.
--------------------------------------
Any action which may be taken at a meeting of Directors or any
committee thereof may be taken without a meeting if authorized by a writing or
writings signed by all the Directors or all of the members of the particular
committee, which writing or writings shall be filed or entered upon the records
of the Corporation.
Section 8. Compensation of Directors.
--------------------------
The Board of Directors may allow compensation to Directors for
performance of their duties and for attendance at meetings or for any special
services, may allow compensation to members of any committee, and may reimburse
any Director for his expenses in connection with attending any Board or
committee meeting.
Section 9. Relationship with Corporation.
------------------------------
Directors shall not be barred from providing professional or other
services to the Corporation. No contract, action or transaction shall be void or
voidable with respect to the Corporation for the reason that it is between or
affects the Corporation and one or more of its Directors, or between or affects
the Corporation and any other person in which one or more of its Directors are
directors, trustees or officers or have a financial or personal interest, or for
the reason that one or more interested Directors participate in or vote at the
meeting of the Directors or committee thereof that authorizes such contract,
action or transaction, if in any such case any one (1) or more of the following
apply:
9.1 the material facts as to the Director's relationship or interest
and as to the contract, action or transaction are disclosed or are known to the
Directors or the committee and the Directors or committee, in good faith,
reasonably justified by such facts, authorize the contract, action or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors constitute less than a
quorum;
9.2 the material facts as to the Director's relationship or interest
and as to the contract, action or transaction are disclosed or are known to the
shareholders entitled to vote thereon and the contract, action or transaction is
specifically approved at a meeting of the shareholders held for such purpose by
the affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Corporation held by persons not interested
in the contract, action or transaction; or
<PAGE> 9
- 9 -
9.3 the contract, action or transaction is fair as to the Corporation
as of the time it is authorized or approved by the Directors, a committee
thereof or the shareholders.
Section 10. Attendance at Meetings of Persons
Who Are Not Directors.
---------------------------------
Unless waived by a majority of Directors in attendance, not less than
twenty-four (24) hours before any regular or special meeting of the Board of
Directors, any Director who desires the presence at such meeting of a person who
is not a Director shall so notify all other Directors, request the presence of
such person at the meeting, and state the reason in writing. Such person will
not be permitted to attend the Directors' meeting unless a majority of the
Directors in attendance vote to admit such person to the meeting. Such vote
shall constitute the first order of business for any such meeting of the Board
of Directors. Such right to attend, whether granted by waiver or vote, may be
revoked at any time during any such meeting by the vote of a majority of the
Directors in attendance.
ARTICLE IV.
OFFICERS
Section 1.
- ----------
GENERAL PROVISIONS. The Board of Directors shall elect a President, a
Secretary and a Treasurer, and may elect a Chairman of the Board, a Chief
Executive Officer, one or more Vice Presidents, and such other officers and
assistant officers as the Board may from time to time deem necessary. The
Chairman of the Board, if any, shall be a Director, but none of the other
officers need be a Director. Any two or more offices may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity if such instrument is required to be executed,
acknowledged or verified by two or more officers.
Section 2.
- ----------
POWERS AND DUTIES. All officers, as between themselves and the
Corporation, shall respectively have such authority and perform such duties as
are customarily incident to their respective offices, and as may be specified
from time to time by the Board of Directors, regardless of whether such
authority and duties are customarily incident to such office. In the absence of
any officer of the Corporation, or for any other reason the Board of Directors
<PAGE> 10
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may deem sufficient, the powers or duties of such officer, or any of them may be
delegated, to any other officer or to any Director. The Board of Directors may
from time to time delegate to any officer authority to appoint and remove
subordinate officers and to prescribe their authority and duties.
Section 3.
- ----------
TERMS OF OFFICE: VACANCIES. So far as is practicable, all elected
officers shall be elected at the organization meeting of the Board of Directors
in each year and, except as otherwise provided in this Article IV, shall hold
office until the organization meeting of the Board of Directors in the next
subsequent year and until their respective successors are elected and qualify;
PROVIDED, however, that this Section 3 shall not be deemed to create any
contract rights in such offices. All other officers shall hold office during the
pleasure of the Board of Directors and may be removed at any time with or
without cause. If any vacancy shall occur in any office, the Board of Directors
may elect or appoint a successor to fill such vacancy for the remainder of the
term.
Section 4.
- ----------
COMPENSATION. The compensation of the officers shall be fixed by the
Board of Directors.
ARTICLE V.
INDEMNIFICATION
Section 1.
- ----------
GENERAL. The Corporation shall, in the case of any person who is or was
an officer or Director, and may, in the case of any other person, indemnify and
hold harmless, to the fullest extent not prohibited by the Ohio General
Corporation Law, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the Corporation, by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer, employee or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, against expenses, including attorneys'
fees, judgments, fines, and amounts paid in
<PAGE> 11
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settlement, actually and reasonably incurred by him in connection with such
action, suit or 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
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 2.
- ----------
DERIVATIVE ACTIONS. The Corporation shall, in the case of any person
who is or was an officer or Director, and may, in the case of any other person,
indemnify and hold harmless, to the fullest extent not prohibited by the Ohio
General Corporation Law, any person who was or is a party, or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee, or agent of another corporation, domestic
or foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, including service with respect to an employee benefit plan, against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, 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 Corporation, except that no indemnification shall be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless, and only to the extent that, the Court of Common
Pleas, or the court in which such action or suit 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 expenses as the Court of Common Pleas or such other court
shall deem proper.
Section 3.
- ----------
PAYMENT OR ADVANCEMENT OF EXPENSES. To the extent that a Director,
trustee, officer, employee or agent has been successful
<PAGE> 12
- 12 -
on the merits or otherwise in defense of any action, suit or proceeding referred
to in Sections 1 or 2 of this Article V, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection therewith. In
addition, with respect to a Director or officer, such expenses, including
attorneys' fees, shall be paid by the Corporation on a continuing and current
basis (and not later than ten (10) business days following receipt by the
Corporation of a request for reimbursement) in advance of the final disposition
of such action, suit or proceeding, upon the Corporation's receipt of an
undertaking by or on behalf of the Director or officer to repay such amount, if
(with respect to an officer) it is ultimately determined that he is not entitled
to be indemnified by the Corporation as authorized herein or if (with respect to
a Director) it is ultimately determined by clear and convincing evidence in a
court of competent jurisdiction that his action or failure to act involved an
act or omission undertaken with deliberate intent to cause injury to the
Corporation or undertaken with reckless disregard for the best interests of the
Corporation.
Section 4.
- ----------
SPECIAL PROCEDURE TO ENFORCE RIGHTS. If a request for indemnification
or reimbursement is not paid in full by the Corporation within ninety (90) days
following the receipt thereof by the Corporation, the requesting party may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount, and, if successful in whole or in part, shall also be entitled to the
expenses of prosecuting such action. It shall be a defense to any such action
(other than an action to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the Corporation) that the requesting party has not met the
standards of conduct which make it permissible under the Ohio General
Corporation Law for the Corporation to indemnify the requesting party for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the requesting party is proper under the circumstances because he has met the
applicable standard of conduct set forth in the Ohio General Corporation Law,
nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its shareholders) that the requesting
party had not met such applicable standard of conduct, shall be a defense to the
<PAGE> 13
- 13 -
action or create a presumption that the requesting party has not met the
applicable standard of conduct.
Section 5.
- ----------
RIGHTS ARE NON-EXCLUSIVE. The rights conferred on any person by
Sections 1, 2, 3 and 4 above shall not be exclusive of any other rights to which
such person may be entitled under any statute, provision of the Corporation's
Articles of Incorporation or these Regulations, agreement, vote of the
shareholders or disinterested Directors, or otherwise. The Corporation shall
have the power to give any further indemnity, in addition to the indemnity
offered or authorized under other provisions of this Article V, to any person
who is or was a Director or officer, or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, provided
such further indemnity is either: (i) authorized, directed or provided for in
the Corporation's Articles of Incorporation or any duly adopted amendment
thereof, or (ii) authorized, directed or provided for in any provision of these
Regulations, or separate agreement or contract of the Corporation which has been
ratified or adopted by a vote of the shareholders of the Corporation, and
provided further that the Corporation shall in no event indemnify any person
from or on account of such person's conduct which is finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct, or if
it is finally adjudged by a court of competent jurisdiction considering the
question or indemnification that such payment or indemnification is or would be
in violation of applicable law.
The Board of Directors, in its discretion, shall have the power on
behalf of the Corporation to indemnify, to the fullest extent not prohibited by
the Ohio General Corporation Law, any person, other than a Director or officer,
who was or is a party or is threatened to be made a party to any threatened,
pending or completed proceeding, by reason of the fact that he, or a person for
whom he is the legal representative, is or was an employee or agent of the
Corporation.
Section 6.
- ----------
INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director and officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee, or agent of another corporation, domestic
or foreign, nonprofit or for profit, partnership, joint venture, trust or other
<PAGE> 14
- 14 -
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
this Article V.
Section 7.
- ----------
CONSOLIDATION OR MERGER. As used in this Article V, references to the
Corporation include all constituent corporations in a consolidation or merger
and the new or surviving corporation, so that any person who is or was a
Director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such a constituent corporation as a director,
trustee, officer, employee, or agent of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this Article V with respect
to the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
Section 8.
- ----------
CONTRACT RIGHTS. The provisions of this Article V shall be deemed to be
a contract between the Corporation and each Director and officer of the
Corporation who serves in such capacity at any time while this Article is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing, or any proceeding theretofore brought based in whole or in part on any
such state of facts.
ARTICLE VI.
MISCELLANEOUS
Section 1.
- ----------
FISCAL YEAR. The fiscal year of the Corporation shall end on the last
day of December in each year and the succeeding fiscal year shall begin on the
day next succeeding the last day of the preceding fiscal year; PROVIDED,
however, that the fiscal year of the Corporation may be changed from time to
time by resolution of the Board of Directors.
<PAGE> 15
- 15 -
Section 2.
- ----------
REFERENCES TO ARTICLE AND SECTION NUMBERS AND TO THE CODE OF
REGULATIONS AND ARTICLES OF INCORPORATION. Whenever in these Regulations
reference is made to an Article or Section number, such reference is to the
number of an Article or Section of these Regulations. Whenever in these
Regulations reference is made to this Code of Regulations, such reference is to
these Regulations as the same may from time to time be amended, and whenever
reference is made to the Articles of Incorporation, such reference is to the
Articles of Incorporation of the Corporation as the same may from time to time
be amended or restated.
Section 3.
- ----------
SEAL. The Board of Directors may, but need not, provide for a
Corporation seal. The Corporation seal, if any, shall be in the form of a circle
and shall bear the name of the Corporation and in the center of the circle the
words "Corporate Seal, Ohio". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
ARTICLE VII.
AMENDMENTS
This Code of Regulations may be altered, amended or repealed, from time
to time, at a meeting held for such purpose, by the affirmative vote of the
holders of shares entitling them to exercise a majority of the voting power of
the Corporation on such proposal, or may be adopted without a meeting by the
written consent of the holders of shares entitling them to exercise a majority
of the voting power on such proposal.
<PAGE> 1
[Company Logo Here] Exhibit 4
KENDLE
REAL PEOPLE. REAL RESULTS.(Copyright)
NUMBER SHARES
KENDLE INTERNATIONAL INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 4888BL 10 7
This Certifies that
is the Registered Holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
KENDLE INTERNATIONAL INC.
(hereinafter called the "Company"), transferable on the books of the Company by
the holder thereof, in person or by duly authorized attorney, upon surrender of
this certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
Christopher C. Burger Candace K. Bryan
PRESIDENT, CHIEF OPERATIONS OFFICER CHAIRMAN OF THE BOARD
AND SECRETARY AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
THE FIFTH THIRD BANK
(Cincinnati, Ohio)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY AUG 7, 1997 fm
3604 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90897 051889fc
(682) 989-2333
(FAX) (662) 426-7450 308-19x Proof REV 1
<PAGE> 2
KENDLE INTERNATIONAL INC.
The Company will furnish to any shareholder without charge within five
days after receipt of written request therefor a copy of the express terms of
the shares represented by this certificate and of the other class or classes
and series of shares the Company is authorized to issue.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ______________ Custodian ________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________________
(Cust)
Additional abbreviations may also be used though not in the above list.
For value received,__________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________________________
____________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
BY___________________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM,
PURSUANT TO S.E.C. RULE 17AG-18.
_____________________________________________
AMERICAN BANK NOTE COMPANY AUG 7, 1997 fm
3604 ATLANTIC AVENUE
SUITE 12 051889bk
LONG BEACH, CA 90807
(582) 989-2333
(FAX) (582) 426-7450 Proof ___ REV 1
_____________________________________________
<PAGE> 1
FACSIMILE (513) 579-6956
EXHIBIT 5
August 1, 1997
Direct Dial: (513) 579-6411
Kendle International Inc.
700 Carew Tower
Fifth and Vine Streets
Cincinnati, Ohio 45202
Ladies and Gentlemen:
We have examined the corporate records and proceedings of Kendle
International Inc. (the "Corporation") with respect to:
1. The organization of the Corporation;
2. The legal sufficiency of all corporate proceedings of the Corporation in
connection with the creation and issuance of all of the present outstanding and
issued Common Shares of the Corporation;
3. The legal sufficiency of all corporate proceedings taken in connection
with the authorization of the issuance of 3,600,000 Common Shares, plus up to an
additional 540,000 shares to cover an over-allotment option, all to be issued in
a public offering pursuant to a Registration Statement filed with the Securities
and Exchange Commission.
Based upon such examination, we are of the opinion:
1. That the Corporation is a duly organized and validly existing
corporation under the laws of the State of Ohio;
2. That, upon filing the Restated and Amended Articles of Incorporation of
the Corporation with the Secretary of State of Ohio, the Corporation will have
taken all necessary and required corporate action in connection with the
proposed issuance of the aforesaid 3,600,000 Common Shares and that when, and
if, issued, delivered and paid for, the aforesaid 3,600,000 Common Shares will
be duly authorized, validly issued, fully paid and non-assessable Common Shares
of the Corporation free of any claim of pre-emptive rights; and
<PAGE> 2
3. That the 600,000 Common Shares which are being sold by the selling
shareholders, will, upon issuance through exercise of a warrant held by the
selling shareholder, be duly authorized, legally issued, fully paid and
non-assessable Common Shares of the Corporation free of any claim of pre-emptive
rights.
We hereby consent to be named in the Registration Statement and the
Prospectus part thereof as the attorneys who will pass upon legal matters in
connection with the aforesaid Common Shares and to the filing of this opinion as
an exhibit to the Registration Statement, and furthermore consent to all
references made to this firm in the Registration Statement.
Yours truly,
KEATING, MUETHING & KLEKAMP
BY: /s/ Gary P. Kreider
-----------------------------
Gary P. Kreider
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
KENDLE SHAREHOLDER AGREEMENT
THIS AMENDED AND RESTATED KENDLE SHAREHOLDER AGREEMENT (this "Agreement")
is made as of this 26th day of June, 1997, among CANDANCE KENDLE BRYAN and
CHRISTOPHER C. BERGEN (collectively, the "Founding Shareholders"), HAZEL KENDLE,
NATIONSBANC INVESTMENT CORPORATION, a Delaware corporation ("NationsBanc"),
TIMOTHY M. MOONEY, as Trustee under the Kendle Stock Trust dated December 28,
1996 ("Trustee") (the Founding Shareholders, Hazel Kendle, NationsBanc and
Trustee are referred to herein collectively as the "Shareholders" and
individually as a "Shareholder"), and KENDLE INTERNATIONAL INC., an Ohio
corporation (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 and certain other rights as provided herein.
C. In connection with the consummation of the Investment Agreement between
Kendle and NationsBanc of even date herewith ("Investment Agreement"), Kendle
has agreed to (i) issue Common Stock Purchase Warrant ("Warrant") entitling
NationsBanc to purchase shares of Kendle's common stock, no par value per share
("Common Stock"), and (ii) amend and restate the Original Shareholder Agreement
to provide NationsBanc and the other Shareholders 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,
all of the shareholders of Kendle (and their respective ownership of Common
Stock on a fully diluted basis assuming exercise of all vested and exercisable
options to purchase Common Stock) are as set forth on Schedule 1 attached
hereto.
<PAGE> 2
- 2 -
2. TRANSFER RESTRICTIONS ON SHARES.
(a) Permitted Transfers. A Shareholder may transfer all or a portion
of its shares of Common Stock, the Warrant and shares of Common Stock underlying
the Warrant (collectively, the "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 a condition to any such
transfer, the transferee must agree in writing that it, its heirs, successors
and assigns, shall be subject to and bound by the provisions of this Agreement.
(b) Right of First Refusal.
(i) Offer to Sell Shares. Except as provided in Section 2(a)
above, 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
desire 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 and subject to contractual restrictions on the Company, 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
<PAGE> 3
- 3 -
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 (assuming exercise of the
Warrant) 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 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 hereto, which option shall be
exercisable by notice in writing to the Selling Shareholder and to each of the
other Shareholder 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 (1)
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 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 purchaser 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 the 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 (1) being
selected by the party hereto desiring to purchase the Selling Shareholder's
Shares, and the third appraiser being chose by the two (2) 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 even of an appraisal pursuant to this Section
2, the parties agree to be bound thereby.
<PAGE> 4
- 4 -
(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 (1) purchaser of the Shares being sold, the Selling
Shareholder may require that all purchases close concurrently on the same date.
(v) Right to Transfer. if Kendle and the other Shareholders do not
elect to purchase all of the Shares that a Selling Shareholder desire 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, (2) Section 2(a)(iv) above and (3) Section 2 (a)(vi) 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 proposes
to dispose of its Shares to a third party, except as permitted under this
Section 2(b), the other Shareholder shall have the right to offer and 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 (the "Co-Sale Right"), in accordance with the following procedure:
(1) The Selling Shareholder shall, prior to sale, give notice
to the other Shareholders of their Co-Sale Right.
(2) The other Shareholder shall have fifteen (15) days after
receipt of such notice 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 exercise its Co-Sale Right and offer and sell
its proportionate interest, the remaining Shareholders, other than the
Selling Shareholder, shall be entitled for sale such Shares 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.
(c) Special Purchase Right Upon Private Sale by Founding Shareholders.
(i) Purchase of Shares from Trustee. Notwithstanding Section 2(b),
in the event the Founding Shareholders desire to sell all of their shares of
Kendle, the Founding Shareholders shall have the right (but shall not be
obligated) to purchase from the Trustee and the Trustee shall be obligated to
sell to the Founding Shareholders all of the Shares held by the Trustee. Such
notice shall state the closing date for the purchase. The founding Shareholders
may assign this right to the
<PAGE> 5
- 5 -
purchaser of such Shares. The price paid by the Founding Shareholders to the
Trustee for each Share purchased shall be equal to the average price per share
received by the Founding Shareholders from the person purchasing such Common
Stock but not less than "Fair Market Value" (as defined below.
For purposes of this Agreement the "Fair Market Value" of the Shares on
any day shall mean the average closing price of the Shares for the 30
consecutive trading days preceding such day on the principal national securities
exchange or NASDAQ National Market System on which the Shares are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the average of the reported closing bid and asked prices
during the day period in the over-the-counter market as furnished by the
National Quotation Bureau, Inc., or, if the Shares are not publicly traded, the
"Appraised Market Value" (as defined below), provided, however, that the Fair
Market Value for a Share sold pursuant to a public offering by Kendle shall be
deemed to be the price received by Kendle for such share.
The "Appraised Market Value" shall mean the market value of
the Shares as agreed by Trustee and the Founding Shareholders hereof, or if the
Trustee and the Founding Shareholders cannot agree, as determined by a valuation
by an investment banking company suitable to the Trustee and the Founding
Shareholders. In the event the parties cannot agree on an investment banking
company to perform the valuation described above, Kendle and the Founding
Shareholders shall each select an investment banking company and the two
investment banking companies so selected shall select a third investment banking
company which shall determine the market value. The fees and expenses of the
investment banking companies shall be borne by Kendle.
(ii) Loans to Kendle. The Trustee understands and agrees that
Kendle may from time to time need loans to provide working capital for
operations and to finance Kendle's continued growth. The Trustee agrees that,
upon request by the Founding Shareholders, it will provide to Kendle loans as
requested and determined by the Founding Shareholders. The terms of such loans
shall be upon prevailing rates and terms for such type of transaction. In
addition, the Founding Shareholders may request the Trustee to pledge the Shares
held hereunder to secure any loans made to Kendle. The Founding Shareholders and
the Trustee acknowledge that the Shares have been previously pledged to certain
senior lenders under the credit facility of Kendle dated June 26, 1996. In the
event of a foreclosure on the pledge, the Founding Shareholders will replace the
Shares with cash, other property, Common Stock or other securities of Kendle.
The value of such replacement property shall be the Fair Market Value of the
Shares.
(iii) Additional Rights. The Trustee agrees, upon request from
the Founding Shareholders, to either sell to Kendle or exchange with the
Founding Shareholders or Kendle the Shares held by the Trustee hereunder. The
consideration for such sale or exchange may be for cash, other property, Common
Stock or other Kendle securities. The purchase price or exchange value shall be
the Fair Market Value.
<PAGE> 6
- 6 -
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 the disinterested members of the Board of Directors, then,
in such event, Kendle shall first offer in writing to sell all such Equity
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 owned by such Shareholder, on a
fully diluted basis and assuming exercise of the Warrant, in relation to the
total number of the Equity Securities 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) 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 the disinterested members of the Kendle's Board of
Directors;
(ii) An underwritten initial public offering of the Shares
under the Securities Act of 1933, as amended; and
(iii) An issuance to a former stockholder of gmi (as defined
in the Investment Agreement); provided that such issuance is made at "fair
market value" and in compliance with the Investment Agreement.
<PAGE> 7
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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 26, 1997, a copy of which is on file in the office
of the Secretary of Kendle International Inc."
5. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
earlier of (a) the consummation of an initial public offering of any of its
Shares, (b) the liquidation of the Company and (c) in accordance with Section 8
below.
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: Mr. Timothy M. Mooney
<PAGE> 8
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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
If to Trustee:
Mr. Timothy M. Mooney
Kendle International, Inc.
