<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Year Ended December 31, 1998
OR
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 000-23019
KENDLE INTERNATIONAL INC.
Ohio IRS Employer ID
(State or other jurisdiction No. 31-1274091
of incorporation or organization)
700 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
513-381-5550
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 26, 1999, 11,067,809 shares of no par value Common Stock were
issued and outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1998 furnished to the Commission pursuant to Rule 14a-3(c) and
portions of the Registrant's Proxy Statement to be filed with the Commission for
its 1999 Annual Meeting of Shareholders are incorporated by reference in Parts
I, II and III as specified.
See Exhibit Index on page 6.
11 Total Pages
<PAGE> 2
KENDLE INTERNATIONAL INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Part I Page
<S> <C> <C>
Item 1 - Business.............................................................................3
Item 2 - Properties...........................................................................4
Item 3 - Legal Proceedings....................................................................4
Item 4 - Submission of Matters to a Vote of Security Holders..................................4
Part II
Item 5 - Market for Registrant's Common Equity and Related
Shareholder Matters.............................................................5
Item 6 - Selected Financial Data..............................................................5
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................6
Item 7A - Quantitative and Qualitative Information about Market Risk .........................6
Item 8 - Financial Statements and Supplementary Data..........................................6
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................7
Part III
Item 10 - Directors and Executive Officers of the Registrant..................................7
Item 11 - Executive Compensation..............................................................7
Item 12 - Security Ownership of Certain Beneficial Owners and Management......................7
Item 13 - Certain Relationships and Related Transactions......................................7
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................................7
</TABLE>
2
<PAGE> 3
PART I
ITEM 1.
BUSINESS
--------
Kendle International Inc. (the "Company") is a contract research
organization ("CRO") that provides a broad range of Phase I through IV clinical
research and drug development services to the pharmaceutical and biotechnology
industries. The Company 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 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 trial 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 customer could perform the services
internally.
The Company'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 customers "one-stop shopping" with a
full range of services that encompass the clinical research process and
complement the research and development departments of its customer; (iii)
expedite the drug development process through innovative information technology
offered via the Company's proprietary TrialWare(R) 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 the Company's clinical development capabilities
in existing or new therapeutic areas or service offerings.
The Company acquired ACER/EXCEL Inc. ("ACER/EXCEL"), a full-service CRO
headquartered in Cranford, New Jersey, in February, 1998. ACER/EXCEL provides
clients with Phase II through IV clinical services. It also provides drug
development services to the Pacific Rim, through a joint venture, which operates
a CRO, headquartered in Beijing, China.
In January, 1999, the Company acquired Research Consultants
(International) Holdings Ltd. ("IRC") for $4.1 million in cash and 87,558 shares
of the Company's Common Stock.
Additionally, in January, 1999, the Company acquired a minority
interest in Component Software International, Inc. ("CSI"), a software
consulting and development company for $1.6 million and 19,995 shares of the
Company's Common Stock. Concurrent with this transaction, the Company entered
into a Multi-Year Strategic Service Agreement with CSI whereby the Company will
pay CSI $7.0 million over the next four years in exchange for strategic software
consulting and development services.
The Company's net revenues from G.D. Searle & Co. accounted for 38%,
54%, and 48% of the Company's total net revenues for the years ended December
31, 1998, 1997, and 1996, respectively.
See Note 16 to the consolidated financial statements included on Page
48 of the Registrant's Annual Report for geographic information of the Company.
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, some 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 services
provided, the ability to
3
<PAGE> 4
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 recruit patients into studies,
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 competes with the following CROs, among others:
ClinTrials Research Inc., Covance, Inc., PAREXEL International Corporation,
Pharmaceutical Product Development, Inc. and Quintiles Transnational
Corporation.
Employees
- ---------
As of February 26, 1999, the Company had approximately 1,069 employees.
None of the Company's employees are covered by a collective bargaining
agreement.
ITEM 2.
PROPERTIES
----------
The Company leases all of its facilities with the exception of the
Company-owned facility in Ely, United Kingdom. The Company's principal executive
offices are located in Cincinnati, Ohio, where it leases approximately 93,000
square feet under a lease expiring in 2006. The Company also maintains offices
in various other U.S. locations and in Europe and the Pacific Rim.
Management believes that such offices are sufficient to meet its
present needs and does not anticipate any difficulty in securing additional
space, as needed, on terms acceptable to the Company.
ITEM 3.
LEGAL PROCEEDINGS
-----------------
The Company currently is not involved in any material litigation, nor,
to the Company's knowledge, is any material litigation currently threatened
against the Company.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
4
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PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
--------------------------------------
"Quarterly Financial Data" on page 29 and "Transfer Agent and Registrar
and Stock Information" on page 51 of the Registrant's Annual Report to
Shareholders for 1998 are incorporated herein by reference. The Company has not
paid dividends on its Common Stock since its initial public offering in August,
1997.
Recent Sales of Unregistered Securities
- ---------------------------------------
In February, 1998, the Shareholders of ACER/EXCEL Inc. received a total
of 987,574 shares of the Company's Common Stock. As of February 26, 1999,
186,336 of these shares remain in a general escrow, which was established at the
acquisition date to provide indemnification of sellers' representations and
warranties.
During the time period from October 14, 1997 to January 1, 1999, Philip
E. Beekman and Charles A. Sanders, both directors of Kendle, each received a
total of 401 shares of the Company's Common Stock pursuant to the table below:
<TABLE>
<CAPTION>
PHILIP E. BEEKMAN CHARLES A. SANDERS
- ----------------- ------------------
<S> <C>
October 14, 1997 - 30 Shares October 14, 1997 - 30
Shares December 31, 1997 -131 Shares December 31, 1997 - 131
Shares April 1, 1998 - 81 Shares April 1, 1998 - 81 Shares
July 1, 1998 - 58 Shares July 1, 1998 - 58 Shares
October 1, 1998 - 33 Shares October 1, 1998 - 33 Shares
January 1, 1999 - 68 Shares January 1, 1999 - 68 Shares
</TABLE>
Mr. Beekman and Mr. Sanders acquired these securities in exchange for
their services as directors of the Company pursuant to the 1997 Directors'
Compensation Plan.
These issuances were exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) as transactions by an issuer not involving any
public offering.
ITEM 6.
SELECTED FINANCIAL DATA
-----------------------
"Selected Financial Data" on page 28 of the Registrant's Annual Report
to Shareholders for 1998 is incorporated herein by reference.
5
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ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" begin on page 30 of the Registrant's Annual Report to
Shareholders for 1998 is incorporated herein by reference.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
----------------------------------------------------------
Not Applicable
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The following Financial Statements of the Registrant beginning on page
35 of its Annual Report to Shareholders for 1998, are incorporated herein by
reference:
1. Consolidated Statements of Income for the years ended December
31, 1998, 1997, and 1996.
2. Consolidated Balance Sheets as of December 31, 1998 and 1997.
3. Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997, and 1996.
4. Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996.
5. Notes to Consolidated Financial Statements.
6. Report of Independent Accountants.
All supplemental schedules are omitted because of the absence of
conditions under which they are required or because the information is shown in
the Consolidated Financial Statements or Notes thereto.
Unaudited Supplementary Data
- ----------------------------
"Selected Quarterly Financial Data" on page 29 of the Registrant's
Annual Report to Shareholders for 1998 is incorporated herein by reference.
6
<PAGE> 7
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None
PART III
Items 10., 11., 12. and 13. of Part III are incorporated by reference
to the Registrant's Proxy Statement for its 1999 Annual Shareholders Meeting as
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) 1 and 2 - All financial statements and schedules required to be
filed by Item 8 of this Form and included in this report have been
listed previously beginning on page 6. No additional financial
statements or schedules are being filed since the requirements of
paragraph (d) under Item 14 are not applicable to the Company.
(b) 3 - Exhibits. (see page 8)
7
<PAGE> 8
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Filing Status
------ ---------------------- -------------
<S> <C> <C>
2.1 Stock Purchase Agreement dated July 1, 1997 by and among the Company and Shareholders
of U-Gene Research B.V. A
2.2 Escrow Agreement dated June 27, 1997 among the Company, Keating, Muething & Klekamp,
P.L.L., Bio-Medical Research Holdings, B.V., Utrechtse Particatiemaatschappij B.V.,
P.J. Morrison, T.S. Schwarz, I.M. Hoepelman , Ph.K. Peterson, J. Remington, M.
Rozenberg-Arska and L.G.W. Sterkman A
2.3 Share Purchase Agreement dated July 2, 1997 by and among the Company and the
Shareholders of GMI Gescellschaft fur Angewandte Mathematick und Informatik mbH A 2.4 A
2.4 Stock Purchase Agreement dated February 11, 1998 by and among the Company and the
Shareholders of ACER/EXCEL Inc. B
2.5 Escrow Agreement dated February 11, 1998 among the Company, Tzuo-Yan Lee, Jean C. Lee,
Michael Minor, Conway Lee, Steven Lee, Jean C. Lee, as Trustee under a Trust dated
March 8, 1991 fbo Jennifer Lee, Citicorp Trust-South Dakota and The Fifth Third Bank C
2.6 Registration Rights Agreement dated February 11, 1998 among the Company and Tzuo-Yan
Lee, Jean C. Lee, Michael Minor, Conway Lee, Steven Lee, Jean C. Lee, as Trustee under
a Trust dated March 8, 1991 fbo Jennifer Lee, Citicorp Trust-South Dakota C
2.7 Share Purchase Agreement dated December 23, 1998 by and among the Company and the
Shareholders of Research Consultants (International) Holdings Limited D
2.8 Escrow Agreement dated January 5, 1999 among the Company, John Glasby, Gillian Gregory,
Michael Roy Broomby and Peter Nightingale D
2.9 Option Agreement dated September 9, 1998 by and between the Company and Component
Software International, Inc. D
2.10 Notice of Option Exercise dated January 11, 1999 of the Option Agreement dated
September 9, 1998 D
2.11 Multi-Year Strategic Services Agreement dated January 20, 1999 by and between the
Company and Component Software International, Inc. D
3.1 Restated and Amended Articles of Incorporation A
3.2 Amended and Restated Code of Regulations A
4 Specimen Common Stock Certificate A
10.1 Amended and Restated Shareholders' Agreement dated June 26, 1997 A
10.2 Master Lease Agreement dated November 27, 1996 by and between the Company and Bank One
Leasing Corporation, as amended on April 18, 1997 A
10.6 Master Equipment Lease dated August 16, 1996 by and between the Company and The Fifth
Third Leasing Company A
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, January 29,
1997, and February 16, 1999 E
10.8 Indemnity Agreement dated June 21, 1996 by and between the Company and Candace Kendle
Bryan A
10.9 Indemnity Agreement dated June 21, 1996 by and between the Company and Christopher C.
Bergen A
10.10 Indemnity Agreement dated June 21, 1996 by and between the Company and Timothy M.
Mooney A
10.11 Indemnity Agreement dated May 14, 1997 by and between the Company and Charles A.
Sanders C
10.12 Indemnity Agreement dated May 14, 1997 by and between the Company and Philip E.
Beekman C
10.13 Indemnity Agreement dated December 10, 1998 by and between the Company and Robert Buck D
10.14 Indemnity Agreement dated December 10, 1998 by and between the Company and Mary Beth
Price D
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C> <C>
10.17 Clinical Trial Service Agreement between the Company and G.D. Searle & Company dated
September 23, 1997 C
10.19 Amended and Restated Credit Agreement dated as of February 26, 1998 by and between the
Company and NationsBank, N.A. C
10.21 First Amendment to the Amended and Restated Credit Agreement dated as of November 25,
1998 by and between the Company and NationsBank, N.A. D
10.20 MANAGEMENT CONTRACTS AND COMPENSATION PLANS
(a) 1995 Stock Option and Stock Incentive Plan A
(b) 1995 Stock Option and Stock Incentive Plan--Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.20(a)) A
(c) 1997 Stock Option and Stock Incentive Plan A
(d) Form of Protective Compensation and Benefit Agreement A
(e) 1998 Employee Stock Purchase Plan D
(f) 1997 Directors' Compensation Plan D
13 Annual Report to Shareholders for 1998 D
21 List of Subsidiaries A
23.1 Consent of PricewaterhouseCoopers LLP D
27.1 Financial Data Schedule for the year ended December 31, 1998 D
</TABLE>
Exhibit
Number Description of Exhibit
- ------ ----------------------
A Incorporated by reference to the Company's Registration Statement No.
333-30581 filed under the Securities Act of 1933
B Filed as an exhibit to the Company's Current Report on Form 8-K dated
November 13, 1997
C Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997
D Filed herewith
E February, 1999 amendment filed herewith
9
<PAGE> 10
(c) Reports on Form 8-K
None
10
<PAGE> 11
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KENDLE INTERNATIONAL INC.
-------------------------
DATE SIGNED: March 31, 1999 /s/ Candace Kendle
-------------------
Candace Kendle
Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Candace Kendle Chairman of the Board of March 31, 1999
- ----------------------------------------- Directors and Chief Executive
Candace Kendle Officer
/s/ Christopher C. Bergen President, Chief Operating March 31, 1999
- ----------------------------------------- Officer, Secretary and Director
Christopher C. Bergen
/s/ Timothy M. Mooney Executive Vice President, March 31, 1999
- ----------------------------------------- Chief Financial Officer,
Timothy M. Mooney Treasurer, Assistant Secretary
(Chief Accounting Officer) and
Director
/s/ Philip E. Beekman Director March 31, 1999
- -----------------------------------------
Philip E. Beekman
/s/ Robert R. Buck Director March 31, 1999
- -----------------------------------------
Robert R. Buck
/s/ Mary Beth Price Director March 31, 1999
- -----------------------------------------
Mary Beth Price
/s/ Charles A. Sanders Director March 31, 1999
- -----------------------------------------
Charles A. Sanders
</TABLE>
<PAGE> 1
EXHIBIT 2.7
SHARE PURCHASE AGREEMENT
AMONG
KENDLE U.K. INC.,
AND
JOHN GLASBY
GILLIAN GREGORY
MICHAEL ROY BROOMBY
PETER NIGHTINGALE
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Definitions.............................................................. 1
2. Purchase and Sale of TARGET Shares....................................... 7
(a) Basic Transaction................................................. 8
(b) Purchase Price.................................................... 8
(c) The Closing....................................................... 8
(d) Deliveries at the Closing......................................... 8
(e) Pre-emption Rights Waiver......................................... 9
(f) Title to the TARGET Shares........................................ 9
(g) Purchase of all TARGET Shares..................................... 9
(h) Reduction of Purchase Price....................................... 9
3. Representations and Warranties Concerning the Transaction................ 10
(a) Representations and Warranties of the Sellers..................... 10
(i) Authorisation of Transaction.................................. 11
(ii) Noncontravention.............................................. 11
(iii) Brokers' Fees................................................. 12
(iv) Investment Representations.................................... 12
(v) TARGET Shares................................................. 13
(b) Representations and Warranties of Kendle.......................... 13
(i) Organisation of Kendle and the Parent......................... 14
(ii) Authorisation of Transaction.................................. 14
(iii) Noncontravention.............................................. 14
(iv) Capitalisation................................................ 14
(v) Sec Reports................................................... 14
(vi) Brokers' Fees................................................. 15
4. Representations and Warranties Concerning TARGET and its Subsidiaries.... 15
(a) Organisation, Qualification, and Corporate Power.................. 15
(b) Capitalisation.................................................... 15
(c) Noncontravention.................................................. 16
(d) Brokers' Fees..................................................... 16
(e) Title to Assets................................................... 16
(f) Subsidiaries...................................................... 17
(g) Financial Statements.............................................. 17
(h) Events Subsequent to Most Recent Fiscal Year End.................. 17
(i) Undisclosed Liabilities........................................... 20
(j) Legal Compliance.................................................. 20
(k) Tax Matters....................................................... 20
(l) Property.......................................................... 30
(m) Intellectual Property............................................. 32
(n) Tangible Assets................................................... 34
(o) Contracts......................................................... 34
<PAGE> 3
(p) Book Debts........................................................ 35
(q) Powers of Attorney................................................ 36
(r) Insurance......................................................... 36
(s) Litigation........................................................ 37
(u) Guarantees........................................................ 42
(v) Environmental, Health, and Safety Matters......................... 42
(w) Certain Business Relationships.................................... 43
(x) Competition....................................................... 43
(y) Disclosure ....................................................... 43
5. Pre-Closing Covenants.................................................... 44
(a) General........................................................... 44
(b) Notices and Consents.............................................. 44
(c) Operation of Business............................................. 45
(d) Preservation of Business.......................................... 45
(e) Full Access....................................................... 45
(f) Notice of Developments............................................ 45
6. Post-Closing Covenants................................................... 46
(a) General........................................................... 46
(b) Litigation Support................................................ 46
(c) Transition........................................................ 46
(d) Confidentiality................................................... 46
(e) TARGET Shares..................................................... 47
(f) Indemnities....................................................... 47
7. Conditions to Obligation to Close........................................ 47
(a) Conditions to Obligation of Kendle................................ 48
(b) Conditions to Obligation of the Sellers........................... 50
8. Remedies for Breaches of This Agreement.................................. 51
(a) Survival of Representations and Warranties........................ 51
(b) Indemnification Provisions for Benefit of Kendle.................. 52
(c) Indemnification Provisions for Benefit of the Sellers............. 52
(d) Matters Involving Third Parties................................... 53
(e) Payments of and Interest on Indemnification Amounts............... 54
(f) Other Indemnification Provisions.................................. 54
(g) Rights Cumulative................................................. 54
(h) Information....................................................... 54
(i) Limitations on Indemnification.................................... 55
9. [Intentionally Omitted].................................................. 58
10. Termination.............................................................. 58
(a) Termination of Agreement.......................................... 58
(b) Effect of Termination............................................. 59
11. Miscellaneous............................................................ 59
(a) Nature of Certain Obligations..................................... 59
(b) Press Releases and Public Announcements........................... 59
(c) No Third-Party Beneficiaries...................................... 60
(d) Entire Agreement.................................................. 60
<PAGE> 4
-iii-
(c) No Third-Party Beneficiaries...................................... 60
(d) Entire Agreement.................................................. 60
(e) Succession and Assignment......................................... 60
(f) Counterparts...................................................... 60
(g) Headings.......................................................... 60
(h) Notices........................................................... 60
(i) Governing Law..................................................... 62
(j) Amendments and Waivers............................................ 62
(k) Severability...................................................... 62
(l) Expenses.......................................................... 62
(m) Construction...................................................... 62
(n) Incorporation of Exhibits, Annexes, and Schedules................. 63
(o) Specific Performance.............................................. 63
(p) Address for Service............................................... 63
SCHEDULES
Schedule 1 -- Sellers, Share Holdings, Purchase Price Allocation, Etc.
Schedule 2 -- Premises
Schedule 3 -- Subsidiaries
Schedule 3(b) -- Exceptions to Kendle's Representations and Warranties
Disclosure Schedule -- Exceptions to Representations and Warranties Concerning
TARGET and its Subsidiaries
EXHIBITS
Exhibit 1 -- Tax Deed
Exhibit 2(b) -- Escrow Agreement
Exhibit 4(g) -- TARGET Financial Statements
Exhibit 7(a)(vii) -- Employment Agreements
Exhibit 7(a)(viii) -- Releases
Exhibit 7(a)(ix) -- Covenants
Exhibit 7(t)(iii) -- Specimen Existing Employment Contracts
<PAGE> 5
SHARE PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is dated December 23, 1998
BETWEEN:
(1) THE PERSONS whose names and addresses are set out on Schedule 1 (the
"SELLERS"); and
(2) KENDLE U.K. INC., an Ohio corporation, whose principal place of
business is at 700 Carew Tower, 441 Vine Street, Cincinnati, Ohio
45202, USA ("KENDLE").
RECITALS
A. The Sellers, in the aggregate, own all of the issued share
capital of Research Consultants (International) Holdings Limited (Company No:
02756939), a private company limited by shares registered in England and Wales
and having its registered office at Angel House, 24 Station Road, Ely,
Cambridgeshire CB7 4BS ("TARGET").
B. This Agreement contemplates a transaction in which Kendle will
purchase from the Sellers, and the Sellers will sell to Kendle, all of the
issued share capital of TARGET in return for cash and shares of Kendle
International Inc., an Ohio corporation (the "PARENT").
THE PARTIES AGREE as follows:
1. DEFINITIONS.
"ACCOUNTS" means the audited consolidated group accounts of TARGET and
its Subsidiaries, prepared in accordance with section 227 Companies Act 1985,
for the financial year ended 31 August 1998 including the notes to those
accounts and the associated directors' and auditors' reports and any profit and
loss account omitted in reliance on section 230 Companies Act 1985.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, Encumbrances, losses, expenses
and fees, including (without limitation) court costs and reasonable attorneys'
fees and expenses.
<PAGE> 6
-2-
"AFFILIATE" means any Person directly or indirectly controlling,
controlled by or under direct or indirect common control of, or related to, the
Sellers, TARGET, or any of its respective direct and indirect Subsidiaries.
"BASIS" means any known past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act or transaction that forms or could form the basis for any
specified consequence.
"BUSINESS DAY" means a day (other than a Saturday or Sunday) on which
banks are open for ordinary banking business in London and Ohio.
"BUSINESS FACILITIES" means business facilities of any kind including,
without limitation, a loan of money or a letting, hiring or licensing of any
tangible or intangible property.
"CASH CLOSING PAYMENT" has the meaning set forth in ss.2(b) below.
"CLOSING" has the meaning set forth in ss.2(c) below.
"CLOSING DATE" has the meaning set forth in ss.2(c) below.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Exhibit
7(a)(ix).
"CURRENT USE" has the meaning set forth in ss.4(l)(v)(A).
"COVENANTS" has the meaning set forth in ss.7(a)(ix) below.
"DISCLOSURE SCHEDULE" means the disclosure schedule delivered by the
Parties hereto pursuant to ss.ss.3 and 4 below. Nothing contained in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made in this Agreement unless the exception is
identified in the Disclosure Schedule with reasonable particularity, describing
the relevant facts in reasonable detail.
"DOLLARS" and "$" mean dollars in the lawful currency of the United
States.
"EMPLOYEES" has the meaning set forth in Section 4(t)(i).
"EMPLOYMENT AGREEMENTS" has the meaning set forth in ss.7(a)(vii)
below.
"ENCUMBRANCES" means any Security Interest, warrant, lien option,
purchase right, pre-emptive right, or other right or claim of any character that
restricts the transfer of share capital.
<PAGE> 7
-3-
"ENVIRONMENTAL LAW" means any European Union, national or local
statute, law, rule, regulation arising through statute, subordinate legislation,
or common law or any relevant code of practice, guidance, note, standard or
other advisory material issued by any competent authority relating to the
environment, health, safety, the protection of natural amenity or Hazardous
Materials, including without limitation the Health and Safety at Work etc. Act
1974, the Control of Pollution Act 1974, the Environmental Protection Act 1990,
the Water Industry Act 1991, the Water Resources Act 1991, the Statutory Water
Companies Act 1991, the Water Consolidation (Consequential Provisions) Act 1991,
the Clean Air Acts, the Alkali & c. Works Regulation Act 1906, the Planning
Hazardous Substance Act 1990, the Public Health Acts and the Radioactive
Substances Act 1960, and the Environment Act 1995.
"ESCROW AGREEMENT" has the meaning set forth in ss.2(b) below.
"EVENT" means any event, act, transaction, action or omission (whether
or not TARGET or any of its Subsidiaries is a party thereto).
"FINANCIAL STATEMENTS" has the meaning set forth in ss.4(g) below.
"HAZARDOUS MATERIALS" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls, radon gas; (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "contaminants" or "pollutants," or words of similar import, under
any applicable Environmental Law; (c) any pollutant, or any hazardous, toxic,
noxious, corrosive or caustic substance whether in solid, liquid or gaseous
form; and (d) any other chemical, material or substance exposure to which is
prohibited, limited or regulated by any governmental authority.
"INDEMNIFIED PARTY" has the meaning set forth in ss.8(d) below.
"INDEMNIFYING PARTY" has the meaning set forth in ss.8(d) below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
re-examinations thereof, (b) all trade marks, design rights, service marks,
rights (registered or unregistered) in any designs, trade dress, logos, trade
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and
<PAGE> 8
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renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d)
all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (e) all computer software
(including related licences, technical documentation and domain names), (f) all
other proprietary rights, and (g) all copies and tangible embodiments thereof
(in whatever form or medium).
"IRC" means Research Consultants (International) Limited (Company No:
02348938).
"KENDLE" has the meaning set forth in the preface above.
"KENDLE MATERIAL ADVERSE CHANGE" has the meaning set forth in
ss.7(b)(v) below.
"KNOWLEDGE" means knowledge after reasonable enquiries by the Sellers
including where relevant reasonable enquiry of the accountants, solicitors, tax
advisers and insurance brokers who act for the TARGET and/or the Subsidiaries
and that each of the Sellers has used all reasonable endeavours to ensure that
all information given, referred to or reflected in that statement is accurate in
all material respects.
"LIABILITIES" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including (without limitation) any liability for Taxes.
"MANAGEMENT ACCOUNTS" has the meaning set forth in ss.4(g) below.
"MARKET VALUE" means with respect to any Parent Shares, the average
closing bid price for shares of Parent common stock on NASDAQ during the twenty
Trading Days prior to either the date that a disputed claim under the Escrow
Agreement is finally determined or, if such claim is not disputed, the date of
release of such Parent Shares.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Management Accounts.
"MOST RECENT FINANCIAL MONTH END" has the meaning set forth in ss.4(g)
below.
"MOST RECENT FINANCIAL YEAR END" has the meaning set forth in ss.4(g)
below.
"NASDAQ" means the National Market System of the National Association
of Securities Dealers, Inc.
<PAGE> 9
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"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARENT" has the meaning set forth in the preface above.
"PARENT SHARES" has the meaning set forth in ss.2(b) below.
"PARTIES" means collectively Kendle and the Sellers.
"PERMITS" has the meaning set forth in Section 4(c).
"PENSION SCHEMES" means collectively (a) the Save & Prosper Scheme, (b)
the medical benefits scheme known as Private Patients Plans Group No. C56321,
(c) the Death in Service Scheme (Policy No RGLP00863212) and (d) the Long Term
Disability Insurance Scheme (Policy No 910389) all as currently operated by IRC.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organisation, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PERSONAL PENSION SCHEME" means any personal pension scheme as defined
in section 1 of Pension Schemes Act 1993.
"PREMISES" means the land and premises particulars of which are set out
in Schedule 2 (and includes any part thereof and all buildings, structures and
works on such premises).
"PURCHASE PRICE" has the meaning set forth in ss.2(b) below.
"RELEASE" has the meaning set forth in ss.7(a)(viii) below.
"RELEVANT EMPLOYEE" means any past or present employee of TARGET and
its Subsidiaries.
"SAVE & PROSPER SCHEME" means the Save & Prosper Personal Retirement
Account (Centralised Occupational Money Purchase Pension Scheme) established by
a Declaration of Trust dated 2 January 1975, but only to the extent that the
Employees and TARGET and its Subsidiaries participate in the scheme.
"SEC" has the meaning set forth in ss.3(b)(v) below.
<PAGE> 10
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"SECURITIES ACT" means the US Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the US Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, assignment, hypothecation, security interest (including any created by
law), title retention or other security agreement or arrangement, other than (a)
mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due
and payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of
money.
"SELLER" has the meaning set forth in the preface above.
"SELLERS' SOLICITORS" means Hewitson Becke & Shaw of Shakespeare House,
42 Newmarket Road, Cambridge, CB5 8EP.
"STERLING" and "(Pound)" shall mean the lawful currency for the time
being of the United Kingdom.
"SUBSIDIARY" means (a) when used to determine the relationship between
a company incorporated in England and another Person, any "subsidiary" and
"subsidiary undertaking" as defined in the Companies Act 1989, Sections 144 and
21 and Schedule 9 respectively, and (b) when used to determine the relationship
between a company not incorporated in England to another Person, any corporation
with respect to which a specified Person (or a Subsidiary thereof) owns a
majority of the common stock (or similar interests) or has the power to vote or
direct the voting of sufficient securities to elect a majority of the directors.
"TARGET" has the meaning set forth in the first recital above.
"TARGET MATERIAL ADVERSE CHANGE" means a material adverse change in the
business, assets, liabilities, income, financial condition, operations, results
of operations or business prospects of TARGET and its Subsidiaries.
"TARGET SHARE" means any of the ordinary shares of (pound)1.00 each in
the capital of TARGET.
"TAXES" means (i) all forms of tax duties imposts and levies in the
nature of tax whenever created or imposed and whether of the United Kingdom or
elsewhere including (without limitation) corporation tax advance corporation tax
income tax (including income tax or amounts equivalent to income tax required to
be deducted or withheld from or accounted for in respect of
<PAGE> 11
-7-
any payment) capital gains tax any payment under section 601(2) ICTA 1988
inheritance tax value added tax landfill tax stamp duty stamp duty reserve tax
vehicle duty customs & excise duties national insurance social security or
similar contributions and any other taxes levies duties charges imposts or
withholdings similar to corresponding with or replaced by any of the foregoing;
and (ii) all penalties fines charges surcharges and interest in relation to any
tax within subclause (i) above or to any return or information required to be
provided for the purposes of any such tax.
"TAXES ACT 1988" means Income and Corporation Taxes Act 1988.
"TAX DEED" means the deed in the form of Exhibit 1 hereto.
"TAX LEGISLATION" means any statute, enactment, law or regulation
providing for the imposition of Taxes.
"TAX LIABILITY" means a liability to make an actual payment of, or of
an amount in respect of, Tax whether or not such liability is also or
alternatively a liability of or chargeable against or attributable to, any other
person and whether or not TARGET or any of its Subsidiaries shall or may have a
right of recovery or reimbursement against any other person.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TCGA 1992" means the Taxation of Chargeable Gains Act 1992.
"THIRD PARTY CLAIM" has the meaning set forth in ss.8(d) below.
"TRADING DAY" means those days on which NASDAQ is open for trading.
"UK GAAP" means United Kingdom generally accepted accounting
principles, as in effect from time to time.
"US GAAP" means United States generally accepted accounting principles,
as in effect from time to time.
"US" or "UNITED STATES" means the United States of America.
"VATA 1994" means the Value Added Tax Act 1994.
2. PURCHASE AND SALE OF TARGET SHARES.
<PAGE> 12
-8-
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, Kendle agrees to purchase from each of the Sellers
(relying inter alia, as the Sellers hereby acknowledge, on the representations,
warranties, undertakings and indemnities of the Sellers (or any of them)
referred to or contained in this Agreement and/or the Tax Deed), and each of the
Sellers agrees to sell to Kendle, all of his or her TARGET Shares for the
consideration specified below in this ss.2.
(b) PURCHASE PRICE. At the Closing:
(i) Kendle shall pay the Sellers a purchase
price of Three Million Seven Hundred Thousand Sterling
((pound)3,700,000.00) (THE "PURCHASE PRICE").
(ii) Two Million Four Hundred Seventy-Nine
Thousand Sterling ((pound)2,479,000.00) of the Purchase Price shall be
paid in cash to the Sellers' Solicitors at the Closing (the "CASH
CLOSING PAYMENT").
(iii) The balance of the Purchase Price (One
Million Two Hundred Twenty-One Thousand Sterling ((pound)1,221,000.00))
shall be satisfied by the issue of 87,558 shares of common stock, no
par value, of the Parent ("PARENT SHARES") to the Sellers as set forth
on Schedule 1. Each Seller shall immediately deliver to The Fifth Third
Bank as escrow agent under the Escrow Agreement (which shall be in the
form of Exhibit 2(b) hereto) his/her Parent Shares accompanied by duly
executed stock powers in favour of The Fifth Third Bank. The Fifth
Third Bank shall hold the Parent Shares as escrow agent under the
Escrow Agreement for the benefit of the Sellers.
(v) The Purchase Price shall be subject to
reduction from time to time as provided in ss.2(h) below.
(c) THE CLOSING. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of the Sellers' Solicitors, commencing at 9:00 a.m., local time, on 5 January
1999, subject to the satisfaction or waiver of all conditions to the obligations
of the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself), or such other date as Kendle and the Sellers may mutually
determine (the "CLOSING DATE").
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) the
Sellers will deliver to Kendle the various certificates, instruments and
documents referred to in ss.7(a) below, (ii) Kendle will deliver to the Sellers
the various certificates, instruments and documents referred to in ss.7(b)
below, (iii) each of the Sellers will deliver to Kendle share certificates
representing all of his or her TARGET Shares, accompanied by duly executed stock
transfer forms together with such
<PAGE> 13
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waivers or consents as Kendle may require to enable Kendle or its nominees to be
registered as holders of TARGET shares, (iv) Kendle will deliver to the Sellers'
Solicitors (and the Sellers' Solicitors are hereby authorised to receive it) the
Cash Closing Payment specified in ss.2(b) above and the payment of such
consideration to the Sellers' Solicitors shall constitute a good discharge to
Kendle and Kendle shall have no obligation as to the distribution or allocation
of such consideration between the Sellers, (v) Kendle will deliver to the
Sellers the Parent Shares, and (vi) the Sellers will deliver the Parent Shares
accompanied by duly executed stock powers to The Fifth Third Bank as escrow
agent in accordance with the terms of the Escrow Agreement.
(e) PRE-EMPTION RIGHTS WAIVER. The Sellers waive all
rights of pre-emption (if any) over TARGET Shares to which they may be entitled
under the Articles of Association of TARGET, or otherwise, in relation to the
sale and purchase of TARGET Shares pursuant to this Agreement.
(f) TITLE TO THE TARGET SHARES. Title to and beneficial
ownership of the TARGET Shares shall pass at Closing and the TARGET Shares shall
be sold and purchased together with all rights and benefits attached or accruing
to them at Closing (including the beneficial ownership right to receive all
dividends, distributions or any return of capital declared, paid or made by
TARGET on or after Closing).
(g) PURCHASE OF ALL TARGET SHARES. Kendle shall not be
obliged to complete the purchase of any of the TARGET Shares unless the purchase
of all the TARGET Shares is completed simultaneously.
(h) REDUCTION OF PURCHASE PRICE.
(i) The Purchase Price shall be reduced on each
occurrence of the following events:
(A) If John Glasby either Resigns
without Good Reason or is Terminated for Cause (as each such
term is defined below) prior to the first anniversary of the
Closing Date, there shall be a reduction equal to thirty
percent (30%) of the Purchase Price, prior to the second
anniversary of the Closing Date, there shall be a reduction
equal to twenty percent (20%) of the Purchase Price, or prior
to the third anniversary of the Closing Date, there shall be a
reduction equal to ten percent (10%) of the Purchase Price;
and/or
(B) If Gillian Gregory either Resigns
without Good Reason or is Terminated for Cause (as each such
term is defined below) prior to the first anniversary of the
Closing Date, there shall be a reduction equal to thirty
percent (30%) of the Purchase Price, prior to the second
anniversary of the Closing Date,
<PAGE> 14
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there shall be a reduction equal to twenty percent (20%) of
the Purchase Price, or prior to the third anniversary of the
Closing Date, there shall be a reduction equal to ten percent
(10%) of the Purchase Price; and/or
(C) If Peter Nightingale either Resigns
without Good Reason or is Terminated for Cause (as each such
term is defined below) prior to the first anniversary of the
Closing Date, there shall be a reduction equal to fifteen
percent (15%) of the Purchase Price, prior to the second
anniversary of the Closing Date, there shall be a reduction
equal to ten percent (10%) of the Purchase Price, or prior to
the third anniversary of the Closing Date, there shall be a
reduction equal to five percent (5%) of the Purchase Price.
(ii) For purposes of this ss.2(h) the terms
"Resigns without Good Reason" and "Terminated for Cause" shall have the
meanings as applied with respect to one of the individuals referred to
in paragraphs (A), (B) and (C) above, given in the Employment Agreement
between such individual and as such agreement is in effect on and from
the Closing Date, and without regard to whether such agreement is
amended or terminated in the future, unless Kendle and the Sellers
shall specifically agree in writing that any such amendment or
termination shall have the effect of amending this ss.2(h).
(iii) The Purchase Price reductions required by
this ss.2(h) shall be calculated on the full amount of the Purchase
Price paid at Closing, and without regard to any prior or concurrent
Purchase Price reduction taken pursuant to this ss.2(h) or pursuant to
any other provision of this Agreement.
(iv) On the effective date of a Termination for
Cause or a Resignation without Good Reason (a "REDUCTION DATE") causing
a Purchase Price reduction pursuant to this ss.2(h), each of the
Sellers shall become liable to pay to Kendle their respective pro rata
portions (based on the allocation percentages of the Purchase Price as
set out on Schedule 1 hereto) of such Purchase Price reduction, and
Kendle shall be entitled to receive each such amount within ten (10)
days after the relevant Reduction Date, with interest thereon at the
rate of ten percent (10%) per annum from the Reduction Date to the date
of actual payment if such payment is not made in full by such date.
(v) If there are assets held under the Escrow
Agreement against which there is no claim pending at the time the
Sellers become obligated to refund a portion of the Purchase Price
under this ss.2(h), Kendle shall be obligated and have the right to
receive from the escrow available cash or other assets to satisfy the
obligations of the Sellers to repay such portion of the Purchase Price,
but if the escrow is exhausted or unavailable for whatever reason,
Kendle shall have the right to receive payment directly from the
Sellers.
<PAGE> 15
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(vi) Each of the events described in paragraph
(i) above are independent of each other, and the refund of a portion of
the Purchase Price in connection with termination of employment of one
of the Sellers shall not relieve the Sellers from any obligation to
make a further refund of the Purchase Price if required by this
ss.2(h). In addition, the termination of employment of a Seller shall
not relieve such Seller of his/her joint and several obligations
hereunder in the event of a later termination of employment by another
Seller which triggers a Purchase Price reduction in accordance with the
terms hereof. (vii) The liability of the Sellers under this ss.2(h)
shall in any event be subject to the limitations specified in
ss.8(i)(ii) and ss.8(i)(iii).
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each
of the Sellers represents and warrants to Kendle that the statements contained
in this ss.3(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this ss.3(a)) with respect to himself, herself or itself (but not
with respect to any other Seller). The statements made in ss.3(a) shall not in
any respect be extinguished or affected by the Closing.
(i) AUTHORISATION OF TRANSACTION. Such Seller
has full power and authority to execute and deliver this Agreement and
to perform his or her obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of such Seller, enforceable in
accordance with its terms and conditions. Such Seller need not give any
notice to, make any filing with, or obtain any authorisation, consent,
or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which such Seller is subject (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which such Seller is a
party or by which he or she is bound or to which any of his assets is
subject.
<PAGE> 16
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(iii) BROKERS' FEES. Such Seller has no Liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which Kendle, TARGET or any of its Subsidiaries could become liable
or obligated.
(iv) INVESTMENT REPRESENTATIONS. With respect to
the Parent Shares issued to and acquired by the Sellers hereunder:
(A) The Seller is not a US Person (as
defined in Regulation S promulgated under the Securities Act
("REGULATION S")) and has signed this Agreement outside the
United States.
(B) The Seller understands and
acknowledges that (i) the Parent Shares have not been
registered under the Securities Act and may not be offered or
sold in the United States or to, or for the account or benefit
of, any US Person unless such securities are registered under
the Securities Act or such offer or sale is made pursuant to
an exemption from the registration requirements of the
Securities Act and (ii) the Parent Shares are being
distributed by the Parent pursuant to the terms of Regulation
S, which permits securities to be sold to non-US Persons in
"offshore transactions" (as defined in Regulation S), subject
to certain terms and conditions.
(C) The Seller acknowledges that for a
period of one year following the Closing Date (the "RESTRICTED
PERIOD"), the Seller shall not (i) engage in any activity for
the purpose of, or which may reasonably be expected to have
the effect of, conditioning the market in the United States
for the Parent Shares or (ii) unless an exemption from the
registration requirements of the Securities Act is available,
offer, sell or transfer the Parent Shares in the United States
or to, or for the account or benefit of, a US Person. The
Seller understands that the Parent Shares or any interest
therein are only transferable on the books and records of the
transfer agent and registrar of the Parent. The Seller further
understands that such transfer agent and registrar will not
register any transfer of the Parent Shares during the
Restricted Period which the Parent reasonably believes
violates the restrictions set forth in this paragraph (C), and
that the Parent acting in good faith may place stop transfer
orders with its transfer agent with respect to certificates
representing Parent Shares to reflect the restrictions set
forth in this paragraph (C).