700 Carew Tower
Fifth and Vine Streets
Cincinnati, Ohio 45202
If to Hazel Kendle:
Ms. Hazel Kendle
960 Tarragon Lane
Cincinnati, Ohio 45250
If to NationsBank:
NationsBanc Investment Corporation
NationBank Corporate Center
100 North Tryon Street, 10th Floor
Charlotte, North Carolina 28255
Attention: Mr. Walker L. Poole
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
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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.
IN WITNESS WHEREOF, the Shareholders and Kendle have signed this Agreement
as of the day and year first above written.
/s/ CANDANCE KENDLE BRYAN
------------------------------------------
CANDACE KENDLE BRYAN
/s/ CHRISTOPHER C. BERGEN
------------------------------------------
CHRISTOPHER C. BERGEN
/s/ HAZEL KENLDE
------------------------------------------
HAZEL KENDLE
NATIONSBANC INVESTMENT CORPORATION
/s/ WALKER L. POOLE
------------------------------------------
WALKER L. POOLE
Senior Vice President
KENDLE STOCK TRUST
/s/ TIMOTHY M. MOONEY
------------------------------------------
TIMOTHY M. MOONEY, Trustee
<PAGE> 10
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KENDLE INTERNATIONAL INC.
/s/ CANDANCE K. BRYAN
------------------------------------------
CANDACE K. BRYAN, Chairman
and Chief Executive Officer.
<PAGE> 1
Exhibit 10.13
CLINICAL DEVELOPMENT SERVICES AGREEMENT
AGREEMENT entered into this 8th day of January, 1996, between Kendle,
441 Vine Street, Suite 700, Cincinnati, Ohio 45202 ("CRO"), and Amgen Inc.
("Amgen"), a Delaware corporation, with an office at 1840 DeHavilland Drive,
Thousand Oaks, California 91320-1789.
1.0 Services
1.1 CRO will provide qualified personnel to perform clinical development
services as described in CRO's proposal attached hereto and
incorporated herein as Exhibit A (the "Services"). The Services shall
include but not be limited to data entry and data review according to
Amgen's procedures and using data processing equipment supplied by
Amgen. The Services will be provided and performed under the terms and
conditions of this Agreement.
1.2 CRO will provide personnel at the staffing levels described in Sections
1.3 and 1.4 below, qualified in specific job categories identified and
agreed to by both parties including, but not limited to, Data
Coordination and Clinical Data Management functions. CRO and Amgen
agree to develop mutually acceptable written job descriptions that
define the responsibilities and tasks to be performed by CRO personnel
in each job category which descriptions shall be attached to this
Agreement as Attachment A. CRO agrees to assign personnel that are
qualified according to the job description.
3.3 Amgen agrees that the minimum staffing levels for exempt (not subject
to overtime wages) and non-exempt (subject to overtime wages) employees
to be provided by CRO during the term of this Agreement will be as
follows:
Job Category Headcount
Data Entry (non-exempt) 8
Clinical Data Associate (exempt) 6
1.4 Upon written request by Amgen, CRO will add to the minimum contracted
staffing levels outlined in Section 1.3 above. Any such incremental
staff will be billed at the then current contract rate for the job
category. Employees added above the minimum contracted staffing level
may be removed from the contract prior to termination of this Agreement
upon sixty (60) days prior written notice by Amgen to CRO.
1.5 The assignment of specific CRO personnel to perform Services for Amgen
will be confirmed by execution of an Assignment Letter in the form of
Exhibit B to this Agreement. Upon execution, each Assignment Letter
(collectively referred to as the "Project") will become a part of and
be subject to this Agreement.
1.6 One of the Clinical Data Associate staff hired by CRO will be at a
senior level of experience as mutually agreed to by Amgen and CRO and
will be designated the primary contact with Amgen for the purposes of
assigning and scheduling work in their functional area. In addition,
this senior level individual will provide supervision, ensure quality,
monitor schedules, and provide general oversight
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according to CRO's policies and procedures. CRO will not bill Amgen for
any time spent by this individual performing administrative or other
work required by CRO that does not apply to this Agreement.
2.0 Pricing and Payment Terms
2.1 Immediately upon execution of this Agreement, Amgen will pay CRO a
pre-payment in the amount of three hundred and ninety-eight thousand
six hundred and fifty dollars ($398,650) (the "Pre-Payment"). Included
in the Pre-Payment are amounts for reimbursable expenses of fifty seven
thousand two hundred and fifty dollars ($57,250) for relocation (fixed
at $45,000), property insurance (estimated at $3,750) and recruitment
fees for data entry personnel not referred to CRO by Amgen (estimated
at $8,000). The balance of the Pre-Payment ($341,400) is to be drawn
against monthly service fees for the Services provided by CRO as they
become due. CRO will reduce its monthly service fee by fifty percent
(50%) until such time that the balance of the Pre-Payment ($341,400) is
reduced to a zero balance.
2.2 To the extent that the actual reimbursable expenses for insurance and
recruitment of data entry staff differ from the estimates of $3,750 and
$8,000 respectively, CRO will adjust the monthly credit accordingly.
Any increase in these expenses in excess of fifty percent (50%) of the
estimates will require prior written approval from Amgen. The amount
for relocation (fixed at $45,000) is a fixed cost and is not subject to
the terms of this Section 2.2. Neither party shall be liable to the
other for any increase or decrease in the actual cost of relocation.
2.3 Amgen will pay CRO the hourly rates first year of the contract listed
below for full-time employees:
Data Entry (non-exempt) $30.00 per hour
Clinical Data Associates (exempt) $55.00 per hour
2.4 The hourly rates in Section 2.3 above will increase by three percent
(3.0%) in each of the second and third year of the contract;
thereafter, hourly rates will be negotiated by the parties.
2.5 Amgen agrees to pay the hourly rate for each CRO employee assigned
under this Agreement for all hours worked. Amgen will not be charged
for any employee's time associated with absences (vacation, sick leave,
family leave, attendance at professional meetings, etc.) or for time
spent by an employee undergoing training or performing other work
required solely by CRO.
2.6 CRO will ensure that the proper number and. type of CRO employees will
be assigned under a given Assignment Letter such that the Services to
be performed will meet the specifications and completion date(s)
established by Amgen, within CRO's normal business hours.
Notwithstanding the foregoing, in the event that the completion of any
Services requires CRO staff to work overtime hours CRO agrees to
require CRO exempt staff to work overtime hours (beyond eight (8) hours
per day) at no additional cost to Amgen. In the event that CRO
non-exempt staff work overtime hours as defined under applicable state
and federal law, CRO will invoice Amgen for overtime at the hourly rate
stated
<PAGE> 3
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for non-exempt employees stated in Section 2.3 plus one half of the
employee's hourly wage which may vary depending upon the non-exempt
employee providing the Services, plus ten percent (10%) of said one
half of said employee's hourly wage for CRO profit. For example, if the
employee's hourly wage is $12.00/hr, then the overtime billing rate
will be equal to $30+$6+(6x.10) or $36.60.
2.7 All fees for CRO personnel performing monthly Services under this
Agreement will be paid monthly in arrears according to Amgen's standard
procedures and based upon a summary report including time sheets
submitted by CRO personnel. Amgen agrees to pay for such Services
within thirty (30) days of receipt of the summary report.
3.0 Hiring, Training, and Replacement of Staff
3.1 Except to the extent stated in Sections 2.1 and 3.3, CRO will recruit
and hire train supervise direct discipline, and if necessary, discharge
all CRO employees at CRO's own expense. CRO will interview prospective
employees for technical competencies and other qualifications according
to the agreed upon job descriptions. Amgen shall also have the right to
interview and evaluate such prospective employees. Amgen agrees to
provide feedback to CRO and approve candidates promptly in order to
facilitate the hiring process. The final decision regarding employment
will be made by CRO, however, CRO will not hire any individuals that
Amgen determines to be unacceptable during the interview process.
3.2 CRO will perform background investigations confirming basic information
contained in the employee's job application, including, but not limited
to, confirming the employee's full name and address, previous
employment references, educational background, a criminal background
check and personal references. Such background investigations must
always include personal contact with previous employers, educational
institutions and personal references and inquiries about dates of
employment, positions held, last salary, disciplinary records,
reliability, honesty and any instances of insubordination or a tendency
toward violence or other harmful or threatening activity. All such
communications will be documented regardless of whether the reference
contacted is willing to provide information. Included in the background
investigation will be a Department of Motor Vehicle (DMV) records
check, for CRO's personnel who will be driving Amgen's vehicles. CRO
agrees to continue this background investigation policy and will, in
accordance with applicable state and federal laws, obtain and issue any
necessary notices and consents for the resulting release and disclosure
of information, for any of its employees providing Services for or at
Amgen. CRO assumes full responsibility for conducting appropriate
background investigations, and for the manner in which they are
conducted, with an understanding of Amgen's obligation to maintain a
safe workplace, with qualified, honest, trustworthy, reliable and
non-violent workers who do not pose a risk of serious harm to others in
the workplace.
3.3 Initially, Amgen will train two (2) CRO clinical data associates and
two (2) CRO clinical data entry employees assigned under this
Agreement in the standard Amgen policies and operating procedures
required to perform the anticipated Services, including
product-specific training, systems and software training, and SOPs.
Subsequently, CRO will provide this training to its employees
performing Services for Amgen
<PAGE> 4
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3.4 Upon written notice from Amgen that any CRO employee is not performing
Services in a satisfactory manner or is otherwise objectionable, CRO
will, immediately terminate that employee from working on the Project
and will immediately replace the employee with another qualified
employee.
3.5 CRO will at all times maintain the minimum staffing levels as described
in Section 1.3 above. If necessary to maintain the minimum staffing
levels, CRO at its own expense, will provide qualified employees from
its other offices.
4.0 Term and Termination
4.1 The term of this Agreement will begin on the date first above written
and will continue for a period of three (3) years unless terminated in
accordance with this Section 4.
4.2 Notwithstanding anything to the contrary stated in this Agreement,
Amgen may terminate this Agreement in whole or in part without cause
upon forty-five (45) days written notice. If Amgen terminates this
entire Agreement without cause within three (3) months from the date of
execution, Amgen shall pay CRO one hundred percent (100%) of CRO's
reasonable costs associated with closing down the Project. If Amgen
terminates this entire Agreement without cause between three (3) and
six (6) months from the date of execution, Amgen shall pay CRO
seventy-five percent (75%) of CRO's reasonable costs associated with
closing down the Project. If Amgen terminates this entire Agreement
without cause between six (6) and twelve (12) months from the date of
execution, Amgen shall pay CRO fifty percent (50%) of CRO's reasonable
costs associated with closing down the Project. All such costs will be
itemized by CRO and submitted in writing to Amgen. If Amgen terminates
this entire Agreement without cause after twelve (12) months from the
date of execution, CRO will be solely liable for CRO's costs associated
with closing down the Project.
4.3 Any payments owed by Amgen to CRO under Section 4.2 above shall be
credited against the Pre-Payment and any amounts of the Pre-Payment
that are thereafter remaining shall be promptly refunded to Amgen.
4.4 Either party may by notice to the other party terminate this Agreement
for cause, without liability to the other party, if the other party
commits a material breach of this Agreement and fails to diligently
initiate a cure of such breach within thirty (30) days after receipt of
notice of breach. Termination under this paragraph 4.4 will be without
prejudice to any other rights or remedies the terminating party may
have on account of such breach.
5.0 Warranty
5.1 CRO warrants that the services will be performed in a competent manner
by qualified personnel in accordance with the standard of care usually
and reasonably expected in the performance of such services.
<PAGE> 5
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5.2 CRO and Amgen will develop mutually agreeable measures of performance
for the Services performed by CRO that are similar to the performance
measures used by Amgen to assess its in-house employees performing
similar Services. CRO agrees to maintain a. minimum level of
performance under these measures.
5.3 CRO will use reasonable efforts to promptly correct any failure to meet
this warranty or failure to obtain the minimum performance standards
agreed to by the parties, provided Amgen reports the failure to CRO
within a reasonable time after the date of the failure and makes
available adequate information concerning the failure. If CRO is unable
by using reasonable efforts to correct the failure within a reasonable
period of time, Amgen's sole remedy for breach of warranty under this
Agreement, refund the lesser of (a) all amounts paid by Amgen for the
failed services or (b) such equitable portion thereof as shall
represent the reduction in value of the services due to the failure.
5.4 NO OTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WILL APPLY.
6.0 Computing Equipment and Facilities
6.1 CRO will, at its own expense, provide office facilities for its
employees assigned to Amgen. CRO office space will have controlled
access and a secure (locked) room for network computing and
communications equipment.
6.2 Amgen will provide, at its own expense, all necessary data processing
equipment for operating Amgen systems at the CRO facility and for
communicating with Amgen facilities. Such equipment will be listed in
Schedule A of this Agreement and may include terminals, computers,
network processors, and any other associated hardware or software, as
well as the cost of any phone or other communications lines required by
Amgen to connect with the CRO facility ("Equipment"). Amgen will be
responsible for the configuration, installation, and maintenance of all
such Equipment located at the CRO facility. Amgen shall have the right
to enter upon CRO's premises to inspect or provide maintenance to the
Equipment at any time upon reasonable notice or during CRO's normal
business hours. CRO will upon receipt of the Equipment, promptly affix
and keep the same affixed upon a prominent place on the Equipment,
labels, plates or other markings stating that the Equipment is owned by
Amgen. CRO will protect at its sole cost and expense Amgen's ownership
and title in and to the Equipment against claims, liens and other
encumbrances arising from this Agreement or by CRO's creditors. CRO
will provide and maintain at its sole expense property insurance on the
Equipment for the full replacement value of the Equipment. CRO hereby
assumes and shall bear the entire risk of loss, that destruction,
damage, condemnation or any other casualty, whether or not insured
against, of the Equipment from the causes whatsoever and from the
Equipment is delivered to CRO premises. CRO assumes all risks from use,
operation and storage of the Equipment and from damages and injuries
incident thereto.
<PAGE> 6
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6.3. Amgen will allow CRO to use its Equipment for assessing and operating
CRO internal computer systems, provided that such use does not in any
way adversely impact any operation of Amgen systems. CRO will not use
Amgen's Equipment for performing work for any CRO client other than
Amgen.
6.4. CRO will assign a primary contract to interface with the Amgen
equipment that it supports in its data management systems. Amgen will
maintain the individual system and coordinate in the use of other data
management equipment and software and in problem resolution as a
primary effective communication with Amgen's support.
6.5. Amgen is responsible for licensing all software that it receives to be
installed for the equipment located at or issued by the CRO facility
for the purpose of this Agreement, including all licensing and
maintenance fees.
6.6. Upon termination of the Agreement, CRO will allow Amgen reasonable time
and access to the facilities for the purpose of inspecting and removing
the Amgen-owned Equipment and software as listed in Schedule A of this
Agreement.
7.0. Solicitation of Employees
7.1. During the term of the Agreement, and for a period of six months
thereafter, neither party will directly solicit the services of any
employee of the other involved in performance of this Agreement. This
restriction will extend to former Amgen and CRO employees for a period
of six months after the start of the employment of the other party;
however, the parties agree that this Section 7.1 will not approve the
individuals listed on Exhibit B attached hereto and incorporated
herein.
8.0. Confidential Information
During the term of this Agreement and for a period of five years after
termination of the Agreement, CRO shall not disclose or use for any
purpose other than performance of the Services, any and all trade
secrets, know-how, privileged records, or other confidential or
proprietary information and data, both technical and nontechnical
(collectively "Information"), disclosed to CRO by Amgen or obtained or
developed by CRO pursuant to CRO's providing Services under this
Agreement. The obligation of non-disclosure shall not apply to the
following:
(1) Information at or after such time that it is or becomes publicly
available through no fault of CRO;
(2) Information that is already independently known to CRO as
evidenced by CRO's prior written records;
(3) Information at or after such time that it is disclosed to CRO on
a non-confidential basis by a
<PAGE> 7
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third party with the legal right to do so; or
(4) Information developed by CRO without the use of Amgen's
Information as evidenced by CRO's written records.
9.0 Exclusions and Limitations of Liability; Exclusive Remedies
9.1 AS A MATERIAL CONDITION OF RECEIVING CRO'S SERVICES AT THE RATES
SPECIFIED IN SECTION 2.3 ABOVE, AND IN REGARD TO ANY AND ALL CLAIMS AND
CAUSES OF ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, WHETHER
BASED UPON NEGLIGENCE, BREACH OF CONTRACT OR WARRANTY, FAILURE OF A
REMEDY TO ACCOMPLISH ITS ESSENTIAL PURPOSE OR OTHERWISE, THE PARTIES
AGREE THAT:
(A) THE LIABILITY OF AMGEN OR CRO WITH RESPECT TO BREACH OF ANY
ASSIGNMENT LETTER WILL NOT EXCEED, IN THE AGGREGATE, THE AMOUNTS PAID
TO CRO BY AMGEN PURSUANT TO THE ASSIGNMENT LETTER;
(B) NEITHER AMGEN OR CRO WILL BE LIABLE TO THE OTHER FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (EVEN IF AMGEN OR CRO HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), INCLUDING, BUT NOT LIMITED
TO, LOST PROFITS OR SAVINGS, LOSS OF USE OF SERVICES, COST OF CAPITAL,
COST OF SUBSTITUTE SERVICES, OR DAMAGES AND EXPENSES ARISING OUT OF
THIRD PARTY CLAIMS.
(C) THE REMEDIES SPECIFIED IN THIS AGREEMENT ARE EXCLUSIVE.
10.0 Excusable Delays
10.1 Neither party will be liable to the other party by reason of any
failure in performance of this Agreement if the failure arises out of
acts of God, acts of the other party, acts of governmental authority,
fires, strikes, delays in transportation, riots or wars, or any cause
beyond the reasonable control of that party. If any such event delays
performance, the time allowed for such performance will be
appropriately extended. Notwithstanding anything to the contrary, if
the failure in performance of one party continues for more than thirty
(30) days, then the other party may terminate this Agreement without
any liability to the non-performing party.
11.0 Notices
11.1 Any notice or report required under this Agreement will be given in
writing by personal delivery or by mail directed to the address of the
party given below or to such other address as may be substituted by
notice to the other party. All notices will be effective upon receipt.
<PAGE> 8
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To CRO: 441 Vine Street
Suite 700
Cincinnati, Ohio 45202
Attn: Chris Bergen
To AMGEN: 1840 DeHavilland Drive
Thousand Oaks, CA 91320
Attn: Ken Buchholz
12.0 General Provisions
12.1 CRO may not assign this Agreement without the prior written consent of
Amgen provided, however, that either party may assign this Agreement
without consent to a successor in interest to substantially all of the
business of that party to which the subject matter of this Agreement
relates.
12.2 If any part or parts of this Agreement are held to be invalid, the
remaining parts of the Agreement will continue to be valid and
enforceable.
12.3 This Agreement will be governed by the law of the state of California.
The parties hereto agree to submit to the jurisdiction of the courts of
the state of California in the county of Ventura.
12.4 The headings of this Agreement are for reference purposes only; they
will not affect the meaning or construction of the terms of this
Agreement.
12.5 The provisions of this Agreement are for the sole benefit of the
parties, and not for the benefit of any other persons or legal
entities.
12.6 While on Amgen's premises in connection with the performance of this
Agreement, CRO personnel will comply with the same rules of conduct as
apply to Amgen's own personnel at that location of which CRO is given
notice. On notice from Amgen, CRO will remove immediately any of its
personnel assigned to perform work under this Agreement who do not meet
this condition.
12.7 CRO together with each of its employees, agents and subcontractors
agree to execute as necessary a Confidential Disclosure and Information
Security Agreement attached hereto as Attachment B.
12.8 CRO will not use the name of Amgen nor disclose the existence and/or
terms of this Agreement in any press release, publicity, advertising or
for any other purpose without the prior written approval by an
authorized representative from Amgen's Corporate Communication and Law
departments.
<PAGE> 9
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12.9 CRO agrees that at no time will CRO purchase or sell Amgen securities
based on Confidential Information or information not known to the
general public. CRO will use its best efforts to ensure compliance by
CRO's directors, officers, employees, agents and representatives with
this Section 12.9.
12.10 CRO agrees that, to the extent applicable, this Agreement shall be
performed in full compliance with all applicable equal opportunity
requirements including, but not limited to, the requirements of Title
VII of the Civil Rights Act of 1964; the provisions of Executive Order
No.11246, as amended, and the provisions of the equal employment
opportunity clause set out in such Order, which clause is incorporated
herein by reference; the provisions of Chapter 60 of Title 41 of the
Code of Federal Regulations, which provisions, including any future
amendments thereof, are incorporated herein by reference and made a
part hereof; the Vietnam Era Veterans Readjustment Assistance Act of
1974 relating to the employment of veterans; the Rehabilitation Act of
1973 relating to the employment of handicapped persons; Executive Order
No. 11141 prohibiting discrimination on the basis of age; and all
amendments thereof and all applicable regulations, rules and orders
issued thereunder.
12.11 CRO represents that it is engaged in an independent business and will
perform its obligations under this Agreement as an independent
contractor and not as the agent or employee of Amgen; that the persons
performing Services hereunder are not agents or employees of Amgen;
that CRO has and hereby retains the right to exercise full control of
and supervision over the performance of CRO's obligations hereunder and
full control over the employment, direction, compensation and discharge
of all employees assisting in the performance of such obligations; that
CRO as an independent contractor is an employer subject to all
applicable unemployment compensation statutes, occupational safety and
health statutes or similar statutes; that CRO will be solely
responsible for all matters relating to payment of such employees,
including compliance with worker's compensation, unemployment,
disability insurance, social security, withholding and other federal,
state and local laws, rules and regulations governing such matters so
as to relieve Amgen of any responsibility or liability for treating
CRO's employees as employees of Amgen for the purpose of their safety
or of keeping records, making reports or payment of any payroll taxes
or contribution; that CRO agrees to indemnify and hold Amgen harmless
and reimburse Amgen for any expense or liability incurred under said
statutes in connection with employees of CRO, including a sum equal to
any unemployment benefits paid to those who were CRO's employees, where
such benefit payments are charged to Amgen under any merit plan or to
Amgen's reserve account pursuant to any statute and that CRO will be
responsible for CRO's own acts and those of CRO's agents, employees and
contractors during the performance of CRO's obligations under this
Agreement.
12.12 CRO shall maintain all records and accounts pertaining to the Services
performed for a period of at least two (2) years after final payment.
Amgen shall have the right to audit, copy and inspect said records and
accounts at all reasonable times during the course of the Services and
for the above two (2) year period for the purpose of verifying costs
incurred.
<PAGE> 10
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12.13 This Agreement shall not create any partnership or joint venture
between the parties. Nothing contained in this Agreement shall
constitute either party as the agent or legal representative of the
other for any purpose. No provision of this Agreement grants either
party any express or implied right of authority to assume or create any
obligation or responsibility on behalf of or in the name of the other
party, or to bind the other party in any manner whatsoever.
12.14 This Agreement (including all applicable Assignment Letters) contains
the complete and exclusive understanding of the parties with respect to
the matters contained herein. No waiver, alteration or modification of
any of the provisions of this Agreement will be binding unless in
writing and signed by a duly authorized representative of the party to
be bound. Neither the course of conduct between the parties nor trade
usage will act to modify of alter the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate by proper persons thereunto duly authorized.
KENDLE AMGEN, INC.
By: /s/ Christopher Bergen By: /s/ M.R. Downing
------------------------- -------------------------------
Title: President Title: Sr. Director
------------------------- -------------------------------
Date: 1/31/96 Date: Jan. 17, 1996
------------------------- -------------------------------
<PAGE> 1
Exhibit 10.14
May 13, 1996
Celecoxib Long Term Safety Study
N49-96-02-024
CLINICAL TRIAL SERVICES AGREEMENT
THIS CLINICAL TRIAL SERVICES AGREEMENT (the "Agreement"), made as of
April 26,1996, by and between Kendle Research Associates, Inc., an Ohio
corporation with principal offices at 441 Vine Street, Cincinnati, Ohio 45202
("CONTRACTOR") and G.D. SEARLE & CO., a Delaware corporation with principal
offices at 5200 Old Orchard Road, Skokie, Illinois 60077 U.S.A. ("SEARLE").
WITNESSETH:
WHEREAS, CONTRACTOR is engaged in the business of managing,
monitoring and coordinating multi-site clinical research programs; and
WHEREAS, SEARLE desires CONTRACTOR to manage, monitor and coordinate
a clinical research program, and CONTRACTOR is willing to provide such services
subject to the terms hereof.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1-- DEFINITIONS
1.1 "Act" shall mean the United States Food, Drug, and Cosmetic Act, as
amended, and any and all rules and regulations promulgated
thereunder.
1.2 "Case Resort Forms" shall mean the Case Report Forms developed
and/or approved by SEARLE which are to be used by the Investigators
(as hereinafter defined) to record data from the Study (as
hereinafter defined).
1.3 "Eligible Patient" shall mean any patient who meets the
inclusion/exclusion criteria for participation in the Study which
are set forth in the Protocol (as hereinafter defined), signs an
acceptable Patient Informed Consent Form and participates in the
Study.
1.4 "Evaluable Patient" shall mean a patient who meets the criteria for
payment as outlined
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in the Guidelines for Payment (see Exhibit B).
1.5 "FDA" shall mean the United States Food and Drug Administration or
any successor entity thereto.
16 "Investigator" shall mean a licensed physician engaged by SEARLE to
conduct the Study.
1.7 "IRB" shall mean the Institutional Review Board(s) organized in
accordance with the Act.
1.8 "Protocol" shall mean protocol number N49-96-02-024, entitled
"Clinical Protocol to Evaluate the Long-Term Safety of Celecoxib
(SC-58635) in Treating the Signs and Symptoms of Osteoarthritis and
Rheumatoid Arthritis," and is incorporated herein by this
reference, and any amendments thereto. This protocol will have an
interim and a final analysis.
1.9 "Site" shall mean the physical location at which a particular
Investigator conducts the Study.
1.10 "Study" shall mean the clinical research described in the Protocol.
This Contract is for all study activities up to and including the
interim analysis.
1.11 "Study Medication" shall mean SEARLE's compound SC-58635.
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ARTICLE 2-- SERVICES OF CONTRACTOR
2.1 Purpose. SEARLE hereby retains CONTRACTOR and CONTRACTOR agrees to
assist SEARLE in the management and monitoring of the Study in
accordance with the Protocol. The Study shall be conducted at
approximately 93 Sites and involve the participation of
approximately 1,670 patients. All 93 of these sites will be
monitored by CONTRACTOR.
2.2 Specific Services. In connection with the Study, CONTRACTOR shall
provide the following services (collectively, the "Services")
within time frames mutually agreed on and documented in official
study timeliness:
(a) CONTRACTOR shall verify that the Investigators are duly
licensed, qualified to conduct the Study in accordance with the
Protocol and the Act, acceptable to the FDA and have adequate
staff and facilities.
(b) All appropriate personnel of CONTRACTOR shall attend meetings
of the Investigators and/or their Study Coordinators to review
the Protocol, Case Report Forms, and clinical laboratory and
administration procedures relevant to the Study.
(c) Prior to the initiation of the Study by each Investigator,
CONTRACTOR shall collect from the relevant Investigators all
regulatory and administrative documents (including a curriculum
vitae, medical license, signed statement of Investigator, IRB
approval, Approved Consent Form, FDA Form 1572) and forward
same to SEARLE for filing with the FDA. CONTRACTOR shall
forward to each investigative site a copy of the
investigational brochure for the Study Medication, the Protocol
and any other written information required by the Investigator
to perform the Study.
(d) Prior to the initiation of the Study by each Investigator,
SEARLE will designate the amount to be paid to each
Investigator for partially completed and fully completed
patients (Study Budget). CONTRACTOR will discuss the Study
Budget with each Investigator and seek the Investigator's
agreement to the Study Budget. Any deviations to the Study
Budget must be agreed to by SEARLE in writing. CONTRACTOR shall
enter into agreements with each Investigator for the
performance of the Study (Letter of Agreement). A standard
Letter of Agreement
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will be approved by SEARLE in writing.
Any deviations to the standard Letter of Agreement must be
approved in writing by SEARLE. CONTRACTOR shall make payments
for performance under each Letter of Agreement directly to each
Investigator and will be reimbursed by SEARLE for these
payments as provided in Section 5.2 (b).
(e) With SEARLE's approval, CONTRACTOR shall authorize the
initiation of the Study at each Site, including without
limitation providing orientation and other training for the
Investigator and his staff.
(f) CONTRACTOR shall ship CRFs from Cincinnati to each of the
investigational sites as needed
(g) CONTRACTOR shall monitor the performance of the Study at each
Site by conducting and documenting at least the following
on-Site visits, supplemented by telephonic communications as
reasonably necessary during the course of the Study: (1)
Initiation visit to selected Sites before the first patient at
said Site enters the Study;
(2) Interim visits to each Site which shall occur in
conjunction with visits for other SEARLE trials;
(3) Close-out visit to each Site after all Patients at said
Site have completed the Study.
In conducting the Site visits and monitoring the Study,
CONTRACTOR shall comply with the requirements of Exhibit A.
SEARLE reserves the right at its expense, to accompany
CONTRACTOR on any or all of CONTRACTOR's Site visits and to
conduct additional visits to the Sites without representatives
of CONTRACTOR.
(h) CONTRACTOR shall keep the Investigators informed of information
provided by SEARLE concerning the Study Medication and conduct
of the Study.
(i) CONTRACTOR shall review Case Report Forms for completeness and
in compliance with the requirements of Exhibit A, resolve
discrepancies with the Investigator.
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(j) For purposes of calculating payments to the Investigators,
CONTRACTOR's personnel will fill out payment worksheets as
shown in Exhibit B and will use worksheets to calculate
payments to Investigators. CONTRACTOR will make payments
directly to Investigators and will be reimbursed by SEARLE as
described in Exhibit E.
(k) CONTRACTOR shall code Case Report Forms and enter data from
Case Report Forms into a database prepared by SEARLE and
located on a SEARLE computer in Skokie, Illinois. SEARLE shall
provide the necessary access and data links for CONTRACTOR to
enter the data remotely.
(l) CONTRACTOR shall run automated edit checks on the data in the
database and will generate and resolve queries that result from
such checks.
(m) Using specifications and a Statistical Analysis Plan approved
by SEARLE, CONTRACTOR shall program tables and listings which
will be used in the final report for this study. Tables and
listings will be reviewed by CONTRACTOR's Safety, CDM, Clinical
Services, and Statistics personnel and will be shared with
SEARLE in a draft form to allow for comments.
(n) CONTRACTOR shall promptly report to SEARLE all serious adverse
drug experiences which come to its attention, in accordance
with the Act and any instructions from SEARLE.
(o) CONTRACTOR shall advise and consult with the Investigators
regarding questions concerning the Protocol, the conduct of the
Study, and/or the recording of data therefrom.
(p) At the conclusion of the Study at each Site and unless SEARLE
otherwise directs, CONTRACTOR shall collect from the
Investigator and reconcile unused supplies of the Study
Medication, other drugs provided by SEARLE, unused Case Report
Forms and any other materials or information required by the
Act to be delivered to the sponsor of the Study at its
conclusion.
(q) At the conclusion of the Study, CONTRACTOR will make copies of
all blue watermark Case Report Forms and will forward such
copies plus a copy of the study report to the clinical sites
from which the pages originated. The
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original white and blue watermark copy Case Report Forms will
be forwarded to SEARLE for archiving, unless otherwise
instructed.
(r) CONTRACTOR shall provide such other assistance as SEARLE may
reasonably request in order to manage, monitor and coordinate
the conduct of the Study and to collect and submit all
resulting data on a timely basis.
(s) In the event SEARLE requests CONTRACTOR to perform any
additional services not contemplated hereunder, CONTRACTOR
shall obtain SEARLE's written approval of the costs associated
with such services prior to commencing performance of any such
services.
2.3 Reports.
(a) Within two (2) weeks after each visit to a Site, CONTRACTOR
shall prepare and submit to SEARLE a Site visit report. The
Visit Report shall set forth the information described in Part
I of Exhibit C.
(b) CONTRACTOR shall submit a report to SEARLE summarizing the
progress of the Study at each Site and CONTRACTOR's performance
of the Services. Such report shall include the information
described in Part II of Exhibit C and shall be with the
frequency indicated therein.
2.4 Records. CONTRACTOR shall maintain complete and accurate records of
each visit to a Site and any and all other records and information
relating to the conduct of the Study or the performance of the
Services which may be required by the Act or any other law or
regulation. Such records shall be maintained for a period of three
(3) years from the date hereof or such longer period as may be
required by law. At the end of such retention period, CONTRACTOR
shall offer all such records to SEARLE by written notice. If within
thirty (30) days of such notice, SEARLE does not notify CONTRACTOR
to ship such records to SEARLE, at SEARLE's expense, CONTRACTOR
shall promptly destroy same and certify in writing to SEARLE that
such destruction has occurred.
2.5 Audit Right. The records described in Section 2.4 above shall be
made available to SEARLE at SEARLE's request and to the FDA at the
FDA's request for inspection,
<PAGE> 7
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copying and audit at any time during the term hereof and during the
retention period described above.
2.6 Visits by Regulatory Agencies. CONTRACTOR shall notify SEARLE
immediately by telephone (followed by written confirmation) of any
visit to CONTRACTOR's offices or to any Site by FDA representatives.
2.7 Resolution of Disputes and Deficiencies. Any deficiencies noted by
SEARLE in the Services performed by CONTRACTOR or in the conduct of
the Study by any Investigator shall be resolved by CONTRACTOR to the
satisfaction of SEARLE. In the event of any disputes between
CONTRACTOR and SEARLE, the parties shall make good faith efforts to
resolve any such dispute as promptly as possible.
2.8 Transfer of Responsibilities.
(a) Pursuant to 21 Code of Federal Regulations ( "CFR") Part
312.52, SEARLE hereby transfers to CONTRACTOR and CONTRACTOR
hereby assumes from SEARLE, the responsibility for those
services described in this Article 2 and accordingly,
CONTRACTOR shall be responsible for performance of all such
obligations as contemplated in said Part of the CFR.
(b) Notwithstanding the foregoing, it is understood that SEARLE
shall be responsible for the following obligations set forth in
21 CFR Part 312:
(1) preparation and submission (if required) of an
Investigational New Drug Application to conduct the
Study;
(2) report to the FDA of all adverse drug reactions required
to be reported;
(3) maintenance of records concerning shipments by SEARLE to
the Investigators of Study Medication, other drugs and
other materials; and
(4) preparation and submission to the FDA of any periodic
reports and the final report concerning the Study; and
(5) any other obligations of clinical study sponsors which
are set forth in the Act and not specifically transferred
to CONTRACTOR under Section 2.8(a).
ARTICLE 3-- STANDARD OF PERFORMANCE, STAFFING AND RECORDS
3.1 Standard of Performance. CONTRACTOR shall perform the Services and all of
its
<PAGE> 8
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other obligations set forth herein in strict accordance with:
(a) all applicable statutes, rules and regulations, including
without limitation the Act and any proposed FDA regulations
provided by SEARLE;
(b) the Protocol;
(c) the mandates of the IRB approving the Study;
(d) the SOPs (as defined in Section 3.2); and
(e) any other instructions from SEARLE.
CONTRACTOR shall also perform the Services in a competent and
professional manner, consistent with the current state of clinical
research and current good clinical practices acceptable to the FDA.
CONTRACTOR shall, as necessary, consult with SEARLE on matters
regarding safety considerations and Study implementation, and will
adhere to SEARLE's advice concerning same.
3.2 SOPs. At least five (5) days prior to the commencement of the
Services, CONTRACTOR shall submit to SEARLE for its review and
approval CON TRACTOR's standard operating procedures (SOPs) relating
to the Services.
3.3 Staffing.
(a) CONTRACTOR shall be responsible for providing all personnel
required to perform the Services, as well as any necessary
replacements. CONTRACTOR shall use its best efforts to provide
qualified individuals to fill such positions. CONTRACTOR shall
also give due consideration to the advice of SEARLE with
respect to the decision to use, or to continue or discontinue
the use of, specific personnel for purposes of the conduct of
Study monitoring. CONTRACTOR shall not engage any subcontractor
to perform or assist in the performance of the Services without
the prior written approval of SEARLE.
(b) CONTRACTOR shall not use any person (including Investigators)
debarred by the FDA in any capacity in connection with the
performance of the Services or the Study. Upon the execution of
this Agreement,
3.4 CONTRACTOR shall provide SEARLE with the certification attached hereto as
Exhibit D. Accurate Information. CONTRACTOR hereby represents to SEARLE that
CONTRACTOR shall take all necessary steps to assure that all data, reports,
forms or any other records generated
<PAGE> 9
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pursuant to the Study by CONTRACTOR, its agents, employees, subcontractors or
representatives or by Investigators shall be true and accurate and shall contain
no false or misleading information.
ARTICLE 4-- OBLIGATIONS OF SEARLE
4.1 Supplies to Investigators. SEARLE shall provide at its own expense
and directly to each Investigator:
(a) Supplies of the Study Medication and any other medications
specified in the Protocol. SEARLE shall keep CONTRACTOR
informed of the recipients, contents and dates of all such
shipments.
(b) A supply of Case Report Forms which will be forwarded to
investigational sites by CONTRACTOR's personnel. CONTRACTOR
shall keep SEARLE informed of the recipients, contents, and
dates of all such shipments.
4.2 Compliance with Law. SEARLE shall comply with all laws and
regulations, including without limitation the Act, which are
applicable to SEARLE's sponsorship and reporting of the Study.
4.3 Data Processing~ Activities. SEARLE shall provide a database, DLB
data entry software, data edit checks and computerized tools to
allow the CONTRACTOR to code CRFs, enter data, and generate and
process queries on SEARLE computer systems located in Chicago.
(a) SEARLE shall provide adequate computer access to the SEARLE
clinical database to allow up to 30 simultaneous users
consisting of CDM and Statistics personnel in up to 3
different locations by October 1996. This access will consist
of the existing network link with Kendle in Cincinnati plus
links to be established with KENDLE's offices in Chicago and
New Jersey. In the event that network
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links with KENDLE's offices in Chicago and New Jersey cannot
be established prior to the initiation of this study, modem
connections will serve as an interim solution. SEARLE will at
least provide up to 4 modem connections with the Chicago
office by the end of July 1996 and up to 4 modem connections
with the New Jersey office by the end of August 1996. Network
links will be provided to these sites by October 1996.
(b) SEARLE shall provide necessary access and data links to allow
operations 24 hours, 7 days a week during the study (except
when maintenance downtime is required).
(c) SEARLE shall provide remote printing capability at CONTRACTOR
offices in Cincinnati, Chicago, and New Jersey, sufficient to
allow timely data review and clean-up. KENDLE shall provide
printer equipment.
(d) SEARLE shall make reasonable efforts to provide sufficient
computing resources for efficient use of automated edits and
other tools provided by SEARLE and used during the data
clean-up process. KENDLE's commitments to rapid turnaround
assume that automated edits and other tools will execute in I
to 8 hours. Longer run times for the automated edits and other
tools may adversely impact these turnaround times.
(e) SEARLE shall review and provide feedback to the CONTRACTOR on
all information provided SEARLE for approval (e.g., code
listings) generally within I to 2 working days of submission to
SEARLE.
(f) Within I week of receipt, SEARLE shall load all external
laboratory data received from SCICOR.
(g) SEARLE shall provide such other assistance as CONTRACTOR may
reasonably request in order to manage, monitor, code, enter,
and process CRF data on a timely basis.
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ARTICLE 5-- PAYMENTS TO CONTRACTOR
5.1 Compensation. In consideration for CONTRACTOR's performance of the
Services, SEARLE shall (a) pay CONTRACTOR up to Two Million Eight
Hundred Forty-Six Thousand Three Hundred Fifty Dollars ($2,846,350)
for Services completed in accordance with the activities and
associated costs set forth on the fee schedule attached hereto as
Exhibit E, and (b) reimburse CONTRACTOR for expenses (as provided
under 5.2 below) in an amount up to Two Million Twenty-Two Thousand
Six Hundred Dollars ($2,022,600). CONTRACTOR's total compensation
under (a) and (b) shall not exceed Four Million Eight Hundred Sixty
Eight Thousand Nine Hundred Fifty Dollars ($4,868,950).
5.2
Expenses.
(a) SEARLE shall reimburse CONTRACTOR for all of its reasonable
out-of-pocket expenses incurred in connection with its performance
of the Services for travel, meetings, and shipping in an amount not
to exceed Two Hundred Eighty Thousand Dollars ($280,000). CONTRACTOR
shall not incur additional expenses for travel, meetings, and
shipping without SEARLE's prior written consent.
(b) SEARLE shall provide funds to CONTRACTOR for all payments made to
Investigators, in an amount not to exceed One Million Seven Hundred
Thirty-Five Thousand One Hundred Dollars ($1,735,100). CONTRACTOR
shall provide detailed listings of such payments, including the name
and Taxpayer Identification Number or Social Security Number of the
Payee, five (5) days before the payments are made. SEARLE will send
funds to CONTRACTOR by wire transfer directly into CONTRACTOR's
account within five (5) business days of receipt of each detailed
listing. Payments to Investigators shall not exceed One Million
Seven Hundred Thirty-Five Thousand One Hundred Dollars ($1 .735,100)
without SEARLE's prior written consent.
(c) SEARLE shall reimburse CONTRACTOR for expenses related to
duplicating
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Study Document Binders. CONTRACTOR shall not exceed total
expenses of Seven Thousand Five Hundred Dollars ($7,500)
without SEARLE's prior written consent.
5.3 Payment Procedures.
(a) Within fifteen (15) days after the execution of this Agreement,
SEARLE shall make an initiation payment to CONTRACTOR in the
amount of Four Hundred Twenty-Seven Thousand Dollars ($427,000)
which represents fifteen percent (15%) of the amount set forth
in Section 5.1(a). If any advance payments for CONTRACTOR fees
for tasks covered by this contract have already been made, they
will be credited against this initiation payment.
(b) SEARLE shall pay the remainder of the amount set forth in
Section 5.1(a) in seventeen (17) milestone payments of One
Hundred Twenty-Five Thousand Six Hundred Dollars ($125,600)
each as provided in Exhibit E and one final installment of Two
Hundred Eighty-Four Thousand One Hundred Fifty Dollars
($284,150), representing 10% of the amount sent forth in
Section 5.1(a) which shall be paid only after all data from the
contract period has been coded and entered, all queries for the
contract period have been resolved, and the statistical report
for the contract period has been received by SEARLE from
CONTRACTOR and has been accepted by~SEARLE as satisfactory.
(c) SEARLE shall advance 15% (Forty-Two Thousand Dollars; $42,000)
of the estimated travel expenses to CONTRACTOR within fifteen
(15) days after the execution of this Agreement. CONTRACTOR
shall invoice SEARLE each calendar month for the expense
incurred during the prior calendar month, subject to the
limitation set forth in Sections 5.1 and 5.2. CONTRACTOR's
invoice shall be accompanied by original receipts or any other
supporting information reasonably satisfactory to SEARLE. A
final accounting of expenses shall occur at the end of the
contract period and any unused advance will be returned at that
time (estimated January 1998).
(d) SEARLE shall reimburse CONTRACTOR for payments to
Investigators. CONTRACTOR shall invoice SEARLE for these
expenses as they are incurred,
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subject to the limitation set forth in Section 5.2. SEARLE
shall reimburse CONTRACTOR for these expenses by wire transfer
directly to CONTRACTOR's account within 5 working days of
receiving the invoice.
(e) SEARLE shall reimburse CONTRACTOR for payments related to the
reproduction of Case Report Forms and Study Document Books.
CONTRACTOR shall invoice SEARLE for these expenses as they are
incurred, subject to the limitation set forth in Section 5.2.
(f) SEARLE shall pay CONTRACTOR within thirty (30) days of receipt
of invoices; provided they comply with the terms hereof. Checks
shall be made payable to Kendle, Federal l.D. 31-1274091, and
mailed to the address first set forth above, attention:
Controller.