(D) Any proposed offer, sale or
transfer during the Restricted Period of any of the Parent
Shares shall be subject to the condition that the Seller must
deliver to the Parent (i) a written certification that neither
record nor
<PAGE> 17
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beneficial ownership of the Parent Shares has been offered or
sold in the United States or to, or for the account or benefit
of, any US Person, (ii) a written certification of the
proposed transferee that such transferee (or any account for
which such transferee is acquiring such Parent Shares) is not
a US Person, that such transferee is acquiring such Parent
Shares for such transferee's own account (or an account over
which he or she has investment discretion), and that such
transferee is knowledgeable of an agrees to be bound by the
restrictions on re-sale set forth in this section and
Regulation S during the Restricted Period, and (iii) a written
opinion of United States counsel, in form and substance
reasonable satisfactory to the Parent, to the effect that the
offer, sale and transfer of such Parent Shares are exempt from
registration under the Securities Act.
(E) The Seller agrees that for the
duration of the Restricted Period and until such time
thereafter as the Parent shall have received (if required by
it) a written opinion of United States counsel, in form and
substance reasonably satisfactory to the Parent, to the effect
that the Parent Shares are no longer "restricted securities"
within the meaning of Rule 144(a)(3) of the Securities Act,
the stock certificates representing the Parent Shares shall
bear the legend set forth below:
The shares of Common Stock
represented by this certificate may
not be offered, sold or transferred
except in accordance with the
provisions of Regulations S (Rule
901 through Rule 905, and the
Preliminary Notes) under the
Securities Act of 1933, as amended
(the "Securities Act"), pursuant to
registration under the Securities
Act, or pursuant to an available
exemption from registration.
(v) TARGET SHARES. Such Seller is the registered
and sole beneficial owner of the number of TARGET Shares set forth next
to his or her name in Schedule 1 free and clear of any Encumbrances and
with full title guarantee. Such Seller is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the
voting of any share capital of TARGET.
(b) REPRESENTATIONS AND WARRANTIES OF KENDLE. Kendle
represents and warrants to the Sellers that the statements contained in this
ss.3(b) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
ss.3(b)) , except as set forth in Schedule 3(b).
<PAGE> 18
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(i) ORGANISATION OF KENDLE AND THE PARENT. Each
of Kendle and the Parent is a corporation organised, validly existing
and in good standing under the laws of the State of Ohio.
(ii) AUTHORISATION OF TRANSACTION. Kendle has
full power and authority (including full corporate power and authority)
to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of Kendle, enforceable in accordance with its terms and
conditions. Assuming the truth and correctness of the Seller's
statements in ss.3(a) of this Agreement, Kendle need not give any
notice to, make any filing with, or obtain any authorisation, consent,
or approval of any US government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and
the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which Kendle is subject or any provision of its charter or
bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any material agreement, contract, lease, license,
instrument, or other arrangement to which Kendle is a party or by which
it is bound or to which any of its assets is subject.
(iv) CAPITALISATION. The Parent's authorised
equity securities consist of Fifteen Million (15,000,000) shares of
common stock, no par value per share, and One Hundred Thousand
(100,000) shares of undesignated preferred stock, no par value per
share. As of October 30, 1998, Ten Million Nine Hundred Fifty-One
Thousand Two Hundred Thirty-Two (10,951,232) shares of common stock
were issued and outstanding and no shares of undesignated preferred
stock were issued and outstanding. The Parent Shares to be received by
the Sellers in connection with the transactions contemplated hereby
will be duly authorised, validly issued, fully paid and non-assessable
shares of common stock free and clear of any and all Encumbrances other
than restrictions on transfer imposed by US federal and state
securities laws and regulations.
(v) SEC REPORTS. The Parent has timely filed
with the US Securities and Exchange Commission ("SEC") all materials
and documents required to be filed by it under the US Securities
Exchange Act of 1934 (the "EXCHANGE ACT"). All the materials and
documents filed with the SEC by the Parent since July 2, 1997,
including its initial Registration Statement on Form S-1, are
hereinafter referred to as the "Kendle SEC Reports." Kendle has
previously provided to the Sellers a list of all the Kendle SEC Reports
filed on or prior to the date of this Agreement. The Kendle SEC
Reports, copies
<PAGE> 19
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of which have been delivered to the Sellers, are true and correct in
all material respects, including the financial statements and other
financial information contained therein, and do not omit to state any
material fact necessary to make the statements in such Kendle SEC
Reports, in light of the circumstances in which they were made, not
misleading. The financial statements included in the Kendle SEC Reports
fairly present in all material respects the financial condition and the
results of operations, changes in stockholders' equity and cash flow of
the Parent and its subsidiaries as at the respective dates of and for
the periods referred to in such financial statements, all in accordance
with US GAAP. Since the date of the most recent Kendle SEC Report,
there has been no Kendle Material Adverse Change.
(vi) BROKERS' FEES. Other than liability or
obligation to Technomark Limited (which shall be the liability of
Kendle and not of the Sellers), Kendle has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET AND ITS
SUBSIDIARIES. The Sellers, jointly and severally, represent and warrant to
Kendle that the statements contained in this ss.4 are correct and complete as of
the date of this Agreement, except as set forth in the Disclosure Schedule. All
references in this ss.4 to TARGET shall, unless the context requires otherwise,
be construed to include reference to its Subsidiaries.
(a) ORGANISATION, QUALIFICATION, AND CORPORATE POWER.
TARGET is a private company limited by shares duly incorporated and registered
and validly existing under the laws of England and Wales. Each of TARGET and IRC
is duly authorised to conduct business under the laws of each jurisdiction in
which TARGET conducts business. Each of IRC and TARGET has full corporate power
and authority and all licenses, permits, and authorisations required from any
government, statutory or other regulatory body to carry on the businesses in
which it is engaged. Section 4(a) of the Disclosure Schedule lists the directors
and officers of TARGET and IRC. The Sellers have delivered to Kendle correct and
complete copies of the memoranda and articles of association of TARGET and IRC
(as amended to date). The statutory and other books containing among other
things the records of meetings of the shareholders, the board of directors and
any committees of the board of directors, the register of members and the
register of shares of TARGET and IRC are correct and complete. Neither TARGET
nor IRC is in default under or in violation of any provision of its memorandum
or articles of association.
(b) CAPITALISATION. The authorised share capital of
TARGET consists of One Thousand (1,000) TARGET Shares and the issued share
capital of TARGET consists of One Hundred (100) TARGET Shares. All of the issued
TARGET Shares have been duly authorised, are validly issued, fully paid and are
held legally by the respective Sellers as set forth in ss.4(b) of the Disclosure
Schedule. Except as set forth in ss.4(b) of
<PAGE> 20
-16-
the Disclosure Schedule, there are no outstanding or authorised options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require TARGET to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There
are no outstanding or authorised stock appreciation, phantom stock, profit
participation, or similar rights with respect to TARGET. TARGET is not a party
to any voting trusts, proxies, or other agreements or understandings with
respect to the voting of the share capital of TARGET.
(c) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which TARGET is subject or
any provision of the charter or bylaws of TARGET, (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license instrument to which
TARGET is a party or by which it is bound or to which any of its assets is
subject, or (iii) result in the imposition of any Security Interest upon any of
its assets. TARGET does not need to give any notice to, make any filing with, or
obtain any authorisation, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement. TARGET and its Subsidiaries maintain, and ss.4(c) of the
Disclosure Schedule sets forth, all operating authorities, licenses, permits and
approvals and other authorisations from all governmental authorities
(collectively, the "PERMITS") as are necessary for the conduct of the business
of TARGET and its Subsidiaries. Except as expressly designated on ss.4(c) of the
Disclosure Schedule, none of TARGET's and its Subsidiaries' rights under each of
the Permits will terminate in connection with the change in control of TARGET at
Closing.
(d) BROKERS' FEES. TARGET has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) TITLE TO ASSETS. Excluding for the purposes of this
ss.4(e) the Premises and the Intellectual Property, TARGET and its Subsidiaries
have legal and beneficial ownership of the assets used by them, or shown on the
Most Recent Balance Sheet or acquired after the date thereof, free and clear of
all Security Interests, excepting only properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet and
certain other properties and assets involving in the aggregate more than Fifteen
Thousand Sterling ((pound)15,000.00) disposed of other than in the Ordinary
Course of Business as disclosed on the Disclosure Schedule.
<PAGE> 21
-17-
(f) SUBSIDIARIES. TARGET has one Subsidiary, namely IRC.
Section 4(f) of the Disclosure Schedule sets forth the name and jurisdiction of
incorporation or organisation of each Person in which TARGET has a direct or
indirect equity or ownership interest in any business and the number of (and
percentage of outstanding) shares or other interests owned by TARGET. All of
such shares or other interests are owned free and clear of any Encumbrances
other than restrictions on transfer imposed by applicable securities laws and
regulations and such shares or other interests are duly authorised, validly
issued and fully paid and do not subject the holder thereof to further liability
for capital contributions. Each corporation or other entity listed on ss.4(f) of
the Disclosure Schedule validly exists and has been duly incorporated or
organised under applicable law. TARGET is not party to any voting trusts,
proxies or other agreements or understandings with respect to the voting trusts,
proxies, or other agreements or understandings with respect to the voting or
capital stock of any such corporation or entity. The Sellers have delivered to
Kendle true, complete and correct (A) copies of the charter or other
organisational documents of each corporation or other entity listed on ss.4(f)
of the Disclosure Schedule, and (B) copies of all material financial information
with respect to such corporations deemed by the Sellers in their reasonable
discretion to be material to the business of such corporations or other entities
in the possession of or under the control of the Sellers.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit 4(g)
are the following financial statements (collectively the "FINANCIAL
STATEMENTS"): (i) audited consolidated and individual financial statements
(including the profit and loss accounts, balance sheets and cash flow
statements) for TARGET and its Subsidiaries as of and for the financial year
ended 31 August 1998 (the "MOST RECENT FINANCIAL YEAR END"), including, in each
case, the notes thereto and the directors' report and auditors' report; and (ii)
unaudited management accounts of IRC (including the profit and loss accounts,
balance sheets and cash flow statements) as of and for the two (2) months ended
31 October 1998 (the "MOST RECENT FINANCIAL MONTH END"), (the "MANAGEMENT
ACCOUNTS"). The Financial Statements (including where applicable the notes
thereto) have been prepared in accordance with UK GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly in all material
respects (and in the case of the Accounts give a true and fair view of) the
financial condition of TARGET and its Subsidiaries as of such dates and the
results of operations of TARGET and its Subsidiaries for such periods and are
consistent with the books and records of TARGET and its Subsidiaries; PROVIDED,
however, that the Management Accounts are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and do not include
any provision for corporation tax or depreciation.
(h) EVENTS SUBSEQUENT TO MOST RECENT FINANCIAL YEAR END.
Except as set forth in ss.4(h) of the Disclosure Schedule, since 31 August 1998,
there has not been any TARGET Material Adverse Change. Without limiting the
generality of the foregoing, since that date:
<PAGE> 22
-18-
(i) neither TARGET nor any of its Subsidiaries
has sold, leased, transferred, or assigned any of its assets, tangible
or intangible, involving in the aggregate more than Fifteen Thousand
Sterling ((pound)15,000.00) other than for a fair consideration in the
Ordinary Course of Business;
(ii) other than agreements and contracts with
customers pursuant to which IRC will be entitled to be paid in excess
of Fifty Thousand Sterling ((pound)50,000), TARGET has not entered into
any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving more than
Fifteen Thousand Sterling ((pound)15,000.00) or outside the Ordinary
Course of Business;
(iii) no party (including TARGET and its
Subsidiaries) has terminated, materially modified, or cancelled any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than
Fifteen Thousand Sterling ((pound)15,000.00) to which TARGET or any of
its Subsidiaries is a party or by which it is bound;
(iv) neither TARGET nor any of its Subsidiaries
has imposed or permitted to be imposed any Security Interest upon any
of its assets, tangible or intangible;
(v) neither TARGET nor any of its Subsidiaries
has made any capital expenditure (or series of related capital
expenditures) either involving more than Fifteen Thousand Sterling
((pound)15,000.00) or outside the Ordinary Course of Business;
(vi) neither TARGET nor any of its Subsidiaries
has made any capital investment in, any loan to, or any acquisition of
the securities or assets of, any other Person (or series of related
capital investments, loans, and acquisitions) either involving more
than Fifteen Thousand Sterling ((pound)15,000.00) or outside the
Ordinary Course of Business;
(vii) TARGET has not issued any Share, bond, or
other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalised lease obligation either
involving more than Fifteen Thousand Sterling ((pound)15,000.00) singly
or Fifteen Thousand Sterling ((pound)15,000.00) in the aggregate;
(viii) neither TARGET nor any of its Subsidiaries
has delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
<PAGE> 23
-19-
(ix) neither TARGET nor any of its Subsidiaries
has cancelled, compromised, waived, or released any right or claim (or
series of related rights and claims) either involving more than Fifteen
Thousand Sterling ((pound)15,000.00) or outside the Ordinary Course of
Business;
(x) neither TARGET nor any of its Subsidiaries
has granted any license or sublicense of any rights under or with
respect to any Intellectual Property;
(xi) there has been no change made or authorised
in the memoranda or articles of association or other constitutional
documents of TARGET or any of its Subsidiaries;
(xii) TARGET has not declared, set aside, or paid
any dividend or made any distribution with respect to its share capital
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its share capital;
(xiii) neither TARGET nor any of its Subsidiaries
has experienced any damage, destruction, or loss (whether or not
covered by insurance) to its assets and property in excess of Fifteen
Thousand Sterling ((pound)15,000.00);
(xiv) neither TARGET nor any of its Subsidiaries
has made any loan (that will remain outstanding on the Closing Date) to
or with any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xv) neither TARGET nor any of its Subsidiaries
has entered into any employment contract or collective bargaining
agreement, written or oral, or changed or modified remuneration and
benefits payable under such contract or agreement;
(xvi) neither TARGET nor any of its Subsidiaries
has granted any increase in the base compensation of any of its
directors, and employees outside the Ordinary Course of Business;
(xvii) TARGET has not in any material respect
adopted, amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the
benefit of any of its directors, officers, and employees (or taken any
such action with respect to the Pension Schemes);\
(xviii) neither TARGET nor any of its Subsidiaries
has made or pledged to make any charitable or other capital
contribution outside the Ordinary Course of Business;
<PAGE> 24
-20-
(xix) to the Knowledge of the Sellers there has
not been any other material occurrence, event or transaction outside
the Ordinary Course of Business which is likely to result in a TARGET
Material Adverse Change; and,
(xx) neither TARGET nor any of its Subsidiaries
has committed to any of the foregoing.
(i) UNDISCLOSED LIABILITIES. Neither TARGET nor any of
its Subsidiaries has any Liability (nor is there any Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), that
individually or in the aggregate is material to the results of operations or the
financial or other condition of TARGET or any of its Subsidiaries except for (i)
Liabilities reflected or reserved against on the Most Recent Balance Sheet or
described on ss.4(i) of the Disclosure Schedule or in the notes to the
Management Accounts; or (ii) Liabilities which have arisen after the Most Recent
Financial Month End in the Ordinary Course of Business (none of which results
from, arises out of or was caused by any breach by TARGET or any of its
Subsidiaries of any contract or warranty, by any tort or infringement by TARGET
or any of its Subsidiaries or by any violation of law by TARGET or any of its
Subsidiaries).
(j) LEGAL COMPLIANCE. TARGET has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of European Union,
national, local and foreign governments (and all agencies thereof), except where
such failure to comply would not, individually or in the aggregate, have a
TARGET Material Adverse Effect; and to the Knowledge of the Sellers, no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any such failure
to comply.
(k) TAX MATTERS.
(i) Each of TARGET and its Subsidiaries is and
always has been resident for Tax purposes only in the jurisdiction in
which it is incorporated.
(ii) TARGET and its Subsidiaries have filed all
Tax Returns that they were required to file. All such Tax Returns were
correct and complete in all respects. All Taxes payable by TARGET and
its Subsidiaries (whether or not shown on any Tax Return) have been
paid. Neither TARGET nor any of its Subsidiaries is currently the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction
where TARGET or any of its Subsidiaries do not file Tax Returns that
TARGET or any of its Subsidiaries is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets
<PAGE> 25
-21-
of TARGET or its Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any Tax.
(iii) TARGET and its Subsidiaries have withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(iv) Full provision or reserve has been made in
the Financial Statements for all Taxes liable to be assessed on TARGET
and its Subsidiaries or for which TARGET or its Subsidiaries are
accountable in respect of income, profits or gains earned, accrued or
received on or before the Most Recent Financial Year End and proper
provision has been made in the Financial Statements (other than the
Management Accounts) for deferred Taxes calculated in accordance with
UK GAAP.
(v) No Seller or director (or employee
responsible for Tax matters) of TARGET or its Subsidiaries expects any
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any
Tax Liability of TARGET or its Subsidiaries either (A) claimed or
raised by any authority in writing or (B) as to which any of the
Sellers and the directors (and employees responsible for Tax matters)
of TARGET or its Subsidiaries has Knowledge based upon personal contact
with any agent of such authority. ss.4(k) of the Disclosure Schedule
indicates those Tax Returns that have been disputed and/or investigated
by any governmental authority since 8 December 1992 and those Tax
Returns that currently are the subject of an investigation or
proceeding by any governmental authority. The Sellers have delivered to
Kendle correct and complete copies of all European Union, national,
local, and foreign income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by TARGET or
any its Subsidiaries since August 31, 1992.
(vi) neither TARGET nor any of its Subsidiaries
has waived any statute of limitations in respect of outstanding Taxes
or agreed to any extension of time with respect to any outstanding Tax
assessment or deficiency.
(vii) Section 4(k)(vii) of the Disclosure Schedule
contains particulars of all arrangements and agreements relating to the
transfer of tax refunds to which the TARGET or its Subsidiaries are or
have been a party since 8 December 1992, and (A) all claims by TARGET
and its Subsidiaries for the transfer of tax refunds were when made and
are now valid and have been or will be allowed by way of discharging
the liability of the recipient company to pay any corporation tax, (B)
neither TARGET nor any of its Subsidiaries has made or is liable to
make any payment under any such arrangement save in consideration for
the transfer of tax refunds allowable to TARGET or any of its
<PAGE> 26
-22-
Subsidiaries by way of discharge from liability to corporation tax and
mergers equivalent to the taxation for which TARGET or any of its
Subsidiaries would have been liable would it not have been for the
transfers, (C) TARGET and its Subsidiaries have received all payments
due to them under any such arrangement or agreement or transfer of tax
refunds made by it and no such payment is likely to be repaid, and (D)
save in respect of this Agreement, there have not been in existence in
relation to TARGET and its Subsidiaries any such arrangements as are
referred to in Section 410 Taxes Act 1988.
(viii) No distribution within the meaning of
Sections 209, 210 and 212 Taxes Act 1988 has been made by the TARGET
and its Subsidiaries except dividends shown in its audited accounts nor
is the TARGET and its Subsidiaries bound to make any such distribution.
(ix) No securities (within the meaning of Section
254(l) Taxes Act 1988) issued by TARGET and its Subsidiaries and
remaining in issue at the date hereof were issued in such circumstances
that the interest payable thereon falls to be treated as a distribution
under Section 209(2)(e)(iii) Taxes Act 1988.
(x) TARGET and its Subsidiaries have not made or
received any distribution which is an exempt distribution within
Section 213 Taxes Act 1988.
(xi) TARGET and its Subsidiaries have not
received any capital distribution to which the provisions of Section
189 TCGA 1992 could apply.
(xii) TARGET and its Subsidiaries have not used
any credit, relief or set off that may be disallowed pursuant to
Section 237 Taxes Act 1988.
(xiii) TARGET and its Subsidiaries have not issued
any share capital, nor granted options or rights to any person which
entitles that person to require the issue of any share capital to which
the provision of Section 249 Taxes Act 1988 could apply.
(xiv) TARGET and its Subsidiaries have not since 8
October 1996 (A) treated as franked investment income any qualifying
distribution received which would fall to be treated as if it were a
foreign income dividend pursuant to the provisions of Schedule 7 of the
Finance Act 1997; or (B) made any qualifying distribution which would
fall to be treated as a foreign income dividend pursuant to the
provisions of Schedule 7 of the Finance Act 1997.
(xv) No tax authority in any jurisdiction in
which TARGET and its Subsidiaries do not file Tax Returns has made or
asserted a claim that TARGET (or any Seller) is subject to taxation in
that jurisdiction based on the activities of TARGET.
<PAGE> 27
-23-
(xvi) TARGET and its Subsidiaries have (to the
extent required by law) preserved and retained in its possession
accurate records relating to its Tax affairs as is required by law
including corporation tax, PAYE, National Insurance and VAT records and
TARGET and its Subsidiaries has sufficient records relating to past
events to calculate the profit, gain, loss, balance charge of balancing
allowance (all for Tax purposes) which would arise on any disposal or
on the realisation of any assets owned at the Most Recent Financial
Year End or acquired since that date but before the Closing.
(xvii) TARGET and its Subsidiaries have duly and
punctually paid all Taxes to the extent that the same ought to have
been paid and has not in the last three years paid or become liable to
pay any penalty or interest charged by virtue of the provisions of any
Tax Legislation.
(xviii) None of the following Events has occurred
since the Most Recent Financial Year End.
(A) a deemed (as opposed to an actual)
acquisition, disposal or supply of assets, goods, services or
business facilities;
(B) TARGET or any of its Subsidiaries
ceasing or being deemed to cease to be a member of any group
or associated with any other company for the purposes of any
Taxes;
(C) a disposal or supply of assets,
goods, services or businesses facilities by TARGET or any of
its Subsidiaries for a consideration which is treated for
purposes of Taxes as greater than the actual consideration;
(D) an acquisition or supply to TARGET
or any of its Subsidiaries of assets, goods, services or
business facilities for a consideration which is treated for
the purposes of Taxes as less than the actual consideration;
(E) a distribution within the meaning
given by Part VI Taxes Act 1988 (company distributions, tax
credits etc.) or within Section 418 Taxes Act 1988 (expenses
treated as distributions);
(F) an Event which results in TARGET or
any of its Subsidiaries being liable for Taxes for which it is
not primarily liable;
<PAGE> 28
-24-
(G) an Event in respect of which a Tax
Liability arises as a result of a failure by TARGET or any of
its Subsidiaries to withhold, deduct or account for Taxes;
(H) an Event giving rise to a liability
under Part XVII Taxes Act 1988 (tax avoidance); or
(I) an Event giving rise to a balancing
charge.
(xix) The amount of Taxes chargeable on TARGET and
its Subsidiaries during any accounting period ending on or within three
years before the Most Recent Financial Year End or in respect of the
period from the Most Recent Financial Year End up to the Closing Date
has not, to any material extent, depended or (as the case may be) will
not depend on any concession, agreement or other formal or informal
arrangement with any Tax Authority.
(xx) TARGET and its Subsidiaries have not during
the period of three years ending on the date of this Agreement relied
on any formal or informal unpublished concession dispensation or
practice (whether general or specific to TARGET and its Subsidiaries)
which purports to modify or provide exemption from any obligation to
make or submit any computation, notice or return to any Tax Authority.
(xxi) Within the period of three years ending on
the date of this Agreement none of TARGET, its Subsidiaries or their
predecessors (within the meaning of Section 343 Taxes Act 1988) has
discontinued any trade or business or made a major change in the nature
of or conduct of a trade or business carried on by it and no change in
ownership of TARGET or any of its Subsidiaries has taken place.
(xxii) TARGET and its Subsidiaries are not and have
not at any time been close investment holding companies in respect of
any accounting period.
(xxiii) TARGET and its Subsidiaries have not made
any loan, advance or payment or given any consideration falling within
Sections 419 to 420 or Section 422 Taxes Act 1988 (charges to tax in
connection with loans) which has remained outstanding at any time since
8 December 1992.
(xxiv) TARGET and its Subsidiaries have not at any
time since 8 December 1992 made any payment which falls to be treated
as a distribution under Section 418 Taxes Act 1988 (distribution to
include certain expenses of close companies).
<PAGE> 29
-25-
(xxv) TARGET and its Subsidiaries have made no
transfer of value such as is specified in Section 94(1) of the
Inheritance Tax Act 1984 (charge on participators) and there has been
no variation in TARGET's share or loan capital or any of its
Subsidiaries share or loan capital within Section 98 of that Act
(effect of alterations of capital etc.).
(xxvi) No liability to taxation or non-trading
deficit would arise from the loan relationships to which TARGET or any
of its Subsidiaries is party being repaid to the extent of the amounts
shown in respect of such loan relationships in the books of TARGET of
any of its Subsidiaries at the date hereof.
(xxvii) The sum which would be allowed as a
deduction from the consideration under Section 38 TCGA 1992
(acquisition and disposal costs etc.) of each asset of TARGET and its
Subsidiaries (other than trading stock) if disposed of on the date of
this Agreement:
(A) would not be less than (in the case
of an asset held on the Most Recent Financial Year End) the
book value of that asset shown or included in the Accounts or
(in the case of an asset acquired since the Most Recent
Financial Year End) an amount equal to the consideration given
for its acquisition; and in particular
(B) would not be treated or deemed for
the purposes of Tax to have been reduced by reason of any
claim made under Sections 152 (roll-over relief), 153 (assets
only partly replaced) 165 (relief for gifts of business
assets) or 175 (group roll-over) TCGA 1992 or by reason of the
operation of Section 17 (disposals and acquisitions treated as
made at market value), or Sections 126 to 140 TCGA 1992
(re-organisation of share capital, conversion of securities
etc).
(xxviii) Since 8 December 1992, no transaction has
been entered into by TARGET or any of its Subsidiaries to which the
provisions of Section 18 (transactions between connected persons) TCGA
1992 has been or could be applied.
(xxix) TARGET does not own any depreciating asset
in respect of which a heldover gain may accrue pursuant to sections
154(2) and/or 175(3) TCGA 1992.
(xxx) No balancing charge in respect of any
capital allowances claimed or given would arise if any asset of TARGET
and its Subsidiaries (or, where computations are made for capital
allowances purposes for pools of assets, all the assets in that pool)
were to be realised on the date hereof for a consideration equal to the
amount of the book value thereof as shown or included in the Accounts
(or, in the case of any
<PAGE> 30
-26-
asset acquired since the Most Recent Financial Year End, for a
consideration equal to the consideration given for the acquisition).
(xxxi) To the Knowledge of the Sellers, all
necessary conditions for the availability of all capital allowances
claimed by TARGET and its Subsidiaries have at all material times been
satisfied and remain satisfied.
(xxxii) To the Knowledge of the Sellers no event has
occurred in consequence of which TARGET or any of its Subsidiaries is
or may be held liable to pay or bear any Tax which is primarily
chargeable against or attributable to some person, firm or company
other than TARGET and its Subsidiaries.
(xxxiii) TARGET and its Subsidiaries have duly paid
all stamp duty for which they are or have been or may be made liable
and without limitation:
(A) all documents in the enforcement of
which TARGET and its Subsidiaries are or may be interested
have been duly stamped; and
(B) there are no documents outside the
United Kingdom which if they were brought into the United
Kingdom would give rise to a liability to stamp duty payable
by TARGET or any of its Subsidiaries.
(xxxiv) TARGET and its Subsidiaries have duly paid
all stamp duty reserve tax for which they are or have become liable and
TARGET and its Subsidiaries have not been party to any transfer of
chargeable securities (within the meaning of Section 99 of the Finance
Act 1986) in respect of which TARGET or any of its Subsidiaries could
become liable to pay any stamp duty reserve tax.
(xxxv) TARGET and its Subsidiaries are not liable
to any penalty in respect of any stamp duty or stamp duty reserve tax
nor to the Knowledge of the Sellers are there any circumstances or
transactions in which TARGET and its Subsidiaries are or have been a
party which may result in TARGET or any of its Subsidiaries becoming
liable to such penalty.
(xxxvi) TARGET and its Subsidiaries have not in the
period of three years ending on the date of this Agreement been party
to any non-arms length transaction, to which principles on which the
case of Furniss v Dawson could be applied.
(xxxvii) TARGET and its Subsidiaries have not in the
period of three years ending on the date of this Agreement been party
to or otherwise involved in any
<PAGE> 31
-27-
scheme or arrangement the main purpose or one of the main purposes of
which was to avoid any Taxes.
(xxxviii) TARGET and its Subsidiaries are each
registered for VAT in the United Kingdom under schedule VATA 1994 and
have not at any time in the last six years been treated as (nor applied
to be) a member of a group of companies for VAT purposes.
(xxxix) TARGET and its Subsidiaries are not
registered (nor required to be registered) for local VAT or its
equivalent in any country other than the United Kingdom.
(xl) Each of TARGET and its Subsidiaries is a
taxable person for VAT purposes, has complied with all the requirements
of VATA 1994 and all applicable regulations and orders.
(xli) TARGET and its Subsidiaries have not in the
last three years been subject to any penalty or liability under any of
Sections 60 to 63 (inclusive), 65 or 67 to 69 (inclusive) VATA 1994 and
have not during such period been subject to any penalty or liability
nor been given any penalty liability notice within Section 64 of that
Act (repeated misdeclarations) nor been given any surcharge liability
notice within section 59 or 59A of that Act nor been given any notice
within section 66 of that Act nor been given a warning within section
76(2) of that Act and TARGET and its Subsidiaries have not been
required by HM Commissioners of Customs and Excise to give any
security.
(xlii) No circumstances exist whereby TARGET and
its Subsidiaries would or might become liable for value added tax
pursuant to the provisions of Sections 47 (agents etc.) or 48 (tax
representatives) VATA 1994.
(xliii) TARGET and its Subsidiaries have not made
any exempt supplies in consequence of which they are or will be unable
to obtain credit for all input tax paid by them during any value added
tax quarter ending after the Most Recent Financial Year End.
(xliv) TARGET and its Subsidiaries have not made
and are not otherwise bound by any election made pursuant to paragraph
2 of schedule 10 VATA 1994.
(xlv) TARGET and its Subsidiaries have not been
party to a transaction to which Article 5 of the Value Added Tax
(Special Provisions) Order 1995 (transfer of business as a going
concern) has (or has purported to have been) applied.
<PAGE> 32
-28-
(xlvi) No asset of TARGET and its Subsidiaries is a
capital item, the input tax on which could be subject to adjustment in
accordance with the provisions of Part XV of the Value Added Tax
Regulations 1995.
(xlvii) TARGET and its Subsidiaries have no interest
in any new or uncompleted buildings or civil engineering works within
in the meaning of Group 1 Schedule 9 VATA 1994.
(xlviii) TARGET and its Subsidiaries have not been
engaged in any transaction which has resulted or could result in TARGET
and its Subsidiaries being treated as making any supply to themselves
for value added tax purposes.
(xlix) All value added tax payable upon the
importation of goods and all excise duties payable to HM Customs &
Excise payable in respect of any assets (including trading stock)
imported or owned by TARGET and its Subsidiaries have been paid in
full.
(l) TARGET and its Subsidiaries have not in the
period of six years ending on the date of this Agreement surrendered or
claimed nor is it obliged to surrender or claim any amount by way of
group relief under the provisions of section 402 Taxes Act 1988
(surrender or relief between members of groups and consortia) or any
advance corporation tax under the provisions of section 240 Taxes Act
1988 (set-off of company's surplus ACT against subsidiary's liability
to corporation tax).
(li) No tax is or may become payable by TARGET or
its Subsidiaries pursuant to Section 190 TCGA 1992 (tax on one member
or group recoverable from another member) in respect of any chargeable
gain accruing prior to the Closing Date.
(lii) TARGET and its Subsidiaries are not liable
(and will not after the Closing Date become liable pursuant to
arrangements entered into before the Closing Date) to make:
(A) any payment for group relief
(within the meaning of Section 402(6) Taxes Act 1988) or any
payment for advance corporation tax (as mentioned in Section
240(8) Taxes Act 1988) or any payment for a tax refund (as
mentioned in Section 102(7) Finance Act 1989); or
(B) any refund (in whole or in part) of
any such payment received by TARGET or its Subsidiaries before
the Closing Date,
save (in each case) any payment or refund to another Group Company.
<PAGE> 33
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(liii) TARGET and its Subsidiaries have not at any
time within the period of six years ending with the date of this
Agreement acquired any asset other than as trading stock from any other
company which at the time of the acquisition was a member of the same
group of companies as TARGET and its Subsidiaries (as defined in
Section 170 TCGA 1992 (groups of companies: definitions)) and no member
of any group of companies of which TARGET and its Subsidiaries are or
have at any material time been the principal company (as defined in
Section 170 TCGA 1992 (groups of companies: definitions)) has so
acquired any asset.
(liv) TARGET and its Subsidiaries have not in the
last seven years ceased to be a member of a group of companies for the
purposes of Section 178 or 179 TCGA 1992 (company ceasing to be member
of a group).
(lv) TARGET and its Subsidiaries have not carried
out or participated in any depreciatory transaction relating to any
shares of securities of a company which are in its beneficial
ownership.
(lvi) Section 4(k)(lxi) of the Disclosure Schedule
contains particulars of all elections made by TARGET and its
Subsidiaries under Section 247 Taxes Act 1988 which are still in force
(dividends etc. paid by one member of a group to another).
(lvii) TARGET and its Subsidiaries do not have and
have not had at any time since 8 December 1992 any associated company
within the meaning of section 13 Taxes Act 1988 other than another
Group Company.
(lviii) TARGET and its Subsidiaries have not in the
last three years made any payment or incurred any liability to make any
payment of a revenue nature other than in relation to expenditures for
entertainment purposes which could be disallowed as a deduction in
computing the taxable profits of TARGET and its Subsidiaries or as a
charge on the income of TARGET and its Subsidiaries.
(lix) To the Knowledge of the Sellers TARGET and
its Subsidiaries are not and will not become liable to be assessed to
inheritance tax as donor or donee of any gift or a transferor or
transferee of value (actual or deemed) nor as a result of any
disposition chargeable transfer or transfer of value (actual or deemed)
made by or deemed not be made by any other person.
(lx) There is no unsatisfied liability to capital
transfer tax or inheritance tax attached or attributable to the assets
of TARGET and its Subsidiaries or the shares of
<PAGE> 34
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TARGET and its Subsidiaries and neither such assets nor such shares are
subject to an Inland Revenue charge.
(lxi) To the Knowledge of the Sellers, no person
has the power under Section 212 of the Inheritance Tax Act 1984 (powers
to raise tax) to raise any capital transfer tax or inheritance tax by
sale or mortgage of or by terminable charge on any of TARGET's and its
Subsidiaries' assets or shares.
(lxii) No transaction described in section 765 (1)
Taxes Act 1988 (migration, etc of companies) has been carried out or
proposed by or in relation to TARGET and its Subsidiaries.
(lxiii) TARGET and its Subsidiaries do not have (in
the period of three years ending on the date of this Agreement has not
had) any branch, agent or permanent establishment (within the meaning
of the OECDS Model Double Taxation Agreement) outside the United
Kingdom.
(lxiv) TARGET and its Subsidiaries do not have and
have not in the last seven years had any interest in:
(A) a controlled foreign company within
the meaning of Section 747 Taxes Act 1988 (imputation of
chargeable profits and creditable tax of controlled foreign
companies); or
(B) a material interest in an offshore
fund within the meaning of Chapter V or Part XVII Taxes Act
1988.
(lxv) TARGET and its Subsidiaries are not liable
to be assessed to tax under Section 42A Taxes Act 1988 (non-residents
and their representatives) and has not received any such assessment.
(lxvi) Since 8 December 1992, TARGET and its
Subsidiaries have not established (nor is it a participant in) any
bonus, share option, profit related pay or other scheme or arrangement,
whether or not approved by the Inland Revenue, for the benefit of its
current or former officers or employees or any of them.
(l) PROPERTY.
(i) Schedule 2 sets forth a true and correct
description of the particulars of all property owned by TARGET and its
Subsidiaries. With respect to each such Premises:
<PAGE> 35
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(A) TARGET and its Subsidiaries are the
sole legal and beneficial owners of the Premises and are
entitled to and have good and marketable title and exclusive
occupation of such Premises; and
(B) TARGET and its Subsidiaries have
good and marketable title to the parcel of real property free
and clear of any mortgage or charge (whether legal or
equitable, fixed or floating), encumbrance, lease, sub-lease,
tenancy, licence or right of occupation, rent charge, and to
the Knowledge of the Sellers any exception, reservation,
easement, quasi-easement or privilege in favour of a third
party.
(ii) ss.4(l)(ii) of the Disclosure Schedule lists
all real property leased or subleased to any of TARGET and its
Subsidiaries. The Sellers have delivered to Kendle correct and complete
copies of the leases and subleases listed in ss.4(l)(ii) of the
Disclosure Schedule (as amended to date). With respect to each lease
and sublease listed in ss.4(l)(ii) of the Disclosure Schedule:
(A) to the Knowledge of the Sellers,
the lease or sublease is in full force and effect and will
continue to be in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(B) TARGET and its Subsidiaries have
not assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in the leasehold or
subleasehold;
(C) to the Knowledge of the Sellers,
the owner of each facility leased or subleased to TARGET has
good and marketable title to the parcel of real property free
and clear of any Security Interest other than Security
Interests that do not materially impair TARGET's or its
Subsidiaries' use of such facility.
(iii) TARGET and its Subsidiaries have not entered
into positive covenants or personal obligations (whether in a
conveyance, transfer or assignment to it or otherwise) neither does it
have any personal rights under which it has any subsisting liability
(whether actual or contingent).
(iv) Any necessary or appropriate action to
protect the interests of TARGET and its Subsidiaries has been taken
under the Landlord and Tenant Act 1954 and in relation to rent review
provisions in relation to each lease, sub-lease, tenancy or agreement
for any of the same in respect of which the TARGET or its Subsidiaries
is the landlord or the tenant thereunder and all appropriate time
limits have been complied with and no rent reviews are outstanding at
the date hereof or exercisable prior to the Closing.
<PAGE> 36
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(v) Where the interest of the TARGET or its
Subsidiaries in any of the Premises is leasehold, there is no right for
the landlord to determine the lease except in the event of nonpayment
of rent or other breach of covenant by the tenant.
(vi) Except in relation to the Premises, TARGET
and its Subsidiaries have no liabilities (actual or contingent) arising
out of the conveyance, transfer, lease, tenancy, licence, agreement or
other document relating to land or premises or an interest in land or
premises, including, without limitations leasehold premises assigned or
otherwise disposed of.
(vii) Replies to enquiries given by Sellers'
Solicitors to enquiries raised by Kendle's solicitors are true and
accurate in all material respects.
(m) INTELLECTUAL PROPERTY.
(i) TARGET and its Subsidiaries own or have the
right to use pursuant to license, sublicense, agreement, or permission
all Intellectual Property that is material to the operation of the
businesses of TARGET and its Subsidiaries as presently conducted.
Except as set forth on ss.4(m) of the Disclosure Schedule, each such
material item of Intellectual Property will be owned or available for
use by TARGET and its Subsidiaries on identical terms and conditions
immediately subsequent to the Closing hereunder.
(ii) None of the Sellers and the directors (and
employees with responsibility for Intellectual Property matters) of
TARGET and its Subsidiaries have received any charge, complaint, claim,
demand, or notice which is outstanding alleging any such interference,
infringement, misappropriation, or violation (including any claim that
any of TARGET and its Subsidiaries must license or refrain from using
any Intellectual Property rights of any third party). To the Knowledge
of any of the Sellers and the directors and officers (and employees
with responsibility for Intellectual Property matters) of TARGET and
its Subsidiaries, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any of TARGET and its Subsidiaries.
(iii) No patent or registration has been issued to
TARGET and its Subsidiaries with respect to any of its Intellectual
Property, no pending patent application or application for registration
has been made by TARGET and its Subsidiaries with respect to any of its
Intellectual Property, and no license, agreement, or other permission
has been granted by TARGET and its Subsidiaries to any third party with
respect to any of its Intellectual Property (together with any
exceptions). No trade name or unregistered
<PAGE> 37
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trademark is used by TARGET and its Subsidiaries in connection with any
of its businesses.
(iv) ss.4(m)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns
and that TARGET and its Subsidiaries use pursuant to license,
sublicense, agreement, or permission. The Sellers have delivered to
Kendle correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
item of Intellectual Property required to be identified in ss.4(m)(iv)
of the Disclosure Schedule:
(A) to the Knowledge of the Sellers,
the license, sublicense, agreement, or permission covering the
item is in full force and effect and will continue to be in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss.2
above);
(B) to the Knowledge of the Sellers, no
party to the license, sublicense, agreement, or permission is
in material breach or material default or has repudiated such
license, sublicense, agreement or permission, and no event has
occurred which with notice or lapse of time would constitute a
material breach or material default or permit termination,
modification, or acceleration thereunder;
(C) to the Knowledge of the Sellers no
action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(D) TARGET and its Subsidiaries have
not granted any sublicense or similar right with respect to
the license, sublicense, agreement, or permission.
(v) To the Knowledge of any of the Sellers and
the directors and officers (and employees with responsibility for
Intellectual Property matters) of TARGET and its Subsidiaries, TARGET
and its Subsidiaries will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation
of its businesses as presently conducted.
(vi) To the Knowledge of any of the Sellers, the
technology of TARGET and its Subsidiaries which is material for the
operation of their businesses is "Year 2000 compliant" in that it
correctly performs all date-related operations (A)
<PAGE> 38
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without human intervention, other than original data entry of any date,
(B) without regard to whether any date involved in the operation occurs
in the twentieth or twenty-first centuries and (C) without regard to
the system date at the time the calculation is performed.
(n) TANGIBLE ASSETS. TARGET and its Subsidiaries own or
lease all facilities, machinery, equipment, and other tangible assets necessary
for the conduct of its businesses as presently conducted. Each such tangible
asset has been maintained in accordance with normal industry practice, is in a
reasonable state of operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used.
(o) CONTRACTS.ss.4(o) of the Disclosure Schedule lists
the following contracts and other agreements to which
TARGET or any of its Subsidiaries is a party:
(i) any agreement (or group of related
agreements) for the lease of personal property (other than capitalised
lease obligations) to or from any Person providing for lease payments
in excess of Fifteen Thousand Sterling ((pound)15,000.00) per annum;
(ii) other than agreements and contracts with
customers, as to which Fifty Thousand Sterling ((pound)50,000.00) shall
be the disclosure threshold for ss. 4(o) of the Disclosure Schedule,
any agreement (or group of related agreements) for the purchase or sale
of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year, result in a
material loss to TARGET, or involve consideration in excess of Fifteen
Thousand Sterling ((pound)15,000.00);
(iii) any agreement concerning a partnership or
joint venture;
(iv) any agreement (or group of related
agreements) under which it has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any capitalised
lease obligation, in excess of Fifteen Thousand Sterling
((pound)15,000.00);
(v) any agreement concerning confidentiality or
noncompetition other than standard provisions in contracts with
TARGET's customers;
(vi) any agreement with any of the Sellers and
their Affiliates (other than TARGET and its Affiliates);
<PAGE> 39
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(vii) any profit sharing, stock option, stock
purchase, phantom stock, stock appreciation, deferred compensation,
severance, or other material plan or arrangement for the benefit of its
current or former directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of Fifteen Thousand Sterling
((pound)15,000.00) or providing severance benefits in excess of Fifteen
Thousand Sterling ((pound)15,000.00);
(x) any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xi) any agreement with customers and suppliers
under which the consequences of a default or termination could be
reasonably expected to result in a TARGET Material Adverse Change; or
(xii) other than agreements or contracts with
customers, any other agreement (or group of related agreements) the
performance of which involves consideration in excess of Fifteen
Thousand Seven Hundred Sterling ((pound)15,000.00).
The Sellers have delivered to Kendle a correct and complete copy of each written
agreement listed in ss.4(o) of the Disclosure Schedule (as amended to date) and
a written summary setting forth the terms and conditions of each oral agreement
referred to in ss.4(o) of the Disclosure Schedule. With respect to each such
agreement: (A) to the Knowledge of the Sellers, the agreement is in full force
and effect; (B) to the Knowledge of the Sellers, the agreement will continue to
be in full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) to the Knowledge of the Sellers, no party
is in material breach or material default, and no event has occurred which with
notice or lapse of time would constitute a material breach or material default,
or permit termination, modification, or acceleration, under the agreement; and
(D) no party has repudiated any provision of the agreement. Except as listed on
ss.4(o) of the Disclosure Schedule, TARGET and its Subsidiaries are not parties
to any contract or agreement relating to provision by TARGET and its
Subsidiaries of services, with any applicable governmental authority.
(p) BOOK DEBTS.
(i) All book debts of TARGET and its
Subsidiaries included in the Accounts are reflected properly on their
books and records, are valid receivables subject to no setoffs or
counterclaims, are current and collectible and will be collected in
<PAGE> 40
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accordance with their terms at their recorded amounts other than book
debts not exceeding (pound)11,000 in the aggregate.
(ii) All book debts of TARGET and its
Subsidiaries included in the Management Accounts for services provided
through 30 November 1998 are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims
and are current. To the Knowledge of the Sellers, there is no
impediment to the collectibility of such book debts.
(q) POWERS OF ATTORNEY. There are no outstanding powers
of attorney executed on behalf of TARGET or its Subsidiaries.
(r) INSURANCE. ss.4(r) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which TARGET or any of its
Subsidiaries is a party, a named insured, or otherwise the beneficiary of
coverage:
(i) the name, address, and telephone number of
the agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of
coverage;
(iv) the scope (including an indication of
whether the coverage was on a claims made, occurrence, or other basis)
and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy: (A) to the Knowledge of the Sellers,
the policy is in full force and effect; (B) to the Knowledge of the Sellers, the
policy will continue to be in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) to the Knowledge
of the Sellers, neither TARGET and its Subsidiaries nor any other party to the
policy is in material breach or material default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a material breach or
material default, or permit termination, modification, or acceleration, under
the policy; and (D) no party to the policy has repudiated any provision thereof.
TARGET and its Subsidiaries have been covered during the past three (3)
<PAGE> 41
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years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. There are
no self-insurance arrangements affecting TARGET and its Subsidiaries.
(s) LITIGATION. Section 4(s) of the Disclosure Schedule
sets forth each instance in which TARGET or its Subsidiaries (i) is subject to
any outstanding injunction, judgment, order, decree, ruling, or charge or (ii)
is a party or, to the Knowledge of any of the Sellers and the directors of
TARGET and its Subsidiaries, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any applicable jurisdiction or before
any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in ss.4(s) of the Disclosure Schedule is likely, if
adversely determined, to result in any TARGET Material Adverse Change. None of
the Sellers and the directors and officers (and employees with responsibility
for litigation matters) of TARGET and its Subsidiaries has any reason to believe
that any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against any of TARGET or any of its Subsidiaries.
(t) EMPLOYEES AND PENSION SCHEMES.
(i) The individuals, details of whom are set
forth in ss.4(t)(i) of the Disclosure Schedule (the "EMPLOYEES") are
all employed by TARGET and its Subsidiaries at the date of this
Agreement. There are no other individuals employed by the TARGET and
its Subsidiaries at the date of this Agreement.
(ii) The particulars shown in ss.4(t)(i) of the
Disclosure Schedule show true and complete details of the names, ages
and lengths of continuous service of all of the Employees and by
reference to each of the Employees remuneration payable and other
benefits provided by TARGET or any of its Subsidiaries or which TARGET
or its Subsidiaries is bound to provide (whether now or in the future)
to each category of the Employees at Closing or any Person connected
with any such Person and (without limiting the generality of the
foregoing) include particulars of all the material terms of profit
sharing, incentive, bonus, commission arrangements and any other
benefit to which any such category of the Employees is entitled or
which is regularly provided or made available to them (including
details of their notice period and their entitlement to holiday).
(iii) All Employees (other than those set forth on
ss.4(t)(iii)) have entered into and are subject to the terms of
employment contracts in substantially similar form to the employment
agreement attached hereto as Exhibit 7(t)(iii).
<PAGE> 42
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(iv) There are no subsisting contracts for the
provision by any person of any consultancy services to TARGET and its
Subsidiaries.
(v) None of the Employees has given notice
terminating his contract of employment.
(vi) None of the Employees is under notice of
dismissal or has any outstanding dispute with TARGET or any of its
Subsidiaries in connection with or arising from his employment nor is
there any liability outstanding to such persons except for remuneration
or other benefits accruing due and no such remuneration or other
benefit which has fallen due for payment has not been paid.
(vii) During the period of six months ending with
the execution of this Agreement neither TARGET nor any of its
Subsidiaries has directly or indirectly terminated the employment of
any person employed in or by TARGET or its Subsidiaries.
(viii) None of the Employees belongs or has
belonged at any material time to an independent trade union recognised
by the TARGET and its Subsidiaries and no such trade union is
recognised by TARGET and its Subsidiaries.
(ix) There are no employee representatives
representing all or any of the Employees.
(x) The TARGET and its Subsidiaries has complied
with all of its statutory obligations to inform and consult appropriate
representatives as required by law.
(xi) There is no plan, scheme, commitment,
policy, custom or practice (whether legally binding or not) relating to
redundancy or termination of employment affecting any of the Employees
more generous than the statutory redundancy requirements.
(xii) All Pension Schemes comply in all material
respects with all relevant statutes, regulations and other laws and all
necessary consents in relation to such plans have been obtained and all
governmental filings in relation to such plans have been made.
(xiii) There are no loans owed by any of the
Employees to the TARGET and its Subsidiaries.
<PAGE> 43
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(xiv) Except for the Pension Schemes, neither
TARGET nor any of its Subsidiaries is under any present or future
liability to pay to any of the Employees or to any other person who has
been in any manner connected with TARGET and its Subsidiaries any
pension, superannuation allowance, death benefit, retirement gratuity
or like benefit or to contribute to any life assurance scheme, medical
insurance scheme, or permanent health scheme and TARGET and its
Subsidiaries have not made any such payments or contributions on a
voluntary basis nor is it proposing to do so.
(xv) There is no:
(A) outstanding or threatened claim by
any person who is now or has been an employee of the TARGET
and its Subsidiaries or any dispute outstanding with any of
the said persons or with any unions or any other body
representing all or any of them in relation to their
employment by the TARGET and its Subsidiaries or, to the
Knowledge of the Sellers, of any circumstances likely to give
rise to any such dispute;
(B) industrial action involving any
employee, whether official or unofficial, currently occurring
or threatened; or
(C) industrial relations matter which
has been referred to ACAS or any similar governmental agency
in the applicable jurisdiction for advice, conciliation or
arbitration.
(xvi) Save for the Pension Schemes, neither TARGET
nor any of its Subsidiaries is a party to or participates in or
contributes to any scheme, agreement or arrangement (whether legally
enforceable or not) for the provision of any pension, retirement,
death, incapacity, sickness, disability, accident or other like
benefits (including the payment after cessation of employment with
TARGET and its Subsidiaries of medical expenses) for any Relevant
Employee or for the widow, widower, child or dependent of any Relevant
Employee. The Save & Prosper Scheme is a money purchase scheme (as
defined in section 181(1) of the Pension Schemes Act 1993) and the
benefits payable under this scheme whether immediate, prospective or
contingent, are solely the benefits which can be provided by the funds
available for each member of this scheme.
(xvii) TARGET and its Subsidiaries have disclosed
to Kendle:
(A) true and complete copies of the
following documents referable to the Pension Schemes:
(1) all deeds, rules and other
governing documents;
<PAGE> 44
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(2) all announcements, booklets
and the like of current effect;
(B) details of all amendments (if any)
to the Pension Schemes which have been announced or are
proposed but which have not yet been formally made;
(C) details of all discretionary
increases (if any) to pensions in payment or in deferment
under the Pension Schemes which have been granted in the six
years prior to the date of this Agreement or which are under
consideration;
(E) details of all discretionary
practices (if any) which may have led any person to expect
additional benefits in a given set of circumstances (by way of
example, but without limitations, on retirement at the behest
of the TARGET and its Subsidiaries or in the event of
redundancy); and
(F) details of the rate at which and
basis upon which the TARGET and its Subsidiaries currently
contribute to the Pension Schemes and any personal pension
scheme (as defined in section 1 of the Pension Schemes Act
1993) of any Employee or any other person, and any change to
that rate and/or basis which is proposed or which is under
consideration.
(xviii) Every person who has at any time had the
right to join, or apply to join, the Pension Schemes his been properly
advised of that right. No Relevant Employee has been excluded from
membership of the Pension Schemes or from any of the benefits
thereunder in contravention of Article 119 of the Treaty of Rome, the
Pensions Act 1995 or other applicable laws or requirements or the
provisions of the Pension Schemes or otherwise.
(xix) None of the employees of TARGET and its
Subsidiaries is to the Knowledge of the Sellers (A) applying for or
about to apply for an ill health early retirement pension under the
Pension Schemes, or (B) terminally ill. To the Knowledge of any of the
Sellers, none of the Sellers has any medical condition or illness which
would prevent such person from fulfilling all of such person's
obligations under such person's respective Employment Agreement.
(xx) No transfer value has been paid (directly or
indirectly) to the Pension Schemes from another arrangement for any
member of the Pension Schemes.
<PAGE> 45
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(xxi) All benefits (other than any refund of
members' contributions with interest where appropriate) payable under
the Pension Schemes on the death of any person while in employment to
which the Pension Schemes relate are insured fully under a policy with
an insurance company of good repute and to the Knowledge of the Sellers
there are no grounds on which that company might avoid liability under
that policy.
(xxii) Contributions to the Pension Schemes and to
any Personal Pension Scheme in respect of the Employees which have
fallen due for payment have been paid at the time they were due.
Neither TARGET nor its Subsidiaries contribute to the Pension Schemes
or to any Personal Pension Scheme over an above the contributions
disclosed under ss.4(t)(xvii)(F) above.
(xxiii) No power under the Pension Schemes has been
exercised in relation to any employee of TARGET and its Subsidiaries or
in respect of any person:
(A) to provide terms of membership of
the Pension Schemes (whether as to benefits or contributions)
which are different from those generally applicable to the
members of the Pension Schemes; or
(B) to provide any benefits which would
not but for the exercise of that power have been payable under
the Pension Schemes; or
(C) to augment any benefits under the
Pension Schemes.
(xxiv) TARGET and its Subsidiaries:
(A) have observed and performed those
provisions of the Pension Schemes which apply to it; and
(B) may (without the consent of any
person or further payment) terminate its liability to subject
to the terms of employment of the active members of the
Pension Schemes but otherwise contribute to the Pension
Schemes or any other arrangement to which it contributes that
provides relevant benefits (as defined in section 612 of the
Taxes Act 1988) at any time subject only to giving such notice
(if any) as is expressly provided for in the documentation
containing the current provisions governing the Pension
Schemes.
(xxv) TARGET and its Subsidiaries are the only
employers for the time being participating in the Pension Schemes. No
employer other than TARGET and its Subsidiaries has previously
participated in the Pension Schemes.
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(xxvi) To the Knowledge of the Sellers all
documentation and records in respect of the Pension Schemes are up to
date and complete and accurate in all material respects.
(xxvii) To the Knowledge of the Sellers the Save &
Prosper Scheme:
(A) is an exempt approved scheme
(within the meaning of Section 592(1) Income and Corporation
Taxes Act 1988);
(B) has properly and punctually
accounted to the Board of Inland Revenue for all and any tax
for which the Pension Schemes is liable or accountable; and
(C) has at all times complied with and
been administered in accordance with all applicable laws,
regulations and requirements (including those of the Board of
Inland Revenue and of trust law).
(xxviii) To the Knowledge of the Sellers none of the
Pension Schemes, TARGET or any of its Subsidiaries is engaged or
involved in any litigation or arbitration, investigation or
determination by the Pensions Ombudsman and/or the Occupational
Pensions Advisory Service or any complaint under the internal dispute
resolution procedure established in connection with the Pension Schemes
which relate to or are in connection with the Pension Schemes or the
benefits thereunder and no such proceedings are pending or threatened
and to the Knowledge of the Sellers there are no facts likely to give
rise to any such proceedings.
(xxix) In relation to the Pension Schemes or funds
which are or have been held for the purposes thereof, neither TARGET
and its Subsidiaries has given an indemnity or guarantee to any person
(other than in the case of TARGET and its Subsidiaries any general
indemnity in favour of the trustees or administrator under the
documentation governing the Pension Schemes).
(u) GUARANTEES. Neither TARGET nor any of its
Subsidiaries is a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person.
(v) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. Except as
disclosed in ss.4(v) of the Disclosure Schedule:
(i) Hazardous Materials have not at any time
been generated, used, treated or stored by TARGET and its Subsidiaries
in violation in any material respect of any applicable Environmental
Law, or in any way which will hereafter require material
<PAGE> 47
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remedial action under any applicable Environmental law, and TARGET and
its Subsidiaries have not received any notice of any such violation
with respect to Hazardous Materials;
(ii) to the Knowledge of the Sellers, there has
been no spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto any property owned or leased by TARGET and its
Subsidiaries, or into the environment surrounding any such property, of
Hazardous materials, other than releases permissible under applicable
Law or allowable under applicable permits;
(iii) TARGET and its Subsidiaries, their
operations and any property owned, leased or operated by them are in
compliance in all material respects with (i) all applicable
Environmental Laws, and (ii) the requirements of any permits issued
under such laws; and
(iv) there are no pending or threatened claims
against TARGET and its Subsidiaries or any property owned, leased or
operated by them relating to Hazardous Materials or environmental
matters.
None of the circumstances, conditions or occurrences disclosed in ss.4(v) of the
Disclosure Schedule or reflected in the Financial Statements involves or will
result in any material liability on the part of TARGET and its Subsidiaries.
(w) CERTAIN BUSINESS RELATIONSHIPS.
(i) Except as contemplated or permitted by this
Agreement, disclosed in ss.4(w)(i) of the Disclosure Schedule or
reflected in the Financial Statements, none of the Sellers is involved
in any business arrangement or relationship with TARGET and its
Subsidiaries and none of the Sellers owns any material asset, tangible
or intangible, which is used in the business of TARGET and its
Subsidiaries (other than motor vehicles owned and used by Peter
Nightingale).
(ii) Except as contemplated or permitted by the
Agreement, disclosed in ss.4(w)(ii) of the Disclosure Schedule or
reflected in the Financial Statements, neither TARGET nor any of its
Subsidiaries is involved in any business arrangement or relationship
with Harrison Clinical Research Limited and Harrison Clinical Research
Limited does not own any material asset, tangible or intangible, which
is used in the business of TARGET and its Subsidiaries.
(x) COMPETITION.
<PAGE> 48
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(i) To the Knowledge of the Sellers, TARGET and
its Subsidiaries are not, and have not been party to, or concerned in
any agreement, arrangement, understanding or concerted practice, or any
other conduct or practice (unilateral or otherwise) in relation to the
Business which constitutes a breach of any relevant undertaking, order,
assurance or other measure taken under the Fair Trading Act 1973, the
Restrictive Trade Practices Act 1976 or the Competition Act 1980
(ii) TARGET and its Subsidiaries are not subject
to any publication, order, condition, undertaking, assurance or similar
measure or obligation imposed by or under any of the laws referred to
in ss.4(x)(i).
(iii) TARGET and its Subsidiaries are not, and
have not been subject to any investigation, request for information,
notice or other communication (whether formal or informal, and whether
or not in writing) by any court, governmental or regulatory authority
pursuant to any of the laws referred to in ss.4(x)(i).
(iv) To the Knowledge of TARGET and its
Subsidiaries, no such action as is mentioned in ss.4(x)(i) will be
taken against them in relation to any of their current activities.
(y) DISCLOSURE.
(i) The representations and warranties contained
in this ss.4 do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements and information contained in this ss.4, in light of the
circumstances under which they were made, not misleading in any
material respect.
(ii) The contents of the Disclosure Schedule and
of all documents accompanying it and referred to in it are true and
accurate in all material respects and fully and clearly disclose every
matter to which they relate.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with
respect to the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his, her or its
best efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in ss.7 below).
(b) NOTICES AND CONSENTS. The Sellers will cause each of
TARGET and its Subsidiaries to give any notices to third parties, and will cause
TARGET to use its best efforts to
<PAGE> 49
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obtain any third party consents, that Kendle reasonably may request in
connection with the matters referred to in ss.4(c) above. Each of the Parties
will (and the Sellers will cause TARGET and its Subsidiaries to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorisations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in ss.3(a)(ii), ss.3(b)(ii), and
ss.4(c) above.
(c) OPERATION OF BUSINESS. The Sellers will not cause or
permit TARGET and its Subsidiaries to engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business without
prior notification to and the consent of Kendle (which consent shall not be
unreasonably withheld or delayed). Without limiting the generality of the
foregoing, the Sellers will not cause or (so far as they are able) permit TARGET
and its Subsidiaries to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock, (ii) otherwise engage in any practice, take
any action, or enter into any transaction of the sort described in ss.4(h)
above, or (iii) do any act or omit to do any act, or (so far as they are able)
permit any act or omission to act, which could be reasonably expected to cause
any of the statements contained in ss.4 to not be correct and complete as of the
Closing Date (except as set forth in the Disclosure Schedule). Notwithstanding
anything in this paragraph (c) to the contrary, IRC shall be permitted to take
all reasonable steps necessary to have that certain legal mortgage dated 6
September 1996 in favour of Midland Bank plc fully discharged. The Sellers shall
not be in breach of this paragraph (c) in respect of anything done or omitted or
permitted to be done by TARGET or IRC in the ordinary and proper course of its
trading activities or with the prior written consent or approval of Kendle or in
order to comply with the Sellers' obligations under this Agreement.
(d) PRESERVATION OF BUSINESS. The Sellers shall use their
best efforts to cause TARGET and its Subsidiaries to keep their business and
properties substantially intact, including its present operations, physical
facilities, working conditions and relationships with lessors, licensors,
suppliers, customers and employees.
(e) FULL ACCESS. Each of the Sellers will permit, and the
Sellers will cause TARGET and its Subsidiaries to permit, representatives of
Kendle to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of TARGET and its Subsidiaries, to
all premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to TARGET and its Subsidiaries.
(f) NOTICE OF DEVELOPMENTS. The Sellers will give prompt
written notice to Kendle of any material adverse development causing a breach of
any of the representations and warranties in ss.4 above. Each Party will give
prompt written notice to the others of any material adverse development causing
a breach of any of his, her or its own representations and warranties in ss.3
above.
<PAGE> 50
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6. POST-CLOSING COVENANTS. The Parties agree as follows with
respect to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
ss.6 or ss.8 below or under the Tax Deed). The Sellers acknowledge and agree
that, from and after the Closing, Kendle will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort within the possession of, or under the control of, any Seller
or TARGET and its Subsidiaries, relating to TARGET and its Subsidiaries (other
than such documents, books, records (including Tax records), agreements and
financial data that solely relate to one or more Sellers personally or to their
personal positions).
(b) LITIGATION SUPPORT. In the event and for so long as
any Party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving TARGET and its Subsidiaries, each of the other
Parties will co-operate with him, her or it and his, her or its counsel in the
contest or defence, make available their personnel, and provide such testimony
and access to their books and records as shall be reasonably necessary in
connection with the contest or defence, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under ss.8 below).
(c) TRANSITION. None of the Sellers will take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of TARGET and its
Subsidiaries from maintaining the same business relationships with TARGET and
its Subsidiaries after the Closing as it maintained with TARGET and its
Subsidiaries prior to the Closing. Each of the Sellers will refer all customer
inquiries relating to the businesses of TARGET and its Subsidiaries to TARGET
and its Subsidiaries from and after the Closing.
(d) CONFIDENTIALITY. Each of the Sellers will treat and
hold as such all of the Confidential Information, refrain from using any of the
Confidential Information (other than Confidential Information that solely
relates to the Seller personally) except in connection with this Agreement or
the business of TARGET and its Subsidiaries and will deliver promptly to Kendle
or destroy, at the request of Kendle, all copies of the Confidential Information
which are
<PAGE> 51
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in his, her or its possession. In the event that any of the Sellers is requested
or required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, that Seller will
notify Kendle promptly of the request or requirement so that Kendle may seek an
appropriate protective order or waive compliance with the provisions of this
ss.6(d). If, in the absence of a protective order or the receipt of a waiver
hereunder, Seller is compelled to disclose such Confidential Information, Seller
may disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that the disclosing Seller shall use his, her or its reasonable best efforts to
obtain, at the reasonable request of Kendle, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as Kendle shall designate.
(e) TARGET SHARES. Each of the Sellers hereby declares
that for so long as he/she remains the registered holder of any of the TARGET
Shares after Closing he/she will:
(i) hold the TARGET Shares and the dividends and
other distributions or profits or surplus of other assets declared,
paid or made in respect of them after Closing and all rights arising
out of or in connection with them in trust for Kendle and its
successors in title; and
(ii) deal with and dispose of the TARGET Shares
and all such dividends, distributions and rights as are described
in ss.6(e)(i) as Kendle or any such successor may direct.
(f) INDEMNITIES.
(i) The Sellers shall jointly and severally
indemnify TARGET and its Subsidiaries and any officer of TARGET and its
Subsidiaries against:
(A) any Adverse Consequences which
TARGET or its Subsidiary are or become liable to pay as a
result of any failure to comply with the Pensions Act 1995 by
any person in respect of the Save & Prosper Scheme; and
(B) any Adverse Consequences arising in
any way from the lease dated 11 June 1995 by TARGET with
respect to office premises at Central Hall, 52-54 Market
Street, Ely, Cambridgeshire.
(ii) The liability of the Sellers under this
ss.6(f) shall be subject to the limitations specified in ss.8(i).
7. CONDITIONS TO OBLIGATION TO CLOSE.
<PAGE> 52
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(a) CONDITIONS TO OBLIGATION OF KENDLE. The obligation of
Kendle to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth
in ss.4 above shall have been true and correct in all material respects
(other than representations and warranties having materiality
qualifiers, which shall be true and correct in all respects) at and as
of the date of this Agreement and the representations and warranties
set forth in ss.3(a) above shall be true and correct in all material
respects (other than representations having materiality qualifiers,
which shall be true and correct in all respects) at and as of the
Closing Date;
(ii) the Sellers shall have performed and
complied with all of their covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavourable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, (C) affect adversely
the right of Kendle to own TARGET Shares and to control TARGET, or (D)
affect adversely the right of TARGET to own its assets and to operate
its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) (A) each Seller shall have delivered to
Kendle a certificate with respect to the satisfaction of the conditions
specified above in ss.7(a)(i) and (B) the Sellers shall have delivered
to Kendle a certificate to the effect that each of the conditions
specified above in ss.7(a)(ii)-(iii) is satisfied in all respects;
(v) John Glasby and Gillian Gregory shall have
had full medical examinations and Kendle shall have been satisfied with
the form and substance of the report on each such medical examination;
(vi) TARGET'S bank creditors shall have given
their written consent to the transaction contemplated by this Agreement
(if required) and shall have discharged all Encumbrances given by
TARGET and its Subsidiaries in their favour;
<PAGE> 53
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(vii) John Glasby, Gillian Gregory and Peter
Nightingale shall have entered into Employment Agreements in the form
of Exhibit 7(a)(vii) hereto (the "EMPLOYMENT AGREEMENTS");
(viii) each of the Sellers shall have executed and
delivered releases in the form of Exhibit 7(a)(viii) hereto (the
"RELEASES");
(ix) each of the Sellers shall have executed and
delivered Non-Competition and Non-Disclosure Covenants in the form of
Exhibit 7(a)(ix) hereto (the "COVENANTS");
(x) no TARGET Material Adverse Change shall have
occurred; provided, however, if a TARGET Material Adverse Change shall
have occurred, Kendle and the Sellers shall negotiate in good faith
with respect to a reasonable adjustment of the Purchase Price. If
agreement is not reached prior to 22 January 1999 with respect to such
an adjustment, Kendle may terminate this Agreement for failure of a
condition precedent;
(xi) (A) TARGET and IRC shall have received all
authorisations, consents, and approvals of governments and governmental
agencies referred to in ss.3(a)(ii) and ss.4(c) above, and (B) Kendle
shall have received all authorisations, consents, and approvals of
governments and governmental agencies referred to in ss.3(b)(ii);
(xii) Kendle shall have received the resignations,
effective as of the Closing, of each director, secretary and officer of
TARGET and its Subsidiaries other than those whom Kendle shall have
specified in writing at least five Business Days prior to the Closing,
each delivering to Kendle a deed in form and substance satisfactory to
Kendle made out in favour of TARGET and/or its Subsidiaries
acknowledging that he or she has no claim outstanding for compensation
or otherwise and without any payment under the Employment Rights Act
1996;
(xiii) each of the Sellers shall have executed and
delivered to Kendle an affidavit pursuant to ss. 1.1445-2(b)(2) of the
Treasury Regulations: (A) stating that such Seller is not a
"non-resident alien" for United States income tax purposes; and (B)
setting forth that Seller's tax identification number and address;
(xiv) each of the Sellers shall have executed and
delivered the Escrow Agreement;
(xv) Kendle shall have received (A) all the
statutory and other books (duly written up to date) of TARGET and each
of its Subsidiaries and its/their certificate(s) of incorporation, any
certificates of incorporation on change of name and
<PAGE> 54
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common seal(s); (B) transfers of all of the TARGET Shares duly executed
by the registered holders thereof in favour of Kendle together with the
relative share certificates; (C) certificates in respect of all issued
shares in the capital of each of TARGET's Subsidiaries and transfers of
all shares in any Subsidiary not registered in the name of TARGET or
another Subsidiary in favour of such Persons as Kendle shall direct;
and (D) the title deeds to the Premises (other than those title deeds
properly in the possession of Midland Bank plc);
(xvi) Kendle shall have received an executed Tax
Deed;
(xvii) the Sellers shall have caused a board
meeting of TARGET and of each of its Subsidiaries to be held at which
there shall be (A) passed a resolution to approve, in the case of
TARGET, the transfers of TARGET Shares and (subject only to due
stamping) to register, in the register of members, each transferee as
the holder of the shares concerned; (B) appointed as directors and/or
secretary such Persons as Kendle may nominate such appointments to take
effect at the close of the meeting; (C) tendered and accepted the
resignations and acknowledgements of the directors and secretary
referred to in ss.7(a)(xii) each such acceptance to take effect at the
close of the meeting; (D) revoked all existing authorities to banks and
new authorities shall be given to such banks and on such terms as
Kendle may direct; (E) changed the situation of the registered office
and (subject to the Companies Acts) the accounting reference date, each
as Kendle may direct; and (F) approved and entered into the Employment
Agreements;
(xviii) Kendle shall have received, certified as
correct by the secretary of the relevant company, the minutes of each
board meeting referred to in ss.7(a)(xvii); and
(xix) Kendle shall have received a power of
attorney from each Seller (if requested by Kendle) in form and
substance satisfactory to Kendle enabling Kendle to vote the TARGET
Shares pending Kendle's registration as shareholder.
Kendle may waive any condition specified in this ss.7(a) in writing at or prior
to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLERS. The
obligation of the Sellers to consummate the transactions to be performed by them
in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth
in ss.3(b) above shall be true and correct in all material respects
(other than representations and warranties having materiality
qualifiers, which shall be true and correct in all respects) at and as
of the Closing Date;
<PAGE> 55
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(ii) Kendle shall have performed and complied
with all of its covenants hereunder in all material respects through
the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavourable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) Kendle shall have delivered to the Sellers a
certificate to the effect that each of the conditions specified above
in ss.7(b)(i)-(iii) is satisfied in all respects;
(v) no material adverse change in the business,
assets, liabilities, income, financial condition or business prospects
of the Parent and its subsidiaries taken as a whole ("KENDLE MATERIAL
ADVERSE CHANGE") shall have occurred since the date of the latest
Kendle SEC Report; provided, however, that if a Kendle Material Adverse
Change shall have occurred, the Seller and Kendle shall negotiate in
good faith with respect to a reasonable adjustment to the Purchase
Price. If agreement is not reached with respect to such an adjustment
prior to 22 January 1999, the Sellers may terminate this Agreement for
failure of a condition precedent; and
(vi) the Parties and TARGET shall have received
all authorisations, consents, and approvals of governments and
governmental agencies referred to in ss.3(a)(ii), ss.3(b)(ii), and
ss.4(c) above.
The Sellers may waive any condition specified in this ss.7(b) if they execute a
writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties of the Sellers contained in ss.4(a)-(j),
ss.4(l)-(u) and ss.4(w)-(x) above shall survive the Closing hereunder and
continue in full force and effect through and until the second anniversary of
the Closing Date. All of the representations and warranties of the Sellers
contained in ss.4(k) and ss.4(v) above shall survive the Closing hereunder and
continue in full force and effect through and until the seventh anniversary of
the Closing Date. All of the other representations and warranties of the Parties
contained in this Agreement (including the representations and warranties of the
Sellers contained in ss.3(a)) shall survive the Closing and continue in full
force and effect forever thereafter (subject to any applicable statutes of
limitations).
<PAGE> 56
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(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF KENDLE.
(i) In the event any of the Sellers breaches any
of their representations, warranties, and covenants contained herein
(other than the covenants in ss.2(a) above and the representations and
warranties in ss.3(a) above), and, if there is an applicable survival
period pursuant to ss.8(a) above, provided that Kendle makes a written
claim for indemnification against any of the Sellers in accordance with
ss.11(h) below within such survival period, then each of the Sellers
agrees, on a joint and several basis, to indemnify Kendle, the Parent
and each of their respective directors, officers and affiliates from
and against the entirety of any Adverse Consequences any of them may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences any of them may suffer after the
end of any applicable survival period) resulting from, arising out of,
or caused by the breach (or the alleged breach).
(ii) In the event any of the Sellers breaches any
of his or her covenants in ss.2(a) above or any of his or her
representations and warranties in ss.3(a) above, and, if there is an
applicable survival period pursuant to ss.8(a) above, provided that
Kendle makes a written claim for indemnification against the Seller in
accordance with ss.11(h) below within such survival period, then each
of the Sellers agrees, on a several basis, to indemnify Kendle, the
Parent and each of their respective directors, officers and affiliates
from and against the entirety of any Adverse Consequences any of them
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences any of them may suffer after the
end of any applicable survival period) resulting from, arising out of,
or caused by the breach.
(iii) Kendle shall satisfy Sellers'
indemnification and/or refund obligations under this Agreement by first
recourse to the monies or assets held in the escrow fund held by The
Fifth Third Bank, as escrow agent, pursuant to the Escrow Agreement and
the Sellers shall have no liability to make any payment to Kendle
hereunder until the escrow fund has been exhausted but recourse to that
escrow fund shall not constitute Kendle's sole remedy or source for
satisfaction of indemnification and/or other claims under this
Agreement.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE
SELLERS. In the event Kendle breaches any of its representations, warranties,
and covenants contained herein, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that any of the Sellers makes a written
claim for indemnification against Kendle in accordance with ss.11(h) below
within such survival period, then Kendle agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Seller may suffer after the end of any
<PAGE> 57
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applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach). Kendle shall also
indemnify any Seller from and against the entirety of any Adverse Consequences
such Seller may suffer as a result of any obligations or liability of TARGET or
any TARGET Subsidiary (other than this Agreement) guaranteed by such Seller.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party
(the "INDEMNIFIED PARTY") with respect to any matter (a "THIRD PARTY
CLAIM") which may give rise to a claim for indemnification against any
other Party (the "INDEMNIFYING PARTY") under ss.6(f) or this ss.8, then
the Indemnified Party shall promptly notify each Indemnifying Party
thereof in writing; PROVIDED, HOWEVER, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right
to defend the Indemnified Party against the Third Party Claim with
legal advisers of its choice reasonably satisfactory to the Indemnified
Party so long as (A) the Indemnifying Party notifies the Indemnified
Party in writing within 15 days after the Indemnified Party has given
notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfil its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defence of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is
conducting the defence of the Third Party Claim in accordance with
ss.8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defence
of the Third Party Claim, (B) the Indemnified Party will not consent to
the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and
<PAGE> 58
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(C) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in
ss.8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this ss.8.
(e) PAYMENT OF AND INTEREST ON INDEMNIFICATION AMOUNTS.
Each amount claimed in respect of Adverse Consequences shall be payable within
ten (10) days after the date of claim by an Indemnified Party, and such amount
shall bear interest if not paid by such date at the annual rate of ten percent
(10%) until paid in full. Any amount paid by the Sellers to Kendle in respect of
any breach of this Agreement or under the Tax Deed shall be treated for tax
purposes as a reduction in the consideration for the TARGET Shares.
(f) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to TARGET and its Subsidiaries or the transactions
contemplated by this Agreement.
(g) RIGHTS CUMULATIVE. The rights and remedies conferred
on Kendle under this Agreement are cumulative and are additional to and not
exclusive of any rights or remedies provided by law or otherwise available at
any time to Kendle in respect of any breach of this Agreement (including but not
limited to the rights to damages for any loss or additional loss suffered by
Kendle).
(h) INFORMATION. Each of the Sellers agrees with Kendle
(for itself and as trustee for TARGET and the Subsidiaries) and the directors,
employees, agents and advisers of TARGET and the Subsidiaries:
(i) that the giving by TARGET or the
Subsidiaries and/or any of their directors, employees, agents or
advisers to any of the Sellers or their agents or advisers of
<PAGE> 59
-55-
any information or opinion in connection with this Agreement or the Tax
Deed or the Disclosure Schedule or otherwise in relation to the
business or affairs of TARGET and/or the Subsidiaries or in connection
with the negotiation in preparation of this Agreement, the Tax Deed or
the Disclosure Schedule shall not be deemed a representation, warranty
or guarantee to the Sellers of the accuracy of such information or
opinion;
(ii) to waive any right or claim which he may
have against TARGET or the Subsidiaries or any of their directors,
employees, agents or advisers for any error, omission or
misrepresentation in any such information or opinion; and
(iii) that any such right or claim shall not
constitute a defence to any claim by Kendle under or in relation to
this Agreement or the Tax Deed.
(i) LIMITATIONS ON INDEMNIFICATION.
(i) No liability shall attach to the Sellers
under this Agreement or the Tax Deed (other than with respect to
ss.2(h) above) unless the aggregate amount of such liability shall
exceed (pound)25,000 but in that event the Sellers shall be liable for
the whole amount of such liability and not merely the excess.
(ii) The total aggregate amount payable by the
Sellers with respect to any liabilities accrued under this Agreement
and the Tax Deed shall not exceed(pound)2,775,000.
(iii) The total aggregate amount payable by any
Seller under this Agreement and the Tax Deed shall not exceed such
Seller's pro rata portion of the Purchase Price (which for the
avoidance of doubt is equal at any time to the sum of such Seller's pro
rata portion (based on the allocation percentages of the Purchase Price
as set out on Schedule 1 hereto) of (A) the assets and Parent Shares
held in the escrow fund pursuant to the Escrow Agreement, (B) all
assets and Parent Shares (valued at Market Value) released from such
escrow fund to the Sellers since the Closing Date, and (C) the Cash
Closing Payment).
(iv) Any claim made against the Sellers under
this Agreement (excluding a claim under ss.4(k) or under the Tax Deed)
shall (if it has not been previously satisfied, settled or withdrawn)
be deemed to be withdrawn at the expiration of 12 months from the date
of giving notice of such claim unless legal proceedings in respect
thereof have been commenced by the issuing and service of such
proceedings against the Sellers.
<PAGE> 60
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(v) Payment of any claim under this Agreement or
the Tax Deed shall pro tanto satisfy and discharge any other claim
under this Agreement or the Tax Deed which is capable of being made in
respect of the same loss.
(vi) The liability of the Sellers in respect of
any claim under the Tax Deed shall be subject to the further
limitations set out in the Tax Deed.
(vii) No portion of any liability shall attach to
the Sellers in respect of a claim under this Agreement (excluding the
Tax Deed) to the extent that with respect to such portion:
(A) such claim arises only as a
consequence of a change in the law or a change of any
previously published extra statutory concession or press
release from Inland Revenue or HM Customs and Excise after the
Closing Date;
(B) such claim or the events giving
rise to such claim or such claim is increased only as a result
of a voluntary act or transaction by or at the request of
Kendle or Target or IRC (each a "GROUP COMPANY") or any of
their respective directors, officers or employees effected
after the Closing Date otherwise than as required by law and
otherwise than pursuant to a legally binding commitment of a
Group Company entered into before the Closing Date and
otherwise than in the ordinary course of business (which shall
not include communicating any information to any governmental
authority);
(C) provision or reserve in respect of
such amount of such claim is made in the Financial Statements;
(D) the liability giving rise to such
claim would have been insured had TARGET and its Subsidiaries
arranged insurance cover with effect from the Closing Date
which would be equivalent to the policies currently in force
in respect of the Group Companies but only to the extent and
limit of such policies; and
(E) such claim results from or is
increased or extended by any change in the accounting policies
of any Group Company after the Closing Date unless such change
was required under UK GAAP.
(viii) In assessing the liability of the Sellers
under this Agreement there shall be taken into account any proven tax
benefit accruing to Kendle or any Group Company as a consequence of the
relevant breach..
<PAGE> 61
-57-
(ix) The effect of the application of Section
8(i)(vii) and (viii) shall first be taken into account for the purpose
of determining the amount of liability for the purposes of Section
8(i)(i).
(x) Kendle shall not be entitled to recover any
sum in respect of any claim for breach of any of the warranties or
otherwise obtain reimbursement or restitution more than once in respect
of the same loss.