5.4 Final Reconciliation. Within 30 days after the conclusion of the
Services, CONTRACTOR shall submit to SEARLE a final invoice which shall
include an accounting reconciling all activities actually performed and
associated costs (as set forth in Exhibit E, all payment made by SEARLE
and all amounts invoiced by CONTRACTOR. Any overpayment by SEARLE shall
be credited or refunded to SEARLE by CONTRACTOR at the time of
submission of such final invoice. Any underpayment by SEARLE shall be
paid to CONTRACTOR, subject to the limitations set forth in Sections
5.1 and 5.2, within thirty (30) days after receipt and acceptance by
SEARLE of such final invoice. Records and Audit. CONTRACTOR shall keep
and maintain complete and accurate books and records in sufficient
detail to determine amounts owed to CONTRACTOR hereunder. Such books
and records shall be maintained for at least two (2) years following
completion of the Study or termination of this Agreement and shall be
made available for inspection, copying and audit by SEARLE, upon
reasonable notice by SEARLE, for the sole purpose of determining the
accuracy of amounts invoiced hereunder. If any such audit discloses an
underpayment or overpayment of amounts due hereunder, the party owing
same shall pay the amount due to the other party within thirty (30)
days of written notice.
ARTICLE 6-- TERM AND TERMINATION
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6.1 Term. The term of this Agreement shall begin as of March 11,1996 and
shall continue until completion of the interim analysis of the
Study, which shall occur no later than January 26,1998.
6.2 Extensions of Term. SEARLE shall have the right to extend the term
described above without an increase in the fees payable to
CONTRACTOR on written notice to CONTRACTOR, provided such extension
is not the result of a delay by SEARLE in performing its obligations
hereunder or of a change in the Protocol required by SEARLE which
materially affects the performance of the Study.
6.3 Termination by SEARLE. SEARLE may terminate this Agreement at any
time on thirty (30) days prior written notice to CONTRACTOR.
6.4 Termination by Either Party. In addition to any other rights or
remedies available at law or in equity, this Agreement may be
terminated by either party:
(a) on written notice effective immediately if the other party
commits a material breach of this Agreement which is not cured
within thirty (30) days of receipt of written notice from the
other party; or
(b) on thirty (30) days written notice if the other party becomes
insolvent, is dissolved or liquidated, makes a general
assignment for the benefit of its creditors, files or has filed
against it, a petition in bankruptcy, or has a receiver
appointed for a substantial part of its assets.
6.5 Obligations on Expiry or Termination.
(a) Upon early termination (other than for CONTRACTOR's default),
CONTRACTOR shall be entitled to a pro-reta portion of the
compensation as provided under Article 5, based on the degree
of completion of the Services as of the date of termination.
SEARLE shall also reimburse CONTRACTOR for any accrued, but
unpaid expenses incurred as permitted under Article 5.
(b) Within thirty (30) days of the expiration or termination of
this Agreement or the Study for any reason, CONTRACTOR shall
return to SEARLE all completed, partially completed and unused
Case Report Forms and all other materials in CONTRACTOR's
possession or control and relating to the Study, including but
not limited to all data (in any form, including electronic) and
other information resulting from the Study or provided by
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SEARLE.
(c) If this Agreement and/or the Study is prematurely terminated,
CONTRACTOR shall conclude the Study as expeditiously as
possible and in accordance with SEARLE's reasonable
instructions and all applicable federal, state and local laws,
regulations and guidelines. CONTRACTOR shall use its best
efforts to minimize any expenses resulting from such early
termination.
ARTICLE 7--INDEMNIFICATION
7.1 Indemnification of SEARLE. CONTRACTOR shall defend, indemnify and
hold harmless SEARLE and its directors, officers and employees, from
and against any and all liabilities, costs and expenses (including
reasonable attorneys' fees and court costs) from any third party
claim, action, lawsuit or other proceeding to the extent such
liability, cost or expense is attributable to any negligent or
willful act or omission or breach of this Agreement on the part of
CONTRACTOR or any of its agents, employees, subcontractors
(including Investigators, if CONTRACTOR should reasonably have
anticipated such action and taken measures to prevent it) or
representatives in the course of performing CONTRACTOR's obligations
hereunder; provided however that:
(a) SEARLE has performed its obligations hereunder; and
(b) SEARLE shall have notified CONTRACTOR within ten (10) working
days after receipt of notice of the claim, action, lawsuit or
other proceeding; and
(c) SEARLE shall fully cooperate in the investigation and defense of
any such claim, action, lawsuit or other proceeding.
7.2 Indemnification of CONTRACTOR. SEARLE shall defend, indemnify and
hold harmless CONTRACTOR and its directors, officers, employees, and
subcontractors from and against any and all liabilities, costs and
expenses (including reasonable attorneys' fees and court costs)
arising from any claim, action, lawsuit or other proceeding (a)
alleging personal injury or death arising out of or in connection
with any procedure required by the Protocol or with the
administration or use of the Study Medication or any control drug by
any Investigator in the performance of the Study in accordance with
the Protocol or (b) to the extent such liability, cost or expense is
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attributable to any negligent or willful act or omission or breach
of this Agreement on the part of SEARLE or any of its agents,
employees or representatives; provided however that:
(a) CONTRACTOR has performed its obligations hereunder; and
(b) CONTRACTOR shall have notified SEARLE within ten (10) working
days after receipt of notice of the claim, action, lawsuit or
other proceeding; and
(c) CONTRACTOR shall fully cooperate in the investigation and
defense of any such claim, action, lawsuit or other proceeding.
7.3 Notwithstanding the foregoing, SEARLE shall not be required to
indemnify CONTRACTOR for any liability, cost or expense
attributable to any negligent or willful act or omission or breach
of this Agreement on the part of CONTRACTOR or any agent, employee,
subcontractor (including Investigators, if CONTRACTOR should
reasonably have anticipated such action and taken measures to
prevent it) or other representative of CONTRACTOR in the course of
performing its obligations hereunder. Conflicts of Interest. SEARLE
shall have the right to select defense counsel and to direct the
defense or settlement of any claim, action, lawsuit or other
proceeding described in Paragraphs 7.2. If representation of
CONTRACTOR and any other defendant by the same legal counsel in any
lawsuit or claim would be a conflict of interest for such counsel,
SEARLE shall retain additional independent counsel for one or more
of said defendants to eliminate such conflict.
ARTICLE 8-- PROPERTY OWNERSHIP AND RETENTION
8.1 Ownership. The following materials shall be deemed to be the
exclusive property of SEARLE and are hereinafter collectively
referred to as "Searle Information":
(a) All materials, documents and information of every kind and
description supplied to CONTRACTOR by SEARLE;
(b) All materials, documents and information of every kind and
description prepared or developed by CONTRACTOR pursuant to this
Agreement, except for
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procedural manuals, personnel data and computer software; and
(c) All clinical data (including Case Report Forms and the data
contained therein) and reports prepared by any of the
Investigators.
Nothing in this paragraph shall preclude the publishing of the
results of any clinical trial(s) by the Investigators in accordance
with the terms of their respective contracts.
8.2 Inventions and Discoveries.
(a) CONTRACTOR will promptly disclose to SEARLE or its nominee any
and all inventions, discoveries and improvements conceived,
made or reduced to practice by CONTRACTOR or any agent,
employee, subcontractor or other representative of CONTRACTOR
in the course of performing the Services. CONTRACTOR hereby
agrees to assign all its right, title and interest therein to
SEARLE or its nominee. CONTRACTOR shall ensure that its
contractual arrangements with its agents, employees,
subcontractors and other representatives provide for their
automatic assignment to SEARLE of all such inventions,
discoveries and improvements.
(b) Whenever requested to do so by SEARLE, CONTRACTOR will execute
any and all applications, assignments or other instruments and
give testimony which SEARLE shall deem necessary to apply for
and obtain letters patent of the United States or of any
foreign country or to protect otherwise SEARLE's interest
therein. CONTRACTOR shall be reimbursed for reasonable expenses
and personnel charges in complying with SEARLE's request.
CONTRACTOR shall ensure that its contractual arrangements with
its agents, employees, subcontractors and other representatives
provide for their automatic assignment to SEARLE of all such
inventions, discoveries and improvements.
ARTICLE 9-- CONFIDENTIALITY
9.1 Undertaking. During the term hereof and for a period of ten (10)
years following the expiration or termination hereof, CONTRACTOR
shall keep confidential and not use (other than to perform the
Services) any of the Searle Information. CONTRACTOR further agrees
to limit disclosure of the Searle Information to agents,
subcontractors,
<PAGE> 18
- 18 -
employees and other representatives of CONTRACTOR who have signed
agreements with CONTRACTOR reiterating the provisions of this
Article and to Investigators who have signed Investigator Contracts.
9.2 Exceptions. The obligations set forth in Paragraph 9.1 shall not
apply to Searle Information which:
(a) is already known to CONTRACTOR as shown by its prior written
records
(b) is or becomes publicly available through no fault of CONTRACTOR;
(c) is received from a third party which CONTRACTOR believes in good
faith has a right to disclose it; or
(d) is required by law to be disclosed.
9.3 Publications. It is expressly understood that neither CONTRACTOR nor
any agent, employee subcontractor or other representative of
CONTRACTOR shall have the right to publish any information
concerning the Study.
ARTICLE 10--ASSIGNMENT
10.1 BY CONTRACTOR. CONTRACTOR may not assign, transfer or attempt to
assign or transfer any of its rights or obligations hereunder
without the prior written consent of SEARLE. Any attempt by
CONTRACTOR without SEARLE's prior written consent shall constitute a
material default hereunder.
10.2 By SEARLE. SEARLE shall have the right to assign this Agreement, in
whole or in part, on thirty (30) days' prior written notice to
CONTRACTOR.
ARTICLE 11--ENTIRE AGREEMENT; AMENDMENTS
11.1 Entire Agreement. This Agreement, together with its Exhibits and the
Protocol, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior
agreements or understandings, whether verbal or written, concerning
said subject matter.
11.2 Amendments. This Agreement may not be amended except in writing
signed by both parties.
ARTICLE 12--MISCELLANEOUS
<PAGE> 19
- 19 -
12.1 Conflict of Interest. CONTRACTOR represents to SEARLE that it has no
obligations, contractual or otherwise, that would conflict with its
entering into this Agreement or performing the Services and that it
will undertake no such obligations during the term hereof.
12.2 Independent Contractor. CONTRACTOR is an independent contractor and
nothing in this Agreement shall be construed to create a
partnership, joint venture or employment relationship between the
parties. CONTRACTOR shall have no authority to bind SEARLE to any
commitment whatsoever and CONTRACTOR shall not hold itself out to
third parties as having authority to do so.
12.3 Notices. Any notice which either party may be required to give the
other shall be deemed to be duly given when mailed by certified or
registered mail, postage prepaid, return receipt requested, to the
other party at the addresses first given above, addressed to the
attention of the person signing this Agreement for such party or to
such other addresses and recipients as the parties may direct in
writing. Notices shall be deemed to be effective five (5) days after
mailing.
12.4 Severability. If any provision hereof shall be determined to be
invalid or unenforceable, such determination shall not affect the
validity of the other provisions of this Agreement; provided that
the parties shall promptly agree upon replacement provision(s) which
approximate as closely as possible the spirit and intent of the
invalid provision(s).
12.5 Survival. Sections 2.6, 2.7, and 6.5 and Articles 7, 8 and 9 shall
survive the expiration or earlier termination of this Agreement.
12.6 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the state of Illinois, regardless of
its choice of law principles.
12.7 Waivers. Waiver by either party or the failure by either party to
claim a breach of any provision of this Agreement shall not be
deemed to constitute a waiver or estoppel with respect to any
subsequent breach of any provision hereof.
12.8 Use of Names. Each party, on behalf of itself, its agents,
employees, subcontractors and representatives agrees not to use the
name of the other party or its agents, employees, subcontractors and
representatives in any publication, promotional material or other
writing or oral statement for public distribution, relative to the
subject matter
<PAGE> 20
- 20 -
or existence of this Agreement, except as otherwise required by law
or previously consented to in writing by the other party.
Notwithstanding the foregoing, SEARLE consents to CONTRACTOR
advising prospective clients that CONTRACTOR has performed clinical
research services for SEARLE.
12.9 Force Maieure. Either party's failure to perform its obligations
hereunder shall be excused to the extent and for the period of time
such nonperformance is caused by an event of force majeure,
including but not limited to, the occurrence of war, invasion, fire,
explosion, flood, riot, strikes, acts of God acts of government or
governmental agencies or instrumentalities or contingencies or
causes beyond such party's reasonable control.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
set forth above.
KENDLE RESEARCH ASSOCIATES, INC. G.D. SEARLE & CO.
By: /s/ Candace Kendle Bryan By: /s/ J.D. Schulte
-------------------------- ---------------------------
Title: CEO Title: CEO
-------------------------- ---------------------------
Date: 5/13/96 Date: 8/7/96
-------------------------- ---------------------------
<PAGE> 1
EXHIBIT 10.15
CLINICAL DEVELOPMENT AGREEMENT
THIS AGREEMENT, is between PROCTER & GAMBLE PHARMACEUTICALS, INC., an
Ohio corporation, with offices located at 11370 Reed Hartman Highway,
Cincinnati, OH 45241 (hereinafter "P&GP") and KENDLE RESEARCH ASSOCIATES, an
Ohio corporation with offices located at 441 Vine Street, Suite 700, Cincinnati,
Ohio 45202-2816 (hereinafter "KENDLE").
RECITALS
WHEREAS, P&GP is engaged in the worldwide research, development, marketing, and
distribution of prescription drug products in various therapeutic categories,
including the prevention and treatment of cardiac-related diseases; and
WHEREAS, P&GP has developed a product called Azimilide, with potential efficacy
in the treatment of patients with symptomatic atrial fibrillation/flutter and/or
symptomatic paroxysmal supraventricular tachycardia; and
WHEREAS, P&GP wishes to conduct Phase III clinical trials of Azimilide under a
number of clinical protocols for the purpose of comparing Azimilide's safety and
efficacy to placebo, and wishes to submit the results of these studies to
regulatory agencies in different countries, including the United States, for the
purpose of having Azimilide approved as a safe and effective treatment for this
condition; and
WHEREAS, KENDLE is a contract research organization experienced in developing,
implementing, and managing large-scale clinical trial programs like the
Azimilide Program (defined below); and
WHEREAS, P&GP desires that KENDLE act as a contract research organization for
certain studies in the Azimilide Program and KENDLE agrees to carry out the
activities set forth in this Agreement.
NOW, for and in consideration of the mutual promises set forth herein, the
sufficiency of which is acknowledged by the parties hereto, P&GP and KENDLE
agree as follows:
<PAGE> 2
ARTICLE 1. DEFINITIONS.
The parties agree that the following terms will have the following meanings:
(A) "Adverse Event" means any undesirable clinical experience occurring to
a patient or subject during a Clinical Investigation whether or not
related to the Study Drug which must by law or regulation be reported
by P&GP to a Regulatory Authority, Institutional Review Board and/or
Principal Investigator.
(B) "Affiliate" means, with respect to a party to this Agreement, any
corporation or business entity which, directly or indirectly, controls,
is controlled by, or is under common control with such party. For
purposes of this definition, the term "control" (as used in the terms
"controls", "controlled by", and "under common control with") means
either (a) holding fifty percent (50%) or more of the outstanding
securities of an issuer, or (1)) in the case of an entity that has no
outstanding voting securities, having the right to fifty percent (50%)
or more of the profits of the entity, or having the right in the event
of dissolution to fifty percent (50%) of the assets of the entity. The
term "affiliates" shall mean the plural of Affiliate.
(C) "Agreement" means this Clinical Development Agreement between KENDLE
and P&GP.
(D) "Azimilide Program" means all of the Studies conducted under the
Protocols and the associated work described under this Agreement.
(E) "KENDLE" means, unless expressly stated otherwise, a contract research
organization, its Affiliates and each of their respective employees.
(F) "Clinical Investigation" means each individual evaluation of the Study
Drug undertaken by a Principal Investigator at a Study Site as part of
a Study sponsored by P&GP and managed by KENDLE hereunder.
<PAGE> 3
(G) "Clinical Supplies" means any and all Study Drug, containers, labels,
forms, packaging, placebo, drug products, documents, and any other
substances or materials which are supplied by P&GP, directly or through
a third party, for use during the conduct of the Studies hereunder.
(H) "Co-Investigator" shall mean the person or persons who assist the
Principal Investigator in completing a Clinical Investigation in
accordance with the Protocol.
(I) "Debarred Person" means any person debarred under subsection 306(a) or
(b) of the United States Federal Food, Drug and Cosmetic Act, as
amended, or any person otherwise subject to limitations imposed upon
clinical investigators by the FDA or any Regulatory Authority.
(J) "FDA" means the United States Food and Drug Administration.
(K) "IND" means an Investigational New Drug exemption submitted to the FDA
under the regulations set forth in 21 Code of Federal Regulations Part
312, providing for human studies of a new drug; the term shall also
cover filings required in countries other than the United States which
serve a similar function or purpose as that served by the IND in the
United States.
(L) "Investigator Costs", "Out of Pocket Costs", and "KENDLE Fees" means
those costs, expenses, and fees as described in Article 6 and of
Exhibit A hereto.
(M) "Letter of Intent" means the agreement between P&GP and KENDLE dated
April 3, 1995 providing for the conduct of preliminary services related
to the Azimilide Program by KENDLE on terms and conditions as set forth
therein.
(N) "N.A." means a New Drug Application for a new drug with the FDA
pursuant to Section 505 of the United States Federal Food, Drug and
Cosmetic Act, as amended.
(0) "P&GP" shall mean Procter & Gamble Pharmaceuticals, Inc. and its
Affiliates.
(P) "P&GP Compound" means any proprietary compound developed, marketed,
and/or provided by P&GP in a Study conducted hereunder; along with any
analogs, homologs, isomers, metabolites, and derivatives of said
compound.
<PAGE> 4
(Q) "P&GP Proprietary Information" means any and all data, documents,
materials, or information which is disclosed by P&GP to KENDLE
pertaining to the Azimilide Program, the Study Drug, and/or all other
P&GP business and technical information, materials, or documents of a
confidential nature other than information which KENDLE can demonstrate
(i) was not obtained from P&GP, directly or indirectly, and was in
KENDLE's possession or control prior to the time of disclosure under
this Agreement or the Letter of Intent, (ii) is, at the time of
disclosure or thereafter becomes, public knowledge through no fault or
omission of KENDLE, or (iii) is lawfully obtained by KENDLE from a
third party under no obligation of confidentiality to P&GP.
(R) "Principal Investigator" means an individual principally responsible
for conducting a Study (defined below) at a Study Site who is
identified by KENDLE and approved by P&GP.
(S) "Protocol" means the document developed by KENDLE and P&GP setting
forth the procedures and other relevant information necessary for the
proper conduct of a Study; copies of all Protocols finalized as of the
date of execution of this Agreement for Studies undertaken pursuant to
this Agreement are appended hereto and incorporated herein by reference
and are designated consecutively as Exhibits B-i to BA. P&GP and KENDLE
acknowledge and agree that, by mutual agreement of the parties hereto,
Protocols may be added, deleted, or amended from time to time and the
Protocols attached hereto will be updated based upon such action by the
parties hereto.
(T) "Regulatory Approval" means the national or multinational approval
necessary to market a new drug to the public at large in a particular
country.
(U) "Regulatory Authority" means, based upon the context in which it is
used, (i) with respect to the conduct of a Study, any governmental or
administrative agency with authority over the manner in which a Study
is conducted in a country; and/or (ii) the national or multinational
authority responsible for granting Regulatory Approval in a particular
country.
(V) "Regulatory Filing" means any application required to be filed by a
Regulatory Authority in order to gain Regulatory Approval in a country,
including, but not limited to, an NDA.
<PAGE> 5
(W) "Study" or "Studies" means comparative evaluation or evaluations of the
Study Drug in humans which is/are sponsored by P&GP and managed by
KENDLE pursuant to this Agreement; each Study undertaken pursuant to
this Agreement is set forth in Exhibits B-i to BA, hereto.
(X) "Study Data" means any and all data generated during the conduct of a
Study hereunder, including but not limited to subject records
(exclusive of patient medical records), data entries, case report
forms, reports, samples, laboratory work sheets, slides, and any and
all other information, whether in document, electronic, computer
readable or other form, related to or arising from a Study conducted
hereunder.
(Y) "Study Drug" means the product Azimilide and Azimilide in finished
tablet form or a placebo.
(Z) "Study Personnel" means any and all employees, agents, and/or
contractors of KENDLE, the Study Site, the Principal Investigator, or
others who furnish services or work with respect to any Study conducted
pursuant to this Agreement.
(AA) "SOP" or SOP's" means a standard operating procedure detailing
processes and steps to be used in managing a task or responsibility
undertaken by a party pursuant to this Agreement, and will, based upon
the context in which it is used, refer to such process and procedures
developed individually or jointly by or on behalf of any one or more of
P&GP, and/or KENDLE.
(BB) "Term" means the term of this Agreement as defined in Section 8.01
hereof.
ARTICLE 2. LETTER OF INTENT.
KENDLE and P&GP agree that the Letter of Intent and all rights and obligations
of the parties therein are incorporated into and made part of this Agreement by
reference; a copy of the Letter of Intent is appended hereto as Exhibit C. In
the event any term or condition of this Agreement conflicts with or is otherwise
inconsistent with any term or condition contained in the Letter of Intent, then
the term or condition of this Agreement will control.
<PAGE> 6
ARTICLE 3 DESIGNATION AS CLINICAL RESEARCH ORGANIZATION.
3.01 Designation.
P&GP designates KENDLE as a contract research organization for the purpose of
assisting P&GP in developing, implementing, and managing the Studies set forth
in Exhibits B-i to BA, and KENDLE agrees to act in this capacity consistent with
the terms of this Agreement.
3.02 Cooperation with Third Parties.
KENDLE acknowledges that P&GP may also designate third parties, as necessary,
reasonable and as requested by P&GP, in order to assist in conducting the
contract research duties undertaken by them, and to assist P&GP in conducting
and completing the Azimilide Program. KENDLE agrees to cooperate with P&GP and
such third parties in conducting the Studies.
3.03 Transfer.
P&GP transfers to KENDLE all of the obligations identified in Exhibit D, titled
"Responsibility of Sponsor and Investigators," and P&GP and KENDLE agree that
the same description and extent of obligations transferred should be included in
form FDA 1571, Section No.13. If necessary, P&GP will execute similar transfer
documents if such are required by any Regulatory Authority in a country where a
Study is to be conducted pursuant to this Agreement. KENDLE agrees to carry out
diligently all transferred obligations. KENDLE agrees to cooperate with P&GP, as
necessary, in the execution and filing of required documents with Regulatory
Authorities to effectuate the transfer of obligations hereunder
ARTICLE 4. OBLIGATIONS OF KENDLE.
4.01 Scope.
(A) Phase III Studies
The general scope of KENDLE's services hereunder will include, but not
be limited to, those set forth in Exhibit E, "SVA Clinical Trial
Responsibilities" and Exhibits B-i to BA Protocols titled "A
Double-Blind, Placebo-Controlled, Parallel Design Clinical Trial to
Assess the Safety and Efficacy of 100 mg of Azimilide for the
Prophylactic Treatment of
<PAGE> 7
Symptomatic Atrial Fibrillation/Flutter and/or Symptomatic Paroxysmal
Supraventricular Tachycardia" and "An Open-Label Clinical Trial to
Assess the Long Term Safety of Azimilide in Patients with Atrial
Fibrillation/Flutter and/or Paroxysmal Supraventricular Tachycardia"
and two additional studies, entitled "A Double-Blind,
Placebo-Controlled, Parallel Design Clinical Trial to Assess the Safety
and Efficacy of 35 mg and 75 mg of Azimilide for the Prophylactic
Treatment of Symptomatic Atrial Fibrillation/Flutter and/or Symptomatic
Paroxysmal Supraventricular Tachycardia" and "An Open-Label Clinical
Trial to Assess the Long Term Safety of Azimilide in Patients with
Atrial Fibrillation/Flutter and/or Paroxysmal Supraventricular
Tachycardia" attached hereto and made part hereof, which may be
supplemented or amended from time to time using the procedures set
forth in Article 7, Article 17, and Article 18 of this Agreement.
4.02 General.
In addition to, and without limiting the scope and extent of KENDLE's
obligations hereunder, KENDLE will comply with the following in executing its
responsibilities pursuant to this Agreement:
(A) Staffing Responsibilities.
(1) (a) KENDLE will only appoint individuals who, by training
and experience, are qualified to assume the
responsibilities assigned to them by KENDLE.
(b) P&GP shall approve key position appointments. When
filling or replacing a Key Position (defined below),
KENDLE will first submit the name and qualifications
of the individual whom KENDLE expects to appoint to
the P&GP Contact, in advance of appointment. Approval
will not be unreasonably withheld. "Key Position"
includes the following: Clinical Research Associate
(CRA), Assistant Director of Clinical Research
Project Manager), and Project Assistant.
(2) P&GP shall have the right at any tune to request the removal
from the Azimilide Program of any employee(s) of KENDLE whom
P&GP reasonably deems to be unable to perform assigned duties
to the reasonable satisfaction of P&GP. Upon such request,
KENDLE shall promptly remove and replace such employee(s) with
substitute employee(s) having appropriate skills and training.
The cost of
<PAGE> 8
recruiting and training, such replacement employee(s) shall be
borne solely by KENDLE and shall not be considered a KENDLE
Fee, Out-of-Pocket Cost, or Investigator Cost.
(3) (a) KENDLE certifies that, to KENDLE's knowledge, neither
KENDLE nor any person employed by KENDLE has been
debarred under Section 306(a) or Section 306(b) of
the Federal Food, Drug and Cosmetic Act, and that no
Debarred Person will in the future be employed by
KENDLE in connection with any application of a drug
by the Federal Food and Drug Administration.
(b) KENDLE further certifies that within the five (5)
years preceding the effective date of this Agreement,
to KENDLE's knowledge, neither KENDLE nor any person
employed by KENDLE has been convicted of any offense
required to be listed under Section 306(k)(2) of the
Federal Food, Drug and Cosmetic Act.
(B) Preliminary Services. KENDLE has performed or will perform the services
and responsibilities set forth in the Letter of Intent.
(C) Conduct of Studies. KENDLE will perform the following services with
respect to the conduct of Studies:
(1) Clinical Study Agreement.
(a) KENDLE will negotiate and sign a clinical study
agreement with each Principal Investigator and Study
Site participating in a Clinical Investigation
managed by KENDLE. The form of each agreement will be
approved in advance by P&GP. KENDLE will use the
clinical study agreement format set forth herein as
Exhibit F. P&GP and KENDLE will develop mutually
acceptable guidelines relating to payment for
services by Principal Investigators,
Co-Investigators, and Study Sites contracted by
KENDLE; these guidelines will include, but not be
limited to, (i) maximum per patient charges for each
Study, (ii) the currency in which Study grants will
be paid, and (iii) guidelines governing payment of
Study grants (e.g., advance payments, amount paid per
patient, etc.). KENDLE
<PAGE> 9
will use its best efforts to insure that clinical
agreements comply with these guidelines; KENDLE will
not sign a clinical study agreement which does not
comply with these guidelines without first obtaining
P&GP's consent.
(b) In negotiating and executing clinical agreements in Canada,
KENDLE will comply with the following procedures:
(i) These agreements will be between Procter & Gamble
Pharmaceuticals Canada, Inc. and the relevant
Principal Investigator, Co-Investigator(s), and Study
Site; KENDLE will negotiate these agreements on
behalf of Procter & Gamble Pharmaceuticals Canada,
Inc. as its agent;
(ii) Canadian agreements will be signed by authorized
officers of Procter & Gamble Pharmaceuticals Canada,
Inc consistent with its by-laws; and
(iii) Investigator Costs and Out-of-Pocket Costs under
these agreements will be paid in Canadian Dollars by
P&GP Pharmaceuticals Canada, or will be forwarded by
P&GP Pharmaceuticals Canada to KENDLE who will, in
turn, forward payments to the Principal Investigator,
Study site, or other appropriate payee under the
applicable agreement, as appropriate.
(2) Patient Enrollment. KENDLE will use commercially reasonable
best efforts, consistent with applicable laws, rules, and
regulations, to enroll sufficient eligible patients in each
Study by the deadlines established in Exhibit G to insure that
the Study is conducted in accordance with the protocol and
completed in accordance with the timetables set forth in
Exhibit G.
(3) Maintenance of IND's. KENDLE will furnish P&GP with such data,
information, and reports from the Studies as are necessary to
enable P&GP to file reports and/or amendments to P&GP's IND in
the relevant country in accordance with applicable laws,
rules, and regulations. Such information will be furnished in
accordance with procedures established by mutual agreement of
the parties.
(4) Study Initiation and Meetings. For those Study Sites to be
monitored by
<PAGE> 10
KENDLE, KENDLE will schedule meetings with Principal
Investigators for each Study in advance of Study initiation.
The timing, format, and content of these meetings will be
approved in advance by P&GP. Without limiting the foregoing,
however, such meetings will include distribution and review of
the investigator brochure (or such equivalent document, if
any, required by local Regulatory Authority) and distribution
and discussion of the Study Protocol. In addition, qualified
KENDLE personnel will meet with each Principal Investigator
prior to initiation of a Clinical Investigation to insure that
Clinical Supplies are available and that, in general, the
Principal Investigator is ready and able to proceed with the
Clinical Investigation. The timing, format, and content of
these meetings will be approved by P&GP.
(5) Studv Monitoring. KENDLE will monitor the progress of each
Study in accordance with the Protocol, this Agreement,
applicable legal and regulatory requirements, and procedures
established by mutual agreement of P&GP and KENDLE. At the
completion of each monitoring visit, KENDLE will transfer to
P&GP, the Case Report Forms (CRFs), within mutually agreeable
procedures and within a mutually agreeable period of time.
KENDLE will provide P&GP with written status reports of the
progress of each study or Clinical Investigation and provide
P&GP with study site contact reports, every month or at other
mutually agreeable intervals; the content of these reports
will be approved by mutual agreement of the parties. In
addition, KENDLE will timely furnish P&GP with such
information and data about the progress of the Study as
necessary to: enable P&GP to file any required reports,
filings, or amendments with appropriate Regulatory
Authorities.
(6) Adverse Event Reporting. P&GP has the primary responsibility
of serious adverse event handling/reporting. If KENDLE
discovers an unreported serious adverse event during
monitoring or through a phone call from a site, they will
notify P&GP of the event within the mutually agreed upon time
for their follow-up. Follow up of an immediate nature on
serious adverse events will be the responsibility of P&GP,
KENDLE will assist in obtaining any follow-up information
needed during their routine monitoring visits. P&GP shall
furnish KENDLE and the Principal Investigators with a copy of
all communications with respect to Adverse Events which by law
or regulation are to be provided to Principal Investigators
and their Institutional Review Boards, or their equivalent.
<PAGE> 11
KENDLE will assure that these communications have been
forwarded to the appropriate Institutional Review Boards.
(7) Regulatory Inspections. KENDLE will provide sufficient
resources and qualified personnel to monitor and report on the
progress of audits or inspections of Clinical Investigations
by Regulatory Authorities or other governmental or regulatory
agencies with jurisdiction thereof. Such assistance will
include, but not be limited to, (a) furnishing P&GP with as
much advance notice as is possible of the audit or inspection,
including details on the nature and scope of the audit or
inspection; (b) assigning qualified KENDLE personnel on-site
for the duration of the audit or inspection if deemed
necessary in P&GP's reasonable judgment, (c) assembling,
organizing, and explaining data and information requested by
Regulatory Authorities during the audit or inspection; (d)
preparing any and all reports requested by the Regulatory
Authority, (e) insuring that P&GP is kept fully apprised on
the conduct of the audit or inspection, that authorized P&GP
personnel are consulted regularly on the conduct of the audit
or inspection, and if legally permissible and practically
possible that appropriate consents are obtained from
authorized P&GP personnel before KENDLE takes any material
action during or in response to such audit or inspection; and
(f) if requested by P&GP, preparation of a written report of
the audit or inspection and any action to be taken in response
thereto, in accordance with a report format and timing
mutually acceptable to the parties. P&GP will reimburse KENDLE
all of its Out-of-Pocket Costs including personnel expenses
which are associated with the audit or inspection activities
noted above. Personnel expenses will be charged to P&GP at
KENDLE's then existing standard rates.
(8) Third Party Agreements. KENDLE may enter into such agreements
with third parties as KENDLE deems necessary to perform
services and work needed for the timely and proper completion
of the Studies. The costs and fees associated with these
agreements will constitute Investigator Costs or Out-of-Pocket
Costs (depending upon the nature of the service provided by
such third party) reimbursable by P&GP hereunder, so long as
P&GP has approved the cost of such contracts, and any
supplements, amendments, or addenda thereto, in advance. Any
such contracts will contain provisions protecting P&GP
Proprietary Information consistent with the requirements of
Article 15 of this Agreement. The foregoing notwithstanding,
consent by P&GP to KENDLE's use of a third party
<PAGE> 12
contractor for the performance of any obligation or service
assumed by KENDLE hereunder, shall not constitute or act as a
waiver or release of KENDLE's duty of performance with respect
to such obligation or service and KENDLE will remain
principally responsible and bound to perform such obligation
or service under this Agreement
9) Study Close-Out. For those study sites to be monitored by
KENDLE, KENDLE will be responsible for the orderly closing-out
of each Clinical Investigation at the conclusion or
termination thereof. Close-out of Clinical Investigations will
be carried out in accordance with mutually acceptable
close-out procedures including, but not be limited to (a)
collection and review of case report forms and all other Study
records and data, including preparation of the final report of
the Study, (b) inventory, collection, and reconciliation of
Clinical Supplies and shipment to a location specified by
P&GP, (c) updating the Principal Investigator's log and
documentation, and (d) informing the Principal Investigator of
continuing obligations.
(D) Post-Study Obligations of KENDLE. KENDLE agrees to perform the
following duties in the period following completion of the Azimilide
Program:
(1) KENDLE will take part and assist P&GP in any audit conducted
by Regulatory Authorities following submission of a Regulatory
Filing. KENDLE will furnish personnel knowledgeable about the
Studies which are subject to audit for the duration of the
audit to answer questions from, and provide information to,
auditors from the Regulatory Authority, provided such
personnel are available; if such personnel are unavailable,
KENDLE will furnish such personnel as P&GP finds suitable in
the exercise of reasonable judgment. KENDLE will prepare such
reports as are needed by the auditors, and will provide such
resources and assistance as are needed to filly comply with
the demands and requirements of the audit. In addition, KENDLE
will be solely responsible for any and all costs, fees, and
expenses associated with correcting any deficiency cited by a
Regulatory Authority in an audit if KENDLE was responsible for
the proper conduct of the cited activity pursuant to this
Agreement and did not use its best efforts and judgment in
carrying out such responsibilities.
4.03. Compliance.
<PAGE> 13
In performing the services and responsibilities required by KENDLE under this
Agreement, KENDLE agrees:
(A) to use commercially reasonable best efforts consistent with this
Agreement, the Protocols, and generally recognize standards of
performance within the field of clinical research management;
(B) to comply with any and all applicable laws, rules, and regulations
relating thereto; KENDLE will be solely responsible for ascertaining
the applicability of the laws, rules, and regulations of countries
where Studies managed by KENDLE are undertaken and will establish
policies, procedures, and SOP's necessary to ensure compliance with
these laws, rules, and regulations by KENDLE and its employees.
Furthermore, KENDLE will use its best efforts to assure compliance with
said laws, rules, and regulations by its contractors, agents, the
Principal Investigators, Co-Investigators, Study Sites, and Study
Personnel who participate in Studies hereunder; and
(C) to comply with this Agreement, the Protocols, SOP's developed in
cooperation with P&GP, and reasonable verbal and written instructions
provided by P&GP.
4.04 Determination of Compliance.
Determination of KENDLE's compliance with the performance standards and timing
hereunder will be made by P&GP in the exercise of reasonable judgment and based
upon its prior experience in the planning, development, and execution of
clinical studies. Disputes arising from such determinations will be resolved
using the dispute resolution procedures set forth in Article 14 hereof.
4.05 Timing.
KENDLE acknowledges that time is of the essence under this Agreement and that
P&GP will hold KENDLE responsible for meeting deadlines established by mutual
agreement of the parties hereunder, absent force majeure or changes made by
P&GP, or changes in the scope of work or mutual assumptions relating to timing
contained in Exhibit G which delay completion of certain responsibilities,
services, or tasks.
<PAGE> 14
4.06 Reliance by P&GP.
KENDLE acknowledges that (A) P&GP has relied upon KENDLE's estimates of the
personnel and resources needed by KENDLE in order to perform its obligations
hereunder in accordance with the standards set forth in this Agreement, and (B)
P&GP's agreement to the Study budget set forth in Exhibit A is based upon such
estimates and representations by KENDLE. Therefore, Subject to the requirements
of Sections 4.07, 6.01(C), 7.01, 7.02, 7.03, 7.04, 7.05 and 19.09 of this
Agreement, KENDLE will be solely responsible for all KENDLE Fees, Out-of-Pocket
Costs, and Investigator Costs in excess of budgeted figures to the extent said
excess arises from or is attributable to KENDLE's failure to accurately assess
the personnel, resources, expenses, costs, and fees associated with completing a
Study, task, responsibility, or project undertaken by KENDLE hereunder.
4.07 Cooperation.
KENDLE and P&GP agree to cooperate with one another and with P&GP-designated
third parties in order to complete the Azimilide Program on schedule and within
budget. P&GP and KENDLE acknowledge that, in certain instances, timely and
complete performance depends upon reasonable cooperation between P&GP, KENDLE,
and, in some instances, a third party. Therefore, where KENDLE's failure to
perform in accordance with this Agreement is attributable to (A) P&GP's or
P&GP-designated third parties' failure to supply information, supplies or data
needed by KENDLE to perform, or (B) P&GP's or P&GP-designated third parties'
failure to perform, which performance is a necessary condition to performance by
KENDLE, or in the event that subsection (A) or (B) above causes KENDLE to expend
greater than the level of effort normally required under this Agreement to
complete its obligations, then KENDLE will not be accountable for such failure
of performance or delay in performance, the provisions of Section 4.06 will not
apply, and the parties agree to make appropriate modifications to the
requirements in Exhibit A.
ARTICLE 5. OBLIGATIONS OF P&GP.
5.01 General.
P&GP will provide KENDLE or the study site with the following:
<PAGE> 15
(A) P&GP, or a third party designated by P&GP, will, at P&GP's expense,
provide Clinical Supplies to the study site, directly, in such
quantities as are agreed upon by P&GP and KENDLE.
(B) P&GP will supply KENDLE, at P&GP's expense, with master copies of
Protocols, Investigator notebooks and manuals, brochures, case report
forms, and such other forms and supplies as are necessary for the
proper conduct of the Study. P&GP will deliver these materials to
destinations specified by KENDLE for duplication and distribution by
KENDLE to Study Personnel. Shipment quantities and schedules will be
established by mutual agreement of KENDLE and P&GP. KENDLE's
duplication, packaging, and shipping costs will be considered
Investigator or Out-of-Pocket Costs (as appropriate) reimbursable by
P&GP hereunder.
5.02 Personnel.
P&GP will provide sufficient qualified personnel to assist KENDLE in
the development, organization, and management of the Studies. Such
assistance will include, but not be limited to, naming a principal
contact for addressing issues arising from the day-to-day conduct of
Studies.
5.03 Legal Compliance.
In performing its responsibilities and obligations hereunder, P&GP will
comply with any and all applicable laws, rules, and regulations
relating thereto.
5.04 Control.
(A) Except for matters set forth in Section 5.04(B), below, P&GP retains
control and responsibility over all material matters relating to the
Azimilide Program, Studies, Regulatory Filings, interaction and
communication with Regulatory Authorities, and all other material
aspects of this Agreement, provided that the foregoing shall not limit
KENDLE's right to communicate or cooperate with Regulatory Authorities
if legally required to do so. KENDLE will insure that comments and
consent from authorized P&GP representatives are obtained and
considered prior to implementation of any action having significant
consequences by KENDLE, its agents, contractors, and employees, as well
as Principal Investigators, Co-Investigators, Study sites, Study
Personnel, and/or
<PAGE> 16
other entities or personnel engaged by KENDLE for the performance of
services under this Agreement.
(B) The foregoing notwithstanding, KENDLE will be responsible for the
day-to-day operation and management of its staff consistent with
KENDLE's own internal business practices and established procedures for
the management of clinical studies, which KENDLE represents have been
shared with authorized representatives of P&GP. KENDLE's right to
manage its business and staff does not in any way diminish KENDLE's
commitments under this Agreement, specifically KENDLE's commitments in
Section 5.04(A), above.
ARTICLE 6. COMPENSATION AND PAYMENT.
6.01 Fees. Costs. and Expenses.
(A) P&GP agrees to pay KENDLE the KENDLE Fees, Investigator Costs, and
Out-of-Pocket Costs set forth in Exhibit A, as may be amended, in
consideration for KENDLE's services hereunder.
(B) KENDLE Fees, Investigator Costs and Out-of-Pocket costs set forth in
Exhibit A represent the parties' current, best estimate of said
expenses and costs associated with KENDLE's completion of the Studies
in accordance with this Agreement. Consequently, P&GP agrees that any
unforeseen KENDLE Fees and Out-of-Pocket Costs and Investigator Costs
totaling up to ten percent (10%) of the dollar value in Section
6.01(A), above, will be considered legitimate KENDLE Fees, Investigator
Costs and Out-of- Pocket Costs subject to reimbursement by P&GP,
provided (1) KENDLE documents these expenses and costs in detail in
accordance with procedures established by mutual agreement of the
parties, and (2) such additional costs, fees, and expenses don't arise
from KENDLE's failure to maintain strict budget controls in violation
of Section 6.01(C), below.
(C) KENDLE acknowledges that P&GP is relying on the expertise of KENDLE in
managing clinical trials and that such reliance includes developing
accurate estimates of KENDLE Fees, and Out-of-Pocket Costs which were
in part based upon the assumptions set forth in Exhibit A. KENDLE,
therefore, will use its commercially reasonable best efforts to manage,
control, and limit the fees, costs, and expenses associated with
fulfillment of its
<PAGE> 17
obligations pursuant to this Agreement. KENDLE warrants and represents
that it will maintain strict budgetary controls and that it will not
exceed budgeted amounts without P&GP's advance written consent obtained
in accordance with the procedures in Article 7. Except as provided in
Article 7.04, any increase in KENDLE Fees, Investigator Costs and
Out-of-Pocket Costs beyond the 10% variance for estimation provided
under Article 6.01 (B) must be approved in advance by P&GP.
(D) If, at the expiration or termination of this Agreement, total payments
made by P&GP to KENDLE exceed actual KENDLE Fees, Investigator Costs
and Out-of-Pocket Costs associated with this Agreement, KENDLE will
refund any such overpayment to P&GP within ninety (90) days following
the effective date of expiration or termination of this Agreement.
(E) KENDLE Fees, Investigator Costs, and Out-of-Pocket Costs paid by P&GP
to KENDLE pursuant to the Letter of Intent dated on April 3, 1995 for
services rendered and expenses and costs incurred under said agreement
will be credited against charges for the same work and/or for the same
costs, fees, and expenses as are included in budgeted fees, costs, and
expenses hereunder. KENDLE and P&GP agree that said credit will equal
Two Hundred Thousand Dollars ($200,000).
6.02 Payment.
(A) All payments to KENDLE will be made to KENDLE RESEARCH ASSOCIATES,
Federal Taxpayer ID. No.31-1274091.
(B) Except as otherwise expressly provided herein, all payments will be
made in U.S. Dollars. In reimbursing KENDLE for Investigator Costs and
Out-of-Pocket Costs paid in major foreign currencies, conversion to
U.S. Dollars will be made using the average of the applicable currency
exchange rate as published by The Wall Street Journal over the month in
which the services referenced in the invoice were performed.
Alternatively, at P&GP's discretion, payment may be made in the
currency of the country where services were performed, upon at least
sixty (60) days notice to KENDLE. In such instance, KENDLE will be
reimbursed for any losses arising from currency rate changes for
Investigator Cost or Out-of-Pocket Costs incurred by KENDLE prior to
said current rate change.