(xi) In the event that Kendle or any Group
Company is entitled to recover from a third party (whether by payment,
discount, credit, relief or otherwise howsoever) any sum in relation to
any loss, liability or damage which is the subject of a claim under
this Agreement, Kendle shall (or shall procure for so long as it
remains a Subsidiary of the Parent that the relevant Group Company
shall):
(A) notify the Sellers as soon as
reasonably practicable and provide such information and
assistance as the Sellers may reasonably require relating to
such entitlement and the action taken or proposed to be taken
or proposed to be taken by Kendle or the relevant Group
Company in respect of it;
(B) take (at the expense of the
Sellers) such reasonable steps or proceedings as the Sellers
may reasonably require (excluding any steps or proceedings
that would be to the commercial detriment of any Group
Company) and shall act in accordance with any such
requirements of the Sellers subject to Kendle being
indemnified by the Sellers against all reasonable costs and
expenses incurred in connection therewith and shall keep the
Sellers promptly informed of the progress of any such steps,
proceedings or actions.
(xii) In the event of the Sellers having paid to
Kendle an amount in respect of a claim under this Agreement and
subsequent to the date of making such payment Kendle or any Group
Company recovers from a third party (whether by payment, discount,
credit, relief or otherwise howsoever) a sum which is directly related
to that payment then Kendle shall forthwith repay or procure the
repayment by the relevant Group Company to the Sellers of so much of
the amount paid by the third party as does not exceed the sum paid by
the Sellers to Kendle less (a) the reasonable costs of Kendle or the
relevant Group Company in recovering such sum (including legal fees),
and (b) any amounts owed by the Sellers in respect of any other claims
under this Agreement on the Tax Deed.
(xiii) If any claim under this Agreement (excluding
the Tax Deed) shall arise by reason of some liability of a Group Member
which, at the time the claim is notified to the Sellers, is contingent
only, the Sellers shall not be under any obligation to
<PAGE> 62
-58-
make any payment to Kendle in respect of such claim until such time as
the contingent liability shall become an actual liability.
(xiv) Nothing in this Section 8 shall be deemed to
relieve Kendle from any common law or other duty to mitigate any loss
or damage incurred by it.
(xv) Any amount paid by the Sellers to Kendle in
respect of any breach of this Agreement or under the Tax Deed shall be
treated for tax purposes and not for any other purpose under this
Agreement or the Tax Deed as a reduction in the consideration for the
TARGET Shares.
(xvvi) The Sellers will be under no liability in
respect of any claim under ss.6(f) unless written particulars shall
have been given to the Sellers within a period of seven years from the
Closing Date.
9. [Intentionally Omitted.]
10. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(i) Kendle and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) Kendle may terminate this Agreement by
giving written notice to the Sellers at any time prior to the Closing
(A) in the event any of the Sellers has breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, Kendle has notified the Sellers of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not have occurred on
or before 22 January 1999, by reason of the failure of any condition
precedent under ss.7(a) hereof (unless the failure results primarily
from Kendle itself breaching any representation, warranty, or covenant
contained in this Agreement); and
(iii) the Sellers may terminate this Agreement by
giving written notice to Kendle at any time prior to the Closing (A) in
the event Kendle has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, any of
the Sellers has notified Kendle of the breach, and the breach has
continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred on or before 22
January 1999, by reason of the failure of
<PAGE> 63
-59-
any condition precedent under ss.7(b) hereof (unless the failure
results primarily from any of the Sellers themselves breaching any
representation, warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. Except as set forth in this
ss.10(b), if any Party terminates this Agreement pursuant to ss.10(a) above, all
rights and obligations of the Parties hereunder shall terminate without any
Liability of any Party to any other Party (except for any Liability of any Party
then in breach). Notwithstanding the foregoing, if after this Agreement has been
executed, Kendle is obligated to consummate the transactions contemplated hereby
and Kendle fails to do so, Kendle shall (i) pay Sellers, as liquidated damages,
an amount equal to four percent (4%) of the Purchase Price and (ii) reimburse
Sellers for all out-of-pocket expenses (including attorneys' and accountants'
fees) TARGET incurs in connection with the transaction contemplated hereby;
PROVIDED, HOWEVER, that this aggregate amount shall not exceed One Hundred and
Fifty Thousand Sterling ((pound)150,000). Notwithstanding the foregoing, if
after this Agreement has been executed, the Sellers are obligated to consummate
the transactions contemplated hereby and any Seller fails to do so, the Sellers
shall (i) pay Kendle, as liquidated damages, an amount equal to four percent
(4%) of the Purchase Price and (ii) reimburse Kendle for all out-of-pocket
expenses (including attorneys' and accountants' fees) Kendle incurs in
connection with the transaction contemplated hereby; PROVIDED, HOWEVER, that
this aggregate amount shall not exceed One Hundred and Fifty Thousand Sterling
((pound)150,000).
11. MISCELLANEOUS.
(a) NATURE OF CERTAIN OBLIGATIONS.
(i) The covenants of each of the Sellers in
ss.2(a) above concerning the sale of his, her or its TARGET Shares to
Kendle and the representations and warranties of each of the Sellers in
ss.3(a) above concerning the transaction are several obligations. This
means that the particular Seller making the representation, warranty,
or covenant will be solely responsible to the extent provided in ss.8
above for any Adverse Consequences Kendle may suffer as a result of any
breach thereof.
(ii) The remainder of the representations,
warranties, and covenants in this Agreement are joint and several
obligations. This means that each Seller will be responsible to the
extent provided in ss.8 above for the entirety of any Adverse
Consequences Kendle may suffer as a result of any breach thereof.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior written
approval of Kendle and the Sellers (which approval shall not be unreasonably
withheld or delayed); PROVIDED, HOWEVER, that any Party may make any
<PAGE> 64
60-
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Parties
prior to making the disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall
not confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the
documents referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they related in any way to the
subject matter hereof. The Sellers hereby confirm that there are no other
agreements between any of them or any of them and TARGET or its Subsidiaries
other than this Agreement and any agreements referred to in this Agreement.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of his, her or its rights, interests, or obligations hereunder
without the prior written approval of Kendle and the Sellers; provided, however,
that Kendle may (i) assign any or all of its rights and interests hereunder to
one or more of its Affiliates (provided that if any such Affiliate shall cease
to be an Affiliate of Kendle it shall forthwith reassign such rights to Kendle
and pending such re-assignment such rights shall not be exercisable) and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases Kendle nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(f) COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent (i) from and to the United Kingdom, by first
class pre-paid post, recorded delivery, or (ii) from or to any place outside the
United Kingdom, by pre-paid priority airmail, international recorded delivery
(or the equivalent thereof), in either case addressed to the intended recipient
as set forth below:
<PAGE> 65
-61-
IF TO THE SELLERS: Michael Roy Broomby
Oak Croft
West Heath Lane
Sevenoaks
Kent TN13 1TA
John Glasby
Owlesden
The Green
Fornham All Saints
Bury St Edmunds
Suffolk IPX 6JX
Gillian Gregory
Briarwood
5 Rectory Road
Bluntisham
Cambridgeshire PE17 3LN
Peter Nightingale
13 Priory Close
Royston
Hertfordshire SG8 7DU
COPY TO: Hewitson Becke + Shaw
Shakespeare House
42 Newmarket Road
Cambridge CB5 8EP
Attention: James Lawrence
IF TO KENDLE: KENDLE INTERNATIONAL INC.
441 Vine Street
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Paul F. Ritter, Esq.
General Counsel
COPY TO: BINGHAM DANA LLP
39 Victoria Street
London SW1H 0EE
Attention: Gerald J. Kehoe, Esq.
<PAGE> 66
-62-
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
facsimile, ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with English law. In relation to any legal action or
proceedings to enforce this Agreement or arising out of or in connection with
this Agreement, each of the Parties irrevocably submits to the jurisdiction of
the English courts but this Agreement may be enforced by the Parties in any
court of competent jurisdiction.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by Kendle and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(l) EXPENSES. Each of the Parties will bear his, her or
its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favouring or disfavouring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any European Union, national,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
References to, or any provision of, any treaty, statute, directive, regulation,
decision, order, instrument, by-law or any other law of, or having effect in,
any jurisdiction shall be construed also as references to such provisions as
replaced,
<PAGE> 67
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amended or re-enacted from time to time. Any statute, statutory instrument,
regulation, by-law or other requirement of US federal, state or local law and
any US legal term of any action, remedy, method of judicial proceeding, legal
documents, legal status, procedure, court, official or any legal concept or
doctrine or other expression shall in respect of any non-US jurisdiction be
deemed to include that which most nearly approximates in such non-US
jurisdiction such US statute, statutory instrument, regulation, by-law or other
requirement of law or legal term. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of relative levels of
specificity) which the Party has not breached shall not detract from or mitigate
the fact that the Party is in breach of the first representation, warranty or
covenant. Reference to an Event occurring on or before the Closing Date shall be
deemed to include: (i) any combination of two or more Events all of which shall
have occurred on or before the Closing Date; and (ii) any combination of two or
more Events only the first or some of which shall have occurred on or before
Closing Date provided that, there shall be disregarded any Event which shall
have occurred before the Closing Date in the ordinary course of business of
TARGET; and (iii) any Event which is treated or deemed to occur on or before the
Closing Date for the purposes of any Taxes.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.
The Exhibits, Annexes, and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties
acknowledges and agrees that the other Parties would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court having jurisdiction over
the Parties and the matter in addition to any other remedy to which they may be
entitled, at law or in equity.
(p) ADDRESS FOR SERVICE.
(i) Each Seller hereby irrevocably authorises
and appoints the Sellers' Solicitors marked for the attention of James
Lawrence (or such other person or persons, being a firm of solicitors
resident in England, as such Seller may hereafter as regards himself by
notice in writing to all the other parties hereto from time to time
substitute) to accept on his behalf service of all legal process
arising out of or connected with this Agreement to be served prior to
the seventh anniversary of the Closing Date.
<PAGE> 68
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(ii) Service of such process of the person for
the time being authorised under ss.11(p)(i) to accept it on behalf of
such Seller shall be deemed to be service of that process on such
Seller.
(iii) From the date of this Agreement until the
Closing Date, Kendle hereby irrevocably authorises and appoints Bingham
Dana LLP of 39 Victoria Street, London SW1H 0EE (or such other person
or persons Kendle may hereafter as regards himself by notice in writing
to all the other parties hereto from time to time substitute) to accept
on his behalf service of all legal process arising out of or connected
with this Agreement.
(iv) As of the Closing Date and thereafter,
Kendle hereby irrevocably authorises and appoints TARGET (or such other
person or persons, being a firm of solicitors resident in England, as
Kendle may hereafter as regards himself by notice in writing to all the
other parties hereto from time to time substitute) to accept on his
behalf service of all legal process arising out of or connected with
this Agreement to be served prior to the seventh anniversary of the
Closing Date.
(v) Service of such process of the person for
the time being authorised under ss.11(p)(iii) or ss.11(p)(iv) (as
applicable) to accept it on behalf of Kendle shall be deemed to be
service of that process on Kendle.
AS WITNESS the hands of the duly authorised representatives of the Parties on
the date first before written.
<PAGE> 69
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SCHEDULE 1 -- SELLERS, SHARE HOLDINGS, PURCHASE PRICE ALLOCATION, ETC.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SELLERS' NAMES NUMBER OF TARGET NUMBER OF PARENT ALLOCATED PERCENTAGE
AND ADDRESSES SHARES HELD SHARES TO RECEIVE OF PURCHASE PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael Roy Broomby 19 16,636 19%
Oak Croft
West Heath Lane
Sevenoaks
Kent TN13 1TA
- ---------------------------------------------------------------------------------------------------
John Glasby 29 25,392 29%
Owlesden
The Green
Fornham All Saints
Bury St Edmunds
Suffolk IPX 6JX
- ---------------------------------------------------------------------------------------------------
Gillian Gregory 29 25,392 29%
Briarwood
5 Rectory Road
Bluntisham
Cambridgeshire PE17 3LN
- ---------------------------------------------------------------------------------------------------
Peter Nightingale 23 20,138 23%
13 Priory Close
Royston
Hertfordshire SG8 7DU
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 70
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SCHEDULE 2 -- PREMISES
1. The freehold premises known as 22a Station Road, Ely as registered at
HM Land Registry under title number CB116324.
2. The freehold premises known as numbers 24, 26 and 30 Station Road, Ely
as registered at HM Land Registry under title number CB146364.
<PAGE> 71
SCHEDULE 3 - SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME REGISTERED REGISTERED OFFICE
NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C>
Research Consultants
(International) Limited 02348938 Angel House
24 Station Road
Ely
Cambridgeshire CB7 4BS
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 72
-68-
SCHEDULE 3(B) -- EXCEPTIONS TO KENDLE'S REPRESENTATIONS AND WARRANTIES
None.
<PAGE> 73
-69-
SIGNED by ) /s/ John Glasby
JOHN GLASBY )
in the presence of: )
Witness: /s/ Brenda Glasby
Name: Brenda Glasby
Address: Owlesden
The Green
Furnham All Saints
Bury St. Edmonds
Suffolk IPX 6JX
Occupation:
SIGNED by ) /s/ Gillian Gregory
GILLIAN GREGORY
in the presence of: )
Witness: /s/ P.K. Gregory
Name: P.K. Gregory
Address: Briarwood
5 Rectory Road
Bluntisham
Cambridgeshire PE17
3LN
Occupation:
SIGNED by ) /s/ Michael Roy Broomby
MICHAEL ROY BROOMBY )
in the presence of: )
Witness: /s/ Dr. D. Palmer
Name: Dr. D. Palmer
Address: Oak Croft
West Heath Lane
Sevenoaks
Kent TN13 1TA
<PAGE> 74
-70-
Occupation:
SIGNED by ) /s/ Peter Nightingale
PETER NIGHTINGALE )
in the presence of: )
Witness: /s/ Jean Audrey Nightingale
Name: Jean Audrey Nightingale
Address: 13 Priory Close
Royston
Hertfordshire SG8 7DU
Occupation:
SIGNED by Timothy M. Mooney ) /s/ Timothy M. Mooney
duly authorised for and on )
behalf of KENDLE )
U.K. INC. )
Witness: /s/ Paul F. Ritter
Name: Paul F. Ritter
Address: Kendle International Inc.
441 Vine St.
700 Carew Tower
Cincinnati, OH 45202
Occupation:
<PAGE> 1
EXHIBIT 2.8
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is dated as of the 5th day
of January 1999 among KENDLE U.K. INC., an Ohio corporation with a mailing
address of 700 Carew Tower, 441 Vine Street, Cincinnati, Ohio 45202, USA
Attention: Paul F. Ritter, Esq., General Counsel ("Kendle"), and John Glasby
with a notice address of Owlesden, The Green, Fornham All Saints, Bury St.
Edmunds, Suffolk IPX 6JX ("Glasby"), Gillian Gregory with a notice address of
Briarwood, 5 Rectory Road, Bluntisham, Cambridgeshire PE17 3LN ("Gregory"),
Michael Roy Broomby with a notice address of Oak Croft, West Heath Lane,
Sevenoaks, Kent TN13 1TA, ("Broomby") and Peter Nightingale with a notice
address of 13 Priory Close, Royston, Hertfordshire SG8 7DU, ("Nightingale")
(Glasby, Gregory, Broomby and Nightingale collectively, the "Sellers"), and THE
FIFTH THIRD BANK with a mailing address of 38 Fountain Square Plaza, Cincinnati,
Ohio 45263, as the escrow agent hereunder ("Escrow Agent").
BACKGROUND
A. Effective as of December 23, 1998 Kendle and the Sellers
entered into a Share Purchase Agreement (the "Purchase Agreement"). Pursuant to
the terms of said Purchase Agreement, Kendle (or its assignee) will purchase
from the Seller all of the issued and outstanding share capital of Research
Consultants (International) Holdings Limited ("Target").
B. The parties desire to enter into this Escrow Agreement to
provide for an escrow of Eighty-Seven Thousand Five Hundred Fifty-Eight (87,558)
shares of common stock, no par value per share, of Kendle International Inc.
(the "Parent Shares") to provide financial support for Sellers' obligation to
indemnify Kendle for any breaches of warranty or representation by Sellers under
the Purchase Agreement and Sellers' commitment to retain key employees of the
business of the Target for a period of time after the date hereof.
C. The Sellers' respective interests in the Escrow Fund (as
defined hereinafter) are as set forth on Schedule I.
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 Sellers hereby designate
The Fifth Third Bank as "Escrow Agent" under this Escrow Agreement. Kendle and
Sellers hereby deliver to the Escrow Agent a copy of the Purchase Agreement,
which agreement is attached hereto as Exhibit "A". Each Seller, in accordance
with the Purchase Agreement, hereby delivers to the Escrow
<PAGE> 2
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Agent, and the Escrow Agent hereby acknowledges receipt of, a certificate or
certificates, each duly endorsed in blank or with stock powers duly endorsed in
blank evidencing the Eighty-Seven Thousand Five Hundred Fifty-Eight (87,558)
Parent Shares (the "Deposit").
2. INVESTMENT OF THE DEPOSIT; DIVIDENDS AND DISTRIBUTIONS WITH
RESPECT TO THE DEPOSIT; TRANSFERABILITY.
(a) The Escrow Agent is hereby authorized to invest the
cash portion (if any) of the Deposit and any other cash in the Escrow
Fund (as defined hereinafter) in money market funds, including the
Fifth Third U.S. Treasury Obligations Fund sponsored by the Escrow
Agent's affiliate, Fifth Third Funds. The Escrow Agent shall cause all
dividends, distributions (including shares distributed in a stock
split), proceeds from any sale or liquidation, or other income earned
on or with respect to the Deposit to be added to the Deposit. Such
deposited dividends, distributions or other income shall, together with
the Deposit, constitute the "Escrow Fund" to be distributed as provided
in Section 5 hereof.
(b) Each Seller shall have the right to direct the Escrow
Agent as to the exercise of any voting rights pertaining to such
Seller's pro rata share of the Parent Shares by delivery of written
instructions to the Escrow Agent and the Escrow Agent shall comply with
any instructions received from the Seller's Institutional Stockholders.
In the absence of instructions from such Seller, the Escrow Agent shall
not vote such Seller's pro rata share of the Parent. Kendle shall
distribute to the Sellers copies of all notices or correspondence sent
to shareholders of Kendle International Inc.
(c) The respective interests of the Sellers in the Escrow
Fund shall not be assignable or transferable, other than by operation
of law. Written notice of any such assignment or transfer by operation
of law shall be given to the Escrow Agent and Kendle by such Seller,
and no such assignment or transfer shall be valid until such notice is
given. Any assignment or transfer effected by operation of law shall
continue to be subject to this Escrow Agreement.
3. 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 5 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. Kendle and the Sellers,
collectively, shall each assume and pay one half (1/2) of all costs and expenses
of the Escrow Agent incurred in its capacity as the Escrow Agent under this
Escrow Agreement. The fees of the Escrow Agent are set forth on Exhibit "B"
attached hereto and incorporated herein.
4. RESIGNATION; DISAGREEMENTS.
<PAGE> 3
-3-
(a) The 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 the 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. [For this purpose, an order will be
final and non-appealable if no right of appeal lies in respect of such
judgment or the time period for giving notice of appeal in respect of
such judgment has expired with no such notice having been given or the
parties are otherwise debarred from exercising any right of such
appeal.]
5. TERMINATION AND DISTRIBUTION OF ESCROW.
(a) Except as provided in Section 5(f), this Escrow
Agreement shall terminate upon the earlier of (i) the date that is the
second anniversary of the closing of the transactions contemplated by
the Purchase Agreement (the "Second Anniversary Date") (subject to any
other outstanding claims to the Escrow Fund), or (ii) the date upon
which the Escrow Agent shall have distributed the Escrow Fund as
provided herein;
(b) If, on or prior to the date that is the first
anniversary of the closing of the transactions contemplated by the
Purchase Agreement (the "First Anniversary Date"), Kendle shall not
have delivered to the Escrow Agent and Sellers a notice of claim
("Notice of Claim") with respect to the Escrow Fund based on either (i)
breaches by the Sellers of warranties or representations contained in
the Purchase Agreement, and/or (ii) a reduction in the Purchase Price
(as defined in the Purchase Agreement) pursuant to Section 2(h) of the
Purchase Agreement, one half (1/2) of the Parent Shares, plus all
<PAGE> 4
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dividends, distributions and other income earned thereupon, shall
promptly be released to Sellers by the Escrow Agent;
(c) If, on or prior to the First Anniversary Date, Kendle
shall have delivered a Notice of Claim to the Escrow Agent and none of
the Sellers shall have disputed the Notice of Claim within fifteen (15)
business days after their receipt of the Notice of Claim, the Parent
Shares, plus all dividends, distributions and other income earned
thereupon, (or such lesser amount as may be specified in Kendle's
Notice of Claim), shall promptly be released to Kendle by the Escrow
Agent;
(d) If, on or prior to the Second Anniversary Date,
Kendle shall not have delivered to the Escrow Agent and Sellers a
Notice of Claim, the remaining one half (1/2) of the Parent Shares,
plus all dividends, distributions and other income earned thereupon,
shall be promptly released to Sellers by the Escrow Agent;
(e) If, on or prior to the Second Anniversary Date,
Kendle shall have delivered a Notice of Claim to the Escrow Agent and
none of the Sellers shall have disputed the Notice of Claim within
fifteen (15) business days after their receipt of the Notice of Claim,
the remainder of the Parent Shares, plus all dividends, distributions
and other income earned thereupon, (or such lesser amount as may be
specified in Kendle's Notice of Claim), shall promptly be released to
Kendle by the Escrow Agent;
(f) If, on or prior to the Second Anniversary, Kendle
shall have delivered a Notice of Claim or multiple Notices of Claim to
the Escrow Agent and Sellers which is or are timely disputed by
Sellers, the Escrow Agent shall hold the Parent Shares, plus all
dividends, distributions and other income earned thereupon, until the
dispute or disputes is or are resolved by a court of competent
jurisdiction, even if resolution of the disputes occurs after January,
2001, and shall distribute the Parent Shares, plus all dividends,
distributions and other income earned thereupon pursuant to ss.4(b);
and
(g) The value of any Parent Shares released to Kendle
pursuant to this Section 5 shall be determined by reference to the
average closing bid price for shares of Kendle common stock on the
NASDAQ National Market System during the twenty (20) trading days prior
to either the date that a disputed claim is finally determined or, if a
claim is not disputed, the date of release.
(h) Any distribution of all or a portion of the Escrow
Fund to the Sellers shall be made in accordance with the percentages
set forth opposite the Sellers' respective names on Schedule I.
Distributions to the Sellers of the Parent Shares shall be made by
submitting the appropriate Parent Shares to the transfer agent of
Kendle International Inc., who shall be directed to re-register such
Parent Shares in the names of the Sellers (as applicable) for transfer
and/or mailing checks to such Sellers at their respective addresses
<PAGE> 5
-5-
shown on Schedule I (or such other address as may be provided in
writing to the Escrow Agent by any Seller).
(i) No fractional Parent Shares shall be distributed from
the Escrow Fund. Instead, the number of Parent Shares that each Seller
shall receive shall be rounded up or down to the nearest whole number
such that the total amount of Parent Shares allocated among the Sellers
shall not exceed the aggregate number of Parent Shares in the Escrow
Fund. Any remaining unallocated Parent Shares shall be sold by the
Escrow Agent for fair market value and the proceeds of such sale shall
be distributed among the Sellers in accordance with the percentages set
forth opposite the Sellers' respective names on Schedule I.
6. DUTIES OF ESCROW AGENT. The duties of the Escrow Agent 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, if taken in good faith, except for gross negligence or
willful misconduct in performing its duties. In the event of disagreement or
dispute between Kendle and Sellers with respect to disposition of the Escrow
Fund, the Escrow Agent shall promptly initiate an appropriate legal proceeding
to obtain a judicial determination of the respective parties' rights to the
Escrow Fund. No rights are intended to be granted to any third party hereunder.
Kendle and Sellers shall severally (each being responsible for fifty percent
(50%) of the indemnity account) indemnify, defend and hold harmless the Escrow
Agent and reimburse the Escrow Agent from and for any and all liability, costs
and expenses, including reasonable attorneys' fees, 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 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 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 except for any such liability, costs, expenses (including reasonable
attorneys' fees), loss, claims or damage which is a result of Escrow Agent's own
gross negligence or willful misconduct. This indemnification shall survive
termination of this Escrow Agreement. Kendle and Sellers agree that Kendle, on
the one hand, and Sellers, collectively, on the other hand, shall each assume
and pay fifty percent (50%) of all amounts due to Escrow Agent as a result of
this indemnification.
Escrow Agent is not a party to, and is not bound by, any
agreement, including but not limited to the Purchase Agreement, which may be
evidenced by, or arise out, 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)
<PAGE> 6
-6-
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.
7. 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) five (5) business day after being sent by an
overnight delivery service, postage or delivery charges prepaid, or
(c) on the date on which a facsimile is transmitted to
the parties at their respective addresses stated above.
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 7, except that any such change of address notice shall not be
effective unless and until received.
8. AMENDMENT. No amendment or modification of this Escrow
Agreement shall be effective unless in writing and signed by the parties.
9. 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, which consent
shall not be unreasonably withheld.
10. 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.
11. 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.
12. 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,
<PAGE> 7
-7-
and it shall not be necessary in making proof of this Escrow Agreement to
produce or account for more than one original counterpart hereof.
13. 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.
14. DEFINITIONS. To the extent not specifically defined herein,
all terms used herein shall have the meanings ascribed to them in the Purchase
Agreement.
(remainder of page intentionally blank)
<PAGE> 8
-8-
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 U.K. INC.
By: /s/ Timothy M. Mooney
-----------------------------------
Name: Timothy M. Mooney
Title: Vice President and CFO
JOHN GLASBY
/s/ John Glasby
------------------------------------
GILLIAN GREGORY
/s/ Gillian Gregory
------------------------------------
MICHAEL ROY BROOMBY
/s/ Michael Roy Broomby
------------------------------------
PETER NIGHTINGALE
/s/ Peter Nightingale
------------------------------------
Received and accepted:
THE FIFTH THIRD BANK
Escrow Agent
By: /s/ Dana Hushak
--------------------------
Name: Dana Hushak
Title:
<PAGE> 9
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EXHIBIT "A"
PURCHASE AGREEMENT
<PAGE> 10
EXHIBIT "B"
Escrow Agent Fees
Annual Administrative Fee $2,750.00
Fee based on two years of processing beginning on the agreement date. Services
to include:
- Review of Escrow Documentation INCLUDED
- Set - up of Escrow Account INCLUDED
- Receipt and custody of Escrow Assets INCLUDED
- Distribution of Assets INCLUDED
Out of pocket expenses including but not limited to: postage, insurance,
stationary, legal fees, etc. will be passed along as incurred. Services not
specifically contemplated herein may be additional. Quotation is subject to
review and acceptance of all applicable documents.
<PAGE> 11
-11-
SCHEDULE I
<TABLE>
<CAPTION>
Seller Percentage Interest in Escrow Fund
- ------ ----------------------------------
<S> <C>
Michael Roy Broomby 19%
John Glasby 29%
Gillian Gregory 29%
Peter Nightingale 23%
</TABLE>
<PAGE> 1
Exhibit 2.9
OPTION AGREEMENT
- --------------------------------------------------------------------------------
This Option Agreement (the "Agreement") is made and entered into as of
September 9, 1998, by and among COMPONENT SOFTWARE INTERNATIONAL, INC., an Ohio
corporation ("CSI"); KENDLE INTERNATIONAL INC., an Ohio corporation ("Kendle"),
and certain shareholders of CSI who have executed this Agreement (the
"Shareholders") only with respect to Section 9 of this Agreement.
R E C I T A L S
A. CSI is in the business of providing a variety of information
technology services including consulting, development, testing, and support
services;
B. Kendle is in the business of providing integrated clinical research
and drug development services on a contractual basis;
C. CSI and Kendle have entered into a Software Development and License
Agreement dated July 5, 1998, pursuant to which CSI has agreed to provide
certain limited information technology services for Kendle (the "Software
Development Agreement");
D. The Shareholders own in excess of Eighty Nine percent (89%) of the
issued and outstanding capital stock of CSI;
E. CSI desires to grant Kendle an option to purchase 206,944 shares of
the common capital stock of CSI in exchange for a payment by Kendle plus
Kendle's commitment to purchase additional information technology services from
CSI on an on-going basis pursuant to the Multi-Year Strategic Services Agreement
in substantially the same form as attached Exhibit A (the "Multi-Year
Agreement"); and
F. Kendle desires to receive an option to acquire an equity interest in
CSI and desires to obtain additional information technology services from CSI;
ACCORDINGLY, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
<PAGE> 2
SECTION 1. GRANT OF OPTION
- --------------------------------------------------------------------------------
CSI hereby grants to Kendle the right, option and privilege (the
"Purchase Option") to purchase 206,944 shares of the voting, no par common
capital stock of CSI (the "Stock"), on the terms and conditions set forth
herein, which shares constitute ten percent (10%) of the issued and outstanding
common capital stock of CSI as of the date of this Agreement, calculated on a
fully-diluted basis; provided, however, that such number of shares of Stock
shall be reduced prorata to the extent that the number of common shares subject
to exercise or exercised by the HEP Parties (as defined below) under their
Warrants is reduced on or before the Expiration Date. CSI hereby grants the
Purchase Option in consideration of Kendle's payment to CSI of Two Hundred Fifty
Thousand Dollars ($250,000) (the "Option Consideration"). CSI hereby
acknowledges receipt of the Option Consideration. If prior to the earlier of the
Expiration Date (as defined below) or the date on which Kendle elects to
exercise the Purchase Option the outstanding shares of CSI's voting, no par
common stock are changed into or exchanged for a different number or kind of
shares of stock of CSI or of another corporation or other securities, property,
cash or any combination thereof (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares or
otherwise), or in the event a stock split or stock dividend shall have occurred,
then there shall be substituted for each share of Stock then subject to the
Purchase Option the number and kind of shares of stock, other securities,
property, cash or any combination thereof into which each outstanding share of
CSI voting, no par common stock shall be so changed or exchanged, or the number
of shares of CSI voting, no par common stock as is equitably required in the
event of a stock split or stock dividend. Prior to the earlier of the Expiration
Date or the date on which Kendle elects to exercise the Purchase Option, CSI
also shall not, without giving Kendle at least twenty (20) days prior written
notice, establish a record date for the declaration of any dividend or
distribution (other than a stock dividend) on the shares of CSI's voting, no par
common stock, or declare any such dividend or distribution or establish a record
date for the dissolution, liquidation or winding up of CSI or adopt any
resolution of directors or shareholders with respect to a dissolution,
liquidation or winding up of CSI. Further, if any other event occurs prior to
the earlier of the Expiration Date or the date on which Kendle elects to
exercise the Purchase Option as to which the adjustment provisions of the two
(2) immediately preceding sentences are not strictly applicable or, if strictly
applicable, would not fairly protect Kendle's Purchase Option rights, then CSI
shall make an equitable adjustment to the application of those adjustment
provisions so as fairly and fully to protect Kendle's Purchase Option rights.
SECTION 2. TIME AND MANNER OF EXERCISE
- --------------------------------------------------------------------------------
The Option may be exercised, in whole only, at any time after the date
of this Agreement and by no later than December 31, 1998 (the "Expiration
Date"). To exercise the Option, Kendle must provide written notice to CSI of its
exercise of the Purchase Option in the form of the attached Exhibit B, "Notice
of Option Exercise," and also must enter into the Multi-Year Agreement.
Within fifteen (15) days after Kendle's due exercise of the Purchase
Option, Kendle shall deliver the Purchase Price to CSI as described in Section 3
below. Upon receipt of the Purchase
2
<PAGE> 3
Price from Kendle, CSI shall deliver to Kendle a duly executed certificate or
certificate(s) representing the Stock being issued pursuant hereto, together
with such additional documents as may be reasonably requested by CSI to
effectuate the transfer and to register the same on the books of CSI. Upon
issuance, the shares of Stock shall be duly authorized, validly issued, fully
paid and non-assessable shares of CSI voting, no par common stock, free and
clear of any and all liens, pledges, claims and encumbrances other than
restrictions on transfer under this Agreement, the Multi-Year Agreement and
under applicable federal and state securities laws and regulations.
If Kendle does not elect to exercise the Purchase Option, CSI shall
retain the Option Consideration and apply it as a credit against additional
information technology services to be provided by CSI for Kendle after the
Expiration Date pursuant to the terms of the Software Development Agreement.
SECTION 3. EXERCISE PRICE AND PAYMENT
- --------------------------------------------------------------------------------
3.1 PRICE. As full payment for the Stock, Kendle shall pay CSI Ten
Dollars ($10.00) per share with the total consideration for
the Stock equal to $2,069,440. Kendle shall be entitled to
credit the full amount of the Option Consideration against the
exercise price for the Stock.
3.2 PAYMENT.
3.2.1 Of the total Purchase Price described in Section 3.1
above, if the historical average of the NASDAQ NMS
closing bid price for shares of Kendle's common
stock, no par value per share ("Kendle Shares") for
the twenty (20) trading days immediately preceding
the date on which Kendle exercises the Purchase
Option (the "Kendle Share Valuation") is equal to or
greater than Twenty- Three and 29/00 Dollars ($23.29)
and not greater than Twenty-Eight and 46/00 Dollars
($28.46), then Seventy-Five percent (75%) of the
Purchase Price, or One Million Five Hundred Fifty Two
Thousand Eighty Dollars ($1,552,080) (including the
Option Consideration), shall be paid in cash, with
One Million Three Hundred Two Thousand Eighty Dollars
($1,302,080) to be paid by wire transfer of
immediately available funds, with the remaining
Twenty-Five percent (25%) of the Purchase Price being
paid in 19,995 Kendle Shares.
3.2.2 Of the total Purchase Price described in Section 3.1
above, if the Kendle Share Valuation for the Kendle
Shares is greater than Twenty-Eight and 46/00 Dollars
($28.46), then Seventy-Five percent (75%) of the
Purchase Price, or One Million Five Hundred Fifty Two
Thousand Eighty Dollars ($1,552,080) (including the
Option Consideration), shall be paid in cash, with
One Million Three Hundred Two Thousand Eighty Dollars
($1,302,080) to be paid by wire transfer of
immediately available funds, with the remaining
3
<PAGE> 4
Twenty-Five percent (25%) of the Purchase Price being
paid in Kendle Shares valued at the Kendle Share
Valuation.
3.2.3 Of the total Purchase Price described in Section 3.1
above, if the Kendle Share Valuation for the Kendle
Shares is less than Twenty-Three and 29/00 Dollars
($23.29) and equal to or greater than Twenty and
70/00 Dollars ($20.70), then Seventy-Five percent
(75%) of the Purchase Price, or One Million Five
Hundred Fifty Two Thousand Eighty Dollars
($1,552,080) (including the Option Consideration),
shall be paid in cash, with One Million Three Hundred
Two Thousand Eighty Dollars ($1,302,080) to be paid
by wire transfer of immediately available funds, with
the remaining Twenty-Five percent (25%) of the
Purchase Price being paid in Kendle Shares valued at
the Kendle Share Valuation.
3.2.4 Of the total Purchase Price described in Section 3.1
above, if the Kendle Share Valuation for the Kendle
Shares is less than Twenty and 70/00 Dollars
($20.70), then, at CSI's option, at least
Seventy-Five percent (75%) and no more than Ninety
percent (90%) of the Purchase Price, or between One
Million Five Hundred Fifty Two Thousand Eighty
Dollars ($1,552,080) and One Million Eight Hundred
Sixty Two Thousand Four Hundred Ninety Six Dollars
($1,862,496) (including the Option Consideration),
shall be paid in cash, with an amount equal to the
cash portion of the Purchase Price less the Option
Consideration to be paid by wire transfer of
immediately available funds, and with the remaining
ten percent (10%) to Twenty-Five percent (25%) of the
Purchase Price being paid in Kendle Shares valued at
the Kendle Share Valuation.
Upon issuance, the Kendle Shares shall be duly authorized, validly
issued, fully paid and non-assessable shares of Kendle common stock, no par
value, free and clear of any and all liens, pledges, claims and encumbrances
other than restrictions on transfer under this Agreement and under applicable
federal and state securities laws and regulations.
SECTION 4. RESTRICTIONS ON EXERCISE; RESERVATION OF STOCK
- --------------------------------------------------------------------------------
4.1 Kendle may exercise the Purchase Option only with respect to
all of the Stock and no partial exercises shall be permitted.
4.2 CSI covenants and agrees that, prior to the Expiration Date:
(i) CSI shall at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the Purchase
Option, sufficient shares of voting, no par common stock of
CSI to provide for the full exercise of the Purchase Option;
and (ii) CSI shall take all actions as may be necessary to
ensure that the Stock issuable upon exercise of the Purchase
Option
4
<PAGE> 5
may be issued without violations of any applicable law or
regulation; provided, however, that nothing contained herein
shall impose on CSI any obligation to register the Stock under
applicable securities laws except as provided in Exhibit C to
this Agreement. In the event that any securities of CSI other
than shares of CSI's voting, no par common stock are issuable
on the exercise by Kendle of the Purchase Option, CSI will
take all actions referred to in clauses (i) and (ii) in the
preceding sentence as though such clauses applied, mutatis
mutandis, to such other securities then issuable upon the
exercise of the Purchase Option.
SECTION 5. CSI REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
CSI represents and warrants that the following are true and correct on
the date hereof and on the date on which Kendle acquires the Stock pursuant to
exercise of the Purchase Option:
5.1 CORPORATE STANDING. CSI is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Ohio. CSI has all requisite power and authority to
own, lease and operate its properties and to carry on its
business as now being conducted and as presently proposed to
be conducted and to execute, deliver and perform this
Agreement. CSI is duly licensed, authorized and qualified to
do business and is in good standing in all jurisdictions
(domestic or foreign) in which the conduct of its business or
the ownership or leasing of its properties requires it to be
so licensed, authorized or qualified, except where its failure
to be so licensed, authorized or qualified would not have a
material adverse effect, singularly or in the aggregate, on
the condition (financial or otherwise) of the properties,
business, operations or prospects of CSI.
5.2 AUTHORIZATION. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on
the part of CSI. This Agreement has been duly executed and
delivered by CSI, and constitutes the legal, valid and binding
obligation of CSI, as applicable, enforceable against it in
accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally
and (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability.
5.3 VALIDLY ISSUED SHARES. The shares of Stock to be issued, sold
and delivered in accordance with the terms of this Agreement
for the consideration set out herein, will, upon issuance in
accordance with the terms hereof, be duly authorized and
validly issued, fully paid and non-assessable, free and clear
of any and all liens, pledges, claims and encumbrances other
than restrictions on transfer under this Agreement the
Multi-Year Agreement and under applicable federal and state
securities laws and regulations. The issuance of the Stock to
Kendle pursuant to this
5
<PAGE> 6
Agreement will comply with all applicable laws, including
federal and state securities laws and regulations.
5.4 SUBSIDIARIES; INVESTMENTS. Except as set forth on Schedule
5.4, CSI does not own of record or beneficially any notes,
obligations, instruments, stock, securities or ownership
interests in or of any other corporation, limited liability
company, partnership, trust or other person, firm or entity
("Investment"). Schedule 5.4 correctly sets forth the name of
each corporation, association or other business entity of
which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled by CSI
("Subsidiary"), the jurisdiction of its incorporation and the
persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the
jurisdiction of its incorporation, possesses all requisite
corporate power and authority and all material licenses,
permits and authorizations necessary to own its properties and
to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do
business in every jurisdiction in which its ownership of
property or the conduct of business requires it to qualify
except where the failure to so quality would not have a
material adverse effect on CSI. All of the outstanding shares
of capital stock of each Subsidiary are validly issued, fully
paid and nonassessable and all such shares are owned by CSI or
another Subsidiary free and clear of any lien and not subject
to any option or right to purchase any such shares. Except as
set forth on Schedule 5.4, neither CSI nor any Subsidiary owns
or holds the right to acquire any shares of stock or any other
security or interest in any other person, firm or entity.
5.5 CAPITALIZATION. As of the date of this Agreement, CSI's
authorized capital stock consists of (a) 3,000,000 Common
Shares and (b) 1,000,000 Series A Preferred Shares. There are
no declared but unpaid dividends or undeclared dividend
arrearages on any shares of capital stock of CSI. After giving
effect to the exercise of the Purchase Option by Kendle, the
only shares of capital stock of CSI issued and outstanding,
reserved for issuance or committed to be issued as of the date
of this Agreement are:
(a) 706,390 fully paid and non-assessable shares of
voting, no par common stock, duly issued and outstanding and
owned of record and beneficially by the persons, and issued on
the dates and for the consideration listed on Schedule 5.5;
(b) 237,658 shares of common stock reserved for
issuance to employees, officers or directors pursuant to an
option or equity incentive plan as approved by the Board;
(c) 179,140 shares of common stock reserved for
issuance to Strategic Ventures, L.P. pursuant to the Equity
Exchange Option Agreement, as amended;
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<PAGE> 7
(d) 550,000 fully paid and non-assessable Series A
Preferred Shares, duly issued and outstanding and owned of
record and beneficially by Healthcare Equity Partners, L.P.
and Healthcare Equity QP Partners, L.P. (the "HEP Parties");
(e) 550,000 shares of common stock reserved for
issuance upon conversion of the Series A Preferred Shares; and
(f) the Warrants issued to the HEP Parties and up to
189,306 shares of common stock issuable upon exercise of the
Warrants.