<PAGE> 18
(C) P&GP will pay KENDLE in accordance with the following procedures:
(1) As of the effective date of this Agreement, P&GP has paid a
total of Two Hundred Thousand Dollars ($200,000.00) to KENDLE.
(2) KENDLE will submit a detailed invoice in a form approved by
P&GP, itemizing KENDLE fees, Out-of-Pocket Costs, and
Investigator Costs associated with tasks and services
completed by KENDLE. P&GP will pay each invoice, absent
dispute, within thirty (30) days following P&GP's receipt
thereof. If there is a reasonable dispute with respect to any
entry in an invoice, P&GP will pay the undisputed portion of
the invoice and the parties will attempt to resolve the
disputed issue, using the procedures in Article 14, hereof.
Reconciliation will be made to subsequent invoices based upon
the resolution of the dispute.
(3) P&GP agrees to pay KENDLE for KENDLE Fees, Out-of-Pocket Costs
and Investigator Costs associated with services which do not
conform to the requirements of Exhibit A provided, (a) in
P&GP's reasonable discretion and judgment, such payment is
justified, (b) the delay or deficiency in performance is
directly attributable to P&GP's fault or delay (consistent
with the provisions of Section 4.07, above), (c) such delay or
change in performance is directly attributable to forces
outside of the control of KENDLE, provided KENDLE has
otherwise met the conditions of Section 19.09, below, or (d)
such delay or change was authorized in advance and in writing
by P&GP using the procedures set forth in Article 7, below.
ARTICLE 7. CHANGES.
7.01 Changes by P&GP.
P&GP may change at any time the scope of the Azimilide Program, the Protocols,
and/or any one or number of the duties, responsibilities, and tasks undertaken
by KENDLE hereunder by using the procedures in this Article. P&GP will initiate
a change by written notice to KENDLE. Such notice from P&GP (hereinafter
referred to as a "Change Notice") will detail the specific changes to a task,
responsibility, or duty requested by P&GP. Upon receiving a Change Notice,
KENDLE will furnish P&GP with an estimate of the effect, if any, upon the KENDLE
Fees, Out-of-Pocket Costs, or Investigator Costs (whether an increase or
decrease) associated with
<PAGE> 19
implementing the Change Notice as soon as possible, not to exceed ten (10) days
or such longer period approved by P&GP on a case-by-case basis. Upon P&GP's
approval of KENDLE's estimate, said Change Notice will be effective. KENDLE will
be given a reasonable period of time within which to implement changes which are
the subject of the Change Notice. All Change Notices are to be approved by
procedures outlined in Article 17.01(A).
7.02 Changes by KENDLE.
KENDLE may request a change in the Azimilide Program or in any one or more of
KENDLE's duties, tasks, and responsibilities hereunder by submitting details of
the change to P&GP in writing along with an estimate of the increase or decrease
in KENDLE Fees, Out-of-Pocket Costs, or Investigator Costs associated therewith.
Such Change Notices may be accepted or rejected by P&GP within the exercise of
reasonable business judgment. Such Change Notice will be effective upon P&GP's
approval and KENDLE will be given a reasonable period of time within which to
implement any approved change.
7.03 Changes by Agreement.
P&GP and KENDLE may, by mutual written agreement, institute a change in KENDLE's
duties, tasks, and responsibilities hereunder arising from or attributable to
force majeure events (as defined in Section 19.09 hereof).
7.04 Emergency Changes.
P&GP and KENDLE agree that changes of an emergency or expeditious nature in
either party's duties, responsibilities, and/or tasks may be approved without
using the procedures set forth in this Article, provided (a) such change(s)
is/are approved in advance by P&GP and an authorized official of KENDLE, and (b)
such change(s) is/are incorporated into a written Change Notice and signed by
authorized officials of the parties as soon as is reasonably practicable
following institution of the change. Actions undertaken by KENDLE resulting from
an emergency as provided above shall not require P&GP advance approval. However,
KENDLE agrees to notify P&GP of its actions as soon as thereafter possible. P&GP
shall pay KENDLE for all Out-of-Pocket, Investigator Costs and KENDLE Fees which
are associated with work done by KENDLE in connection with emergency changes
pursuant to this Section.
<PAGE> 20
7.05 Restriction on Cost Increases.
An increase will be made to KENDLE Fees, Out-of-Pocket Costs, and/or
Investigator Costs only on those Change Notices which KENDLE can justify to
P&GP's reasonable satisfaction:
(A) will increase the scope of a particular task, duty, or responsibility
required of KENDLE under this Agreement; or
(B) will require additional time, personnel, or resources on the part of
KENDLE to implement the changes; or
(C) will accelerate a deadline set forth in Exhibit G; or
(D) will result in a change in the assumptions underlying an estimate of
KENDLE Fees, Out-of-Pocket Costs, and/or Investigator Costs, associated
with a task or responsibility undertaken by KENDLE hereunder; or
(E) are attributable to work performed pursuant to Section 7.04; or
(F) are attributable to forces outside of the reasonable control of KENDLE
(as defined in Section 19.09, hereof) and which result in unanticipated
increases in KENDLE Fees, Out-of-Pocket Costs and/or Investigator
Costs.
ARTICLE 8. TERM TERMINATION. AND SUSPENSION.
8.01 Term.
The Term of this Agreement will begin upon execution by both parties and will,
unless earlier terminated pursuant to Section 8.02 below, continue until
completion of the duties, tasks, and obligations set forth in this Agreement,
not to exceed 3.5 years.
8.02 Termination.
(A) P&GP may terminate this Agreement or any Clinical Investigation and/or
Study at any time and for any reason upon thirty (30) days advance
written notice to KENDLE. Upon receipt of such termination notice,
KENDLE will immediately cease all work in process
<PAGE> 21
or work in process with respect to Clinical Investigations and/or
Studies identified in the notice, except (1) work necessary to effect
the orderly and proper termination of the Clinical Investigation and/or
Study in accordance with accepted medical and ethical standards and any
and all applicable laws, rules, and regulations relating thereto as
well as with any instructions provided by P&GP, and/or (2) work which
P&GP specifically instructs KENDLE to continue.
(B) Either party may terminate this Agreement for material breach of this
Agreement by the other party. In order to effect termination under this
Section the aggrieved party must notify the alleged breaching party in
writing of the nature of the breach. The alleged breaching party will
then be given a period of thirty (30) days from the date of the notice
of breach, such period as may be extended by the non-breaching party
being referred to as the "cure period", in which to remedy the breach
to the reasonable satisfaction of the aggrieved party. If the alleged
breaching party fails to properly remedy the breach, then this
Agreement will automatically terminate at the end of said cure period.
(C) The parties may, by mutual written agreement, terminate this Agreement.
8.03 Settlements upon Termination.
(A) In the event of termination of this Agreement or of a Clinical
Investigation and/or Study pursuant to Section 8.02(A), above, P&GP
agrees to pay KENDLE all KENDLE Fees, Out-of-Pocket Costs, or
Investigator Costs incurred by KENDLE in effecting the orderly
termination of the Clinical Investigation(s) and/or Study (Studies)
consistent with accepted medical and ethical standards and applicable
laws, rules, and regulations and such instructions as P&GP may provide,
or, alternatively, all such KENDLE Fees, Out-of-Pocket Costs, or
Investigator Costs incurred by KENDLE in effecting an orderly
transition of KENDLE's work product, Study Data, and all other
materials developed by KENDLE hereunder and in KENDLE's possession or
control, or that of its employees, agents, and/or contractors, to
another entity designated by P&GP.
(B) If this Agreement is terminated by mutual agreement of the parties,
then the parties will make such payments as they may mutually agree
upon in their mutual termination agreement.
<PAGE> 22
(C) Upon termination of this Agreement for any reason, KENDLE agrees within
a period of thirty (30) days following the effective date of
termination (or such other period as the parties may mutually agree) to
return to P&GP, or to forward to a third party as directed by P&GP, the
following:
(1) all Clinical Supplies and Study Data;
(2) all equipment specially developed or otherwise purchased by
KENDLE and billed to P&GP for use in the Azimilide Program;
and
(3) all tangible items developed or purchased by KENDLE for use in
the Azimilide Program for which KENDLE was or could be
reimbursed by P&GP consistent with this Agreement.
P&GP agrees to reimburse KENDLE its cost and expense of
assembling and shipping the materials described in subsections
8.03(C)(l) through (3) except in the event of termination
resulting from KENDLE's breach, in which event the expense of
assembling and shipping these materials will be borne solely
by KENDLE.
(D) If directed by P&GP, as an alternative to the requirements of
Section 8.03(C), above, KENDLE agrees to store and maintain
the materials described in Section 8.03(C)(l) through (3) in
accordance with applicable laws, rules, and regulations as
well as with instructions furnished by P&GP, at mutually
agreeable rates.
(E) Disputes arising from the termination of this Agreement will
be resolved using the dispute resolution procedures set forth
in Article 14.
8.04 Suspension.
In the event a Study or Studies is/are suspended by order or direction of
Regulatory Authorities, P&GP agrees to pay KENDLE such KENDLE Fees,
Out-of-Pocket Costs, or Investigator Costs as are required to maintain the
Studies during the period of the suspension in accordance with P&GP's directions
and directions of Regulatory Authorities. Included in such payment will be
KENDLE Fees at standard hourly rates for KENDLE personnel and resources
dedicated to the Azimilide Program and which are not usable by KENDLE elsewhere
within its business. If such
<PAGE> 23
suspension continues for a period of more than three (3) months, then the
parties will meet to discuss alternatives, one being the mutual termination of
the Study or Studies consistent with the requirements of Sections 8.02 and 8.03,
above.
ARTICLE 9 MEETINGS.
9.01 Meetings.
P&GP and KENDLE agree to establish a mutually acceptable schedule for meetings
on a regular basis, held at times and places mutually agreeable to the parties.
P&GP agrees to pay KENDLE for personnel charges and expenses for meetings
requested by P&GP which are in addition to the regularly scheduled meetings
approved by the parties. The agenda for each meeting will be approved in advance
and both parties agree to utilize reasonable best efforts to insure that
representatives attending such meetings will have sufficient authority to make
decisions on topics scheduled for discussion.
ARTICLE 10. AUDITS.
10.01 Audits of KENDLE.
(A) During the Term of this Agreement and for a period of two (2) years
thereafter, KENDLE will maintain at its offices in Cincinnati, Ohio,
all financial and related records associated with KENDLE's conduct of
the services hereunder, organized in a format which will make them
readily understandable to trained clinical and financial
representatives of P&GP. Upon at least ten (10) days advance notice
from P&GP, KENDLE will make said records available to representatives
of P&GP in KENDLE's offices in Cincinnati, Ohio for the purposes of
auditing said records to verify KENDLE's compliance with the terms of
this Agreement. In the event information confidential to a third party
is contained in any records subject to audit by P&GP, then KENDLE and
P&GP agree that such records may be reviewed by an independent auditor
appointed by P&GP. Such independent auditor will sign in advance of
inspection a confidential disclosure agreement suitable in form to
P&GP, KENDLE, and the appointed auditor.
(B) Should P&GP in the course of an audit discover information indicating,
in its opinion, an inaccuracy in any of KENDLE's calculations or
payments from P&GP, P&GP shall so notify KENDLE in writing, setting
forth its conclusion(s) in reasonable detail. If
<PAGE> 24
KENDLE disagrees with P&GP's conclusion(s) it shall so notify P&GP in
writing within ten (10) days following receipt of P&GP's notice. During
the twenty (20) business days following P&GP's receipt of KENDLE's
notice, P&GP's and KENDLE's financial representatives will attempt to
resolve the disputed issue. Failing such agreement, P&GP and KENDLE
will mutually appoint an independent, nationally-recognized accounting
firm to conduct its own audit. The determination of such firm shall be
final and binding upon the parties and the cost of this audit will be
borne by the party against whom the firm decides.
10.02 Studv Records and Audits.
KENDLE will make every reasonable effort to insure that all Principal
Investigators, Study sites, Co-Investigators, and Study Personnel maintain
clinical records and data and other Study materials in an organized fashion,,
readily accessible and understandable upon audit to trained clinical personnel
of P&GP and/or Regulatory Authorities with jurisdiction thereof. Upon reasonable
advance written notice to KENDLE, KENDLE will make every reasonable effort to
assist P&GP personnel in obtaining access to the records and materials in the
possession of any Principal Investigator, Co-Investigators, Study sites, and/or
Study Personnel for the purpose of insuring compliance with this Agreement, the
Protocol, applicable laws, rules, and regulations, and the clinical study
agreement. KENDLE will implement any reasonable recommendations made by P&GP
following any such audit.
ARTICLE 11. PROPRIETARY RIGHTS.
11.01 Property Rights of P&GP.
(A) All right, title, and interest in and to Study Drug, Protocols,
clinical questionnaires, clinical data, and Clinical Supplies will
remain the exclusive property of P&GP. All unused Study Drug and
Clinical Supplies remaining at the conclusion or termination of a Study
or Clinical Investigation will be returned to P&GP in accordance with
instructions to be provided by P&GP.
(B) P&GP will own exclusively all right, title, and interest, including
copyrights and/or other intellectual property rights, to all Protocols,
clinical questionnaires, clinical data, written reports, and other
similar materials, either in written or other tangible format,
including electronic or computer-readable format, generated by KENDLE,
the Principal
<PAGE> 25
Investigators, and/or each of their employees, agents, or consultants
relating to the conduct of the Studies pursuant to this Agreement. The
foregoing not withstanding P&GP shall not have ownership rights to
computer software or procedural or operational manuals which were
either developed by KENDLE prior to entering into this Agreement, or
modified by KENDLE after entering into this Agreement utilizing monies
other than those paid to KENDLE by P&GP under this Agreement.
(C) (1) KENDLE will fully and promptly disclose to P&GP all inventions,
creative ideas, developments, discoveries, and improvements
(hereinafter referred to as an "Invention" or "Inventions") conceived,
made or reduced to practice by KENDLE or any agent or employee of
KENDLE in the course of performing the Azimilide Program or which come
to KENDLE' attention during such performance and which relate to the
use, administration, dosing, effect or formulation of the Study Drug or
to any medical or scientific aspect of the Study.
(2) All inventions made solely by KENDLE shall be owned by KENDLE,
subject to the provisions of Section (C)(3)(a) or (b) below. Inventions
made solely by the Principal Investigator, Co-Investigator(s), or Study
Personnel shall be owned by the Principal Investigator(s),
Co-Investigator(s), Study Personnel or the Study Site, as applicable,
subject to the provisions of Section (C)(3)(a) or (b) below. Inventions
made jointly by (a) the Principal Investigator, Co-Investigator(s),
Study Personnel, the Study Site, and/or KENDLE, and (b) employees of
P&GP, shall be owned jointly by P&GP and the other party or parties
involved, subject to the provisions of Section (C)(3)(a) or (b) below.
KENDLE recognizes that inventions made solely by employees of P&GP as a
direct result of this Agreement or any Study undertaken hereunder, or
otherwise, and performance of work under this Agreement, does not grant
KENDLE, the Principal Investigator, any Co-Investigator, or the Study
Site, any rights under such inventions. Inventorship will be determined
in accordance with U.S. Patent law.
(3) KENDLE hereby grants P&GP a royalty free, worldwide, unrestricted,
exclusive license, with right to sublicense, to make, have made, use,
and sell such invention rights for any and all Inventions, resulting
from this Agreement, or any Study undertaken hereunder, that are owned
in whole or in part by KENDLE, which relate to the use, administration,
dosing, effect or formulation of the Study Drug or to any medical or
scientific aspect of the Study. KENDLE shall assure that the animal
study agreements provide that the Study Site, Study Personnel,
Principal Investigator, Co-Investigator, and
<PAGE> 26
their agents and employees shall grant to P&GP such licensing rights
for any and all inventions resulting from this Agreement or any study
undertaken hereunder that are owned in whole or in part by any Study
Site, Principal Investigator, Co-Investigator, and/or Study Personnel.
(a) If said Invention relates to a P&GP Compound other than
Azimilide, then KENDLE will grant and will assure that the
clinical study agreement provides the Study Site, the
Principal Investigator, the Co-Investigator(s), and/or Study
Personnel shall grant P&GP, a royalty free, worldwide,
unrestricted, exclusive license, with right to sublicense, to
make, have made, use, and sell such Invention.
(b) If said Invention does not relate to a P&GP Compound, KENDLE,
the Study Site, the Principal Investigator, the
Co-Investigator(s) and/or Study Personnel hereby grants P&GP
an option to take a royalty bearing, worldwide, unrestricted,
exclusive license, with right to sublicense, to make, have
made, use and sell said Invention. The terms of said license
shall be reasonable in the circumstances and will be
negotiated in good faith between the P&GP and either of
KENDLE, the Study Site, the Principal Investigator, and/or the
Co-Investigator or Study Personnel, as the case may be.
(4) KENDLE will secure such terms in agreements with employees,
contractors, agents, Principal Investigators, Co-Investigator(s), Study
Personnel, and/or Study sites as are necessary to secure for P&GP the
rights and licenses as are set forth in this Article 11.
ARTICLE 12. INDEMNIFICATION.
12.01 Indemnification by P&GP.
(A) P&GP hereby agrees to indemnify, defend, and hold harmless KENDLE,
their respective affiliates, agents, servants, employees, officers, and
directors from and against any and all loss, cost, damage, expense,
claim, action, liability, and/or suit (including court costs and
reasonable attorneys' fees) suffered or incurred by KENDLE or any of
the foregoing as a result of personal injury (including death) or
property damage suffered by (1) a participant in the Study, or (2) any
employee, agent, or servant of KENDLE involved with the performance of
a Study or Studies, which personal injury arises from or is
<PAGE> 27
attributable to the Study Drug, the procedures set forth in the
Protocol, or P&GP's negligence with respect to P&GP's performance of
its obligations under this Agreement, except to the extent that any
such loss, cost, claims, actions, liability, and/or suits is caused by
the fault, negligence, or intentional misconduct of KENDLE, its
respective affiliates, agents, servants, employees, officers, or
directors.
(B) P&GP also agrees to indemnify, defend, and hold harmless KENDLE, their
respective affiliates, agents, servants, employees, officers, and
directors from and against any and all loss, damage, cost, expense
(including court costs and reasonable attorneys' fees), liability,
action, or suit arising from any claim that the actions of P&GP, with
respect to the Clinical Investigation, Studies or the Protocol(s),
violate any applicable law, rule, regulation, or ordinance.
(C) P&GP hereby agrees to indemnify, defend, and hold harmless the
Principal Investigators, the Study sites, IRB's and ethical committees,
and their respective affiliates, agents, servants, employees, officers,
and directors from and against any and all loss, cost, damage, claim,
expense (including court costs and reasonable attorneys fees),
liability, action, or suit arising from any personal injury suffered by
(1) a participant in a Study or (2) by any employee, agent, or servant
of the foregoing Indemnitees, which injury arises from or is
attributable to (a) P&GP's negligence, (b) the Study Drug, or (c) the
procedures set forth in the Protocol, except to the extent that any
such 1055, cost, claim, action, liability, and/or suit is/are caused by
or is/are attributable to the negligence, fault, or intentional
misconduct of the foregoing Indemnitees, and/or by their respective
affiliates, agents, servants, employees, officers, and/or directors.
P&GP indemnification under this Section 12.01(C) shall only be
effective to the extent it is incorporated into an agreement between
KENDLE and a Principal Investigator and/or Study Site.
12.02 Indemnification by KENDLE.
(A) KENDLE hereby agrees to indemnify, defend, and hold harmless P&GP, its
affiliates, agents, servants, directors, agents, and contractors
(hereinafter "P&GP Indemnitees") from and against any and all claim,
damage, cost, expense, or other liability, and/or suit (including
reasonable attorneys fees and court costs), suffered or incurred by
P&GP Indemnitees, or any of them, as a result of personal injury
(including death) or property damage suffered by Study participants,
Principal Investigators, Study sites, IRB's, ethical committees,
KENDLE, and/or each of their respective employees, directors, agents,
<PAGE> 28
contractors, servants, and/or officers as a result of (1) the
negligence or intentional misconduct of KENDLE, its employees, agents,
and/or contractors, (2) any negligence by KENDLE in the performance of
its obligations under this Agreement, or (3) any breach by KENDLE of
its obligations under this Agreement.
(B) KENDLE agrees to indemnify, defend, and hold harmless P&GP, its
respective affiliates, agents, servants, employees, officers, and
directors from and against all loss, damage, cost, and expenses
(including court costs and reasonable attorneys' fees), liability,
actions, or suits arising from any claims that KENDLE's actions with
respect to the Studies, Clinical Investigations, or Protocols violate
any applicable law, rule, regulation, or ordinance.
12.03 Procedure for Indemnification.
As a condition to indemnification hereunder, the party seeking indemnification
(hereinafter the "Indemnified Party") shall (A) give prompt, within thirty (30)
days, written notice of any claim, suit, or liability (hereinafter "Claim") to
the party from whom the Indemnified Party seeks indemnification pursuant to this
Agreement (the "Indemnifying Party"), which notice will include copies of any
pleadings or other documents served upon the Indemnified Party relating thereto,
(B) grant the Indemnifying Party the right, but not the obligation, to control
the defense of any such Claim at the Indemnifying Party's expense, including the
right to select and engage counsel of its choice, (C) cooperate fully with the
lndemnifying Party and its legal representatives in the investigation and
defense of such Claim, and (D) consent and approve any reasonable settlement of
such Claim.
ARTICLE 13. CONFLICT OF INTEREST.
13.01 Other Programs.
KENDLE acknowledges that it understands the importance to P&GP that the
Azimilide Program be completed in accordance with this Agreement. Therefore,
KENDLE agrees that it will not undertake a clinical development program for the
duration of this Agreement, where, in the exercise of reasonable judgment,
undertaking such a program would jeopardize KENDLE's ability to perform its
obligations hereunder to the standards of performance represented by KENDLE
herein.
<PAGE> 29
13.02 Other Antiarrhythmia Programs.
Kendle shall have the right to conduct, concurrently to the Studies conducted
under this Agreement, third party clinical programs relating to antiarrhythmia
class compounds (herein referred to as "third party clinical programs') as long
as conduct of said third party clinical programs do not materially affect the
conduct of the Studies under this Agreement. Also, Kendle personnel serving as
CARS, Project Manager(s), and Project Assistant(s), hereunder will not discuss
any aspect of this Agreement, the Studies hereunder, and P&G confidential
information pursuant to Article 15, with any Kendle personnel conducting third
party clinical programs.