There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by
or binding upon CSI for the purchase or acquisition of any
shares of its capital stock, other than those issued,
reserved, committed to be issued pursuant to this Agreement or
as provided for in the Shareholders Agreement, the Articles or
otherwise as referred to in this Agreement. All outstanding
securities of CSI were issued in compliance with all federal
and state securities laws. CSI has no stock appreciation
rights or phantom stock plan.
5.6 FINANCIAL STATEMENTS. CSI has furnished Kendle with (a) the
balance sheets of CSI for years ended December 31, 1995,
December 31, 1996 and December 31, 1997 (the "Balance Sheet"),
together with the statements of operations and changes in
financial position for the fiscal year then ended, with the
unqualified opinion thereon of Clark, Schaefer, Hackett & Co.
(for 1995) and KPMG Peat Marwick (for 1996 and 1997),
independent certified public accounts, and a balance sheet and
profit and loss statement of CSI for the six (6) months ended
June 30, 1998 (collectively, including the Balance Sheet, the
"Financial Statements"), and (b) the projected statements of
income for CSI for the fiscal years ending December 31, 1998
and 1999 (the "Projected Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP and
fairly and accurately present the financial position of CSI as
of December 31, 1995, December 31, 1996, December 31, 1997 and
June 30, 1998, respectively, and the results of its operations
for the year ended December 31, 1995, the year ended December
31, 1996, the year ended December 31, 1997 and the six-month
period ended June 30, 1998. The Projected Financial Statements
have been prepared by CSI in good faith, based upon
information and assumptions reasonably believed by it to be
sound and accurate, and its officers and directors do not
know, and have no reasonable grounds to know, of any reason
such Projected Financial Statements do not represent
reasonable forecasts as to CSI's future operations and
financial performance. All the books, records and accounts of
CSI are in all material respects accurate and complete, are in
all material respects in accordance with good business
practice and all laws, regulations and rules applicable to CSI
and the conduct of its business and accurately present and
reflect in all material respects all of the transactions
described therein.
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<PAGE> 8
5.7 ABSENCE OF UNDISCLOSED LIABILITIES. CSI does not have any
material debts, liabilities or obligations of any nature
(whether accrued, absolute, contingent, direct, indirect,
perfected, inchoate, unliquidated or otherwise and whether due
or to become due, including (without limitation) any executive
severance compensation arrangements or "golden parachutes")
arising out of transactions entered into on or prior to the
date hereof, or any transaction, series of transactions,
action or inaction occurring on or prior to the date hereof,
or any state of facts or condition existing on or prior to the
date hereof (regardless of when such liability or obligation
is asserted), including, but not limited to, liabilities or
obligations on account of taxes or governmental charges or
penalties, interest or fines thereon or in respect thereof,
except (a) as and to the extent clearly and accurately
reflected and accrued for or reserved against in the Balance
Sheet (b) for liabilities specifically disclosed on Schedule
5.7, and (c) for liabilities and obligations arising after
December 31, 1997 in the ordinary course of business
consistent with past customs and practice, none of which would
exceed $10,000 in the aggregate. CSI and its officers and
directors do not know, and have no reasonable grounds to know,
of any basis for the assertion against CSI as of the date
hereof of any material liabilities not adequately reflected or
reserved against on the Balance Sheet.
5.8 ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, except as
set forth on Schedule 5.8, there has not been (a) any change,
occurrence, condition or development that has materially and
adversely affected, or is likely to materially and adversely
affect, CSI's business, affairs, assets, prospects,
operations, employee or vendor relations or condition
(financial or otherwise), or ability to meet its obligations
hereunder, (b) any dividend or other distribution, or any
recapitalization, combination or subdivision with respect to,
or any purchase or redemption by CSI of, any shares of its
capital stock, (c) any indebtedness incurred by CSI, (d) any
sale, transfer, lease, mortgage or pledge of, grant of
security interest in or other lien against any of CSI's assets
or cancellation of any claims of, or indebtedness or
obligations owing to CSI except as a result of payments of
obligations in the ordinary course of business consistent with
past customs and practice (e) any increase or change, (or
offer or promise thereof, whether or not legally binding) in
salaries or other compensation or employee benefits with
respect to any employees of CSI, (f) any purchase of or
agreement to purchase any additional assets by CSI at a cost
of greater than $5,000 in any one instance, (g) cancellation
or compromise by CSI of any debt or claim or waiver or release
of any right of material value, (h) any physical damage,
destruction or loss (whether or not covered by insurance)
adversely affecting the properties, business or prospects of
CSI, (i) any changes in the accounting principles, methods or
practices followed by CSI or depreciation or amortization
policies or rates theretofore adopted, or (j) any action taken
by CSI, its directors or officers or its shareholders to
authorize any of the actions contemplated by clauses (a) - (i)
above.
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<PAGE> 9
5.9 TAX LIABILITIES. CSI has filed all federal, state and local
tax reports and returns required by any law or regulation to
be filed by it, and such returns are true and correct. CSI has
paid all taxes, interest and penalties, if any, reflected on
such tax returns or otherwise due and payable by it. The
reserves for taxes reflected on the balance sheets included in
the Financial Statements are adequate in amount for the
payment of all liabilities for all taxes (whether or not
disputed) of CSI accrued through the dates of such balance
sheets. Any deficiencies proposed as a result of any
governmental audits of such tax returns have been paid or
settled, and there are no present disputes as to taxes payable
by CSI.
5.10 PROPRIETARY RIGHTS. Schedule 5.10 contains a complete and
correct list of all Proprietary Rights owned, used by or
licensed to or by CSI, all of which are in good standing.
Except as set forth on Schedule 5.10, (a) CSI owns and
possesses all right, title and interest in and to, or has a
valid license to use, all of the Proprietary Rights necessary
for the operation of its business as presently conducted and
as proposed to be conducted by it and none of such Proprietary
Rights have been abandoned by CSI; (b) no claim by any third
person contesting the validity, enforceability, use or
ownership of any such Proprietary Rights has been made, is
currently outstanding or is threatened, and there is no
reasonable basis for any such claim; (c) neither CSI nor any
registered agent of CSI has received any notices of, nor is
CSI aware of any reasonable basis for, an allegation of, any
infringement or misappropriation by, or conflict with, any
third person with respect to such Proprietary Rights, nor has
CSI or any registered agent of CSI received any claims of
infringement or misappropriation of or other conflict with any
Proprietary Rights of any third person; and (d) CSI has not
infringed, misappropriated or otherwise violated any
Proprietary Rights of any third person, and CSI is not aware
of any infringement, misappropriation or conflict which will
occur as a result of the continued operation of its business.
Proprietary Rights means (i) patents, patent applications,
patent disclosures and inventions (ii) trademarks, service
marks, trade dress, trade names and corporate names and
registrations and applications for registration thereof; (iii)
copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications
for registration thereof, (v) computer software, data and
documentation, (vi) trade secrets and other confidential
information (including, but not limited to, ideas, formulas,
compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques,
research and development information, drawings,
specifications, designs, plans, technical data, copyrightable
works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property
rights, and (viii) copies and tangible embodiments thereof (in
whatever form or medium).
5.11 CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with,
any court, administrative agency or
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<PAGE> 10
commission or other governmental authority or instrumentality,
domestic or foreign, or other third party is required by or
with respect to CSI in connection with the execution and
delivery of this Agreement, or the consummation by CSI of the
transactions contemplated hereby, which has not already been
obtained, except for notices of sale required to be filed with
the Securities and Exchange Commission under Regulation D of
the Securities Act of 1933, as amended ("Securities Act") or
such post closing filings as may be required under applicable
state securities laws which will be timely filed within the
applicable periods therefor.
5.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or to CSI's knowledge currently
threatened against CSI, nor does CSI have any actual knowledge
that there is any basis for the foregoing. CSI is not a party
or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or
investigation by CSI currently pending or that CSI intends to
initiate.
5.13 COMPLIANCE WITH OTHER INSTRUMENTS. CSI is not in violation or
default in any material respect of any provision of its
Articles of Incorporation or Code of Regulations, or in any
material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is
bound, or, to the best of its knowledge, of any provision of
any federal or state statute, rule or regulation applicable to
CSI. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby
will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving
of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or
encumbrance upon any assets of CSI or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any
material permit, license, authorization, or approval
applicable to CSI, its business or operations or any of its
assets or properties.
5.14 MATERIAL FACTS. This Agreement and the documents or written
statements furnished by CSI to Kendle in connection with the
transactions contemplated hereby do not contain any untrue
statement of a material fact or omit to state any material
fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they are made,
not misleading, except, with respect to assumptions,
projections and expressions of opinions or predictions
contained in the documents or written materials furnished by
CSI, CSI makes only those representations set forth in Section
5.6 hereof.
5.15 INVESTMENT. CSI understands that Kendle Shares received
hereunder will not be registered under the Securities Act or
under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for
transactions not
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<PAGE> 11
involving any public offering, CSI is acquiring the Kendle
Shares solely for its own account for investment purposes, and
not with a view to the distribution thereof, is a
sophisticated investor with knowledge and experience in
business and financial matters, has received certain
information concerning Kendle and has had the opportunity to
obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding Kendle Shares,
and is able to bear the economic risk and lack of liquidity
inherent in holding Kendle Shares.
SECTION 6. KENDLE REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
Kendle hereby represents and warrants to the Company, as of the date
hereof and on the date on which Kendle acquires the Stock pursuant to exercise
of the Purchase Option, as follows:
6.1 AUTHORIZATION; BINDING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by Kendle and it
constitutes the legal, valid and binding obligation of Kendle
enforceable against it in accordance with its terms; except as
(i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of
creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of
general applicability.
6.2 CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with,
any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or
foreign, or other third party is required by or with respect
to Kendle in connection with the execution and delivery of
this Agreement, or the consummation by Kendle of the
transactions contemplated hereby, which has not already been
obtained.
6.3 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the
creation of any lien, charge or encumbrance upon any assets of
Kendle or the suspension, revocation, impairment, forfeiture,
or nonrenewal of any material permit, license, authorization,
or approval applicable to Kendle, its business or operations
or any of its assets or properties.
6.4 RECEIPT OF INFORMATION. Kendle acknowledges that the Stock is
not being and will not be registered under the Securities Act
or the securities laws of any other jurisdiction in reliance
on exemptions thereunder. The Stock has not been and will not
be approved or disapproved by the Securities and Exchange
Commission or any other governmental authority or agency of
any jurisdiction. Kendle represents that it has had an
opportunity to ask questions and receive answers from CSI
regarding
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the business, properties, prospects, and financial condition
of CSI and to obtain additional information (to the extent CSI
possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to Kendle or to which
Kendle had access.
6.5 CAPITALIZATION. Kendle's authorized equity securities consist
of Fifteen Million (15,000,000) shares of common stock, no par
value per share, and One Hundred Thousand (100,000) shares of
undesignated preferred stock, no par value per share. As of
July 31, 1998, Ten Million Nine Hundred Forty One Thousand
Eight Hundred Twenty (10,941,820) shares of common stock were
issued and outstanding and no shares of undesignated preferred
stock were issued and outstanding. The Kendle Shares to be
received by CSI in connection with the transactions
contemplated hereby will be duly authorized, validly issued,
fully paid and non-assessable shares of common stock free and
clear of any and all encumbrances other than restrictions on
transfer imposed by federal and state securities laws and
regulations.
6.6 SEC REPORTS. Kendle has timely filed with the Securities and
Exchange Commission ("SEC") all materials and documents
required to be filed by it under the Securities Exchange Act
of 1934 (the "Exchange Act"). All the material and documents
filed with the SEC by Buyer since July 2, 1997, including its
initial Registration Statement on Form S-1, are hereinafter
referred to as the "Kendle SEC Reports." The Kendle SEC
Reports, copies of which have been delivered to CSI, are true
and correct in all material respects, including the financial
statements and other financial information contained therein,
and do not omit to state any material fact necessary to make
the statements in such Kendle SEC Reports, in light of the
circumstances in which they were made, not misleading. The
financial statements included in the Kendle SEC Reports fairly
present in all material respects the financial condition and
the results of operations, changes in stockholders' equity and
cash flow of Kendle and its subsidiaries as at the respective
dates of and for the periods referred to in such financial
statements, all in accordance with generally accepted
accounting principles.
SECTION 7. TRANSFERABILITY OF OPTION
- --------------------------------------------------------------------------------
Neither party may assign this Agreement in whole or in part to any
party without the prior written consent of the other party hereto; provided,
however, that Kendle may assign this Agreement to a wholly-owned subsidiary of
Kendle (directly or indirectly) or a lower tier wholly-owned subsidiary of
Kendle (directly or indirectly) upon at least seven business days' prior written
notice to CSI.
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SECTION 8. NO OBLIGATION TO EXERCISE OPTION
- --------------------------------------------------------------------------------
Nothing in this Agreement imposes any obligation upon Kendle to
exercise the Purchase Option.
SECTION 9. CLOSE CORPORATION STOCK TRANSFER RESTRICTIONS
- --------------------------------------------------------------------------------
All Stock acquired by Kendle upon exercise of the Purchase Option shall
be subject to the Close Corporation Stock Transfer Restriction and Redemption
Provisions provided on the attached Exhibit C. Kendle shall have piggyback
registration rights as set forth in the attached Exhibit C.
SECTION 10. EXCLUSIVITY
- --------------------------------------------------------------------------------
Until the earlier of the Expiration Date or the date that Kendle
notifies CSI in writing that it does not elect to exercise the Purchase Option,
CSI agrees that it will not provide customized information technology
development services for the direct competitors of Kendle as listed or described
on the attached Exhibit D. Notwithstanding the foregoing, nothing within this
Agreement shall in any way limit or restrict CSI's right or ability to continue
to provide services and products for any former or current client of CSI listed
on the attached Exhibit E. In addition, in the event that a then current CSI
customer is acquired (whether by sale of stock, assets, merger or otherwise) by
a Kendle direct competitor, CSI shall be permitted to continue to provide
services for such customer under the terms, and for the remaining term, of the
then existing agreement or work statement (but for no longer period) and in such
event CSI hereby expressly agrees not to disclose any Kendle proprietary
information to such customer.
SECTION 11. MISCELLANEOUS
- --------------------------------------------------------------------------------
11.1 BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and shall inure to the successors and
permitted assigns of each party. This Agreement is not
intended to confer on any person other than the parties hereto
or their respective successors and permitted assigns any
rights, remedies, obligations or liabilities, expressed or
implied, under or by reason of this Agreement.
11.2 ENTIRE AGREEMENT. This Agreement, together with any Schedules,
Exhibits and other documents contemplated hereby, constitutes
the final written expression of all of the agreements between
the parties, and is a complete and exclusive statement of
those terms. It supersedes all prior or contemporaneous
understandings and negotiations concerning the matters
specified herein. If any representations, promises, warranties
or statements made by any party differ in any way from the
terms of this written Agreement, any schedules and other
documents contemplated hereby, such other representations,
promises, warranties or statements shall be given no force or
effect. The parties specifically represent, each to the other,
that there are no additional or supplemental agreements
between them related in any way to the
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<PAGE> 14
matters herein. No addition to or modification of any
provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
11.3 PUBLIC STATEMENTS. Except as required by applicable law or
regulations or court order or by the rules of any national
securities exchange on which the securities of either Kendle
or CSI are quoted or listed, neither CSI nor Kendle shall,
without the prior written approval of the other parties
hereto, make any press release or other public announcement
concerning the transactions contemplated by this Agreement.
CSI and Kendle may disclose information with respect to the
transaction contemplated hereby to their respective employees,
agents, consultants and third parties only to the extent such
persons have a need to know such information.
11.4 GOVERNING LAW AND DISPUTE RESOLUTION. This Agreement shall be
governed in all respects by the internal substantive laws of
the State of Ohio. Any and all disputes arising out of or in
connection with the execution, interpretation, performance, or
non-performance of this Agreement or any agreement or other
instrument between, involving or affecting the parties
(including the validity, scope and enforceability of this
arbitration clause), shall be submitted to and resolved by
arbitration. The arbitration shall be conducted pursuant to
the terms of the Federal Arbitration Act and the Commercial
Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted by three arbitrators, who shall
be appointed pursuant to the rules of the American Arbitration
Association. Either party may notify the other party at any
time of the existence of an arbitrable controversy by
certified mail and shall attempt in good faith to resolve
their differences within fifteen (15) days after the receipt
of such notice. If the dispute cannot be resolved within the
fifteen-day period, either party may file a written demand for
arbitration with the American Arbitration Association. The
determination of the arbitrators shall be final and binding on
the parties. The place of arbitration shall be Cincinnati,
Ohio. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction.
11.5 WAIVERS. Any party hereto may, by written notice to the other
party hereto, to the extent expressly set forth in such
written notice: (i) extend the time for the performance of any
of the obligations or other actions of the other party under
this Agreement; (ii) waive any inaccuracies in the
representations or warranties of the other party contained in
this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions
or covenants of the other party contained in this Agreement;
(iv) waive performance of any of the obligations of the other
party under this Agreement; or (v) waive an event of default
by the other party under this Agreement Except as provided in
the preceding sentence, no action taken pursuant to this
Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any
representations, warranties,
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<PAGE> 15
covenants or agreements contained in this Agreement. No waiver
of any provision of this Agreement shall be deemed or shall
constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver.
11.6 SEVERABILITY. If for any reason whatsoever, any one or more of
the provisions of this Agreement shall be held or deemed to be
illegal, inoperative, unenforceable or invalid, such
circumstances shall not have the effect of rendering such
provision illegal, inoperative, unenforceable or invalid in
any other case or of rendering any of the other provisions of
this Agreement illegal, inoperative, unenforceable or invalid.
In substitution of such illegal, inoperative, unenforceable or
invalid provision, there shall be added automatically, as part
of this Agreement, a provision as similar in terms of such
illegal, invalid, unenforceable or inoperative provision as
may be possible and as shall be legal, valid, enforceable and
operative.
11.7 NOTICES. All notices, demands or other communications which
may be or are required to be given by any party to any other
party pursuant to this Agreement, shall be in writing and
shall be mailed by certified mail, return receipt requested,
postage prepaid, or transmitted by hand delivery, national or
international overnight express, telegram or facsimile
transmission, addressed as follows:
11.7.1 If to CSI:
Component Software International, Inc.
8118 Corporate Way
Mason, Ohio 45040-9560
Attention: Robert P. Beech, CEO
with a copy (which shall not constitute notice) to:
Graydon, Head & Ritchey
1900 Fifth Third Center
511 Walnut Street
Cincinnati, Ohio 45202
Attention: Daniel C. Heyd, Esq.
11.7.2 If to Kendle:
Kendle International Inc.
700 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
Attention: Timothy M. Mooney, CFO
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<PAGE> 16
with a copy (which shall not constitute notice) to:
Kendle International Inc.
700 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
Attention: Paul F. Ritter, Esq.
with a copy (which shall not constitute notice) to:
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Edward E. Steiner, Esq.
until such time as either party notifies the other of a change
of address. Each notice or other communication which shall be
mailed, delivered or transmitted in the manner described above
shall be deemed sufficiently given and received for all
purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, or the
affidavit of messenger or telefax transmission log being
deemed conclusive evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
11.8 COUNTERPARTS; EXECUTION. This Agreement may be executed in as
many counterparts as may be required, and each such
counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall
constitute but a single agreement. This Agreement shall be
deemed to have been executed at the time when and location at
which the last signature of any of the parties is affixed
hereto or to any counterpart hereof.
[signatures on next page]
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<PAGE> 17
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year hereinabove first
set above.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CSI: CSI SHAREHOLDERS
(FOR PURPOSES OF SECTION 9 AND EXHIBIT C ONLY)
<S> <C>
COMPONENT SOFTWARE /S/ RICHARD D. EGAN
INTERNATIONAL, INC. ----------------------------------------------
RICHARD D. EGAN
BY: BEECH INVESTORS LIMITED PARTNERSHIP
----------------------------
TITLE: BY:/S/ ROBERT P. BEECH
------------------------- ----------------------------------------------
ROBERT P. BEECH, MANAGING GENERAL PARTNER
KENDLE: EGAN INVESTORS LIMITED PARTNERSHIP
KENDLE INTERNATIONAL INC.
BY:/S/ RICHARD D. EGAN
BY: ----------------------------------------------
---------------------------- RICHARD D. EGAN, MANAGING GENERAL PARTNER
TITLE:
-------------------------
JOHN A. AND CHRISTINE L. MCCHESNEY FAMILY TRUST
BY:
----------------------------------------------
JOHN A. MCCHESNEY, TRUSTEE
HEALTHCARE EQUITY PARTNERS L.P.
BY:/S/ KENNETH W. O'KEEFE
----------------------------------------------
TITLE: KENNETH W. O'KEEFE -- MG. DIRECTOR
BEECKEN PATTY & COMPANY, LLC.
------------------------------------------
HEALTHCARE EQUITY QP PARTNERS, L.P.
BY:/S/ KENNETH W. O'KEEFE
----------------------------------------------
TITLE: KENNETH W. O'KEEFE -- MG. DIRECTOR
BEECKEN PATTY & COMPANY, LLC.
------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year hereinabove first
set above.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CSI: CSI SHAREHOLDERS
(FOR PURPOSES OF SECTION 9 AND EXHIBIT C ONLY)
<S> <C>
COMPONENT SOFTWARE /S/ RICHARD D. EGAN
INTERNATIONAL, INC. ----------------------------------------------
RICHARD D. EGAN
BY: BEECH INVESTORS LIMITED PARTNERSHIP
----------------------------
TITLE: BY:/S/ ROBERT P. BEECH
------------------------- ----------------------------------------------
ROBERT P. BEECH, MANAGING GENERAL PARTNER
KENDLE: EGAN INVESTORS LIMITED PARTNERSHIP
KENDLE INTERNATIONAL INC. BY:/S/ RICHARD D. EGAN
----------------------------------------------
BY: RICHARD D. EGAN, MANAGING GENERAL PARTNER
----------------------------
TITLE:
------------------------- JOHN A. AND CHRISTINE L. MCCHESNEY FAMILY TRUST
BY:
----------------------------------------------
JOHN A. MCCHESNEY, TRUSTEE
HEALTHCARE EQUITY PARTNERS L.P.
BY:
----------------------------------------------
TITLE:
-------------------------------------------
HEALTHCARE EQUITY QP PARTNERS, L.P.
BY:
----------------------------------------------
TITLE:
-------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year hereinabove first
set above.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CSI: CSI SHAREHOLDERS
(FOR PURPOSES OF SECTION 9 AND EXHIBIT C ONLY)
<S> <C>
COMPONENT SOFTWARE /S/ RICHARD D. EGAN
INTERNATIONAL, INC. ----------------------------------------------
RICHARD D. EGAN
BY:/S/ ROBERT P. BEECH BEECH INVESTORS LIMITED PARTNERSHIP
- ----------------------------
TITLE: PRESIDENT AND CEO BY:/S/ ROBERT P. BEECH
----------------------------------------------
ROBERT P. BEECH, MANAGING GENERAL PARTNER
KENDLE: EGAN INVESTORS LIMITED PARTNERSHIP
KENDLE INTERNATIONAL INC.
BY:/S/ RICHARD D. EGAN
BY: /S/TIMOTHY M. MOONEY ----------------------------------------------
- ---------------------------- RICHARD D. EGAN, MANAGING GENERAL PARTNER
TITLE: VICE PRESIDENT AND CFO
JOHN A. AND CHRISTINE L. MCCHESNEY FAMILY TRUST
BY:/S/ JOHN A. MCCHESNEY
----------------------------------------------
JOHN A. MCCHESNEY, TRUSTEE
HEALTHCARE EQUITY PARTNERS L.P.
BY:
----------------------------------------------
TITLE:
-------------------------------------------
HEALTHCARE EQUITY QP PARTNERS, L.P.
BY:
----------------------------------------------
TITLE:
-------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 2.10
NOTICE OF OPTION EXERCISE
Kendle International Inc. ("Kendle") hereby provides notice to
Component Software International, Inc. ("CSI), that Kendle is exercising its
rights to acquire 206,944 shares of common stock of CSI, (the "Stock"), pursuant
to Kendle's rights under the Option Agreement dated September 9, 1998 entered
into by CSI and Kendle. In order to induce CSI, to issue the Stock, Kendle
represents and warrants to CSI and Graydon, Head & Ritchey, attorneys for CSI,
as follows:
(1) Kendle is aware that the Stock of CSI purchased hereunder
is speculative and involves a high degree of risk of loss;
(2) Kendle has received any and all information relating to
CSI requested by Kendle, has had an opportunity to ask questions of
CSI, and is aware of all pertinent information concerning the nature of
this investment;
(3) All documents, records, and books pertaining to this
investment have been made available to Kendle's attorney, accountant,
representative, employees and/or officers;
(4) Kendle is a sophisticated investor and is sufficiently
experienced in business or financial affairs or are represented by an
advisor unaffiliated with CSI who is so skilled and experienced, so
that Kendle could be reasonably assumed to have the capacity to protect
Kendle's interests in connection with the transaction;
(5) Kendle is an Accredited Investor under applicable federal
and state securities laws; and all information which Kendle has
provided to CSI concerning Kendle, Kendle's financial position, and
Kendle's knowledge of financial information and business matters is
correct and complete in all material respects as of the date set forth
at the end hereof, and if there should be any material change in such
information prior to the acceptance of this subscription Kendle will
immediately provide CSI with revised information;
(6) Kendle is acquiring the Stock solely for Kendle's account,
as an investment and not with a view to, or for resale in connection
with, any distribution or public offering, and has no present
agreement, understanding, or arrangement to subdivide Kendle's Stock or
to sell, assign, or transfer any portion thereof to any other person;
(7) Kendle understands that the Stock may only be disposed of
pursuant to an effective registration statement filed under the Federal
Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act and that Kendle cannot sell such
Stock without such registration or exemption; that CSI has neither
filed such a registration statement nor sought such an exemption; that,
except as set forth in Exhibit C to the Option Agreement, CSI has
neither agreed to do so nor contemplates doing so in the foreseeable
future; that in the absence of such a registration statement or such an
exemption Kendle may have to hold the Stock indefinitely and may be
unable to liquidate the Stock in case of an emergency;
<PAGE> 2
(8) Kendle is aware that this transaction and the Stock to be
issued upon acceptance of this subscription have not been approved or
disapproved by the Securities and Exchange Commission or the Division
of Securities of the State of Ohio or any other State, and that no
other governmental agency, whether federal, state, or local, has made
any finding or determination as to the fairness for investment, nor any
recommendation or endorsement, of the Stock;
(9) Kendle understands and acknowledges CSI's obligations
under, and Kendle agrees not to take any actions which would cause CSI
to commit a breach under CSI's Amended and Restated Articles of
Incorporation and a certain Stock Purchase Agreement dated December 31,
1997 with Healthcare Equity Partners, L.P. and Healthcare Equity QP
Partners, L.P.
(10) Kendle is the sole party in interest as to the Stock and
is not acquiring any portion of the Stock on behalf of any other person
or entity who could not make the foregoing representations;
(11) Kendle acknowledges that Kendle has either been supplied
with or have had access to all information to which a reasonable
investor would attach significance in making investment decisions, and
Kendle has had the opportunity to ask questions and receive answers
from knowledgeable individuals concerning CSI and the Stock so that as
a reasonable investor, Kendle has been able to make a decision to
purchase the Stock. Kendle has had access during the course of the
transaction and prior to the sale and delivery of the Stock to the same
kind of information that is specified in Schedule A of the Securities
Act of 1933, as amended, relative to the business of CSI, to the extent
that Kendle has desired to obtain such information from CSI. However,
nothing in this Notice of Option Exercise shall be deemed to limit or
expand CSI's warranties and representations under the Option Agreement;
and
(12) Kendle understands and agrees that it will simultaneously
execute, and be bound by the terms and conditions of the Multi-Year
Strategic Services Agreement between CSI and Kendle.
(13) Kendle represents that it is a corporation organized
under the laws of Ohio with its principal place of business located in
the state of Ohio.
(14) Kendle represents that it has the full legal power and
authority to purchase the Stock and that its purchase of the Stock will
not: (i) violate any provisions of its Articles of Incorporation or
Regulations; (ii) violate any agreement to which Investor is a party;
or (iii) violate any law or order of any court or other governmental
agency applicable to Investor.
<PAGE> 3
(15) Kendle understands that each certificate representing the
Stock shall be imprinted with a legend substantially in the following
form:
The share(s) represented by this Certificate and the other
class or classes and series of shares, if any, which the
Corporation is authorized to issue are subject to certain
express terms contained in the Articles of Incorporation of
the Corporation, as amended, a copy of which shall be mailed
by the Corporation to any shareholder without charge within
five (5) days after receipt of a written request therefor.
The securities evidenced by this Certificate have not been
registered under the federal Securities Act of 1933, as
amended, or any state securities law. Such securities may be
transferred only after an effective registration under those
Acts or the receipt of an opinion of counsel satisfactory to
the Corporation both as to counsel and opinion that the
securities may be transferred without registration.
The securities represented by this Certificate are subject to
restrictions on transfer pursuant to an Option Agreement with
the corporation, a copy of which shall be mailed by the
Corporation to any shareholder, without charge, within five
(5) days after receipt of a written request therefor.
The securities represented by this Certificate are subject to
certain call rights of the Corporation as set forth in the
Multi-Year Strategic Services Agreement, a copy of which shall
be mailed by the Corporation to the holder hereof, within five
(5) days after receipt of a written request therefor.
IN WITNESS WHEREOF, the undersigned has executed this instrument of
subscription as of January 11, 1999.
KENDLE INTERNATIONAL INC.
By: /s/ Timothy M. Mooney
--------------------------
Title: Vice President, CFO
-----------------------
<PAGE> 4
CSI hereby accepts this subscription.
COMPONENT SOFTWARE INTERNATIONAL, INC.
By:/s/ Robert P. Beech Date: January 11, 1999
--------------------------
Title: President and CEO
------------------------
<PAGE> 5
KENDLE
REAL PEOPLE. REAL RESULTS.
A Clinical Development January 8, 1999
Organization
Corporate Headquarters Component Software International, Inc.
700 Carew Tower 8118 Corporate Way
441 Vine Street Mason, OH 45040-9560
Cincinnati, OH 45202 Attn: Richard D. Egan
tel +(001) 513 381 5550
fax +(001) 513 381 5870
[email protected] Dear Rick:
www.kendle.com
As you are aware, Kendle International Inc.
("Kendle") is contemplating the exercise of it's
North America option as provided in the Option Agreement dated
Chicago, Illinois September 9, 1998 between Kendle and Component
Cranford, New Jersey Software International, Inc. ("CSI") (the
Los Angeles, California "Agreement"). Section 3.2.1 of the Agreement provides
New London, Connecticut in pertinent part as follows:
Princeton, New Jersey
San Diego, California "Of the total Purchase Price described in
Section 3.1 above, if the historical average
of the NASDAQ NMS closing bid price for
-----------------
shares of Kendle's common stock,..."
(emphasis added).
Europe
London, United Kingdom For purposes of clarifying and documenting our
Milan, Italy understanding of Section 3.2.1 of the Agreement, CSI
Munich, Germany and Kendle agree that the emphasized language should
Utrecht, The Netherlands refer to the "closing price" of the Kendle shares for
the referenced time period as opposed to the "closing
bid price".
Asia If CSI is in agreement with the foregoing, please
Beijing, China have a copy of this letter signed and returned to my
Taipei, Taiwan attention at your earliest convenience. Please call
with any questions.
Phase I Unit Sincerely,
Utrecht, The Netherlands
/s/ Timothy M. Mooney
Timothy M. Mooney
VP Finance and Chief Financial Officer
AGREED: COMPONENT SOFTWARE INTERNATIONAL, INC.
By: /s/ Richard D. Egan Date: 1-8-99
-------------------- --------
Richard D. Egan
Executive VP/Chief Financial Officer
<PAGE> 1
Exhibit 2.11
MULTI-YEAR STRATEGIC SERVICES AGREEMENT
THIS MULTI-YEAR STRATEGIC SERVICES AGREEMENT (this "Agreement") is made
and entered into this 20th day of January, 1999, by and between Kendle
International Inc. (hereinafter "Kendle"), an Ohio corporation and Component
Software International, Inc. (hereinafter "CSI"), an Ohio corporation.
WITNESSETH:
WHEREAS, Kendle desires to engage CSI from time to time pursuant to one
or more Work Statements to develop, create, test, and deliver certain
programming materials and consulting services for use in Kendle's drug
development/contract research business, and CSI is interested in accepting such
engagements, subject to the parties' further agreement on the scope and terms of
each such Work Statement; and
WHEREAS, Kendle and CSI mutually desire to set forth in this Agreement
certain terms applicable to all such engagements;
NOW, THEREFORE, Kendle and CSI, intending to be legally bound, hereby
agree as follows:
SECTION 1
DEFINITIONS
When used in this Agreement and in each Work Statement issued
hereunder, the capitalized terms listed in this Section 1 shall have the
following meanings:
1.1 CODE -- shall mean computer programming code. If not otherwise
specified, Code shall include both Object Code and Source Code. Code shall
include any Maintenance Modifications or Enhancements thereto created by CSI
from time to time, and shall include Enhancements thereto when added to the Code
in connection with a Work Statement issued hereunder.
1.1.1 OBJECT CODE -- shall mean the machine-readable form of
the Code.
1.1.2 SOURCE CODE -- shall mean the human-readable form of the
Code and related system documentation including all comments and any procedural
code such as job control language.
1.2 CONFIDENTIAL INFORMATION -- shall mean: (i) the specifications, the
Product, the CSI-Owned Software, the Kendle-Specific Software and any trade
secrets related to any of the foregoing, including but not limited to any
information relating to either party's product plans, designs, costs, prices and
names, finances, marketing plans, business opportunities, personnel, research,
development or know-how; (ii) any information designated in writing by the
disclosing party as confidential or, if disclosed orally, designated as
confidential at the time of disclosure and reduced
<PAGE> 2
to writing and designated as confidential in writing within thirty (30) days;
and (iii) the terms, conditions and existence of this Agreement; provided,
however that "Confidential Information" will not include information that: (a)
is or becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (b) is known and has been
reduced to tangible form by the receiving party at the time of disclosure and is
not subject to restriction; (c) is independently developed by the receiving
party without use of the disclosing party's Confidential Information; (d) is
lawfully obtained from a third party who has the right to make such disclosure;
or (e) is released for publication by the disclosing party in writing.
1.3 CONTRACT YEAR -- shall mean each 365 day period of January, 20
through January, 19 during the term of this Agreement.
1.3 CSI -OWNED SOFTWARE -- shall mean all elements or portions of
software included within a Product which are acquired or developed by CSI
outside the scope of this Agreement.
1.4 DELIVERABLES -- shall mean all Code, Documentation, and other
materials developed for or delivered to Kendle by CSI under this Agreement and
under any Work Statement issued hereunder.
1.5 DERIVATIVE WORK -- shall mean a work that is based upon one or more
preexisting works, such as a revision, modification, translation, abridgement,
condensation, expansion, or any other form in which such preexisting works may
be recast, transformed, or adapted, and that, if prepared without authorization
of the owner of the copyright in such preexisting work, would constitute a
copyright infringement. For purposes hereof, a Derivative Work shall also
include any compilation that incorporates such a preexisting work.
1.6 DOCUMENTATION -- shall mean user manuals and other written
materials that relate to particular Code, including materials useful for design
(e.g., logic manuals, flow charts, and principles of operation). Documentation
shall include any Maintenance Modifications or Enhancements thereto created by
CSI from time to time, and shall include Enhancements thereto when added to the
Documentation in connection with a Work Statement issued hereunder.
1.7 ENHANCEMENTS -- shall mean changes or additions, other than
Maintenance Modifications, to Code and related Documentation, including all new
releases, that improve functions, add new functions, or significantly improve
performance by changes in system design or coding.
1.8 ERROR -- shall mean any error, problem, or defect resulting from
(1) an incorrect functioning of Code, or (2) an incorrect or incomplete
statement of diagram in Documentation, if such an error, problem, or defect
renders the Code inoperable, causes the Code to fail to meet the specifications
thereof, causes the Documentation to be inaccurate or incomplete in any material
respect, causes incorrect results, or causes incorrect functions to occur when
any such materials are used.
2
<PAGE> 3
1.9 KENDLE-SPECIFIC SOFTWARE -- shall mean all elements or portions of
software included within a Product which were specifically developed by CSI for
Kendle under this Agreement.
1.10 MAINTENANCE MODIFICATIONS -- shall mean any modifications or
revisions, other than Enhancements, to Code or Documentation that correct
Errors, support new releases of the operating systems with which the Code is
designed to operate, support new input/output (I/O) devices, or provide other
incidental updates and corrections.
1.11 PRODUCT -- shall mean the software program(s), including all
Deliverables, Enhancements, Documentation and Code developed by CSI under this
Agreement for Kendle.
1.12 WORK STATEMENT -- shall mean a written instrument that meets the
following requirements:
1. Includes substantially the following statement: "This is a
Work Statement under the Multi-Year Strategic Services
Agreement dated January 20, 1999."
2. Is executed by both parties by their authorized
representatives
3. Contains the following five mandatory items:
a. Description and/or specifications of the services to
be performed and the Deliverables to be delivered to
Kendle under the various phases of the work
(typically: Needs Analysis, Design and Development);
b. The name and address of a Project Manager for each
of Kendle and CSI;
c. The anticipated fees;
d. The time schedule for performance and for delivery
of the Deliverables during each phase of work; and
e. Completion and acceptance criteria for the
Deliverables under each phase of work.
In addition, when applicable, the Work Statement may include:
1. Provisions for written and/or oral progress reports by the
CSI;
2. Detailed functional and technical specifications and
standards for all services and Deliverables, including
quality standards;
3
<PAGE> 4
3. Documentation standards;
4. Lists of any special equipment to be procured by CSI or
provided by Kendle for use in performance of the work;
5. Test plans and scripts; and
6. Such other terms and conditions as may be mutually
agreeable between parties.
SECTION 2
CSI SERVICES
2.1 SERVICES. During the term of this Agreement, CSI agrees to provide
the following services as requested by Kendle: software design and development,
software consulting, information technology industry strategic consulting,
quality assurance planning, management, software testing, and project planning
and management services. These services shall be consistent with CSI's existing
skills and expertise including any new or additional skills and expertise that
CSI elects to provide at CSI's sole discretion.
2.2 EXCLUSIVITY. During the term of this Agreement and for six months
after the expiration of the four year term of this Agreement, provided that this
Agreement has not been terminated prior to the expiration of the four year term
for any reason other than the uncured breach hereof by CSI, CSI agrees that it
will not provide customized information technology development services for the
direct competitors of Kendle as listed or described on the attached Exhibit A.
Notwithstanding the foregoing, nothing within this Agreement shall in any way
limit or restrict CSI's right or ability to continue to provide services and
products for any former or current client of CSI listed on the attached Exhibit
B. In addition, if a then current CSI customer is acquired (whether by sale of
stock, assets, merger or otherwise) by a Kendle direct competitor, CSI shall be
permitted to continue to provide services for such customer under the terms of,
and for the then remaining term of, the then existing agreement or then existing
work statement with said customer (but for no longer period) and in such event
CSI hereby expressly agrees not to disclose any Kendle proprietary information
to such customer.
SECTION 3
CONTRACT ADMINISTRATION
3.1 PROJECT MANAGER. Upon execution of this Agreement, each party shall
notify the other party of the name, business address, and telephone number of
its Project Manager. The Project Managers of each party shall be responsible for
arranging all meetings, visits, and consultations
4
<PAGE> 5
between the parties and for technical and performance matters. The Project
Managers shall also be responsible for receiving all notices under this
Agreement and for all administrative matters such as invoices, payments, and
amendments.
3.2 ISSUANCE OF WORK STATEMENTS. The initial Work Statement(s) agreed
to by the parties are set forth as attachments to this Agreement. Additional
Work Statements, regardless of whether they relate to the same subject matter as
the initial Work Statement(s), shall become effective upon execution by
authorized representatives of both parties. Work Statements may be issued on a
time and materials or a fixed bid basis, as agreed to by the parties on a case
by case basis.