ARTICLE 14. DISPUTE RESOLUTION.
14.01 Disputes.
The parties agree that any and all disputes arising out of or in connection with
the execution, interpretation, performance, or nonperformance of this Agreement
or any other certificate, agreement, or other instrument between, involving, or
affecting the parties (including the validity, scope, and enforceability of this
arbitration agreement), referred to hereinafter as a "Dispute," will be settled
using the dispute resolution procedures set forth in this Article 14. If P&GP's
and KENDLE's Contacts (as identified in Sections 17.01 and 17.02, hereof) are
unable to resolve a Dispute after a reasonable period of time following good
faith efforts they will (1) reduce to writing the nature of the Dispute, and (2)
forward the Dispute to P&GP's President and KENDLE's Chief U.S. Operations
Officer ("Officers") for resolution. These Officers will schedule a meeting as
soon as possible after receipt of the Dispute where they will attempt to resolve
the Dispute to the parties' mutual satisfaction. If however, the Dispute is not
resolved within sixty (60) days after referral to the Officers, then either
party may request binding arbitration of the Dispute, which arbitration will be
conducted in accordance with the procedures set forth in Section 14.02, below.
14.02 Arbitration.
(A) Any and all Disputes shall be solely and finally settled by a panel of
three (3) arbitrators selected in the manner described below. The
arbitration will be conducted in accordance with the then existing
Commercial Rules of the American Arbitration Association (the "Rules");
provided, however, that in the event of the conflict between the Rules
and the terms of this Agreement, the terms of this Agreement shall
govern. The place of
<PAGE> 30
arbitration shall be Cincinnati, Ohio if arbitration is requested by
KENDLE, and shall be Cincinnati, Ohio if arbitration is requested by
P&GP. The law applicable to the arbitration procedure shall be the
Federal Arbitration Act (9 USC Section 2).
(B) To commence arbitration of a Dispute, the party desiring arbitration
shall notify the other party in writing in accordance with the Rules.
Within fifteen (15) days following the other party's receipt of such
notice, each party will then appoint one arbitrator to sit on the
panel. These two (2) appointed arbitrators will select a third, neutral
arbitrator who will have experience in the development and management
of clinical studies.
(C) On the thirtieth (30th) business day following the appointment of the
third, neutral arbitrator, each party shall submit to the arbitration
panel a form of final decision specifying the relief to which such
party in good faith believes it is entitled. Such form of final
decision shall not be subject to further modification by the party
making such submission after it is received by the arbitration panel.
The arbitration hearing will be scheduled within a reasonable time
following submission of each party's form of decision, not to exceed
six (6) months.
(D) The arbitration panel will issue its decision within a reasonable time
following the arbitration hearing, not to exceed sixty (60) days. The
arbitration panel shall adopt as its decision one of the two
alternative final decisions submitted by the respective parties. The
alternative chosen by the arbitration panel shall be chosen in its
entirety and shall not be subject to final modification by the
arbitration panel. The arbitration panel shall choose the form of final
decision that, in its judgment, is most consistent with the terms of
this Agreement and the intent of the parties, as supported by the
evidence presented by the parties in the arbitration proceedings. The
arbitration panel shall not be required to provide the reasons for its
decision.
(E) The parties agree that the arbitration award shall (1) be the sole and
exclusive remedy between them regarding any claims, counterclaims, or
issues presented to the arbitration panel; (2) be final and subject to
no judicial review; and (3) be made and shall promptly be payable in
U.S. dollars free of any tax, deduction, or offset. The parties further
agree that any costs, fees, or taxes incident to enforcing the award
shall, to the maximum extent permitted by law, be charged against the
party resisting such enforcement. The parties hereto agree that
judgment on the arbitration award may be entered and enforced in any
court having jurisdiction over the parties or their assets.
<PAGE> 31
(F) Each party shall, except as otherwise provided herein, be responsible
for its own expenses, including legal fees, incurred in the course of
any arbitration proceedings. The fees of the arbitration panel shall be
divided evenly between the parties.
ARTICLE 15. CONFIDENTIALITY AND USE RESTRICTIONS.
15.01 Confidentiality of P&GP Proprietary Information.
(A) During the Term of this Agreement and for a period often (10) years
thereafter, KENDLE shall keep confidential all P&GP Proprietary
Information.
(B) In carrying out its obligations under this Section 15.01, KENDLE agrees
as follows:
(1) It shall disclose P&GP Proprietary Information only to those
of its officers, employees, contractors, and consultants who
have a need to know P&GP's Proprietary Information in order to
fulfill its obligations hereunder, and then, only to the
extent of such need;
(2) It shall not disclose P&GP's Proprietary Information to any
third parties, other than those to whom disclosure is
necessary in order to effectively carry out KENDLE's
obligations hereunder without the prior written permission of
P&GP;
(3) It shall take the same measures to preserve the
confidentiality of P&GP's Proprietary Information as it takes
to preserve the confidentiality of its own confidential
information; and
(4) It shall insure that any authorized third parties to whom it
shall disclose P&GP's Proprietary Information are bound by
written agreement to comply with the terms of Sections 15.01
and 15.02 of this Agreement.
(C) Upon the termination or expiration of this Agreement for any reason,
KENDLE will return to P&GP within sixty (60) days following the
effective date of termination or expiration, all documents and
materials constituting or containing P&GP Proprietary Information in
KENDLE's possession and in the possession of KENDLE's agents,
employees, contractors, authorized third parties, Principal
Investigators, Co-
<PAGE> 32
Investigators, Study sites, or any other person or entity who has
received P&GP Proprietary Information from KENDLE. The foregoing shall
not apply to those documents which by law are required to remain in the
possession of a third party or KENDLE. In this event and if permitted
by law, KENDLE shall use its best efforts to provide P&GP a copy of
said documents.
(D) In the event that KENDLE becomes legally compelled to disclose any P&GP
Proprietary Information, KENDLE will provide P&GP with prompt advance
notice in writing so that P&GP may, at its discretion, defend against
such legal obligation, seek a protective order, or pursue other
appropriate remedy. In the event that such protective order or other
relief is not obtained, KENDLE will furnish only that portion of P&GP's
Proprietary Information which, on the advice of KENDLE's legal counsel,
is legally required, and KENDLE will exercise its best efforts to
obtain reliable assurance that confidential treatment will be accorded
such P&GP Proprietary Information.
(E) KENDLE acknowledges that any unauthorized disclosure of any portion of
P&GP's Proprietary Information shall cause irreparable injury to P&GP
and that no adequate or complete remedy shall be available to P&GP to
compensate for such injury. Accordingly, KENDLE acknowledges that P&GP
shall be entitled to injunctive relief in the event of such
unauthorized disclosure by KENDLE, or any of its employees, agents,
contractors, third parties, Study sites, Co-Investigator(s), Study
Personnel, and/or Principal Investigators, in addition to whatever
remedies it might have at law.
15.02 Limitations on Use.
During the Term of this Agreement and for a period of ten (10) years thereafter,
KENDLE shall not use any P&GP Proprietary Information except as expressly
provided in or contemplated by this Agreement.
15.03 Publication.
(A) KENDLE agrees not to publish or submit for publication the results of
any Study or Clinical Investigation managed by KENDLE hereunder, nor
will KENDLE publish or submit for publication any manuscript or other
writing about or concerning the Azimilide Program or any aspect of
KENDLE's services hereunder, without the prior written approval of
P&GP.
<PAGE> 33
(B) Third parties engaged by KENDLE to conduct a Clinical Investigation
hereunder, including any Principal Investigators, shall be permitted to
publish the results of a Study conducted hereunder, but only in
accordance with terms and conditions established by P&GP, which terms
and conditions will take into account the customs and principles
regarding publication of clinical trial results in the country where
the Study is conducted.
15.04 Terms of Agreement.
Both parties agree to refrain from disclosing any of the terms and conditions of
this Agreement except with the prior written permission of the other party. If
disclosure is mandated by applicable laws, rules, or regulations, then the party
required to make disclosure will limit the scope of disclosure to only the
matters required to be disclosed and will use its reasonable best efforts to
inform the other party in advance of the nature, timing, and mode of such
disclosure. Additionally, if such disclosure is mandated of KENDLE then, if
possible, KENDLE will give P&GP an opportunity to intervene and attempt to limit
the timing, scope, or nature of disclosure.
15.05 Public Disclosure and Press Releases.
Each party will consult with the other as early as possible before issuing any
press release or otherwise making a public statement relating to this Agreement
or the activities conducted hereunder.
15.06 Publicity.
Neither party will use the other party's full or abbreviated name, or any
derivation thereof, in any promotional material, advertising, or other
publication without first obtaining the advanced approval of the other party.
ARTICLE 16. RECRUITMENT
16.01 Recruiting by P&GP.
P&GP agrees that it will not solicit or otherwise encourage KENDLE employees to
seek employment with P&GP throughout the Term of this Agreement.
<PAGE> 34
16.02 Recruiting by KENDLE.
KENDLE agrees that it will not solicit or otherwise encourage P&GP employees to
seek employment with KENDLE throughout the Term of this Agreement.
ARTICLE 17. CONTACTS.
17.01 P&GP Contact.
(A) P&GP designates Valerie A. Couture as its principal contact with KENDLE
with respect to the Azimilide Program (hereinafter the "P&GP Contact").
The P&GP Contact is authorized to (I) provide instructions to KENDLE
regarding the scope and details of KENDLE services and work conducted
by KENDLE pursuant to this Agreement, (2) issue, negotiate, and obtain
approval for Change Notices from Mr. Gill Cloyd, an officer of P&GP, on
behalf of P&GP, (3) approve work and services performed by KENDLE
pursuant to this Agreement, and (4) perform other acts on behalf of
P&GP necessary for the conduct of this Agreement if authorized in
writing by P&GP. Any notices, consents, directions, or approvals issued
by the P&GP Contact consistent with the requirements of this Section
are binding upon P&GP. P&GP may change the P&GP Contact and the
approving P&GP officer upon written notice to KENDLE using the notice
provisions of Article 18, below.
(B) P&GP will designate other personnel to act as contacts with KENDLE in
specialized areas, such as, but not limited to, day-to-day operations,
reporting of ADE's, Clinical Supplies, and the like.
17.02 KENDLE Contact.
KENDLE designates Peter E. Djuric, Pharm. D. as its principal contact with P&GP
for the conduct of the work and services set forth in this Agreement
(hereinafter the "KENDLE Contact"). The KENDLE Contact is authorized to issue
status and other reports to P&GP. KENDLE will designate other contacts as needed
with authority to perform other acts on behalf of KENDLE as necessary for the
conduct of this Agreement. KENDLE may change any designated contact upon written
notice to P&GP using the notice provisions of Article 18, below.
<PAGE> 35
ARTICLE 18. NOTICES.
Any notices or other communications required or permitted hereunder shall be
given in writing and shall be personally delivered or sent by certified or
registered mail, or by express courier service, postage and fees prepaid,
addressed as follows:
(A) If to P&GP. to: Copy to:
Valerie A. Couture Betty J. Zea
Procter & Gamble Pharmaceuticals, Inc. Procter & Gamble Pharmaceuticals, Inc.
Sharon Woods Technical Center Miami Valley Laboratories
11370 Reed Hartrnan Highway 11810 East Miami River Road
Cincinnati, Ohio 45241-2422 Cincinnati, Ohio 45061
(B) If to KENDLE. to: Copy to:
Peter Djuric, Pharm. D. Christopher C. Bergen, President
Kendle Research Associates Kendle Research Associates
441 Vine Street, Suite 700 441 Vine Street, Suite 700
Cincinnati, Ohio 45202-2816 Cincinnati, Ohio 45202-2816
The address to which notices are to be sent may be changed by either party upon
advance written notice to the other party using the procedures set forth in this
Section.
ARTICLE 19. MISCELLANEOUS.
19.01 Assignment.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests,
obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other party. The foregoing notwithstanding, P&GP may
assign its rights and obligations under this Agreement to an affiliate or
subsidiary of P&GP without KENDLE's prior consent; P&GP will notify KENDLE of
such assignment in writing as soon thereafter as possible.
<PAGE> 36
19.02 Expenses.
Except as expressly provided to the contrary in this Agreement, all fees and
expenses incurred by KENDLE in connection with this Agreement shall be borne by
KENDLE, and all fees and expenses incurred by P&GP in connection with this
Agreement shall be borne by P&GP.
19.03 Entire Agreement.
This Agreement and the Exhibits attached hereto contain the entire understanding
of the parties and supersede all prior arrangements or understandings with
respect thereto. No restrictions, agreements, promises, warranties, covenants,
or undertakings apply herein other than those expressly set forth herein.
19.04 Relationship Between the Parties.
No party shall have any responsibility for the employees or for any employee
benefits of the other. No employee or representative of one party shall have any
authority to bind or obligate the other or to create or impose any contractual
or other liability on the other without the other's authorized written approval.
For all purposes, the legal relationship between the parties shall be that of
independent contractor.
19.05 Modifications. Amendments. and Waivers.
The parties hereto may, by written agreement, modify, amend, or supplement any
term or provision of this Agreement and any term or provision of this Agreement
may be waived in writing by the party which is entitled to the benefit thereof.
19.06 Counterparts.
This Agreement may be executed in two (2) or more counterparts, all of which
shall be considered one and the same Agreement and each of which shall be deemed
an original.
19.07 Governing Law.
This Agreement shall be governed by the laws of the State of Ohio (regardless of
the laws that
<PAGE> 37
might be applicable under conflict of law principles) as to all matters,
including, but not limited to, matters of validity, construction, effect, and
performance.
19.08 Severability.
This Agreement shall be deemed severable; the invalidity or unenforceability of
any term or provision of this Agreement shall not affect the validity or
enforceability of this Agreement or of any other term hereof.
19.09 Force Majeure.
Neither party hereto shall be responsible for any failure to perform its
obligations under this Agreement, other than obligations to pay money, if such
failure is caused by acts of God, war, strikes, revolutions, lack or failure of
transportation, facilities, laws or regulations, actions of governmental or
regulatory bodies, or other causes beyond the reasonable control of such party.
Obligations hereunder, however, shall in no event be excused but shall be
suspended only until the cessation of any cause or such failure. In the event
the force majeure should obstruct the performance of a material obligation under
this Agreement for more than three (3) months, the parties hereto shall consult
with each other to determine whether this Agreement should be modified. The
party lacing an event of force majeure shall use its best efforts to remedy the
situation as well as to minimize its effects. A party affected by an event of
force majeure shall so notify the other party by telex or telefax, if possible,
within five (5) days after its occurrence, which communication shall be
confirmed in writing in accordance with the provisions of Article 18, above.
19.10 Waiver.
A waiver by any party of any term or condition of this Agreement in one instance
shall not be deemed or construed to be a waiver of such term or condition for
any similar instance in the failure or of any subsequent breach hereof.
19.11 Survival
The rights and obligations of the parties as set forth in Articles 11, 12, and
15 with respect to proprietary rights, indemnification, and disclosure and use
of confidential information, respectively, shall survive the expiration or
termination of this Agreement for any reason.
<PAGE> 38
19.12 Captions.
The captions of each section and subsection of this Agreement are inserted only
as a matter of convenience and for reference and in no way shall be deemed to
define, limit, enlarge, or describe the scope of this Agreement and the
relationship of the parties hereto, and shall not in any way affect this
Agreement or the construction or interpretation of any provisions herein.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto through their duly authorized officers on the dates set forth below.
PROCTER & GAMBLE KENDLE RESEARCH ASSOCIATES
PHARMACEUTICALS, INC.
By: /s/ G.G. Cloyd By: /s/ Christopher Bergen
-------------------------------- --------------------------------
G.G. Cloyd, President Christopher Bergen, President
Date: 8/21/96 Date: 8/21/96
------------------------------ ------------------------------
APPROVED AS TO FORM
DATE:
- ------------------------- -------------------
APPROVED FOR EXECUTION
DATE:
- ------------------------- -------------------
<PAGE> 39
EXHIBIT APPENDIX
EXHIBIT TITLE
A Azimilide Estimates and Payment Schedule
B Clinical Study Protocols
B-1 "A Double-Blind, Placebo-Controlled,
Parallel
Design Clinical Trial to Assess the Safety and
Efficacy of 100 mg of Azimilide for the
Prophylactic Treatment of Symptomatic Atrial
Fibrillation/Flutter and/or Symptomatic Paroxysmal
Supraventricular Tachycardia"
B-2 "An Open-Label Clinical Trial to Assess the
Long Term Safety of Azimilide in Patients with
Atrial Fibrillation/Flutter and/or Paroxysmal
Supraventricular Tachycardia"
B-3" A Double-Blind, Placebo-Controlled, Parallel
Design Clinical Trial to Assess the Safety and
Efficacy of 35 mg and 75 mg of Azimilide for the
Prophylactic Treatment of Symptomatic Atrial
Fibrillation/Flutter and/or Symptomatic Paroxysmal
Supraventricular Tachycardia"
B-4 "An Open-Label Clinical Trial to Assess the
Long Term Safety of Azimilide in Patients with
Atrial Fibrillation/Flutter and/or Paroxysmal
Supraventricular Tachycardia"
C Letter of Intent
D Responsibility of Sponsors and Investigators
E SVA Clinical Trial Responsibilities
F Clinical Study Agreement
<PAGE> 40
G Milestone Chart
<PAGE> 1
Exhibit 10.18
KENDLE INTERNATIONAL INC.
1997 STOCK OPTION AND STOCK INCENTIVE PLAN
<PAGE> 2
KENDLE INTERNATIONAL INC.
1997 STOCK OPTION AND STOCK INCENTIVE PLAN
SECTION 1
OBJECTIVES
The objectives of this 1997 Stock Option and Stock Incentive Plan are
to enable Kendle International Inc. (the "Company") to compete successfully in
retaining and attracting key employees of outstanding ability, to stimulate the
efforts of such employees toward the Company's objectives and to encourage the
identification of their interests with those of the Company's shareholders.
SECTION 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Advisor" means any person, not including Eligible Employees, who
provides bona fide advisory or consultation services to the Company other than
services in connection with the offer or sale of securities in a capital-raising
transaction.
2.2 "Award" means any form of Stock Option, Stock Appreciation Right,
Restricted Stock Award, Unrestricted Stock Award or Performance Award granted
under this Plan.
2.3 "Award Agreement" means a written agreement setting forth the terms
of an Award.
2.4 "Award Date" or "Grant Date" means the date designated by the
Committee as the date upon which an Award is granted.
2.5 "Award Period" or "Term" means the period beginning on an Award
Date and ending on the expiration date of such Award.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended, or
successor legislation.
<PAGE> 3
- 2 -
2.8 "Committee" means the committee appointed by the Board and
consisting of three or more Directors. Members of the Committee who grant awards
pursuant to this Plan must qualify as Non-Employee Directors as defined by Rule
16b-3(b)(3)(i). To the extent that it is desired that compensation resulting
from an Award be excluded from the deduction limitation of Section 162(m) of the
Code, all members of the Committee granting an Award also shall be "outside
directors" within the meaning of Code Section 162(m). To the extent Ohio law
permits, the Committee may be comprised fewer than three directors.
2.9 "Disability" means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code.
2.10 "Eligible Employee" means anyone who performs services for the
Company or a Subsidiary, including an officer or director of the Company or a
Subsidiary; and is compensated on a regular basis by the Company or a
Subsidiary. Directors who are not full-time employees of the Company or a
Subsidiary are not eligible to receive Awards under this Plan, except as set
forth in Subsection 6.4. Eligibility under this Plan shall be determined by the
Committee.
2.11 "Fair Market Value" means, as of any date, the average of the
highest and lowest quoted selling prices of a Share as reported on the National
Market System of The Nasdaq Stock Market (or such other consolidated transaction
reporting system on which the Shares are primarily traded), or if the Shares
were not traded on such date, then the next preceding day on which the Shares
were traded, all as reported by such source as the Committee may select. If the
Shares are not traded on a national securities exchange or other market system,
Fair Market Value shall be set under procedures established by the Committee.
2.12 "Incentive Option" means any Stock Option awarded under Section 6
of this Plan intended to be and designated as an "Incentive Stock Option" within
the meaning of Section 422 of the Code or any successor provision.
2.13 "Non-Employee Director" means any member of the Board who would
not qualify as an Eligible Employee.
2.14 "Non-Qualified Option" means any Stock Option awarded under this
Plan that is not an Incentive Stock Option.
2.15 "Officer" means a person who is considered to be an officer of the
Company under Rule 16a-1(f).
2.16 "Option Price" or "Exercise Price" means the price per share at
which Common Stock may be purchased upon the exercise of an Option or an Award.
<PAGE> 4
- 3 -
2.17 "Participant" means an Eligible Employee, Non-Employee Director or
Advisor to whom an Award has been made pursuant to this Plan.
2.18 "Restricted Stock" means Shares issued pursuant to a Restricted
Stock Award which are subject to the restrictions set forth in the related Award
Agreement.
2.19 "Restricted Stock Award" means an award of a fixed number of
Shares to a Participant which is subject to forfeiture provisions and other
conditions set forth in the Award Agreement.
2.20 "Retirement" means any termination of employment or service on the
Board (other than by death or Disability) by an employee or a director who is at
least 65 years of age (or 55 years of age with at least ten years of employment
with, or service on the Board of, the Company or a Subsidiary).
2.21 "Rule 16b-3" and "Rule 16a-1(f)" mean Securities and Exchange
Commission Regulations Sect. 240.16b-3 and Sect. 240.16a-1(f) or any
corresponding successor regulations.
2.22 "Share" means one share of the Company's Common Stock.
2.23 "Stock Appreciation Right" or "SAR" means the right to receive,
for each unit of the SAR, cash and/or Shares equal in value to the excess of the
Fair Market Value of one Share on the date of exercise of the SAR over the
reference price per Share established on the date the SAR was granted.
2.24 "Stock Option" or "Option" means the right to purchase Shares
granted pursuant to Section 6 of this Plan.
2.25 "Subsidiary" means any corporation, partnership, joint venture, or
other entity (i) of which the Company owns or controls, directly or indirectly,
25% or more of the outstanding voting stock (or comparable equity participation
and voting power) or (ii) which the Company otherwise controls (by contract or
any other means); except that when the term "Subsidiary" is used in the context
of an award of an Incentive Option, the term shall have the same meaning given
to it in the Code. "Control" means the power to direct or cause the direction of
the management and policies of a corporation or other entity.
2.26 "Transfer" means alienation, attachment, sale, assignment, pledge,
encumbrance, charge or other disposition; and the terms "Transferred" or
"Transferable" have corresponding meanings.
<PAGE> 5
- 4 -
SECTION 3
ADMINISTRATION
3.1 This Plan shall be administered and interpreted by the Committee,
except that any function of the Committee may also be performed by the Board.
3.2 The Committee shall have full authority to grant, pursuant to the
terms of this Plan, to Eligible Employees and Advisors: (i) Stock Options, (ii)
Stock Appreciation Rights, (iii) Restricted Stock, (iv) Unrestricted Stock and
(v) Performance Awards. In particular, the Committee shall have the authority:
(a) to select the Eligible Employees and Advisors to whom Awards may be
granted;
(b) to determine the types and combinations of Awards to be granted to
Eligible Employees and Advisors;
(c) to determine the number of Shares or monetary units which may be
subject to each Award;
(d) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award (including, but not limited to, the term,
price, exercisability, method of exercise, any restriction or limitation on
transfer, any vesting schedule or acceleration, or any forfeiture provisions or
waiver, regarding any Award) and the related Shares, based on such factors as
the Committee shall determine; and
(e) to modify or waive any restrictions or limitations contained in,
and grant extensions to the terms of or accelerate the vestings of, any
outstanding Awards as long as such modifications, waivers, extensions or
accelerations are not inconsistent with the terms of this Plan, but no such
changes shall impair the rights of any Participant without his or her consent.
3.3 The Committee shall have the authority to adopt, alter and repeal
administrative rules, guidelines and practices governing this Plan and perform
all acts, including the delegation of its administrative responsibilities, as it
deems advisable; to construe and interpret the terms and provisions of this Plan
and any Award issued under this Plan; and to otherwise supervise the
administration of this Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in this Plan or in any related Award
Agreement in the manner and to the extent it deems necessary to carry this Plan
into effect.
3.4 Any action, decision, interpretation or determination by or at the
direction of the Committee concerning the application or administration of this
Plan shall be final and binding upon all persons and need not be uniform with
respect to its determination of recipients, amount, timing, form, terms or
provisions of Awards.
<PAGE> 6
- 5 -
SECTION 4
SHARES SUBJECT TO PLAN
4.1 Shares. Subject to adjustment as provided in Subsection 4.2, the
aggregate number of Shares which may be issued under this Plan shall not exceed
one million (1,000,000) Shares. If any Award granted under this Plan
shall expire, terminate or be canceled for any reason without having been
exercised in full, the number of unacquired Shares subject to such Award shall
again be available for future grants. The Committee may make such other
determinations regarding the counting of Shares issued pursuant to this Plan as
it deems necessary or advisable, provided that such determinations shall be
permitted by law.
4.2 Adjustment Provisions.
(a) If the Company shall at any time change the number of issued Shares
without new consideration to the Company (such as by stock dividend, stock
split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the Shares) or make
a distribution of cash or property which has a substantial impact on the value
of issued Shares, the total number of Shares reserved for issuance under the
Plan shall be appropriately adjusted and the number of Shares covered by each
outstanding Award and the reference price or Fair Market Value for each
outstanding Award shall be adjusted so that the aggregate consideration payable
to the Company and the value of each such Award shall not be changed.
(b) Notwithstanding any other provision of the Plan, and without
affecting the number of Shares reserved or available hereunder, the Committee
may authorize the issuance, continuation or assumption of Awards or provide for
other equitable adjustments after changes in the Shares resulting from any
merger, consolidation, sale of assets, acquisition of property or stock,
recapitalization, reorganization or similar occurrence in which the Company is
the continuing or surviving corporation, upon such terms and conditions as it
may deem equitable and appropriate.
4.3 Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company or any merger, consolidation or combination in which
the Company is not the surviving corporation or in which the outstanding Shares
of the Company are converted into cash, other securities or other property, each
outstanding Award shall terminate as of a date fixed by the Committee, provided
that not less than 20 days' written notice of the date of expiration shall be
given to each holder of an Award and each such holder shall have the right
during such period following notice to exercise the Award as to all of the
shares covered by the option
SECTION 5
DURATION OF PLAN
<PAGE> 7
- 6 -
This Plan shall continue in effect until , , unless
terminated sooner by the Board pursuant to Section 12.
SECTION 6
STOCK OPTIONS
6.1 Grants. Stock options may be granted alone or in addition to other
Awards granted under this Plan. Each Option granted shall be designated as
either a Non-Qualified Option or an Incentive Option and in each case such
Option may or may not include Stock Appreciation Rights. One or more Stock
Options and/or Stock Appreciation Rights may be granted to any Eligible Employee
or Advisor, except that only Non-Qualified Options may be granted to Advisors.
6.2 Incentive Options. Any option designated by the Committee as an
Incentive Stock Option will be subject to the general provisions applicable to
all Options granted under the Plan plus the following specific provisions:
(a) If an Incentive Stock Option is granted to a person who
owns, directly or indirectly, stock representing more than 10% of (i)
the total combined voting power of all classes of stock of the Company,
or (ii) a corporation that owns 50% or more of the total combined
voting power of all classes of stock of the Company,
(i) The Option Price must equal at least 110% of the
Fair Market Value on the date of grant; and
(ii) The term of the Option shall not be greater than
five years from the date of grant.
(b) The aggregate Fair Market Value of Shares, determined at
the date of grant, with respect to which Incentive Stock Options that
may be exercised for the first time during any calendar year under this
Plan or any other plan maintained by the Company shall not exceed
$100,000.
(c) Qualification under the Code. Notwithstanding anything in
this Plan to the contrary, no term of this Plan relating to Incentive
Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under this Plan be exercised, so as to
disqualify this Plan under Section 422 of the Code, or, without the
consent of the Participants affected, to disqualify any Incentive
Option under Section 422 of the Code.
6.3 Terms of Options. Except as otherwise required by Subsections 6.2
and 6.4, Options granted under this Plan shall be subject to the following terms
and conditions and shall be in such form and contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem desirable:
<PAGE> 8
- 7 -
(a) Option Price. The Option Price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant, except that no Incentive Option may be granted
for an Option Price less than 100% of Fair Market Value on the Grant
Date and no Nonqualified Stock Option may be granted for an Option
Price less than 95% of the Fair Market Value on the Date of Grant.
(b) Option Term. The Term of each Stock Option shall be fixed
by the Committee, but no Option shall be exercisable more than ten
years after its Award Date.
(c) Exercisability. A Stock Option shall be exercisable at
such time or times and subject to such terms and conditions as shall be
specified in the Award Agreement.
(d) Method of Exercise. Stock Options may be exercised in
whole or in part at any time during the Option Term by giving written
notice of exercise to the Company specifying the number of Shares to be
purchased. Such notice shall be accompanied by payment in full of the
Option Price in cash unless some other form of consideration is
approved by the Committee at or after the grant. If and to the extent
determined by the Committee at or after grant, payment in full or in
part may also be made in the form of Common Stock owned by the
Participant for at least six months prior to exercise or by reduction
in the number of Shares issuable upon exercise based, in each case, on
the Fair Market Value of the Common Stock on the payment date.
(e) Transferability of Options. Stock Options shall be
Transferable as provided in Section 10 of this Plan.
6.4 Award of Options to Non-Employee Directors.
(a) Grants. The Company shall make the following immediately
exercisable grants of Stock Options to Non-Employee Directors under
this Plan:
(i) On the date on which the Company consummates its
initial public offering of Common Stock as registered under
the Securities Act of 1933, a Non-Employee Director shall
automatically be granted a Non-Qualified Option for Ten
Thousand (10,000) Shares.
(ii) On the date on which a person becomes a
Non-Employee Director, whether by election or appointment,
that Non-Employee Director shall automatically be granted a
Non-Qualified Option for [Five Thousand (5,000) Shares.]
(iii) Each Non-Employee Director shall automatically
receive a grant of a Non-Qualified Option for Five Thousand
(5,000) Shares upon re-election as a member of the Board at
the Company's Annual Shareholders' Meeting.
<PAGE> 9
- 8 -
(b) Terms and Conditions of Options Granted to
Non-Employee Directors.
(i) Term. The Term of all Options shall be 10 years
from the Award Date of the Option.
(ii) Option Price. The Option Price of all Options
shall be the Fair Market Value of a Share on the Grant Date.
(iii) Method of Exercise. All Options shall be
exercisable within one year after the Award Date.
(iv) Transferability and Termination. All Options
shall be Transferable as provided in Section 10 of this Plan
and shall terminate in accordance with Section 11 of this
Plan, except that the timing provisions of Subsections 11.2
and 11.3 may not be varied by Committee determination.
SECTION 7
STOCK APPRECIATION RIGHTS
7.1 Grant. A Stock Appreciation Right may be granted either with or
without reference to all or any part of a Stock Option. A "Tandem SAR" means an
SAR granted with reference to a Stock Option (the "Reference Option"). A
"Non-Tandem SAR" means an SAR granted without reference to a Stock Option. If
the Reference Option is a Non-Qualified Option, a Tandem SAR may be granted at
or after the date of the Reference Option; if the Reference Option is an
Incentive Option, the Grant Date of a Tandem SAR must be the same as the Grant
Date of the Reference Option. Any SAR shall have such terms and conditions, not
inconsistent with this Plan, as are established by the Committee in connection
with the Award.
7.2 Term. A Tandem SAR shall terminate and no longer be exercisable
upon the termination of its Reference Option. A Non-Tandem SAR may have a term
no longer than 10 years from its Grant Date.
7.3 Exercise. A Tandem SAR may only be exercisable at the times and, in
whole or in part, to the extent that its Reference Option is exercisable. The
exercise of a Tandem SAR shall automatically result in the surrender of the
applicable portion of its Reference Option. A Non-Tandem SAR shall be
exercisable in whole or in part as provided in its Award Agreement. Written
notice of any exercise must be given in the form prescribed by the Committee.
7.4 Payment. For purposes of payment of an SAR, the reference price per
Share shall be the Option Price of the Reference Option in the case of a Tandem
SAR and shall be the Fair
<PAGE> 10
- 9 -
Market Value of a Share on the Grant Date in the case of a Non-Tandem SAR. The
Committee shall determine the form of payment.
7.5 Transferability and Termination. Stock Appreciation Rights shall be
Transferable as provided in Section 11.1 of this Plan and shall terminate in
accordance with Section 11 of this Plan.
SECTION 8
RESTRICTED AND UNRESTRICTED STOCK AWARDS
8.1 Grants of Restricted Stock Awards. The Committee may, in its
discretion, grant one or more Restricted Stock Awards to any Eligible Employee
or Advisor. Each Restricted Stock Award shall specify the number of Shares to be
issued to the Participant, the date of such issuance, the price, if any, to be
paid for such Shares by the Participant and the restrictions imposed on such
Shares. The Committee may grant Awards of Restricted Stock subject to the
attainment of specified performance goals, continued employment or such other
limitations or restrictions as the Committee may determine.
8.2 Terms and Conditions of Restricted Awards. Restricted Stock Awards
shall be subject to the following provisions:
(a) Issuance of Shares. Shares of Restricted Stock may be
issued immediately upon grant or upon vesting as determined by the
Committee.
(b) Stock Powers and Custody. If Shares of Restricted Stock
are issued immediately upon grant, the Committee may require the
Participant to deliver a duly signed stock power, endorsed in blank,
relating to the Restricted Stock covered by such an Award. The
Committee may also require that the stock certificates evidencing such
shares be held in custody by the Company until the restrictions on them
shall have lapsed.
(c) Shareholder Rights. Unless otherwise determined by the
Committee at the time of grant, Participants receiving Restricted Stock
Awards shall not be entitled to dividend or voting rights for the
Restricted Shares until they are fully vested.
8.3 Unrestricted Stock Awards. The Committee may make awards of
unrestricted Common Stock to key Eligible Employees and Advisors in recognition
of outstanding achievements or contributions by such employees and advisors.
Unrestricted Shares issued on a bonus basis under this Subsection 8.3 may be
issued for no cash consideration. Each certificate for unrestricted Common Stock
shall be registered in the name of the Participant and delivered immediately to
the Participant.
<PAGE> 11
- 10 -
SECTION 9
PERFORMANCE AWARDS
9.1 Performance Awards.
(a) Grant. The Committee may, in its discretion, grant
Performance Awards to Eligible Employees and Advisors. A Performance
Award shall consist of the right to receive either (i) Common Stock or
cash of an equivalent value, or a combination of both, at the end of a
specified Performance Period (defined below) or (ii) a fixed dollar
amount payable in cash or Shares, or a combination of both, at the end
of a specified Performance Period. The Committee shall determine the
Eligible Employees and Advisors to whom and the time or times at which
Performance Awards shall be granted, the number of Shares or the amount
of cash to be awarded to any person, the duration of the period (the
"Performance Period") during which, and the conditions under which, a
Participant's Performance Award will vest, and the other terms and
conditions of the Performance Award in addition to those set forth in
Subsection 9.2.
(b) Criteria for Award. The Committee may condition the grant
or vesting of a Performance Award upon the attainment of specified
performance goals; the appreciation in the Fair Market Value, book
value or other measure of value of the Common Stock; the performance of
the Company based on earnings or cash flow; or such other factors or
criteria as the Committee shall determine.
9.2 Terms and Conditions of Performance Awards. Performance Awards
granted pursuant to this Section 9 shall be subject to the following terms and
conditions:
(a) Dividends. Unless otherwise determined by the Committee at
the time of the grant of the Award, amounts equal to any dividends
declared during the Performance Period with respect to any Shares
covered by a Performance Award will not be paid to the Participant.
(b) Payment. Subject to the provisions of the Award Agreement
and this Plan, at the expiration of the Performance Period, share
certificates, cash or both (as the Committee may determine) shall be
delivered to the Participant, or his or her legal representative or
guardian, in a number or an amount equal to the vested portion of the
Performance Award.
(c) Transferability. Performance Awards shall be Transferable
as provided in Section 10 of this Plan.
(d) Termination of Employment or Advisory Relationship.
Subject to the applicable provisions of the Award Agreement and this
Plan, upon termination of a Participant's employment or advisory
relationship with the Company or a Subsidiary for any
<PAGE> 12
- 11 -
reason during the Performance Period for a given Award, the Performance
Award in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee.
SECTION 10
TRANSFERABILITY OF AWARDS
No Award or benefit payable under this Plan shall be Transferable by
the Participant during his or her lifetime and may not be assigned, exchanged,
pledged, transferred or otherwise encumbered or disposed of except by a domestic
relations order pursuant to Section 414(p)(1)(B) of the Code, or by will or the
laws of descent and distribution. Awards shall be exercisable during a
Participant's lifetime only by the Participant or by the Participant's guardian
or legal representative.
SECTION 11
TERMINATION
11.1 Termination at Expiration of Term. During any period of continuous
employment or business relationship with the Company or a Subsidiary, an Award
will be terminated only if it is fully exercised or if it has expired by its
terms. For purposes of this Plan, any leave of absence approved by the Company
shall not be deemed to be a termination of employment.
11.2 Termination by Death, Disability or Retirement. If a Participant's
employment by the Company or a Subsidiary terminates by reason of death,
Disability or Retirement, or in the case of an advisory relationship, if such
business relationship terminates by reason of death or Disability, any Award
held by such Participant, unless otherwise determined by the Committee at grant,
shall be fully vested and may thereafter be exercised by the Participant or by
the Participant's beneficiary or legal representative, for a period of one year
following termination of employment (or such longer period as the Committee may
specify at or after grant in all cases other than Incentive Options) or until
the expiration of the stated term of such Award, whichever period is shorter.
11.3 Other Termination. Unless otherwise determined by the Committee at
or after grant, if a Participant's employment by, or business relationship with,
the Company or a Subsidiary terminates for any reason other than death,
Disability or Retirement, the Award will terminate on the earlier to occur of
the stated expiration date or 90 calendar days after termination of the
employment or business relationship. If a Participant dies during the 90 day
period following the termination of the employment or business relationship, any
unexercised Award held by the Participant (or transferred by the Participant in
accordance with Section 10 of this Plan) shall be exercisable, to the full
extent that such Award was exercisable at the time of death, for a period of 90
calendar days from the date of death of the Participant or until the expiration
of the stated term of the Award, whichever occurs first.
<PAGE> 13
- 12 -
SECTION 12
TERMINATION OR AMENDMENT OF THIS PLAN
12.1 Termination or Amendment. The Board may at any time, amend, in
whole or in part, any or all of the provisions of this Plan, or suspend or
terminate it entirely; provided, however, that, unless otherwise required by
law, the rights of a Participant with respect to any Awards granted prior to
such amendment, suspension or termination may not be impaired without the
consent of such Participant; and, provided further, no amendment which would
increase the number of shares available under this Plan may be made without
shareholder approval.
SECTION 13
GENERAL PROVISIONS
13.1 No Right to Continued Employment or Business Relationship. Neither
the establishment of the Plan nor the granting of any Award hereunder shall
confer upon any Participant any right to continue in the employ of, or in any
business relationship with, the Company or any Subsidiary, or interfere in any
way with the right of the Company or any Subsidiary to terminate such employment
or business relationship at any time.
13.2 Other Plans. In no event shall the value of, or income arising
from, any Awards issued under this Plan be treated as compensation for purposes
of any pension, profit sharing, life insurance, disability or other retirement
or welfare benefit plan now maintained or hereafter adopted by the Company or
any Subsidiary, unless such plan specifically provides to the contrary.
13.3 Withholding of Taxes. The Company shall have the right to deduct
from any payment to be made pursuant to this Plan, or to otherwise require,
prior to the issuance or delivery of any Shares or the payment of any cash to a
Participant, payment by the Participant of any Federal, state, local or foreign
taxes required by law to be withheld. The Committee may permit any such
withholding obligation to be satisfied by reducing the number of Shares
otherwise deliverable or by accepting the delivery of previously owned Shares.
Any fraction of a Share required to satisfy such tax obligations shall be
disregarded and the amount due shall be paid instead in cash by the Participant.
13.4 Reimbursement of Taxes. The Committee may provide in its
discretion that the Company may reimburse a Participant for federal, state,
local and foreign tax obligations incurred as a result of the grant or exercise
of an Award issued under this Plan.
13.5 Governing Law. This Plan and actions taken in connection with it
shall be governed by the laws of the State of Ohio, without regard to the
principles of conflict of laws.
<PAGE> 14
- 13 -
13.6 Liability. No employee of the Company nor member of the Committee
or the Board shall be liable for any action or determination taken or made in
good faith with respect to the Plan or any Award granted hereunder and, to the
fullest extent permitted by law, all employees and members shall be indemnified
by the Company for any liability and expenses which may occur through any claim
or cause of action arising under or in connection with this Plan or any Awards
granted under this Plan.
<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 6/30/96 6/30/97 6/30/97
------ ----- ----- ----- ----- --------- ------- ------- ---------
<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 $ 229 $ 851 $ 1,674
------ ----- ----- ----- ----- --------- ------- ------- ---------
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(2) 3,650 3,650 6,650(2)
Shares to be issued in
connection with gmi
Acquisition.............. 214 214
Warrants issued in
connection with
Subordinated debt........ 153 153 153 153 153 153 153 153 153
Stock options(1)........... 219 219 219 268 427 427 370 630 630
------ ----- ----- ----- ----- --------- ------- ------- ---------
4,022 4,022 4,022 4,071 4,230 7,444 4,173 4,433 7,647
====== ===== ===== ===== ===== ========== ======= ======= ==========
Primary earnings per common
share...................... $(0.07) $0.04 $0.07 $0.08 $0.16 $ 0.21 $0.05 $0.19 $ 0.22
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(2) 3,650 3,650 6,650(2)
Shares to be issued in
connection with gmi
Acquisition.............. 214 214
Warrants issued in
connection with
Subordinated debt........ 153 153 153 153 153 153 153 153 153
Stock options(1)........... 219 219 219 298 458 458 399 668 668
------ ----- ----- ----- ----- --------- ------- ------- ---------
4,022 4,022 4,022 4,101 4,261 7,475 4,202 4,471 7,685
====== ===== ===== ===== ===== ========== ======= ======= ==========
Fully diluted earnings per
common share............... $(0.07) $0.04 $0.07 $0.08 $0.16 $ 0.21 $0.05 $0.19 $ 0.22
</TABLE>
- ---------------
(1) Assumes 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.
(2) Includes 3,000,000 shares which will be issued in the Offering.
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OF KENDLE INTERNATIONAL INC.
Subsidiary Jurisdiction of Organization
---------- ----------------------------
Kendle U. K. Inc. United Kingdom
Kendle Vermogensverwaltungs GmbH Germany
U-Gene Research B. V. The Netherlands
Kendle GmbH Germany
U-Gene Clinical Research B.V. The Netherlands
U-Gene Research Biotechnology B.V. The Netherlands
<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 (File No.
333-30581) filed on August 14, 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
August 14, 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 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
August 13, 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 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
August 13, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039151
<NAME> KENDLE INTERNATIONAL INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 9,729
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,487
<PP&E> 15,595
<DEPRECIATION> 1,235
<TOTAL-ASSETS> 33,597
<CURRENT-LIABILITIES> 13,666
<BONDS> 0
<COMMON> 75
0
0
<OTHER-SE> 1,279
<TOTAL-LIABILITY-AND-EQUITY> 33,597
<SALES> 13,171
<TOTAL-REVENUES> 13,171
<CGS> 7,347
<TOTAL-COSTS> 11,687
<OTHER-EXPENSES> (4)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 1,418
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,418
<EPS-PRIMARY> [BLANK]<F1>
<EPS-DILUTED> [BLANK]<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 six months of
1997 using an assured statutory combined federal and state tax rate of 40%, pro
forma primary and fully diluted earnings per share would have been $0.19 per
share.
</FN>
</TABLE>