SECTION 4
CHANGES
Changes in any Work Statement or in any of the Specifications or
Deliverables under any Work Statement shall become effective only when a written
change request is executed by authorized representatives of both parties. All
other change requests with respect to this Agreement, any Work Statement, or any
Specifications or Deliverables must be requested and/or accepted by an
authorized officers of CSI and Kendle.
SECTION 5
NOTICE OF DELAY
CSI agrees to notify Kendle promptly of any factor, occurrence, or
event coming to its attention that may affect CSI's ability to meet the
requirements of any Work Statement issued under this Agreement, or that is
likely to occasion any material delay in delivery of Deliverables, whether or
not the delay would be excused under the provisions of Section 14.1 hereof. Such
notice shall be given in the event of any loss or reassignment of key employees,
threat of strike, or major equipment failure.
SECTION 6
COMPENSATION
6.1 TIME AND MATERIALS. Unless otherwise provided within a Work
Statement, Kendle shall pay CSI on the basis of time and materials. Payment
under this method shall be determined according to the hourly rates set for
CSI's employees by skill level and listed in the then current Statement of
Strategic Rates a true, complete, correct and current copy of which has been
delivered separately to Kendle. CSI may change its Statement of Strategic Rates
for each Contract Year with such increases not to exceed: (a) the corresponding
annual percentage increases of the 75th Percentile in the Total Earning category
for Senior Software Developer positions as reported in the
5
<PAGE> 6
annual Culpepper Software Industry Pay Library (1998 as base year), or (b) the
Strategic Rates charged by CSI to any other customers for similar services at
comparable volume levels.
6.2 MINIMUM FEES.
6.2.1 In light of the commitments made by CSI hereunder
including CSI's obligation to have resources available to serve
Kendle's information technology needs, Kendle agrees to incur and pay
certain minimum fee obligations to CSI during the term of this
Agreement (the "Annual Minimum"). Specifically, prior to the completion
of the second Contract Year Kendle shall have requested and incurred
liability to CSI for services with a minimum aggregate value of
$3,500,000 (excluding expense reimbursements), with a least $1,000,000
of such services requested and incurred during the first Contract Year.
The Annual Minimum amount for the third and fourth Contract Years shall
each be $1,750,000.
6.2.2 Fees incurred by Kendle under the Software License and
Development Agreement dated July 5, 1998, shall be applied against the
Annual Minimum amount for the first Contract Year hereunder to cover
Kendle's Annual Minimum payment obligation for the first Contract Year.
In addition, if CSI obtains a new client(s) during a Contract Year due
to the introduction by and the active assistance of Kendle, the fees
(not expense reimbursements) incurred by such new client(s) ("New
Client Fees") during the Contract Year shall be applied on a
dollar-for-dollar basis to cover Kendle's Annual Minimum payment
obligation for the Contract Year.
6.2.3 If the sum of New Client Fees and the fees for which
Kendle incurs liability in a given Contract Year for CSI services in
excess of the Annual Minimum for such Contract Year, such excess may be
divided by the number of Contract Year(s) remaining with such pro-rata
amount available for use by Kendle to cover Kendle's Annual Minimum
payment obligation for each of the remaining Contract Year(s).
6.2.4 To compensate CSI for the loss (or perceived loss) in
company value due to Kendle's failure to reach its Annual Minimum
payment obligation, within thirty (30) days after the completion of a
Contract Year in which Kendle does not meet its Annual Minimum
obligation, Kendle shall pay to CSI an amount equal to such deficiency
as an additional capital contribution for the shares of CSI common
stock acquired by Kendle pursuant to the Option Agreement dated
September 9, 1998, without the receipt of any additional CSI common
shares.
6
<PAGE> 7
SECTION 7
INVOICING
CSI shall submit invoices to Kendle for payment for work on a monthly
basis. All invoices shall specifically refer to the Work Statement to which they
relate. The invoice shall indicate the names, skill levels, and hours of the
employees performing the work. Each invoice shall separately set forth travel
expenses, if any, authorized by Kendle for reimbursement. Supporting
documentation (e.g., receipts for air travel, hotels, and rental cars) called
for by Kendle's standard reimbursement policies shall accompany any such
invoice. In addition, after the conclusion of each Contract Year CSI shall
submit a statement to Kendle for payment of the additional capital contribution
amount, if any, which shall be equal to the difference between: (x) the Annual
Minimum; and (y) the aggregate amount of fees incurred by Kendle for services
CSI rendered during the prior Contract Year plus all New Client Fees incurred
during the prior Contract Year. All Invoices shall be net 30 days and shall be
addressed to Kendle's Project Manager.
SECTION 8
EXPENSES
Except as expressly agreed otherwise by Kendle in a Work Statement: (i)
Kendle shall reimburse CSI for any expenses associated with CSI's procurement of
any additional hardware requested by Kendle and approved by Kendle in writing
and reasonable travel related expenses in accordance with CSI's then existing
travel policies; and (ii) CSI shall bear other expenses arising from its
performance of its obligations under this Agreement and each Work Statement
issued hereunder, including (without limitation) expenses for facilities, work
spaces, utilities and management.
SECTION 9
DELIVERY AND ACCEPTANCE
CSI shall deliver all Deliverables, upon completion, to Kendle's
Project Manager for testing and acceptance. CSI shall memorialize such delivery
in a Delivery Confirmation that sets forth the nature and condition of the
Deliverables, the medium of delivery, and the date of their delivery. Kendle's
Project Manager shall countersign such Delivery Confirmation so as to indicate
its receipt of the contents described therein, and the Delivery Confirmation
shall thereupon be transmitted to the parties' Project Managers. Unless a
different procedure for testing and acceptance is set forth in a Work Statement,
Kendle's Project Manager shall commence acceptance testing following its receipt
of the Deliverables to determine whether the Deliverable conforms to the
specification for such Deliverable. Upon completion of such testing, Kendle
shall issue to CSI's Project Manager notice of acceptance or rejection of the
Deliverables. A Deliverable will be deemed accepted by Kendle if CSI does not
receive Kendle's written acceptance or a Statement of Errors within fifteen
7
<PAGE> 8
(15) business days after the date of delivery of the Deliverable. In the event
of rejection, Kendle shall give its reasons for rejection to CSI's Project
Manager in reasonable detail. CSI shall use all reasonable effort on the same
time and materials payment basis to correct any deficiencies or nonconformities
and resubmit the rejected items as promptly as possible; provided, however, that
CSI's fee for additional time to correct a deficiency or nonconformity shall not
exceed two percent (2%) of the total effort hours expended by CSI to develop and
test the Deliverable at issue.
SECTION 10
OWNERSHIP AND RIGHTS
10.1 CSI-OWNED SOFTWARE. CSI hereby grants to Kendle a perpetual,
royalty-free license to use, modify, reproduce and distribute the CSI-Owned
Software only as a component of the Product or a Derivative Work. However, in no
event shall Kendle be entitled to distribute or otherwise disclose the source
code versions of the CSI-Owned Software. All CSI-Owned Software source code
shall be considered to be Confidential Information and protected as such as
provided under this Agreement.
10.2 KENDLE-SPECIFIC SOFTWARE. CSI and Kendle agree that upon full
payment of all fees to CSI hereunder, or payment of all fees incurred by Kendle
prior to a breach by CSI of this Agreement, Kendle will own the Kendle-Specific
Software. Subject to such payment obligation by Kendle, CSI hereby grants and
assigns to Kendle, without reservation, all worldwide ownership rights, title
and interest in and to the Kendle-Specific Software including, but not limited
to, patent rights, copy rights, trade secret rights, trademark rights and other
proprietary rights in the Kendle-Specific Software. Kendle and CSI recognize
that the Kendle-Specific Software comprises a number of functional blocks of
code, each of the functional blocks of code performing a function different from
the function of the Kendle-Specific Software. Kendle hereby grants back to CSI a
perpetual, royalty-free-license to use, modify, reproduce and distribute
separate functional blocks of code of the Kendle-Specific Software insofar as
the functional blocks of code used, modified, reproduced or distributed are used
only in connection with products that are not directly competitive with the
Product as reasonably determined by Kendle.
10.3 CSI'S ASSISTANCE. During and subsequent to the term of this
Agreement, and entirely at Kendle's request and expense and without further
consideration, CSI will document the assignment to Kendle of all rights, title,
and interest in and to the Kendle-Specific Software and any Derivative Works
prepared by CSI and assist Kendle and its nominees in every proper way to
secure, maintain, protect and defend for Kendle's own benefit all copyrights,
patents and other proprietary rights in any and all countries. As part of CSI's
obligation, CSI will execute, at the time of final acceptance of the
Kendle-Specific Software, a document in a form satisfactory to the parties
transferring the copyright rights granted herein to Kendle.
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SECTION 11
CONFIDENTIAL INFORMATION
Each party will protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that each such
party uses to protect its own like information. Neither party will use the
other's Confidential Information for purposes other than those necessary to
directly further the purposes of this Agreement. Except as required by
applicable laws or regulations or by court order or by the rules of any national
securities exchange on which the securities of either Kendle or CSI are quoted
or listed, neither party will disclose to third parties the other's Confidential
Information without the prior written consent of the other party.
SECTION 12
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
CSI makes the following representations and warranties for the benefit
of Kendle, as a present and ongoing affirmation of facts in existence at all
times when this Agreement or any Work Statement issued hereunder is in effect:
12.1 NO CONFLICT. Kendle represents and warrants that it is under no
obligation or restriction, nor will it assume any such obligation or restriction
that does or would in any way interfere or conflict with, or that does or would
present a conflict of interest concerning, the work to be performed by CSI under
this Agreement and each Work Statement issued hereunder.
12.2 OWNERSHIP RIGHTS. With respect to all subject matter, including
the CSI-Owned Software, ideas, inventions, creations, works, processes, designs
and methods, that CSI will disclose or use in its performance of the Services or
the granting of any rights under this Agreement, CSI warrants that it has the
right to make such disclosure, use and grant without liability to others. CSI
further warrants that: (i) the Product is or will be original with CSI; (ii) the
Product does not and will not infringe any U.S. patent rights, copyrights, mask
work rights, trade secret rights or other proprietary rights of others; (iii)
CSI will be the sole and exclusive owner of the Product and any Derivative Works
prepared by CSI pursuant to this Agreement and the rights granted to Kendle in
this Agreement; (iv) CSI has not previously granted and will not grant any
rights in the Product or its Derivative Works to any third party that are
inconsistent with the rights granted to Kendle herein; (v) each of CSI's
employees, consultants, contractors, partners or agents who has been or will be
involved in the development of the Product or its Derivative Works will have
signed an agreement with CSI conveying all proprietary rights in the Product to
CSI and agreeing to maintain in confidence all trade secrets embodied in the
Product and its Derivative Works; (vi) CSI has full power to enter into this
Agreement, to carry out its obligations under this Agreement and to grant the
rights granted to Kendle; and (vii) to CSI's knowledge the product provided
under this agreement does not infringe or violate any United States or foreign
patent, copyright, trademark, trade secret or other proprietary right of a third
party.
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12.3 CONFORMITY, PERFORMANCE, AND COMPLIANCE. CSI represents and
warrants (1) that all Deliverables shall be prepared in a workmanlike manner and
with professional diligence and skill; (2) that all Deliverables will function
on the machines and with operating systems for which they are designed for a
period of one hundred eighty (180) days after acceptance by Kendle; (3) that all
Deliverables will conform to the specifications and functions set forth in the
Work Statements relating thereto for a period of one hundred eighty (180) days
after acceptance by Kendle; and (4) that CSI will perform all work called for by
each Work Statement issued hereunder in compliance with applicable law.
12.4 YEAR 2000 WARRANTY. CSI warrants that all Products provided
pursuant to this Agreement include, at no additional cost to Kendle, both design
and performance so that Kendle shall not experience the Product(s) abnormally
ending and/or invalid and/or incorrect results from the Product(s) in the
operation of said Product(s) prior to, during and after the Year 2000, and that
the Product(s) shall be otherwise "Year 2000 Compliant". "Year 2000 Compliant"
means the Product(s) is capable of recording and maintaining all dates in a
format which includes a 4-digit year representing century and year and which
will allow a date value of at least 2050. Year 2000 Compliant also means that
the Product(s) shall be designed to include, but not be limited to, date data
century recognition, mutually agreed upon calculations that accommodate same
century and multi-century formulas and date values, and date data values, and
data interface values that reflect the century. As Kendle's exclusive remedy for
a breach of this Year 2000 Warranty, CSI shall promptly modify, repair or
replace the Product(s) at no additional charge so as to provide Kendle with
Product(s) which conform to the Warranty; or, if CSI is unsuccessful after
utilizing its best efforts within a reasonable time, refund all fees paid by
Kendle pursuant to this Agreement upon return of said defective Product(s) to
Vendor.
12.5 CSI'S INFRINGEMENT INDEMNITY AND DUTY TO CORRECT.
12.5.1 Infringement Indemnity. CSI will, at its expense and at
Kendle's request defend any claim or action brought against Kendle, and
Kendle's subsidiaries, affiliates, directors, officers, employees,
agents and independent contractors, to the extent it is based on a
claim that a Product provided under this Agreement infringes or
violates any United States patent, copyright, trademark, trade secret
or other proprietary right of a third party, and CSI will indemnify and
hold Kendle harmless from and against any costs, damages and fees
reasonably incurred by Kendle, including but not limited to fees of
attorneys and other professionals, that are attributable to such claim
or action; provided, however, that:
(i) Kendle gives CSI reasonably prompt notice in writing of
any such claim or action and permits CSI, through counsel of
its choice, to answer the charge of infringement and defend
such claim or action;
(ii) Kendle provides CSI information, assistance and
authority, at CSI's expense, to enable CSI to defend such
claim or action; and
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(iii) CSI will not be responsible for any settlement made by
Kendle without CSI's written permission. CSI may not settle
any claim or action on Kendle's behalf without Kendle's
written permission and in the event Kendle and CSI agree to
settle a claim or action, CSI agrees not to disclose the
settlement nor to permit the party claiming infringement to
disclose the settlement without first obtaining Kendle's
written permission.
12.4.2 Duty to Correct. If a Product becomes or is likely to
become the subject of a claim or action covered by Section 12.5.1, CSI
will, at CSI's option and expense: (i) procure for Kendle the past
right to make, use and sell and the future right to continue to make,
use and sell the Product; (ii) replace or modify the Product to make
such non-infringing, provided that the same function is performed by
the replacement or modified Product to Kendle's reasonable
satisfaction; or (iii) if the past and future rights to continue to
make, use and sell cannot be procured or the Product cannot be replaced
or modified at reasonable expense, reimburse Kendle for the total
amount paid under this Agreement for such Product.
12.5.3 Exceptions. CSI shall have no liability under this
Section 12.5 for any claim or action where: (i) infringement is
attributable to CSI's incorporation of Kendle-supplied Specifications,
software, information, devices, parts or designs into the Product; and
(ii) such claim or action would have been avoided but for the
combination, operation, or use of the Product with such item(s)
supplied by Kendle.
12.6 KENDLE'S INFRINGEMENT INDEMNITY AND DUTY TO CORRECT.
12.6.1 Infringement Indemnity. Kendle will, at its expense and
at CSI's request defend any claim or action brought against CSI, and
CSI's affiliates, directors, officers, employees, agents and
independent contractors, to the extent it is based on a claim that the
Kendle supplied specifications, software, information, devices, parts
or designs incorporated into a Product infringes or violates any United
States patent, copyright, trademark, trade secret or other proprietary
right of a third party, and Kendle will indemnify and hold CSI harmless
from and against any costs, damages and fees reasonably incurred by
CSI, including but not limited to fees of attorneys and other
professionals, that are attributable to such claim or action; provided
however that:
(i) CSI gives Kendle reasonably prompt notice in writing of
any such claim or action and permits Kendle, through counsel
of its choice, to answer the charge of infringement and defend
such claim or action;
(ii) CSI provides Kendle information, assistance and
authority, at Kendle's expense, to enable Kendle to defend
such claim or action; and
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(iii) Kendle will not be responsible for any settlement made
by CSI without Kendle's written permission. Kendle may not
settle any claim or action on CSI's behalf without CSI's
written permission and in the event Kendle and CSI agree to
settle a claim or action, Kendle agrees not to disclose the
settlement nor to permit the party claiming infringement to
disclose the settlement without first obtaining CSI's written
permission.
12.6.2 Exceptions. Kendle shall have no liability under this
Section 12.6 for any claim or action where: (i) infringement is
attributable to CSI-Owned Software, CSI-supplied Specifications,
information, devices, parts or designs into a Product; and (ii) such
claim or action would have been avoided but for the combination,
operation, or use of the Product with such item(s) supplied by CSI.
12.7 DISCLAIMERS AND LIMITATIONS. EXCEPT AS EXPRESSLY PROVIDED IN THIS
SECTION 12, CSI MAKES NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED,
REGARDING ANY PRODUCT OR SERVICE HEREUNDER AND CSI FURTHER DISCLAIMS ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES.
SECTION 13
TERM AND TERMINATION
13.1 TERM OF AGREEMENT. This Agreement shall be effective upon the
date specified at the beginning hereof and shall remain in force for a period
of four (4) years, unless otherwise terminated as provided herein. However,
this Agreement shall continue to remain in effect with respect to any Work
Statements already issued hereunder at the time of such termination, until
such Work Statements are themselves terminated and performance thereunder is
completed.
13.2 TERMINATION OF WORK STATEMENTS. Each Work Statement will identify
points, if any, within each phase whereby Kendle and/or CSI may terminate the
Work Statement. Such Work Statements shall also identify the consequences of
such termination. In no event, however, shall the termination of a Work
Statement (other than as a result of an uncured breach thereof by CSI) reduce
Kendle's Annual Minimum payment obligation hereunder; provided, however, that
payments made by Kendle under a Work Statement prior to termination may be
applied against Kendle's Annual Minimum payment obligation.
13.3 TERMINATION FOR CAUSE. This Agreement shall terminate in the
event that either party defaults in the performance or observance of any of
the material terms, covenants or conditions to be performed or observed by it
under this Agreement and such default is not cured within thirty (30) days
after written notice thereof has been given by the other party. Kendle may
terminate this
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<PAGE> 13
Agreement for cause in the event that a competitor(s) of Kendle identified on
Exhibit A owns, directly or indirectly: (i) if CSI shares are not publicly
traded, any of CSI's issued and outstanding capital stock; and (ii) if CSI
shares are publicly traded, five percent (5%) or more of CSI's issued and
outstanding capital stock. In addition, Kendle may terminate this Agreement
for cause if for any calendar year during the term of this Agreement more than
thirty percent (30%) of CSI's annual gross revenues from operations are
obtained from the provision of services and/or sale of products unrelated to
the health care industry.
13.4 TERMINATION FOR CONVENIENCE. At any time after July 20, 2000,
Kendle may terminate this Agreement for convenience by delivering written
notice of termination to CSI. Unless CSI agrees otherwise, termination of this
Agreement shall take effect no earlier than six (6) months after the date that
CSI receives the written notice from Kendle. Kendle's Annual Minimum payment
obligation shall be pro-rated through the effective date of the termination.
13.5 SURVIVAL. Except as may be provided within a Work Statement, in
the event of any termination of this Agreement, Sections 10, 11, and 14 hereof
shall survive and continue in effect and shall inure to the benefit of and be
binding upon the parties and their legal representatives, heirs, successors,
and assigns.
13.6 CALL RIGHTS. In addition to any other rights or remedies that CSI
may have under this Agreement, at law or in equity, upon and at any time or
times after CSI's termination of this Agreement under Section 13.3 above due
to Kendle's uncured default CSI shall have the right to call for repurchase
all or any portion of the shares of CSI stock owned by Kendle at a per share
price equal to the per share price paid by Kendle for such CSI stock.
13.7 PUT RIGHTS. In addition to any other rights or remedies that
Kendle may have under this Agreement, at law or in equity, upon and at any
time or times after Kendle's termination of this Agreement under Section 13.3
above due to CSI's uncured default Kendle shall have the right to put for
repurchase all or any portion of the shares of CSI stock owned by Kendle at a
per share price equal to the per share price paid by Kendle for such CSI
stock. Notwithstanding any provision to the contrary hereunder, Kendle's
rights under this Section 13.7 shall automatically expire upon the date of any
public offering by CSI of its securities pursuant to an underwritten
registration.
SECTION 14
MISCELLANEOUS
14.1 FORCE MAJEURE. Either party shall be excused from delays in
performing or from its failure to perform hereunder to the extent that such
delays or failures result from causes beyond the reasonable control of such
party (excluding delays due to loss of employees, strikes or other work
stoppages); provided that, in order to be excused from delay or failure to
perform, such party must act diligently to remedy the cause of such delay or
failure. Upon an excused delay the parties shall
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<PAGE> 14
equitably adjust Kendle's Annual Minimum payment obligation and the timetables
and fees under outstanding Work Statements.
14.2 NO AGENCY. CSI, in rendering performance under Work Statements
issued hereunder from time to time, is acting solely as an independent
contractor. Kendle does not undertake by this Agreement or otherwise to
perform any obligation of CSI, whether by regulation or contract. In no way is
CSI to be construed as the agent or to be acting as the agent of Kendle in any
respect, any other provisions of this Agreement or any Work Statements issued
hereunder notwithstanding.
14.3 MULTIPLE COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which taken together shall constitute one single
Agreement between the parties.
14.4 SECTION HEADINGS; EXHIBITS. The section and subsection headings
used herein are for reference and convenience only, and shall not enter into
the interpretation hereof. The exhibits referred to herein and attached
hereto, or to be attached hereto, including all Work Statements issued
hereunder from time to time, are incorporated herein to the same extent as if
set forth in full herein.
14.5 REQUIRED APPROVALS. Where agreement, approval, acceptance, or
consent by either party is required by any provision of this Agreement, such
action shall not be unreasonably delayed or withheld.
14.6 NO WAIVER. No delay or omission by either party hereto to
exercise any right or power occurring upon any noncompliance or default by the
other party with respect to any of the terms of this Agreement shall impair
any such right or power or be construed to be a waiver thereof. A waiver by
either of the parties hereto of any of the covenants, conditions, or
agreements to be performed by the other shall not be construed to be a waiver
of any succeeding breach thereof or of any covenant, condition, or agreement
herein contained. Unless stated otherwise, all remedies provided for in this
Agreement shall be cumulative and in addition to and not in lieu of any other
remedies available to either party at law, in equity, or otherwise.
14.7 AUTHORITY OF CSI. CSI has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be
performed all work to be carried out by CSI hereunder unless otherwise
provided herein.
14.8 GOVERNING LAW AND DISPUTE RESOLUTION. This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio.
Any and all disputes arising out of or in connection with the execution,
interpretation, performance, or non-performance of this Agreement or any
agreement or other instrument between, involving or affecting the parties
(including the validity, scope and enforceability of this arbitration clause),
shall be submitted to and resolved by arbitration. The arbitration shall be
conducted pursuant to the terms of the Federal Arbitration Act and the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted by three arbitrators, who shall be appointed
pursuant to the rules of the American Arbitration Association. Either party
may notify the other
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party at any time of the existence of an arbitrable controversy by certified
mail and shall attempt in good faith to resolve their differences within
fifteen (15) days after the receipt of such notice. If the dispute cannot be
resolved within the fifteen day period, either party may file a written demand
for arbitration with the American Arbitration Association. The determination
of the arbitrators shall be final and binding on the parties. The place of
arbitration shall be Cincinnati, Ohio. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction.
14.9 EMPLOYEES. During the term of this Agreement and for a period of
two years thereafter, Kendle shall not: (i) hire or engage any current or
former employees or independent contractors of CSI; nor (ii) knowingly
solicit, entice, or persuade any employees or independent contractors of CSI
to terminate their employment or engagement with CSI for any reason.
Similarly, during the term of this Agreement and for a period of two years
thereafter, CSI shall not (i) hire or engage any current or former employees
or independent contractors of Kendle; nor (ii) knowingly solicit, entice, or
persuade any employees or independent contractors of Kendle to terminate their
employment with Kendle for any reason. Notwithstanding the foregoing, if
Kendle terminates this Agreement under Section 13.3 above due to an uncured
default by CSI and Kendle did not cause or contribute to such default by CSI
nor was Kendle in default under any provision of the Agreement as of the date
of termination of the Agreement, then Kendle may make employment offers to and
hire those CSI employees who were working on Kendle projects as of the date of
the Agreement's termination, or who worked on Kendle projects in the past.
14.10. NOTICES. Under this Agreement if one party is required to give
notice to the other, such notice shall be deemed given if mailed by U.S. mail,
first class, postage prepaid, and addressed as follows (or as subsequently
noticed to the other party):
If to CSI:
Component Software International, Inc.
8118 Corporate Way, Suite 200
Mason, Ohio 45040-9560
Facsimile: (513) 573-7110
Attention: Robert P. Beech, CEO
with a copy (which shall not constitute notice) to:
Graydon, Head & Ritchey
1900 Fifth Third Center
511 Walnut Street
Cincinnati, Ohio 45202
Attention: Daniel C. Heyd, Esq.
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If to Kendle:
Kendle International Inc.
700 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
Facsimile: (513) 381-5870
Attention: Timothy M. Mooney, CFO
with a copy (which shall not constitute notice) to:
Kendle International Inc.
700 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
Facsimile: (513) 381-5870
Attention: Paul F. Ritter, Esq.
with a copy (which shall not constitute notice) to:
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Edward E. Steiner, Esq.
14.11. NO ASSIGNMENT. Neither party may, without the prior written
consent of the other party, assign or transfer this Agreement or any
obligation incurred hereunder, except by merger, reorganization,
consolidation, or sale of all or substantially all of such party's assets and
except that Kendle may assign this Agreement to a wholly owned (directly or
indirectly) subsidiary of Kendle upon at least seven (7) business days' prior
written notice to CSI. Any attempt to do so in contravention of this Section
shall be void and of no force and effect.
14.12 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits
annexed hereto, together with the Work Statements issued from time to time
hereunder, constitutes the entire agreement between the parties.
14.13 COUNTERPARTS; EXECUTION. This Agreement may be executed in as
many counterparts as may be required, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together
shall constitute but a single agreement. This Agreement shall be deemed to
have been executed at the time when and location at which the last signature
of any of the parties is affixed hereto or to any counterpart hereof.
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IN WITNESS THEREOF, Kendle and CSI have caused this Agreement to be
signed and delivered by their duly authorized officers, all as of the date
first hereinabove written.
COMPONENT SOFTWARE
INTERNATIONAL, INC.
By: /s/ Robert P. Beech
-------------------------
Title: President and CEO
----------------------
KENDLE INTERNATIONAL INC.
By: /s/ Timothy M. Mooney
-------------------------
Title: Vice President and CFO
----------------------
17
<PAGE> 1
Exhibit 10.7
AMENDMENT NO. FIVE TO LEASE
This Amendment No. Five to Lease (the "Amendment No. 5"), made
effective this 16th day of February, 1999, is by and between CAREW REALTY, INC.
("Lessor"), a Delaware corporation, whose address is c/o Belvedere Corporation,
500 Carew Tower, 441 Vine Street, Cincinnati, Ohio 45202, and KENDLE
INTERNATIONAL INC. (formerly KENDLE RESEARCH ASSOCIATES) ("Lessee"), whose
address is Suite 700 Carew Tower, 441 Vine Street, Cincinnati, Ohio 45202.
W I T N E S S E T H :
WHEREAS, effective as of December 9, 1991, Lessor and Lessee entered
into a Lease (the "Lease") with respect to approximately 21,694 rentable square
feet of space on the 6th and 7th floors of the Carew Tower Building (the
"Building") located at 441 Walnut Street, Cincinnati, Ohio.
WHEREAS, the demised premises leased by Lessee in the Building at that
time encompassed 21,694 rentable square feet (the "Demised Premises").
WHEREAS, the Commencement Date of the Lease was June 1, 1992.
WHEREAS, effective as of December 30, 1991, Lessor and Lessee entered
into Amendment No. One To Lease which made certain amendments in and to the
Lease with regard to the construction of Lessee's Demised Premises.
WHEREAS, effective as of March 18, 1996, Lessor and Lessee entered into
Amendment No. Two To Lease (the "Amendment No. 2") which made certain amendments
in and to the Lease, including Lessee's expansion into 6,326 square feet of
additional space for a total Demised Premises of 27,921 square feet, and such
Amendment No. 2 extended the Lease until May 31, 2003.
WHEREAS, effective as of October 8, 1996, Lessor and Lessee entered
into Amendment No. Three To Lease (the "Amendment No. 3") which made certain
amendments in and to the Lease, including Lessee's expansion into 13,955 square
feet of space on the ninth floor of the Building for a total Demised Premises of
41,876 square feet, and such Amendment No. 3 extended the Lease until May 31,
2004.
WHEREAS, effective as of January 29, 1997, Lessor and Lessee entered
into Amendment No. Four To Lease (the "Amendment No. 4") which made certain
amendments in and to the Lease, including Lessee's expansion into 13,620 square
feet of space on the eighth floor of the Building for a total Demised Premises
of 55,496 square feet, and such Amendment No. 4 extended the term until May 31,
2006.
<PAGE> 2
WHEREAS, effective as of July 30, 1998, Lessee entered into a Sublease
Agreement (the "Sublease") with Cors & Bassett for 13,200 square feet of space
on the 12th floor of the Building and 3,256 square feet of space on a portion of
the 11th floor of the Building for a total sublease area of 16,456 square feet
of space (the "Sublease Space"). Lessor consented to such Sublease on August 12,
1998.
NOW, THEREFORE, effective upon execution of this Amendment No. Five To
Lease, Lessor and Lessee hereby agree and acknowledge the following:
1. Lessee shall expand into an additional 13,682 square feet of space on
the fifteenth floor of the Building (the "15th Floor Expansion Space")
and an additional 7064 square feet of space on the 11th floor of the
Building (the 11th Floor Expansion Space") for a total Demised Premises
of 76,242 square feet.
Lessee shall begin paying rent on the 15th Floor Expansion Space on the
earlier date of: (i) within forty-five (45) days of Lessor delivering
the 15th Floor Expansion Space over to Lessee for construction of any
interior improvements; or (ii) the date Lessee takes occupancy of the
15th Floor Expansion Space (the "15th Floor Commencement Date").
Lessee shall begin paying rents on the 11th Floor Expansion Space on
the earlier date of: (i) within ninety (90) days of Lessor delivering
the 11th Floor Expansion Space to Lessee for construction of any
interior improvements; or (ii) the date Lessee takes occupancy of the
11th Floor Expansion Space (the 11th Floor Commencement Date").
Lessor anticipates delivering the 15th Floor Expansion Space to Lessee
by July 1st, 1999, and Lessor anticipates delivering the 11th Floor
Expansion Space to Lessee within ninety (90) days (or sooner) of
execution of the Amendment No. 5.
2. Commencing on the 15th Floor Commencement Date and the 11th Floor
Commencement Date, Lessee shall lease the 15th Floor Expansion Space
and the 11th Floor Expansion Space from Lessor on the same terms and
conditions, including Basic Rental, as Lessee's existing Lease dated
December 9, 1991 and as amended by Amendment No. One to Lease dated
December 30, 1996; Amendment No. Two to Lease dated March 18, 1996;
Amendment No. Three to Lease dated October 8, 1996 and by Amendment No.
Four to Lease dated January 29, 1997.
3. Lessor shall provide an improvement allowance to Lessee of $5.00 per
square foot on the 15th Floor Expansion Space of 13,682 square feet and
$17.00 per square foot on the 11th Floor Expansion Space. This
allowance shall be paid within Forty-five (45) days of Lessor
delivering the respective
<PAGE> 3
expansion spaces over to Lessee for occupancy. Lessor, by its
contractor, to adjust sprinkler systems in each space as necessary with
no cost to Lessee.
4. Lessee's contractors shall perform any and all interior improvements
that are required by Lessee to the 15th Floor Expansion Space and the
11th Floor Expansion Space. All plans and specifications (including but
not limited to architectural, HVAC, electrical, plumbing and
sprinklering) must be approved by Lessor prior to commencing any
construction work in the respective expansion spaces.
5. Any areas in the 11th Floor Expansion Space or the 15th Floor Expansion
Space not already sprinklered shall be performed by Lessor's contractor
and at Lessor's expense.
6. Lessee shall be responsible for any "dry" sprinkler systems needed for
the 11th Floor Expansion Space and/or the 15th Floor Expansion Space,
as well as, any additional air- conditioning needed for the respective
expansion spaces.
7. On June 30, 2001 the lease agreement between Cors & Bassett and Carew
Realty, Inc. which Lessee has assumed shall be terminated and shall
become null and void. Commencing on July 1, 2001, Lessee shall lease
the Cors & Bassett space of 16,456 square feet (the "Cors Space") for a
total Demised Premises of 92,698 from Lessor on the same terms and
conditions, including Basic Rental, as Lessee's existing Lease dated
December 9, 1991 and as amended by Amendment No. One to Lease dated
December 30, 1996; Amendment No. Two to Lease dated March 18, 1996;
Amendment No. Three to Lease dated October 8, 1996 and by Amendment No.
Four to Lease dated January 29, 1997; with the following addition now
added to the Lease for the Cors Space of 16,456 square feet:
"Commencing on July 1, 2001, and continuing until lease expiration,
Lessee shall be required to pay a utility charge of $1.58 per square
foot (the "Utility Charge") for the period from July 1, 2001 to June
30, 2002. Each 12 month period thereafter, the Utility Charge shall
increase by two and one-half percent (2.5%). Lessee shall be required
to pay such Utility Charge on the first day of each calendar month with
Lessee's rental payment.
8. At any time after June 30, 2001, Lessee may request from Lessor, an
improvement allowance of $5.00 per square foot on the Cors Space of
16,456 square feet. Such allowance shall be paid by Lessor within
forty-five (45) days after written notice from Lessee.
9. Paragraph 36, Renewal Option, shall be changed to state that Lessee
shall be required to provide twelve (12) months prior written notice to
Lessor for election of either the first or second five-year renewal
period.
<PAGE> 4
10. Lessee and Lessor represent and warrant to each other that neither has
dealt with any other broker or finder who shall be entitled to any
commission or fee by reason of the execution of this Amendment, and
each party agrees to indemnify and hold the other harmless from any
liability or expense that the other may suffer or incur with respect to
any claim for a commission or fee by any other broker or finder
claiming by, through or under the other party.
11. Lessee shall continue to pay its month-to-month rental rate on the
existing 11th Floor space that it occupies per the letter agreement
dated January 20, 1999.
All other terms and conditions of the Lease as amended shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 5
on the date set forth below.
WITNESSETH: CAREW REALTY, INC.
By: Belvedere Corporation
Managing Agent
/s/ Ann M. Witti By /s/ Joan Hensler-Bittner
- ---------------------------- --------------------------------
/s/ Mel Heis Its: V.P.
- ---------------------------- --------------------------------
Date: 2/16/99
-----------------------------
WITNESSETH: KENDLE INTERNATIONAL INC.
/s/ Lynn L. Fields By /s/ Timothy M. Mooney
- ---------------------------- --------------------------------
/s/ Evelyn LaBrier Its: V. P. - CFO
- ---------------------------- ------------------------------
Date: 2/15/99
-----------------------------
STATE OF OHIO )
) ss.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 16th day of February, 1999, before me a
Notary Public in and for said county and state, personally appeared Carew
Realty, Inc., the corporation, which executed the foregoing instrument by Joan
M. Hensler-Bittner, the Vice President of Belvedere Corporation, Managing Agent,
who acknowledged that he/she is authorized to sign on behalf of said
<PAGE> 5
corporation, and the signing thereof to be its and his/her voluntary act and
deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
/s/ Patricia A. Lieurance
------------------------------
Notary Public
[SEAL]
STATE OF OHIO )
) ss.
COUNTY OF HAMILTON )
BE IT REMEMBERED, that on the 15th day of February, 1999, before me a
Notary Public in and for said county and state, personally appeared Kendle
Research Associates, the corporation which executed the foregoing instrument by
Timothy M. Mooney, its V.P., Finance and CFO who acknowledged that he/she is
authorized to sign on behalf of said corporation, and the signing thereof to be
its and his/her voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year aforesaid.
/s/ Jeffery Allen Glancy
------------------------------
Notary Public
[SEAL]
<PAGE> 1
Exhibit 10.13
-1-
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made effective as of December
10, 1998 by and between KENDLE INTERNATIONAL INC., an Ohio corporation (the
"Company"), and Robert Buck (the "Indemnitee").
R E C I T A L S:
A. The Company and the Indemnitee recognize the difficulty and
expense of obtaining adequate directors' and officers' liability insurance;
B. The Company and the Indemnitee recognize the substantial
increase in corporate litigation in general, subjecting directors and officers
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
C. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company, it is necessary for the Company contractually to indemnify its
directors and officers with respect to claims against such directors and
officers in connection with their service to or on behalf of the Company, and
that the failure to provide such contractual indemnification could result in
great harm to the Company and the Company's shareholders;
D. Section 1701.13(E) ("Section 1701.13(E)") of the General
Corporation Law of Ohio, under which the Company is organized, empowers the
Company to indemnify its directors and officers by agreement and to indemnify
persons who serve, at the request of the Company, as the directors, officers,
employees or agents of other corporations or enterprises, and expressly provides
that the indemnification provided by Section 1701.13(E) is not exclusive;
E. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company is inadequate or inordinately expensive and that the Indemnitee and
other directors or officers of the Company may not be willing to continue to
serve as directors or officers without additional protection;
F. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company; and,
G. The Indemnitee is willing to serve, or to continue to serve,
the Company, provided that he is furnished the indemnity provided for herein;
<PAGE> 2
-2-
NOW, THEREFORE, based upon the foregoing premises and in consideration
of the mutual covenants contained herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
1.1 Agent. For the purposes of this Agreement, "Agent" means any
person who is a director or officer of the Company; or is serving at the request
of, for the convenience of or to represent the interests of the Company as a
director, officer, manager, employee or agent of another foreign or domestic
corporation (for profit or nonprofit), partnership, limited liability company,
joint venture, trust or other enterprise (specifically including employee
benefit plans).
1.2 Expenses. For purposes of this Agreement, "Expenses" includes
all direct costs (including, without limitation, all attorneys' fees and related
disbursements and other out-of-pocket costs) actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense or appeal of a
Proceeding, as that term is defined in Section 1.4, or establishing or enforcing
a right to indemnification under this Agreement; PROVIDED, however, that
"Expenses" shall not include any judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement of a Proceeding, or prepaid retainers
for attorneys or other professionals engaged by or on behalf of the Indemnitee.
1.3 Liability. For purposes of this Agreement, "Liability" or
"Liabilities," includes any judgment, fine, ERISA excise tax or penalty or any
amount paid, with the Company's written consent, in settlement of a Proceeding.
1.4 Proceeding. For the purposes of this Agreement, "Proceeding"
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or to
continue to serve as an Agent in the capacity the Indemnitee currently serves as
an Agent, as long as such service is mutually agreeable to Indemnitee and the
Company.
3. MAINTENANCE OF LIABILITY INSURANCE.
3.1 Maintenance of Insurance. As long as the Indemnitee shall
continue to serve as an Agent and thereafter as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
an Agent, the Company, subject to the provisions of Section 3.3 with respect to
the unavailability of satisfactory insurance coverage, shall promptly obtain
and/or maintain in full force and effect directors' and officers' liability
insurance ("D&O Insurance") in reasonable amounts from established and reputable
insurers. If D&O Insurance is obtained, the Company covenants that the
Indemnitee shall be named as an insured.
<PAGE> 3
-3-
3.2 Indemnitee Named as Insured. In all policies of D&O Insurance,
if any, the Indemnitee shall be named as an insured in such a manner as to
provide the Indemnitee the same rights and benefits as are accorded to the
Company's most favorably insured directors.
3.3 Unavailability of Satisfactory Coverage. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, or that the premium costs for such insurance are
disproportionate to the amount of coverage provided or that the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit. The failure of the Company to obtain D&O Insurance or the
decision by the Company not to obtain such coverage shall not have any
detrimental effect on the Indemnitee's rights hereunder.
4. MANDATORY INDEMNIFICATION.
4.1 Third Party Actions. The Company shall indemnify the
Indemnitee when the Indemnitee is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the Company) by
reason of the fact that he is or was an Agent, or by reason of anything done or
not done by him in any such capacity, against any and all Expenses and
Liabilities of any type whatsoever actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of that
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent shall
not create a presumption that the Indemnitee did not satisfy the foregoing
standard of conduct.
4.2 Proceedings by or in the Right of the Company. The Company
shall indemnify the Indemnitee when the Indemnitee is a party or is threatened
to be made a party to any Proceeding by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he is or was an
Agent, or by reason of anything done or not done by him in any such capacity,
against any amounts paid in settlement of any such proceeding and all expenses
actually and reasonably incurred by him in connection with the investigation,
defense, settlement or appeal of that Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company; except that no indemnification under this subsection shall be
made in respect of any claim, issue or matter as to which such person shall have
been finally adjudged to be liable to the Company under the standards of the
Ohio General Corporation Law by a court of competent jurisdiction in the
performance of his duty to the Company unless and only to the extent that the
court in which such Proceeding was brought shall determine, upon application,
that, despite the adjudication of liability, but in view of all the
<PAGE> 4
-4-
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which such court shall deem proper.
4.3 Expenses or Liabilities Paid by D&O Insurance or the Trust.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for Expenses or Liabilities of any type whatsoever which have
been paid directly to, or for the benefit of, the Indemnitee by D&O Insurance or
out of any trust that may be established pursuant to Section 9 hereof.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for a part,
but not the total amount, of any Expenses or Liabilities of any type whatsoever
incurred by him in the investigation, defense, settlement or appeal of a
Proceeding, the Company shall indemnify the Indemnitee only for such amount to
which the Indemnitee is entitled as indemnification hereunder.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Sections 7 and
10 hereof, the Company shall advance all Expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
Proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an Agent, or in
connection with any action brought by the Indemnitee to establish or enforce a
right to indemnification under this Agreement pursuant to Section 8 hereof, in
advance of the final disposition thereof. Indemnitee hereby undertakes: (x) to
repay all such amounts advanced if (but only if) it shall be proved by clear and
convincing evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company; and (y) to cooperate reasonably with the Company in
connection with such Proceeding. The advances to be made hereunder shall be paid
by the Company to or for the benefit of the Indemnitee within twenty (20) days
following delivery of a written request therefor, accompanied by true and
complete copies of invoices therefor, by the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Notice to Company. Promptly after receipt by the Indemnitee of
notice of the commencement or the threatened commencement of any Proceeding, the
Indemnitee shall notify the Company of such commencement or threatened
commencement. The Indemnitee shall also provide the Company such information and
cooperation as the Company from time to time may reasonably request and as shall
reasonably be within the Indemnitee's power to provide. The Company shall have
no obligation to indemnify the Indemnitee under this Agreement if (but only if)
the Indemnitee's delay or failure to provide notice, information or cooperation
as required under this Section 7.1 results in a material impairment of the
Company's ability to defend the Proceeding or in the loss of coverage under any
applicable insurance policy.
<PAGE> 5
-5-
7.2 Notice to Insurance Carriers. If the Company has any
applicable insurance policy in effect at the time it receives notice pursuant to
Section 7.1 of the commencement or threatened commencement of a Proceeding, the
Company shall give prompt notice thereof to the insurer(s) in accordance with
the procedure set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Proceeding in
accordance with the terms of such policies.
7.3 Choice of Counsel. In the event the Company shall be obligated
to advance the Expenses of any Proceeding against the Indemnitee, the Company
shall be entitled, in lieu thereof, to assume the defense of such proceeding
upon the delivery to the Indemnitee of written notice of the Company's election
to do so, which notice shall contain the name, address and phone number of
counsel engaged by the Company to handle such defense and confirmation that the
Company has undertaken to pay that counsel's reasonable fees and expenses
therefor. After delivery of such notice, the Company shall not be liable to the
Indemnitee under this Agreement for any fees or expenses of counsel for the
Indemnitee (other than the counsel engaged by the Company) subsequently incurred
by the Indemnitee with respect to the same Proceeding; PROVIDED, however, that
the fees and expenses of such counsel for the Indemnitee shall be at the expense
of the Company if () the employment of separate counsel by the Indemnitee has
been previously authorized by the Company, or () the Indemnitee shall have
reasonably concluded, and either the Company shall have agreed, or independent
counsel (as defined herein) shall have determined, that there may be a conflict
of interest between the Company and the Indemnitee in the conduct of any such
defense; and FURTHER PROVIDED, however, that, the Indemnitee's counsel shall
have been approved by any carrier of an applicable insurance policy if required
under the terms of that policy. As used in this Section 7.3, "independent
counsel" shall mean counsel selected and compensated by the Company, and
reasonably approved by the Indemnitee, to determine whether a conflict of
interest may exist, which counsel shall not represent the Company, the
Indemnitee or any other party to the Proceeding for which indemnification is
sought. Independent counsel shall be selected promptly following notice from the
Indemnitee to the Company of the Indemnitee's belief that a conflict of interest
may exist. Nothing herein shall limit the right of the Indemnitee to employ
counsel at the Indemnitee's sole expense.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections 4.1 or 4.2 hereof or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against Expenses
actually and reasonably incurred by him in connection with the investigation,
defense or appeal of such Proceeding.
<PAGE> 6
-6-
8.2 Satisfaction of Standard of Conduct. In the event that Section
8.1 is inapplicable, (i) indemnification under Section 4.1 hereof shall be made
by the Company only upon a determination in accordance with this Section 8 that
the Indemnitee is entitled to indemnification hereunder, and (ii)
indemnification under Section 4.2 shall be made, if at all, in accordance with
the procedure set forth in Section 4.2. If the Indemnitee believes, upon the
disposition of any Proceeding described in Section 4.1 (whether by judgment,
settlement or otherwise), that the Indemnitee is entitled to indemnification
pursuant to this Agreement, the Indemnitee shall make written demand therefor
upon the Company. The Company shall indemnify the Indemnitee in accordance with
such demand unless, within forty-five (45) days after receipt of the
Indemnitee's demand, the Company notifies the Indemnitee that it has determined
that the Indemnitee has not met the applicable standard of conduct required to
entitle the Indemnitee to such indemnification (the "Notice of Denial"). The
Notice of Denial shall set forth, in reasonable detail, the basis for such
determination by the Company and the name of counsel selected by the Board
pursuant to Section 8.3.2 hereof.
8.3 Forum for Determination of Satisfaction of Standard of
Conduct. Provided the Indemnitee notifies the Company of his choice of forum
within thirty (30) days after the receipt of a Notice of Denial, the Indemnitee
shall be entitled to select one of the following forums to determine whether he
met the applicable standard of conduct specified in Section 4.1 and is therefore
entitled to indemnification under this Agreement:
8.3.1 Quorum of Disinterested Directors. A vote of a majority of a
quorum (more than fifty percent (50%)) of the Board consisting of
directors who are not parties to the Proceeding for which
indemnification is being sought, based upon written submissions by the
Company and the Indemnitee and, if the Indemnitee or directors so
request, an oral presentation by the Indemnitee and by such other
persons as such directors may request; PROVIDED, however, that the
Indemnitee shall not have the right to be present during such
directors' deliberations nor during presentations made to such
directors by any person other than the Indemnitee;
8.3.2 Counsel. Legal counsel selected by the Board (other than
counsel to any party to the Proceeding for which indemnification is
sought), and reasonably approved by the Indemnitee, which counsel shall
make such determination in a written opinion based upon written
submissions by the Company and the Indemnitee and responses to such
questions as that counsel may have in such form as that counsel may
request;
8.3.3 Arbitration Panel. A majority vote of a panel of three
arbitrators, one of whom is selected by the first two arbitrators so
selected, which arbitration shall be conducted in accordance with the
rules of the American Arbitration Association and such rules of
procedure as may be established by the panel; or
<PAGE> 7
-7-
8.3.4 Court. The court in which the Proceeding is or was pending, in
accordance with such rules of procedure as may be applicable to or
established by that court.
8.4 Submission to Forum. As soon as practicable, and in no event
later than thirty (30) days after the Indemnitee's written notice to the Company
of the Indemnitee's choice of forum pursuant to Section 8.3 above, the Company
shall, at its expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification. The Indemnitee shall be afforded
an adequate opportunity to defend against that claim. A presumption shall exist
that the Indemnitee is entitled to indemnification hereunder, and the Company
shall indemnify the Indemnitee unless the Company shall prove to the selected
forum, by clear and convincing evidence, that the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
indemnification. The decision of the selected forum shall constitute a binding
and final adjudication between the Company and the Indemnitee as to the
Indemnitee's right to indemnification under Section 4.1 of this Agreement.
8.5 Expenses of Determination. Notwithstanding any other provision
in this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless the
Company shall be deemed the prevailing party in any such proceeding.
9. INDEMNIFICATION TRUST AGREEMENT. In order to secure the
obligations of the Company to advance to the Indemnitee certain amounts under
Section 6 hereof, the Company may establish a trust fund naming the Indemnitee
as a beneficiary (in addition to all other directors, officers and other agents
with whom the Company enters into Indemnity Agreements, whether before, on, or
after the date hereof). The Indemnitee shall not seek any amount from the Trust,
if established, (i) unless entitled to an advance of Expenses pursuant to this
Agreement and (ii) unless and until the Indemnitee has made demand for payment
of Expenses pursuant to Section 6 hereof and, after twenty (20) days, the
Company has failed to advance such Expenses. The Indemnitee shall not be
entitled to receive a reimbursement or advance from the Trust, if established,
for a liability or other amount not expressly covered by Section 6 hereof.
10. EXCEPTIONS. Notwithstanding any other provision herein to the
contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
10.1 Claims Initiated by the Indemnitee. To indemnify or advance
Expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement; or
<PAGE> 8
-8-
10.2 The Company Prevails in Action to Enforce or Interpret
Agreement. To indemnify the Indemnitee for any Expenses incurred by the
Indemnitee with respect to any Proceeding instituted by the Indemnitee to
enforce or interpret this Agreement, if the Company is deemed to be the
prevailing party in such proceeding; or
10.3 Unauthorized Settlements. To indemnify the Indemnitee for any
amounts paid in settlement of a Proceeding unless the Company expressly consents
in writing to such settlement; or
10.4 Failure to Settle Proceeding. To indemnify the Indemnitee for
Liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any Expenses incurred by the Indemnitee following the
time such settlement reasonably could have been effected, if the Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any Proceeding (or investigation or appeal thereof) recommended in good-faith,
in writing, by the Company.
11. NO RESTRICTION OF OTHER INDEMNIFICATION RIGHTS. The Company
shall not adopt any amendment to its Articles of Incorporation or Regulations,
the effect of which would be to deny, diminish or encumber the Indemnitee's
rights to indemnity pursuant to the Articles of Incorporation, the Regulations,
the Ohio General Corporation Law or any other applicable law as applied to any
act or failure to act occurring in whole or in part prior to the date (the
"Effective Date") upon which the amendment shall apply only to acts or failures
to act occurring entirely after the Effective Date thereof, unless the
Indemnitee shall have voted in favor of the amendment as a director or holder of
record of the Company's common stock, as the case may be.
12. MERGER OR CONSOLIDATION. In the event that the Company shall
be a constituent corporation in a merger, consolidation or other reorganization,
the Company, if it shall not be the surviving, resulting or acquiring
corporation therein, shall require, as a condition thereto, that the surviving,
resulting, or acquiring corporation agree to indemnify the Indemnitee to the
full extent provided in this Agreement and to adopt and assume the Company's
obligations under this Agreement. Whether or not the Company is the surviving,
resulting or acquiring corporation in any such transaction, the Indemnitee shall
also stand in the same position under this Agreement as he would have with
respect to the Company if its separate existence had continued.
13. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Articles of Incorporation or Regulations, the vote of the
Company's shareholders or disinterested directors, other agreements or
otherwise, whether as to actions in his official capacity or actions in another
capacity while
<PAGE> 9
-9-
occupying his position as an Agent. The Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent and shall inure to
the benefit of the successors, heirs, executors, administrators, estates, legal
representatives and assigns of the Indemnitee.
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law; PROVIDED, however, that no change in any applicable law,
statute or rule which has the effect of narrowing the right of an Ohio
corporation to indemnify any Agent shall, unless otherwise required thereby,
affect this Agreement or the parties' rights or obligations hereunder.
15. HEADINGS. Descriptive headings in this Agreement are solely
for convenience and shall not control or affect the construction or
interpretation of any provision herein.
16. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
17. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
18. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors, heirs, executors,
administrators, estates, legal representatives and assigns of the parties
hereto; PROVIDED, however, that the Indemnitee may not delegate his duties
hereunder; and PROVIDED FURTHER, that no assignment shall obligate the Company
to provide any indemnification with respect to the actions or failures to act of
any person other than the Indemnitee specifically named herein.
19. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been given when delivered personally by
overnight carrier or by telecopy with telephonic
<PAGE> 10
-10-
confirmation of receipt or by two (2) business days after being deposited in the
U.S. mail, certified or registered, return receipt requested with postage
prepaid, and addressed to the party to whom such notice, request, demand, waiver
or other communication is to be given as follows, or at such other address as
either party shall designate by notice to the other party pursuant to this
section:
The Company: Kendle International Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Candace Kendle
Chairman of the Board
and Chief Executive Officer
with a required copy to: Paul F. Ritter, Esq.
700 Carew Tower
Cincinnati, Ohio 45202
Indemnitee: Robert Buck
Cintas Corp.
6800 Cintas Blvd.
P.O. Box 625737
Cincinnati, Ohio 45262-5737
20. GOVERNING LAW. This Agreement, and the rights and duties of
the parties hereto under this Agreement, shall be governed exclusively by and
construed in accordance with the laws of the State of Ohio, as applied to
contracts between Ohio residents entered into and to be performed entirely
within Ohio.
21. CONSENT TO JURISDICTION. Except as expressly provided in
Section 8 hereof, the Company and the Indemnitee each hereby irrevocably consent
to the jurisdiction of the courts of the State of Ohio for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
brought only in the state courts of the State of Ohio.
22. COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, and by each party on separate counterparts, each of which
counterparts shall be deemed an original, but all of which counterparts taken
together shall be one and the same document.
23. PUBLIC POLICY DETERMINATIONS. The Company and the Indemnitee
acknowledge that, in certain circumstances, federal law or applicable public
policy may prohibit the Company
<PAGE> 11
-11-
from indemnifying the Indemnitee under this Agreement or otherwise. The
Indemnitee understands and acknowledges that the Company has undertaken, and may
in the future be required to undertake, to submit the question of the Company's
right under public policy to indemnify the Indemnitee to a court of appropriate
jurisdiction under certain circumstances, unless, in the opinion of counsel,
such matter has been settled by controlling precedent, and that such
determination shall be binding on the Company and the Indemnitee.
(remainder of page intentionally blank)
<PAGE> 12
-12-
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
KENDLE INTERNATIONAL INC.
By: /s/ Candace Kendle
--------------------------------------
Candace Kendle,
Chairman of the Board
and Chief Executive Officer
INDEMNITEE:
/s/ Robert Buck
------------------------------------------
Robert Buck
<PAGE> 1
EXHIBIT 10.14
-1-
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made effective as of December
10, 1998 by and between KENDLE INTERNATIONAL INC., an Ohio corporation (the
"Company"), and Mary Beth Price (the "Indemnitee").
R E C I T A L S:
A. The Company and the Indemnitee recognize the difficulty and
expense of obtaining adequate directors' and officers' liability insurance;
B. The Company and the Indemnitee recognize the substantial
increase in corporate litigation in general, subjecting directors and officers
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
C. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company, it is necessary for the Company contractually to indemnify its
directors and officers with respect to claims against such directors and
officers in connection with their service to or on behalf of the Company, and
that the failure to provide such contractual indemnification could result in
great harm to the Company and the Company's shareholders;
D. Section 1701.13(E) ("Section 1701.13(E)") of the General
Corporation Law of Ohio, under which the Company is organized, empowers the
Company to indemnify its directors and officers by agreement and to indemnify
persons who serve, at the request of the Company, as the directors, officers,
employees or agents of other corporations or enterprises, and expressly provides
that the indemnification provided by Section 1701.13(E) is not exclusive;
E. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company is inadequate or inordinately expensive and that the Indemnitee and
other directors or officers of the Company may not be willing to continue to
serve as directors or officers without additional protection;
F. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company; and,
G. The Indemnitee is willing to serve, or to continue to serve,
the Company, provided that she is furnished the indemnity provided for herein;
<PAGE> 2
-2-
NOW, THEREFORE, based upon the foregoing premises and in consideration
of the mutual covenants contained herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
1.1 Agent. For the purposes of this Agreement, "Agent" means any
person who is a director or officer of the Company; or is serving at the request
of, for the convenience of or to represent the interests of the Company as a
director, officer, manager, employee or agent of another foreign or domestic
corporation (for profit or nonprofit), partnership, limited liability company,
joint venture, trust or other enterprise (specifically including employee
benefit plans).
1.2 Expenses. For purposes of this Agreement, "Expenses" includes
all direct costs (including, without limitation, all attorneys' fees and related
disbursements and other out-of-pocket costs) actually and reasonably incurred by
the Indemnitee in connection with the investigation, defense or appeal of a
Proceeding, as that term is defined in Section 1.4, or establishing or enforcing
a right to indemnification under this Agreement; PROVIDED, however, that
"Expenses" shall not include any judgments, fines, ERISA excise taxes or
penalties or amounts paid in settlement of a Proceeding, or prepaid retainers
for attorneys or other professionals engaged by or on behalf of the Indemnitee.
1.3 Liability. For purposes of this Agreement, "Liability" or
"Liabilities," includes any judgment, fine, ERISA excise tax or penalty or any
amount paid, with the Company's written consent, in settlement of a Proceeding.
1.4 Proceeding. For the purposes of this Agreement, "Proceeding"
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or to
continue to serve as an Agent in the capacity the Indemnitee currently serves as
an Agent, as long as such service is mutually agreeable to Indemnitee and the
Company.
3. MAINTENANCE OF LIABILITY INSURANCE.
3.1 Maintenance of Insurance. As long as the Indemnitee shall
continue to serve as an Agent and thereafter as long as the Indemnitee shall be
subject to any possible Proceeding by reason of the fact that the Indemnitee was
an Agent, the Company, subject to the provisions of Section 3.3 with respect to
the unavailability of satisfactory insurance coverage, shall promptly obtain
and/or maintain in full force and effect directors' and officers' liability
insurance ("D&O Insurance") in reasonable amounts from established and reputable
insurers. If D&O Insurance is obtained, the Company covenants that the
Indemnitee shall be named as an insured.
<PAGE> 3
-3-
3.2 Indemnitee Named as Insured. In all policies of D&O Insurance,
if any, the Indemnitee shall be named as an insured in such a manner as to
provide the Indemnitee the same rights and benefits as are accorded to the
Company's most favorably insured directors.
3.3 Unavailability of Satisfactory Coverage. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain D&O
Insurance if the Company determines in good faith that such insurance is not
reasonably available, or that the premium costs for such insurance are
disproportionate to the amount of coverage provided or that the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit. The failure of the Company to obtain D&O Insurance or the
decision by the Company not to obtain such coverage shall not have any
detrimental effect on the Indemnitee's rights hereunder.
4. MANDATORY INDEMNIFICATION.
4.1 Third Party Actions. The Company shall indemnify the
Indemnitee when the Indemnitee is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the Company) by
reason of the fact that she is or was an Agent, or by reason of anything done or
not done by her in any such capacity, against any and all Expenses and
Liabilities of any type whatsoever actually and reasonably incurred by her in
connection with the investigation, defense, settlement or appeal of that
Proceeding if she acted in good faith and in a manner she reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe her
conduct was unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent shall
not create a presumption that the Indemnitee did not satisfy the foregoing
standard of conduct.
4.2 Proceedings by or in the Right of the Company. The Company
shall indemnify the Indemnitee when the Indemnitee is a party or is threatened
to be made a party to any Proceeding by or in the right of the Company to
procure a judgment in its favor by reason of the fact that she is or was an
Agent, or by reason of anything done or not done by her in any such capacity,
against any amounts paid in settlement of any such proceeding and all expenses
actually and reasonably incurred by her in connection with the investigation,
defense, settlement or appeal of that Proceeding if she acted in good faith and
in a manner she reasonably believed to be in or not opposed to the best
interests of the Company; except that no indemnification under this subsection
shall be made in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable to the Company under the standards
of the Ohio General Corporation Law by a court of competent jurisdiction in the
performance of her duty to the Company unless and only to the extent that the
court in which such Proceeding was brought shall determine, upon application,
that, despite the adjudication of liability, but in view of all the
<PAGE> 4
-4-
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which such court shall deem proper.
4.3 Expenses or Liabilities Paid by D&O Insurance or the Trust.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify
the Indemnitee for Expenses or Liabilities of any type whatsoever which have
been paid directly to, or for the benefit of, the Indemnitee by D&O Insurance or
out of any trust that may be established pursuant to Section 9 hereof.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for a part,
but not the total amount, of any Expenses or Liabilities of any type whatsoever
incurred by her in the investigation, defense, settlement or appeal of a
Proceeding, the Company shall indemnify the Indemnitee only for such amount to
which the Indemnitee is entitled as indemnification hereunder.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Sections 7 and
10 hereof, the Company shall advance all Expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
Proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an Agent, or in
connection with any action brought by the Indemnitee to establish or enforce a
right to indemnification under this Agreement pursuant to Section 8 hereof, in
advance of the final disposition thereof. Indemnitee hereby undertakes: (x) to
repay all such amounts advanced if (but only if) it shall be proved by clear and
convincing evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate intent to
cause injury to the Company or undertaken with reckless disregard for the best
interests of the Company; and (y) to cooperate reasonably with the Company in
connection with such Proceeding. The advances to be made hereunder shall be paid
by the Company to or for the benefit of the Indemnitee within twenty (20) days
following delivery of a written request therefor, accompanied by true and
complete copies of invoices therefor, by the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
7.1 Notice to Company. Promptly after receipt by the Indemnitee of
notice of the commencement or the threatened commencement of any Proceeding, the
Indemnitee shall notify the Company of such commencement or threatened
commencement. The Indemnitee shall also provide the Company such information and
cooperation as the Company from time to time may reasonably request and as shall
reasonably be within the Indemnitee's power to provide. The Company shall have
no obligation to indemnify the Indemnitee under this Agreement if (but only if)
the Indemnitee's delay or failure to provide notice, information or cooperation
as required under this Section 7.1 results in a material impairment of the
Company's ability to defend the Proceeding or in the loss of coverage under any
applicable insurance policy.
<PAGE> 5
-5-
7.2 Notice to Insurance Carriers. If the Company has any
applicable insurance policy in effect at the time it receives notice pursuant to
Section 7.1 of the commencement or threatened commencement of a Proceeding, the
Company shall give prompt notice thereof to the insurer(s) in accordance with
the procedure set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Proceeding in
accordance with the terms of such policies.
7.3 Choice of Counsel. In the event the Company shall be obligated
to advance the Expenses of any Proceeding against the Indemnitee, the Company
shall be entitled, in lieu thereof, to assume the defense of such proceeding
upon the delivery to the Indemnitee of written notice of the Company's election
to do so, which notice shall contain the name, address and phone number of
counsel engaged by the Company to handle such defense and confirmation that the
Company has undertaken to pay that counsel's reasonable fees and expenses
therefor. After delivery of such notice, the Company shall not be liable to the
Indemnitee under this Agreement for any fees or expenses of counsel for the
Indemnitee (other than the counsel engaged by the Company) subsequently incurred
by the Indemnitee with respect to the same Proceeding; PROVIDED, however, that
the fees and expenses of such counsel for the Indemnitee shall be at the expense
of the Company if (i) the employment of separate counsel by the Indemnitee has
been previously authorized by the Company, or (ii) the Indemnitee shall have
reasonably concluded, and either the Company shall have agreed, or independent
counsel (as defined herein) shall have determined, that there may be a conflict
of interest between the Company and the Indemnitee in the conduct of any such
defense; and FURTHER PROVIDED, however, that, the Indemnitee's counsel shall
have been approved by any carrier of an applicable insurance policy if required
under the terms of that policy. As used in this Section 7.3, "independent
counsel" shall mean counsel selected and compensated by the Company, and
reasonably approved by the Indemnitee, to determine whether a conflict of
interest may exist, which counsel shall not represent the Company, the
Indemnitee or any other party to the Proceeding for which indemnification is
sought. Independent counsel shall be selected promptly following notice from the
Indemnitee to the Company of the Indemnitee's belief that a conflict of interest
may exist. Nothing herein shall limit the right of the Indemnitee to employ
counsel at the Indemnitee's sole expense.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
8.1 Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding referred to
in Sections 4.1 or 4.2 hereof or in the defense of any claim, issue or matter
described therein, the Company shall indemnify the Indemnitee against Expenses
actually and reasonably incurred by her in connection with the investigation,
defense or appeal of such Proceeding.
<PAGE> 6
-6-
8.2 Satisfaction of Standard of Conduct. In the event that Section
8.1 is inapplicable, (i) indemnification under Section 4.1 hereof shall be made
by the Company only upon a determination in accordance with this Section 8 that
the Indemnitee is entitled to indemnification hereunder, and (ii)
indemnification under Section 4.2 shall be made, if at all, in accordance with
the procedure set forth in Section 4.2. If the Indemnitee believes, upon the
disposition of any Proceeding described in Section 4.1 (whether by judgment,
settlement or otherwise), that the Indemnitee is entitled to indemnification
pursuant to this Agreement, the Indemnitee shall make written demand therefor
upon the Company. The Company shall indemnify the Indemnitee in accordance with
such demand unless, within forty-five (45) days after receipt of the
Indemnitee's demand, the Company notifies the Indemnitee that it has determined
that the Indemnitee has not met the applicable standard of conduct required to
entitle the Indemnitee to such indemnification (the "Notice of Denial"). The
Notice of Denial shall set forth, in reasonable detail, the basis for such
determination by the Company and the name of counsel selected by the Board
pursuant to Section 8.3.2 hereof.
8.3 Forum for Determination of Satisfaction of Standard of
Conduct. Provided the Indemnitee notifies the Company of her choice of forum
within thirty (30) days after the receipt of a Notice of Denial, the Indemnitee
shall be entitled to select one of the following forums to determine whether she
met the applicable standard of conduct specified in Section 4.1 and is therefore
entitled to indemnification under this Agreement:
8.3.1 Quorum of Disinterested Directors. A vote of a majority of a
quorum (more than fifty percent (50%)) of the Board consisting of
directors who are not parties to the Proceeding for which
indemnification is being sought, based upon written submissions by the
Company and the Indemnitee and, if the Indemnitee or directors so
request, an oral presentation by the Indemnitee and by such other
persons as such directors may request; PROVIDED, however, that the
Indemnitee shall not have the right to be present during such
directors' deliberations nor during presentations made to such
directors by any person other than the Indemnitee;
8.3.2 Counsel. Legal counsel selected by the Board (other than
counsel to any party to the Proceeding for which indemnification is
sought), and reasonably approved by the Indemnitee, which counsel shall
make such determination in a written opinion based upon written
submissions by the Company and the Indemnitee and responses to such
questions as that counsel may have in such form as that counsel may
request;
8.3.3 Arbitration Panel. A majority vote of a panel of three
arbitrators, one of whom is selected by the first two arbitrators so
selected, which arbitration shall be conducted in accordance with the
rules of the American Arbitration Association and such rules of
procedure as may be established by the panel; or
<PAGE> 7
-7-
8.3.4 Court. The court in which the Proceeding is or was pending, in
accordance with such rules of procedure as may be applicable to or
established by that court.
8.4 Submission to Forum. As soon as practicable, and in no event
later than thirty (30) days after the Indemnitee's written notice to the Company
of the Indemnitee's choice of forum pursuant to Section 8.3 above, the Company
shall, at its expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification. The Indemnitee shall be afforded
an adequate opportunity to defend against that claim. A presumption shall exist
that the Indemnitee is entitled to indemnification hereunder, and the Company
shall indemnify the Indemnitee unless the Company shall prove to the selected
forum, by clear and convincing evidence, that the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
indemnification. The decision of the selected forum shall constitute a binding
and final adjudication between the Company and the Indemnitee as to the
Indemnitee's right to indemnification under Section 4.1 of this Agreement.
8.5 Expenses of Determination. Notwithstanding any other provision
in this Agreement to the contrary, the Company shall indemnify the Indemnitee
against all Expenses incurred by the Indemnitee in connection with any hearing
or proceeding under this Section 8 involving the Indemnitee and against all
Expenses incurred by the Indemnitee in connection with any other Proceeding
between the Company and the Indemnitee involving the interpretation or
enforcement of the rights of the Indemnitee under this Agreement unless the
Company shall be deemed the prevailing party in any such proceeding.
9. INDEMNIFICATION TRUST AGREEMENT. In order to secure the
obligations of the Company to advance to the Indemnitee certain amounts under
Section 6 hereof, the Company may establish a trust fund naming the Indemnitee
as a beneficiary (in addition to all other directors, officers and other agents
with whom the Company enters into Indemnity Agreements, whether before, on, or
after the date hereof). The Indemnitee shall not seek any amount from the Trust,
if established, (i) unless entitled to an advance of Expenses pursuant to this
Agreement and (ii) unless and until the Indemnitee has made demand for payment
of Expenses pursuant to Section 6 hereof and, after twenty (20) days, the
Company has failed to advance such Expenses. The Indemnitee shall not be
entitled to receive a reimbursement or advance from the Trust, if established,
for a liability or other amount not expressly covered by Section 6 hereof.
10. EXCEPTIONS. Notwithstanding any other provision herein to the
contrary, the Company shall not be obligated pursuant to the terms of this
Agreement:
10.1 Claims Initiated by the Indemnitee. To indemnify or advance
Expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement; or
<PAGE> 8
-8-
10.2 The Company Prevails in Action to Enforce or Interpret Agreement.
To indemnify the Indemnitee for any Expenses incurred by the Indemnitee with
respect to any Proceeding instituted by the Indemnitee to enforce or interpret
this Agreement, if the Company is deemed to be the prevailing party in such
proceeding; or
10.3 Unauthorized Settlements. To indemnify the Indemnitee for any
amounts paid in settlement of a Proceeding unless the Company expressly consents
in writing to such settlement; or
10.4 Failure to Settle Proceeding. To indemnify the Indemnitee for
Liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any Expenses incurred by the Indemnitee following the
time such settlement reasonably could have been effected, if the Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any Proceeding (or investigation or appeal thereof) recommended in good-faith,
in writing, by the Company.
11. NO RESTRICTION OF OTHER INDEMNIFICATION RIGHTS. The Company
shall not adopt any amendment to its Articles of Incorporation or Regulations,
the effect of which would be to deny, diminish or encumber the Indemnitee's
rights to indemnity pursuant to the Articles of Incorporation, the Regulations,
the Ohio General Corporation Law or any other applicable law as applied to any
act or failure to act occurring in whole or in part prior to the date (the
"Effective Date") upon which the amendment shall apply only to acts or failures
to act occurring entirely after the Effective Date thereof, unless the
Indemnitee shall have voted in favor of the amendment as a director or holder of
record of the Company's common stock, as the case may be.
12. MERGER OR CONSOLIDATION. In the event that the Company shall
be a constituent corporation in a merger, consolidation or other reorganization,
the Company, if it shall not be the surviving, resulting or acquiring
corporation therein, shall require, as a condition thereto, that the surviving,
resulting, or acquiring corporation agree to indemnify the Indemnitee to the
full extent provided in this Agreement and to adopt and assume the Company's
obligations under this Agreement. Whether or not the Company is the surviving,
resulting or acquiring corporation in any such transaction, the Indemnitee shall
also stand in the same position under this Agreement as she would have with
respect to the Company if its separate existence had continued.
13. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Articles of Incorporation or Regulations, the vote of the
Company's shareholders or disinterested directors, other agreements or
otherwise, whether as to actions in her official capacity or actions in another
capacity while
<PAGE> 9
-9-
occupying her position as an Agent. The Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an Agent and shall inure to
the benefit of the successors, heirs, executors, administrators, estates, legal
representatives and assigns of the Indemnitee.
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law; PROVIDED, however, that no change in any applicable law,
statute or rule which has the effect of narrowing the right of an Ohio
corporation to indemnify any Agent shall, unless otherwise required thereby,
affect this Agreement or the parties' rights or obligations hereunder.
15. HEADINGS. Descriptive headings in this Agreement are solely
for convenience and shall not control or affect the construction or
interpretation of any provision herein.
16. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
17. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
18. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors, heirs, executors,
administrators, estates, legal representatives and assigns of the parties
hereto; PROVIDED, however, that the Indemnitee may not delegate her duties
hereunder; and PROVIDED FURTHER, that no assignment shall obligate the Company
to provide any indemnification with respect to the actions or failures to act of
any person other than the Indemnitee specifically named herein.
19. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been given when delivered personally by
overnight carrier or by telecopy with telephonic
<PAGE> 10
confirmation of receipt or by two (2) business days after being deposited in the
U.S. mail, certified or registered, return receipt requested with postage
prepaid, and addressed to the party to whom such notice, request, demand, waiver
or other communication is to be given as follows, or at such other address as
either party shall designate by notice to the other party pursuant to this
section:
The Company: Kendle International Inc.
700 Carew Tower
Cincinnati, Ohio 45202
Attention: Candace Kendle
Chairman of the Board
and Chief Executive Officer
with a required copy to: Paul F. Ritter, Esq.
700 Carew Tower
Cincinnati, Ohio 45202
Indemnitee: Mary Beth Price
5607 Brookstone Drive
Cincinnati, Ohio 45230
20. GOVERNING LAW. This Agreement, and the rights and duties of
the parties hereto under this Agreement, shall be governed exclusively by and
construed in accordance with the laws of the State of Ohio, as applied to
contracts between Ohio residents entered into and to be performed entirely
within Ohio.
21. CONSENT TO JURISDICTION. Except as expressly provided in
Section 8 hereof, the Company and the Indemnitee each hereby irrevocably consent
to the jurisdiction of the courts of the State of Ohio for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
brought only in the state courts of the State of Ohio.
22. COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, and by each party on separate counterparts, each of which
counterparts shall be deemed an original, but all of which counterparts taken
together shall be one and the same document.
23. PUBLIC POLICY DETERMINATIONS. The Company and the Indemnitee
acknowledge that, in certain circumstances, federal law or applicable public
policy may prohibit the Company from indemnifying the Indemnitee under this
Agreement or otherwise. The Indemnitee understands and acknowledges that the
Company has undertaken, and may in the future be
<PAGE> 11
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required to undertake, to submit the question of the Company's right under
public policy to indemnify the Indemnitee to a court of appropriate jurisdiction
under certain circumstances, unless, in the opinion of counsel, such matter has
been settled by controlling precedent, and that such determination shall be
binding on the Company and the Indemnitee.
(remainder of page intentionally blank)
<PAGE> 12
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The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
KENDLE INTERNATIONAL INC.
By: /s/ Candace Kendle
-----------------------------------
Candace Kendle,
Chairman of the Board
and Chief Executive Officer
INDEMNITEE:
/s/ Mary Beth Price
----------------------------------------
Mary Beth Price
<PAGE> 1
EXHIBIT 10.20e
KENDLE INTERNATIONAL INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of this Plan is to provide employees of Kendle and its
subsidiaries added incentive to their employment and to encourage their
increased efforts to promote the best interests of Kendle. The Plan seeks to
accomplish this purpose by permitting eligible employees to purchase Common
Shares of Kendle at below-market prices. For purposes of the Plan, a subsidiary
of the corporation of which Kendle is the common parent, is as defined by the
Internal Revenue Code of 1986 in Section 424(f). As used in this Plan, the term
"Kendle" means Kendle International Inc. and all such subsidiaries. This Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code and all provisions of this Plan are to be construed so
as to meet that tax objective.
2. ELIGIBILITY.
This Plan is available to each Eligible Employee of Kendle who meets
the following tests on the first day of a Purchase Period as defined in Section
3. An Eligible Employee is one (a) who has been continuously employed by Kendle
for at least one month; (b) whose customary employment by Kendle is at least 24
hours per week; and (c) whose customary employment by Kendle is more than five
months in any calendar year.
An Eligible Employee may not purchase Common Shares hereunder if,
immediately thereafter such employee would own 5% or more of the total combined
voting power or value of all classes of stock of Kendle or any subsidiary
including attributable stock under Section 424(d) of the Internal Revenue Code,
or if, for a given calendar year, such employee's aggregate rights to purchase
stock under all employee stock purchase plans of Kendle would exceed $25,000 of
fair market value of such stock for such calendar year, all determined in the
manner provided by Section 423(b)(8) of the Internal Revenue Code.
3. EFFECTIVE DATE; TERM; PURCHASE PERIODS.
This Plan shall become effective on June 30, 1998 or such later date as
may be specified by the Board of Directors. This Plan shall cease to be
effective unless, within 12 months after the date of its adoption by the Board,
it has been approved at a meeting of the shareholders of Kendle.
This Plan shall remain in effect until all Common Shares issuable under
the Plan have been issued or June 30, 2003, whichever occurs first.
A "Purchase Period" shall consist of the twelve month period beginning
on each July 1, commencing on or after the effective date and prior to
termination of the Plan.
<PAGE> 2
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4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a Committee designated by the Board
consisting of two or more members of the Board, each of whom is a Non-Employee
Director within the meaning of Rule 16b-3(b) promulgated under the Securities
Exchange Act of 1934.
In addition to the power to amend or terminate the Plan pursuant to
Section 9, the Committee shall have full power and authority to: (i) interpret
and administer the Plan and any instrument or agreement entered into under the
Plan; (ii) establish such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; and (iii) make
any other determination and take any other action that the Committee deems
necessary or desirable for administration of the Plan. Decisions of the
Committee shall be final, conclusive and binding upon all persons, including
Kendle, any participant and any other employee of Kendle. A majority of the
members of the Committee may determine its actions and fix the time and place of
its meetings.
The Plan shall be administered so as to ensure all participants have
the same rights and privileges as are provided by Section 423(b)(5) of the
Internal Revenue Code.
5. BASIS OF PARTICIPATION.
5.1 PAYROLL DEDUCTION. Each Eligible Employee shall be
entitled to enroll in the Plan as of the first day of the Purchase Period which
begins after such employee has become an Eligible Employee.
To enroll in the Plan, an Eligible Employee shall execute and deliver a
payroll deduction authorization to Kendle or its designated agent. The
authorization shall become effective on the first day of the Purchase Period
following the execution and delivery of such authorization. Each authorization
shall direct that payroll deductions be made by Kendle for each payroll period
during which the employee is a participant in the Plan. The amount of each
payroll deduction for each such payroll period shall be a whole percentage
amount or a whole dollar amount, as determined by the Committee, in either case
not less than One Percent nor more than Ten Percent, or such greater or lesser
percentages as may be determined by the Committee, of the participant's current
regular wage or salary (before withholding or other deductions) paid to him/her
by Kendle.
Payroll deductions (and any other amount paid under the Plan) shall be
made for each participant in accordance with his/her authorization until
participation in the Plan terminates, the authorization is revised or the Plan
terminates, all as hereinafter provided.
A participant may not change the amount of payroll deduction during any
Purchase Period. Any requested changes on the amount of payroll deductions will
be effective beginning
<PAGE> 3
-3-
on the first day of the next Purchase Period, subject to a participant's right
to terminate participation in the Plan at any time as provided in Section 8.
Payroll deductions shall be credited to an account established for each
participant. At the end of each Purchase Period, the amount in each
participant's account will be applied to purchase Kendle Common Shares for such
Purchase Period. No interest shall accrue at any time for any amount credited to
a participant's account.
5.2 OTHER METHODS OF PARTICIPATION. The Committee may
establish additional procedures whereby Eligible Employees may participate in
the Plan by means other than payroll deduction, such as delivery of funds by
participants in a lump sum or automatic charges to participants' bank accounts.
Such other methods of participating shall be subject to such rules and
conditions as the Committee may establish. The Committee may at any time amend,
suspend or terminate any participation procedures established pursuant to this
paragraph without prior notice to any participant to Eligible Employee.
6. PURCHASE PRICE.
The purchase price for Common Shares purchased under the Plan for any
Purchase Period shall be the lesser of (i) 85% of the fair market value of the
Common Stock on the first day of such Purchase Period or (ii) 85% of the fair
market value of the Common Shares on the last day of such Purchase Period. "Fair
market value" means the average of the highest and lowest quoted selling prices
for the Common 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. If the shares are 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.
7. ISSUANCE OF SHARES.
Common Shares purchased by each participant shall be considered to be
issued and outstanding to the participant's credit as of the close of business
on the last day of each Purchase Period. A participant may any time withdraw
certificates for all or a portion of the Common Shares credited to his or her
account by giving written notice to Kendle, provided, however, that (a) no such
request may be made more frequently than once per Purchase Period, (b) such
request shall be for at least 25 Common Shares and (c) no participant shall be
entitled to receive a certificate for any fractional share. Kendle will pay any
stamp taxes imposed in connection with the issuance of any certificate under the
Plan.
After the close of each Purchase Period, a report will be sent to each
participant stating entries made to the account, the number of Common Shares
purchased and the applicable purchase price.
<PAGE> 4
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8. TERMINATION OF PARTICIPATION.
A participant may at any time terminate participation in the Plan,
provided such termination is received by Kendle in writing prior to the last
business day of the Purchase Period for which such termination is to be
effective. Upon any such termination, Kendle shall promptly deliver to such
participant certificates for the number of full Common Shares held in the
account and cash equal to any remaining balances and in lieu of any fractional
shares. Such cash equivalent shall be determined by multiplying the fractional
share by the fair market value of a Common Share on the last day of the Purchase
Period immediately preceding such termination, determined as provided in Section
6.
If the participant dies, terminates employment with Kendle for any
reason, or otherwise ceases to be an Eligible Employee, participation in the
Plan shall immediately terminate. In such event, certificates for the number of
full Common Shares held in the account, cash equal to any remaining balances and
the cash equivalent of any fractional share so held, determined as provided in
Section 6, shall be delivered promptly to such participant.
9. TERMINATION OR AMENDMENT OF THE PLAN.
Kendle may terminate the Plan at any time. Notice of termination shall
be given to all participants, but any failure to give such notice shall not
impair the effectiveness of the termination.
The Plan will terminate in any event when the maximum number of Common
Shares to be sold under the Plan has been purchased. Such termination shall not
impair any rights which under the Plan shall have vested on or prior to the date
of such termination. If at any time the number of shares remaining available for
purchase under the Plan are not sufficient to satisfy all then-outstanding
purchase rights, the Board may determine an equitable basis of allocating
available shares among all participants.
The Board may amend the Plan from time to time; provided, however, no
such amendment shall (a) materially adversely affect any purchase rights
outstanding under the Plan during the Purchase Period in which such amendment is
to be effected, (b) increase the maximum number of Common Shares which may be
purchased under the Plan, (c) decrease the purchase price of the Common Shares
for any purchase period below the lesser of 85% of fair market value on either
of the first or the last day of such Purchase Period or (d) adversely affect the
qualification of the Plan under Section 423 of the Internal Revenue Code.
Upon termination of the Plan, certificates for the number of full
Common Shares held in the account, cash equal to any remaining balances and the
cash equivalent of any fractional share so held, determined as provided in
Section 6, shall be delivered promptly to such participant.
<PAGE> 5
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10. NON-TRANSFERABILITY.
No right or interest in this Plan shall be assignable or transferable,
or subject to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. Any attempted assignment, transfer, pledge or other disposition of
any rights under this Plan shall be null and void and shall automatically
terminate all rights of a participant under the Plan.
11. SHAREHOLDER'S RIGHTS.
No Eligible Employee or participant shall by reason of this Plan have
any rights of a shareholder of Kendle until and to the extent such person
acquires Common Shares as herein provided.
12. MAXIMUM NUMBER AND SOURCE OF SHARES; ADJUSTMENTS.
The maximum number of Common Shares which may be purchased under this
Plan is Five Hundred Thousand (500,000) shares. Common Shares sold hereunder may
be treasury shares, authorized and unissued shares, or a combination thereof.
The Committee may also purchase Common Shares on behalf of the participants
through market transactions.
If Kendle shall, at any time change its issued Common Shares into a
different number through stock dividend, stock split, combination or otherwise,
the number of Common Shares specified in this Plan shall be proportionately
adjusted.
13. MISCELLANEOUS.
13.1 Any authorization, election, notice or document under
this Plan from an Eligible Employee or participant shall be delivered to Kendle
and shall be effective when delivered.
13.2 This Plan, and Kendle's obligation to sell and
deliver Common Shares hereunder, shall be subject to all applicable federal,
state and foreign laws, rules and regulations, and to such approval by any
regulatory or governmental agency as may, in the opinion of counsel for Kendle,
be required.
<PAGE> 1
Exhibit 10.20(f)
KENDLE INTERNATIONAL INC.
1997 DIRECTORS' COMPENSATION PLAN
This Directors' Compensation Plan has been adopted by the Board of
Directors of Kendle International Inc. in order to align further the interests
of the Company's non-employee Directors with the interests of shareholders by
providing that their compensation be paid through the issuance of Common Shares
of the Company.
1. COMPENSATION OF NON-EMPLOYEE DIRECTORS.
All Directors who are not employees of the Company shall be paid the
following fees as provided in Section 2 below:
a. a retainer of $1,000 for each meeting of the Board of
Directors attended;
b. a retainer of $500 for each committee meeting attended; and
c. such fees shall be reduced to 50% of the amount stated above
if the meetings are by telephone.
2. PAYMENT TERMS.
The meeting fees set forth in Section 1 above shall be paid by the
Company quarterly, in arrears, as soon as practicable following the end of each
quarter in the form of Company Common Shares.
The number of Common Shares to be issued shall be determined by
dividing the dollar amount of the fee by the average of the per share Fair
Market Value of the Common Shares, as defined in Section 3, for the ten trading
days prior to the end of each quarter. The resulting number shall then be
rounded up to the nearest share.
3. FAIR MARKET VALUE OF COMPANY COMMON SHARES.
"Fair Market Value" means the last sale price reported on any stock
exchange or over-the-counter trading system on which the Common Shares are
trading on the last trading day prior to a specified date or, if no last sales
price is reported, the average of the closing bid and asked prices for a Common
Share on a specified date. If no sale has been made on any date, prices on the
last preceding day on which any such sale shall have been made will be used in
determining Fair Market Value under either method prescribed in the previous
sentence.
4. RESTRICTIVE LEGEND; HOLDING PERIOD FOR COMMON SHARES
In order to comply with Federal securities laws, all certificates for
Common Shares issued
<PAGE> 2
pursuant to this Plan shall bear the following restrictive legend which will
prevent the recipient from disposing of such shares for six months from the date
of issuance:
THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED UNTIL
THE EXPIRATION OF THE SIX MONTH PERIOD BEGINNING ON THE DATE OF
ORIGINAL ISSUANCE BY KENDLE INTERNATIONAL INC. AS PROVIDED BY THE
COMPANY'S 1997 DIRECTORS' COMPENSATION PLAN, A COPY OF WHICH WILL BE
MAILED TO THE HOLDER WITHOUT CHARGE WITHIN FIVE DAYS AFTER RECEIPT OF
WRITTEN REQUEST THEREFOR.
When the legend requirement imposed by this Section 4 shall terminate,
the holder of Common Shares for which such legend requirements have terminated
may request that the Company issue replacement certificates representing such
shares without such legend.
5. NO RIGHT TO CONTINUANCE AS A DIRECTOR.
Neither the action of the Company in establishing this Plan, nor the
issuance of Common Shares shall be deemed to create any obligation on the part
of the Board of Directors to nominate any non-employee Director for reelection
by the Company's shareholders or to be evidence of any agreement or
understanding, express or implied, that the non-employee Director has a right to
continue as a Director for any period of time or at any particular rate of
compensation.
6. SHARES SUBJECT TO THE PLAN.
Common Shares are authorized for issuance under this Plan in accordance
with the provisions hereof. The Company shall at all times during the term of
the Plan retain as authorized and unissued Common Shares at least the number of
shares from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder.
2
<PAGE> 3
7. AMENDMENT.
The amount, pricing and timing of Common Share issuances pursuant to
this Plan shall not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act of 1984, as amended, or the rules
thereunder.
8. EFFECTIVE DATE AND EXPIRATION OF PLAN.
The Plan is effective as of August 15, 1997, subject to approval by a
majority of the votes cast at the next Annual Meeting of Shareholders of the
Company, by the holders of Common Shares entitled to vote thereon. Unless
earlier terminated by the Board pursuant to Section 10, this Plan shall
terminate on the tenth anniversary of the Effective Date. No Common Shares shall
be issued pursuant to this Plan after its termination.
9. PAYMENT IN EVENT OF DEATH.
Upon the death of a non-employee Director, any portion of the
compensation pursuant to this Plan then unpaid shall be paid to the
beneficiaries named in the most recent beneficiary designation filed with the
Secretary of the Company. In the absence of such a designation, such
compensation shall be paid to, or as directed by, the decedent's personal
representative, in one or more installments as the non-employee Director may
have elected in writing.
10. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN.
The Board of Directors may suspend or terminate this Plan or any
portion of it at any time, and, subject to Section 7, may amend it from time to
time in such respects as the Board of Directors may deem advisable so that any
awards hereunder shall conform to any change in applicable laws or regulations
or in any other respect the Board of Directors may deem to be in the best
interests of the Company; provided, however, that no such amendment shall,
without shareholder approval, increase the number of Common Shares which may be
issued under the Plan, materially increase the benefits accruing to Directors
under the Plan, materially modify the requirements as to eligibility for
participating in the Plan, or extend the termination date of the Plan.
3
<PAGE> 1
EXHIBIT 10.21
EXECUTION COPY
FIRST AMENDMENT dated as of November
25, 1998 (this "FIRST AMENDMENT") to the
Amended and Restated Credit Agreement dated
as of February 26, 1998 (as amended,
modified or otherwise supplemented through
the date hereof, the "CREDIT AGREEMENT"),
among Kendle International Inc. (the
"BORROWER"), the Lenders (as defined in the
Credit Agreement) and NationsBank, N.A., as
Agent for the Lenders (in such capacity, the
"AGENT"), and as Issuing Lender.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit Agreement,
as amended by, and together with, this First Amendment, and as hereinafter
amended, modified, supplemented, extended or restated from time to time, being
called the "AMENDED CREDIT AGREEMENT").
The Borrower has requested the Lenders to, among other things, amend
certain covenants contained in the Credit Agreement.
The parties hereto have agreed, subject to the terms and conditions
hereof, to amend the Credit Agreement as provided herein.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. Subject to satisfaction
of the conditions precedent set forth in Section 3 of this First Amendment, the
Credit Agreement is hereby amended as follows:
(a) The definition of "Change of Control" contained in
Section 1.1 of the Credit Agreement is hereby deleted therefrom in its
entirety and the following definition is substituted in lieu thereof:
""CHANGE OF CONTROL" shall mean any of the following events:
(a) any person or "group" (within the meaning of Rule 13d-5
under the Exchange Act), together with its Affiliates, other
than Candace Kendle Bryan and Christopher C. Bergen, shall
beneficially own, directly or indirectly, the lesser of (i) an
amount of Capital Stock of the Borrower entitled to twenty
percent (20%) or more of the Total Voting Power of the
Borrower or (ii) an amount of Capital Stock of the Borrower
entitled to a percentage of the Total Voting Power of the
Borrower in excess of the aggregate of such Capital Stock
owned, directly or indirectly, by Candace Kendle Bryan and
Christopher C. Bergen; (b) Candace Kendle Bryan and
Christopher C. Bergen together cease to own shares of Capital
Stock of the Borrower representing at least ten percent (10%)
of the Total Voting Power of the Borrower; or (c) during any
period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of
the Borrower (together with any new directors whose election
by such Board of Directors or whose nomination for election by
the shareholders of the Borrower was approved by a vote of
sixty-six and 2/3 percent
<PAGE> 2
(66-2/3%) of the directors of the Borrower then still in
office who were either directors at the beginning of such
period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Borrower then in
office."
(b) The definition of "Collateral Documents" contained in
Section 1.1 of the Credit Agreement is hereby deleted therefrom in its
entirety and the following definition is hereby substituted in lieu
thereof:
""COLLATERAL DOCUMENTS" shall mean the Pledge Agreement, the
Permitted Tax Distribution Agreements, such other documents
executed and delivered in connection with the attachment and
perfection of the Agent's security interests and liens arising
thereunder and all documents and instruments delivered under
and pursuant to Section 6.11."
(c) The definition of "Fixed Charge Coverage Ratio"
contained in Section 1.1 of the Credit Agreement is hereby deleted
therefrom in its entirety and the following definition is hereby
substituted in lieu thereof:
""FIXED CHARGE COVERAGE RATIO" shall mean, as of any reporting
day, the ratio of (a) Consolidated EBITDA for the period of
four consecutive fiscal quarters of the Borrower ending on, or
most recently preceding, such day, PLUS Consolidated Rent
Expense for such period MINUS Consolidated Capital
Expenditures for such period, to (b) the sum of (i)
Consolidated Interest Expense for such period, PLUS (ii)
Consolidated Rent Expense for such period, PLUS (iii)
Consolidated Scheduled Funded Debt Payments for such period,
PLUS (iv) Consolidated Cash Dividends for such period."
(d) The definition of "Life Insurance Assignment"
contained in Section 1.1 of the Credit Agreement is hereby deleted
therefrom in its entirety.
(e) The definition of "Life Insurance Policy" contained
in Section 1.1 of the Credit Agreement is hereby deleted in its
entirety.
(f) The definition of "Permitted Acquisition" contained
in Section 1.1 of the Credit Agreement is hereby deleted therefrom in
its entirety and the following definition is hereby substituted in lieu
thereof:
""PERMITTED ACQUISITION" shall mean an acquisition by the
Borrower or any Wholly Owned Domestic Subsidiary of the
Borrower of the Capital Stock or all or substantially all of
the Property of another Person (including by merger or
consolidation or by incorporation of a new Subsidiary) for up
to the fair market value of the Capital Stock or Property
acquired, PROVIDED, THAT, (a) the Capital Stock or Property
acquired in such acquisition relates directly to or is
strategically related to the business of the Borrower or any
of its Subsidiaries as existing on the Effective Date, (b) any
Indebtedness issued, incurred (other than under this
Agreement) or
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<PAGE> 3
assumed by the Borrower and its Subsidiaries on a consolidated
basis from such acquisition (as permitted hereunder) shall not
in the aggregate exceed $5,000,000, (c) the Agent shall have
received all items in respect of the Capital Stock or Property
acquired in such acquisition (and/or the seller thereof)
required to be delivered by the terms of Section 6.11, (d) in
the case of an acquisition of the Capital Stock of another
Person, (i) the board of directors (or other comparable
governing body) of such other Person shall have duly approved
such acquisition and (ii) the Capital Stock acquired shall
constitute 100% of the Total Voting Power and ownership
interest of the issuer thereof, (e) no Default or Event of
Default shall have occurred and be continuing immediately
before or immediately after giving effect to such acquisition
and the Borrower shall have delivered to the Agent a Pro Forma
Compliance Certificate demonstrating that, upon giving effect
to such acquisition on a Pro Forma Basis, the Borrower shall
be in compliance with all of the financial covenants set forth
in Section 7.18 as of the last day of the most recent period
of four consecutive fiscal quarters of the Borrower which
precedes or ends on the date of such acquisition and with
respect to which the Agent has received the Required Financial
Information, (f) the representations and warranties made by
the Credit Parties in each Credit Document shall be true and
correct in all material respects as of the date of such
acquisition (as if made on such date after giving effect
thereto) except to the extent such representations and
warranties expressly relate to an earlier date (in which case
such representations and warranties shall be true and correct
in all material respects at and as of such earlier date), (g)
after giving effect to such acquisition, the Revolving
Committed Amount shall be at least $5,000,000 greater than the
sum of all Revolving Loans outstanding PLUS all LOC
Obligations outstanding, PLUS all Competitive Bid Loans
outstanding, (h) the aggregate consideration (including cash,
assumption of indebtedness and non-cash consideration) for any
single acquisition (or series of related acquisitions) shall
not exceed $30,000,000 and (i) the aggregate cash
consideration for any single acquisition (or series of related
acquisitions) shall not exceed $10,000,000 and the aggregate
cash consideration for all such acquisitions occurring during
any calendar year of the Borrower during the term hereof shall
not exceed $30,000,000."
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<PAGE> 4
(g) The definition of "Permitted Investments" contained
in Section 1.1 of the Credit Agreement is hereby deleted therefrom in
its entirety and the following definition is hereby substituted in lieu
thereof:
""PERMITTED INVESTMENTS" shall mean Investments which consist
of (a) cash or Cash Equivalents; (b) trade accounts receivable
(and related notes and instruments) arising in the ordinary
course of business in accordance with customary trade terms;
(c) Investments existing as of the Effective Date and set
forth in SCHEDULE 1.1A; (d) Guaranty Obligations permitted by
Section 7.1; (e) advances or loans to directors, officers,
employees, agents, customers or suppliers that do not exceed
$250,000 in the aggregate at any one time outstanding for all
of the Borrower and its Subsidiaries; (f) Investments by the
Borrower or any Wholly Owned Subsidiary in Subsidiaries of the
Borrower or by any Subsidiary in the Borrower evidenced by
Intercompany Notes pledged to the Agent for the benefit of the
Secured Parties; PROVIDED, THAT, (i) the aggregate principal
amount of such Intercompany Notes issued by Foreign
Subsidiaries of the Borrower to the Borrower or to any
Domestic Subsidiary of the Borrower and outstanding at any
time shall not exceed $5,000,000 in the aggregate, (ii) no
Investments shall be made in the Capital Stock of any Foreign
Subsidiary except as a Permitted Acquisition; and (iii)
Investments in a Wholly Owned Subsidiary are permitted only so
long as such person remains a Wholly Owned Subsidiary; (g)
Investments by the Borrower or any Wholly Owned Subsidiary in
any Person; PROVIDED, THAT, the aggregate consideration for
all such Investments shall not exceed $8,000,000; or (h)
Permitted Acquisitions."
(h) Section 5.25(a) of the Credit Agreement is hereby
deleted therefrom in its entirety and the following definition is
hereby substituted in lieu thereof:
"5.25 SECURITY DOCUMENTS. (a) The Pledge Agreement is
effective to create in favor of the Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable
first priority security interest in 100% of the issued and
outstanding Capital Stock of all Subsidiaries (PROVIDED that
no shares of Capital Stock of any issuer incorporated in a
jurisdiction outside of the United States of America shall be
pledged to the extent that the aggregate amount of shares of
Capital Stock of such issuer pledged under the Pledge
Agreement would exceed 65% of the Capital Stock of such issuer
to the extent, and for so long as, the pledge of any greater
percentage would have adverse tax consequences for the
pledging party), and, when the Pledged Securities (as defined
in the Pledge Agreement) are delivered to the Agent, the
Pledge Agreement shall constitute a fully perfected Lien on,
and security interest in, all right, title and interest of the
grantors thereunder in such of the Collateral in which a
security interest can be perfected under Article 8 or 9 of the
Uniform Commercial Code prior and superior in right to any
other Person, other than with respect to Permitted Liens."
(i) Section 6.12 of the Credit Agreement is hereby
deleted therefrom in its entirety.
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<PAGE> 5
(j) Section 7.7 of the Credit Agreement is hereby deleted
therefrom in its entirety and the following definition is hereby
substituted in lieu thereof:
"7.7 RESTRICTED PAYMENTS. None of the Credit Parties
will, directly or indirectly, declare, order, make or set
apart any sum for or pay any Restricted Payment, except (a)
dividends payable solely in common stock of such Person, (b)
dividends or other distributions payable to (i) the Borrower
or any Wholly Owned Domestic Subsidiary of the Borrower and
(ii) the shareholders of the common stock of the Borrower, (c)
repurchases of common stock of the Borrower from any employee
of the Credit Parties upon the termination of employment of
such employee; PROVIDED, THAT, the aggregate amount paid in
all such repurchases shall not exceed $750,000 in any fiscal
year of the Borrower during the term of this Amended
Agreement, (d) repurchases of common stock of the Borrower in
addition to such repurchases permitted pursuant to clause (c)
of this Section 7.7; PROVIDED, THAT the aggregate amount paid
in all such repurchases permitted pursuant to this clause (d)
shall not exceed $5,000,000; PROVIDED, THAT, in each case as
set forth in clauses (a) through (d) above, no Default or
Event of Default has occurred and is continuing at such time
or would exist after giving effect to such payment on a pro
forma basis as if it had been made on the first day of the
most recently completed period of four consecutive fiscal
quarters of the Borrower."
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Agent and the Lenders, as follows:
(a) The Borrower is in compliance with all the terms and
conditions of the Credit Agreement on its part to be observed or
performed. There exists no Default or Event of Default.
(b) The execution, delivery and performance by the
Borrower of this First Amendment have been duly authorized by the
Borrower.
(c) This First Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable against it in
accordance with its terms.
(d) The execution, delivery and performance by the
Borrower of this First Amendment (i) do not conflict with or violate
(A) any provision of law, statute, rule or regulation, or of the
constitutive documents of the Borrower, (B) any order of any
Governmental Authority or (C) any provision of any indenture, agreement
or other instrument to which the Borrower is a party or by which it or
any of its property may be bound and (ii) do not require any consents
under, result in a breach of or constitute (with notice or lapse of
time or both) a default under any such indenture, agreement or
instrument.
SECTION 3. EFFECTIVENESS. This First Amendment shall become effective
only upon satisfaction of the following conditions precedent (the first date
upon which each such condition has been satisfied being herein called the
"AMENDMENT EFFECTIVE DATE").
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<PAGE> 6
(a) The Agent shall have received duly executed
counterparts of this First Amendment which, when taken together, bear
the authorized signatures of the Borrower and the Required Lenders.
(b) The Agent shall be satisfied that the representations
and warranties set forth in Section 2 are true and correct on and as of
the Amendment Effective Date.
(c) There shall not be any action pending or any
judgment, order or decree in effect which, in the judgment of the Agent
or the Lenders, is likely to restrain, prevent or impose materially
adverse conditions upon performance by the Borrower of its obligations
under the Amended Credit Agreement.
(d) The Agent shall have received such other documents,
legal opinions, instruments and certificates relating to this First
Amendment as they shall reasonably request and such other documents,
legal opinions, instruments and certificates shall be satisfactory in
form and substance to the Agent and the Lenders. All corporate and
other proceedings taken or to be taken in connection with this First
Amendment and all documents incidental thereto, whether or not referred
to herein, shall be satisfactory in form and substance to the Agent and
the Lenders.
SECTION 4. APPLICABLE LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA.
SECTION 5. EXPENSES. The Borrower shall pay all fees and expenses of
counsel to the Agent outstanding as of the date hereof and all reasonable
out-of-pocket expenses incurred by the Agent and the Lenders in connection with
the preparation, negotiation, execution, delivery and enforcement of this First
Amendment. The agreement set forth in this Section 5 shall survive the
termination of this First Amendment and the Amended Credit Agreement.
SECTION 6. COUNTERPARTS. This First Amendment may be executed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement. Delivery of an
executed counterpart of a signature page to this First Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this First
Amendment.
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<PAGE> 7
SECTION 7. CREDIT AGREEMENT. Except as expressly set forth herein, the
amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the Agent
or the Lenders under the Credit Agreement, nor shall they alter, modify, amend
or in any way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Credit Agreement. The amendments provided herein
shall apply and be effective only with respect to the provisions of the Credit
Agreement specifically referred to by such amendments. Except as expressly
amended herein, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used in the Credit Agreement, the
terms "Amended Agreement", "herein", "hereinafter", "hereunder", "hereto" and
words of similar import shall mean, from and after the date hereof, the Amended
Credit Agreement.
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<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this First Amendment to be duly executed and delivered as of the date first
above written.
BORROWER: KENDLE INTERNATIONAL INC.
an Ohio corporation
By: /s/ Timothy M. Mooney
----------------------------------------
Name: Timothy M. Mooney
Title: Vice President and CFO
LENDERS: NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Agent and
Issuing Lender
By: /s/ Michael S. Sylvester
----------------------------------------
Name: Michael S. Sylvester
Title:
BANK ONE, N.A., as a Lender
By: /s/ Richard Kuertz
----------------------------------------
Name: Richard Kuertz
Title:
FIFTH THIRD BANK, as a Lender
By: /s/ H. Lytle Thomas
----------------------------------------
Name: H. Lytle Thomas
Title:
<PAGE> 1
Exhibit 13
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
28 SELECTED FINANCIAL DATA
29 QUARTERLY FINANCIAL DATA
30 MANAGEMENT'S DISCUSSION AND ANALYSIS
35 CONSOLIDATED STATEMENTS OF INCOME
36 CONSOLIDATED BALANCE SHEETS
37 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
38 CONSOLIDATED STATEMENTS OF CASH FLOWS
40 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
49 REPORT OF INDEPENDENT ACCOUNTANTS
50 MANAGEMENT TEAM
51 CORPORATE INFORMATION
27.
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME(1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net revenues $ 89,516 $ 44,233 $ 12,959 $ 6,118 $ 4,431
Costs and expenses:
Direct costs 46,607 23,883 6,631 2,787 2,090
Selling, general and administrative 27,430 13,538 4,823 2,553 1,737
Depreciation and amortization 4,711 1,583 316 168 127
- ------------------------------------------------------------------------------------------------------------------
78,748 39,004 11,770 5,508 3,954
- ------------------------------------------------------------------------------------------------------------------
Income from operations 10,768 5,229 1,189 610 477
Interest income 1,587 369 15 6 24
Interest expense (284) (425) (65) (69) (43)
Other (13) (59) (5)
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 12,058 5,114 1,134 547 458
Income taxes 4,893 1,451
- ------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 7,165 3,663 1,134 547 458
Extraordinary item, net of tax benefit (1,140)
- ------------------------------------------------------------------------------------------------------------------
Net income $ 7,165 $ 2,523 $ 1,134 $ 547 $ 458
- ------------------------------------------------------------------------------------------------------------------
Pro forma net income(2) $ 1,914 $ 681 $ 328 $ 275
- ------------------------------------------------------------------------------------------------------------------
INCOME PER SHARE DATA (PRO FORMA FOR 1994 - 1997)
Basic:
Income per share before extraordinary item $ 0.75 $ 0.60 $ 0.19 $ 0.09 $ 0.08
Extraordinary item per share (0.22)
- ------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.75 $ 0.38 $ 0.19 $ 0.09 $ 0.08
- ------------------------------------------------------------------------------------------------------------------
Weighted average shares 9,589 5,055 3,650 3,650 3,650
Diluted:
Income per share before extraordinary item $ 0.70 $ 0.53 $ 0.17 $ 0.09 $ 0.07
Extraordinary item per share (0.20)
- ------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.70 $ 0.33 $ 0.17 $ 0.09 $ 0.07
- ------------------------------------------------------------------------------------------------------------------
Weighted average shares 10,226 5,763 4,017 3,852 3,804
CONSOLIDATED BALANCE SHEET DATA(1,3)
Working capital $ 65,496 $ 20,710 $ (294) $ (139) $ (208)
Total assets 153,240 79,625 8,623 2,432 1,874
Total long-term debt 3,103 3,087 761 151 139
Total shareholders' equity 122,500 50,349 944 345 51
</TABLE>
- -----------
(1) During 1998 and 1997, the Company made three acquisitions. See Note 12 to
the consolidated financial statements.
(2) Pro forma net income reflects the application of corporate income taxes to
the Company's net income at an assumed statutory combined federal, state
and local rate which would have been recorded if the Company had been taxed
as a C corporation during such periods.
(3) In 1998 and 1997, the Company and its shareholders completed Common Stock
offerings, in which the Company raised net proceeds of $51.4 million and
$45.2 million, respectively.
28.
<PAGE> 3
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER FIRST SECOND THIRD FOURTH
- --------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
Net revenues $ 19,766 $ 22,534 $ 22,869 $ 24,347
Income from operations 2,307 2,604 2,754 3,103
Net income 1,444 1,559 2,009 2,153
Net income per diluted share 0.17 0.17 0.18 0.19
Ranges of stock price
High 27.25 31.375 35.00 32.75
Low 15.00 21.75 22.875 19.875
1997
Net revenues $ 5,962 $ 7,210 $ 12,518 $ 18,543
Income from operations 543 990 1,528 2,168
Pro forma income before extraordinary item(1) 317 534 756 1,292
Pro forma net income (loss)(1) 317 534 (384) 1,292
Pro forma income per diluted share before
extraordinary item(1) 0.08 0.12 0.13 0.16
Pro forma net income (loss) per diluted share(1) 0.08 0.12 (0.06) 0.16
Ranges of stock price(2)
High 19.00 18.625
Low 14.00 10.00
</TABLE>
- ------------
(1) The pro forma data reflects the application of corporate income taxes to
the Company's net income at an assumed statutory combined federal, state
and local rate which would have been recorded if the Company had been taxed
as a Corporation during such periods.
(2) In August, 1997, the Company and its shareholders completed an initial
public offering, with common shares offered to the public at a price of $14
per share.
29.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information set forth and discussed below is derived from the Company's
Consolidated Financial Statements included herein and should be read in
conjunction therewith.
COMPANY OVERVIEW
Kendle International Inc. ("the Company") is an international contract research
organization (CRO) that provides integrated clinical research services,
including Phase I through IV drug development, on a contract basis to the
pharmaceutical and biotechnology industries.
The Company's 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. Net revenues from
contracts are generally recognized on the percentage of completion method,
measured principally by the total costs incurred as a percentage of estimated
total costs for each contract. The estimated total costs of contracts are
reviewed and revised periodically throughout the lives of the contracts with
adjustments 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 customers,
are excluded from direct costs and net revenues.
Direct costs consist of compensation and related fringe benefits for
project-related associates, 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 associates and professional services, as
well as unallocated costs related to facilities, information systems and other
costs.
The Company's results are subject to volatility due to such factors as the
commencement, completion, cancelation or delay of contracts; the progress of
ongoing projects; cost overruns; the Company's sales cycle; the ability to
maintain large customer contracts or to enter into new contracts, and other
factors. In 1998, the Company's Phase I Unit experienced a decline in revenues
and a resulting loss from operations. The Phase I Unit results were due in part
to the inherent volatility in Phase I revenues due to the nature of Phase I
studies (shorter duration studies with shorter lead times and higher potential
for cancelation) combined with turnover in certain management personnel. The
Company has taken steps to mitigate this volatility with the hiring of
experienced Phase I management personnel and has increased its Phase I new
business development efforts. The Company is expecting revenues and related
operating performance to improve beginning in 1999. However, the decline in
revenues and resulting loss from operations in the Phase I Unit could continue
if the Company's efforts are unsuccessful.
ACQUISITIONS
The Company acquired ACER/EXCEL Inc. ("ACER/EXCEL") headquartered in Cranford,
New Jersey, in February, 1998. ACER/EXCEL provides customers with Phase II
through IV clinical services. It also provides drug development services to the
Pacific Rim, through a joint venture which operates a CRO headquartered in
Beijing, China.
The Company acquired U-Gene Research B.V. ("U-Gene") and GMI Gesellschaft fur
Angewandte Mathematik und Informatik mbH ("gmi") in June and September, 1997,
respectively.
The acquisitions have been accounted for using the purchase method of
accounting, with goodwill as a result of the transactions being amortized over
30 years. The results of operations are included in the Company's consolidated
statements of income from the dates of acquisition.
RESULTS OF OPERATIONS
NET REVENUES
Net revenues increased to $89.5 million for the year ended December 31, 1998.
This compares to $44.2 million and $13.0 million for the years ended December
31, 1997 and 1996, respectively. The 102% increase in net revenues in 1998 was
comprised of organic growth of 64% and growth
30.
<PAGE> 5
from acquisitions of 38%. The 241% increase in net revenues in 1997 was
comprised of organic growth of 161% and growth from acquisitions of 81%.
Revenues from G.D. Searle and Co. accounted for approximately 38%, 54% and 48%
of net revenues for the years ended December 31, 1998, 1997, and 1996
respectively.
<TABLE>
<CAPTION>
NET REVENUES
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
$ MILLIONS 13.0 44.2 89.5
</TABLE>
Operating Expenses
<TABLE>
<CAPTION>
OPERATING EXPENSES
$ MILLIONS 1996 1997 1998
---------------------------------------------------------------
<S> <C> <C> <C>
Direct Costs $6.6 $23.9 $46.6
Selling, general &
administrative 4.8 13.5 27.4
Depreciation and
Amortization 0.3 1.6 4.7
</TABLE>
Direct costs increased by $22.7 million, or 95%, for the year ended December 31,
1998 as compared to 1997. As compared to 1996, direct costs increased by $17.3
million, or 260% in 1997. The increases are a result of increases in direct
salaries and fringe benefits to support the increases in net revenues for the
periods. Direct costs expressed as a percentage of net revenues decreased to
52.1% for the year ended December 31, 1998, from 54.0% in 1997. The decrease in
these costs as a percentage of net revenues is due primarily to the absorption
of direct project-related costs over a larger revenue base. Direct costs as a
percentage of net revenues in 1996 were 51.2%.
Selling, general and administrative expenses increased by $13.9 million, or
103%, for the year ended December 31, 1998 as compared to 1997. These expenses
increased $8.7 million, or 181%, for the year ended December 31, 1997 as
compared to 1996. The increases are primarily comprised of an increase in
salaries and benefits which is the result of the Company's continued efforts to
increase its infrastructure in order to support the growth in business,
including increases in rent and other facility expenses, travel, contractual
services, recruiting, marketing, advertising and other expenses. Selling,
general and administrative expenses as a percentage of net revenues were 30.6%
for the years ended December 31, 1998 and 1997 and 37.2% in 1996. The decrease
in this percentage in 1997 as compared to 1996 resulted from spreading these
expenses over a larger revenue base in 1997 as compared to 1996.
Depreciation and amortization expense increases from 1996 through 1998 are
primarily the result of the amortization of goodwill as a result of the
Company's acquisitions.
INCOME TAXES
The Company's effective tax rate was 40.6% for the year ended December 31, 1998
as compared to 28.4% in 1997. There were no income taxes recorded with respect
to periods prior to the Company's August, 1997 initial public offering ("IPO")
as the Company was taxed as an S corporation.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
WORKING CAPITAL
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
$ MILLIONS (0.3) 20.7 65.5
</TABLE>
Cash and cash equivalents decreased by $1.8 million for the year ended December
31, 1998 as a result of cash provided by financing activities of $50.6 million
offset by cash used in operating and investing activities of $1.9 million and
$50.7 million, respectively. Net cash used in operating activities resulted
primarily from net income offset by additional working capital used to support
the Company's growth.
Investing activities for the year ended December 31, 1998 consisted primarily of
the costs related to the ACER/EXCEL acquisition of $12.7 million, net of cash
acquired and the purchase of available for sale securities of $42.5 million.
Financing activities for the year ended December 31, 1998 consisted primarily of
net proceeds of $51.4 million as a result of the Company's follow-on offering of
Common Stock.
31.
<PAGE> 6
Cash and cash equivalents increased by $13.7 million for the year ended December
31, 1997 as a result of cash provided by operating and financing activities of
$6.5 million and $41.6 million, respectively, offset by cash used in investing
activities of $34.4 million. Net cash provided by operating activities resulted
primarily from net income plus the net change in working capital items.
<TABLE>
<CAPTION>
CASH, CASH EQUIVALENTS &
AVAILABLE FOR SALE SECURITIES
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
$ MILLIONS 2.0 24.2 54.3
</TABLE>
Investing activities for the year ended December 31, 1997 consisted primarily of
the costs related to the U-Gene and gmi acquisitions of $22.9 million, net of
cash acquired. Financing activities for the year ended December 31, 1997
consisted primarily of $45.2 million of net proceeds from the Company's IPO.
Cash and cash equivalents increased by $2.1 million during the year ended
December 31, 1996 as a result of $3.3 million in cash provided by operating
activities and $400,000 and $800,000 in cash used by investing and financing
activities, respectively. Net cash provided by operating activities resulted
primarily from net income plus the net change in working capital items.
The Company had available for sale securities totaling $40.8 million and $8.4
million at December 31, 1998 and 1997, respectively.
Capital expenditures were $7.3 million, $3.1 million and $500,000 in 1998, 1997,
and 1996, respectively.
The Company has a $30 million credit facility with certain banks. The credit
facility bears interest at a rate equal to either (a) LIBOR plus the Applicable
Percentage (as defined) or (b) the higher of the Bank's prime rate or the
Federal Funds rate plus 0.50%, plus the Applicable Percentage. All amounts
outstanding thereunder become due and payable in February, 2001. The facility
includes various restrictive covenants including the maintenance of certain
fixed coverage and leverage ratios as well as minimum net worth levels. At
December 31, 1998, there were no amounts outstanding under the credit facility.
In January, 1999, the Company acquired Research Consultants (International)
Holdings Ltd. ("IRC") for $4.1 million in cash and 87,558 shares of the
Company's Common Stock. The acquisition was funded from existing cash.
Additionally, in January, 1999, the Company acquired a minority interest in
Component Software International, Inc. ("CSI"), a software consulting and
development company, for $1.6 million and 19,995 shares of the Company's Common
Stock. Concurrent with this transaction, the Company entered into a Multi-Year
Strategic Service Agreement with CSI whereby the Company will pay CSI $7.0
million over the next four years in exchange for strategic software consulting
and development services.
The Company's primary cash needs on both a short-term and long-term basis are
for the payment of salaries and fringe benefits, hiring and recruiting expenses,
business development costs, capital expenditures, acquisitions, and facility
related expenses. The Company believes that its existing capital resources,
together with cash flows from operations and borrowing capacity under its credit
facility, will be sufficient to meet its foreseeable cash needs. In the future,
the Company will continue to consider acquiring businesses to enhance its
service offerings, therapeutic base and global presence. Any such acquisitions
may require additional external financings and the Company may from time to time
seek to obtain funds from public or private issuances of equity or debt
securities. There can be no assurance that such financings will be available on
terms acceptable to the Company.
IMPACT OF THE YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
32.
<PAGE> 7
The Company has a detailed plan in place to address the Year 2000 Issue. The
Company has formed an ongoing internal review team to address the Year 2000
Issue that encompasses personnel from various operational and administrative
areas of the Company and involved the engagement of an outside consultant.
Progress against the Year 2000 plan is monitored by this internal review team
and reported to senior management and the Board of Directors on a regular basis.
The project has proceeded according to plan thus far.
The Company's Year 2000 plan encompasses the following: (a) inventory and
assessment, (b) remediation, and (c ) validation and implementation. To date,
the Company's key financial and operational systems have been inventoried and
detailed plans are in place for the required systems modifications or
replacements. Implementation of required changes to critical business systems,
including testing of those changes, is substantially complete. The remainder of
the plan, including remediation of certain European clinical data management
systems, is expected to be an ongoing activity in 1999, with completion expected
by September 30, 1999.
The Company has initiated formal communications with its suppliers and customers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 Issue. These suppliers include
utility companies, telecommunications companies and business specific product
suppliers such as software and hardware providers and Phase I Unit equipment
providers. To date, responses have been received from approximately 51% of the
Company's inventory of suppliers. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be converted in a
timely manner, or that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not have a material
adverse effect on the Company.
Incremental costs, which include contractor costs to modify existing systems and
costs of internal resources involved in achieving Year 2000 compliance, are
charged to expense as incurred. The Company has utilized both internal and
external resources to reprogram or replace and test the software for Year 2000
modifications. Costs for the Year 2000 project have increased through our
remediation and testing efforts and are now estimated to total $800,000, of
which approximately 50% has been spent through December 31, 1998. Approximately
$200,000 of the $400,000 of costs which remain relate to the replacement of
certain of the Company's noncritical business systems.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and the ability of third parties
with whom we have business relationships to successfully address their own Year
2000 concerns.
The Company's risk management program includes emergency backup and recovery
procedures to be followed in the event of failure of a business critical system.
These procedures will be expanded to include specific procedures for potential
Year 2000 Issues. Contingency plans to protect the business from Year 2000
related interruptions are being developed. The Company expects these plans to be
completed during the second quarter of 1999 and they will include, for example,
development of backup procedures and identification of alternative suppliers.
Worst-case scenarios resulting from Year 2000 problems could include the
following: loss of electrical, water and other utility services which could
result in disruption of the Company's services, software and embedded technology
failure which could disrupt the Company's equipment, systems and networks
resulting in an inability to perform existing and future studies and/or an
adverse impact on the health and well being of patients; the loss of
telecommunications capabilities (both voice and data), which
33.
<PAGE> 8
could result in an inability of the Company to internally communicate or to
communicate with, among others, its customers and investigational sites; and the
inability of the Company's third party investigational sites to become Year 2000
compliant, which could result in the loss to the Company of their services. As
previously discussed, the Company is currently in the process of developing
contingency plans to address the consequences of these issues, should they
arise. These or other events could result in business slowdowns or suspensions
and have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
NEW ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement defines the
accounting for computer software developed or obtained (purchased) for internal
use, including (1) a requirement to capitalize specified costs as a long-lived
asset, (2) amortization of such amounts, and (3) recognition and measurement of
impairment of those amounts. The Company adopted the SOP beginning January 1,
1999. The adoption of this SOP had no impact on the consolidated financial
statements.
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999 (January
1, 2000 for the Company). SFAS No. 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Since its only
derivative transaction has historically been the use of foreign currency
exchange rate hedge instruments from time to time within a year, management of
the Company anticipates that the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or its financial
position.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Certain statements contained in this Annual Report that are not historical facts
constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbors created by that Act. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to differ materially from those expressed or implied. Any
forward-looking statement speaks only as of the date made. The Company
undertakes no obligation to update any forward-looking statements to reflect
events or circumstances arising after the date on which they are made.
Statements concerning expected financial performance, on-going business
strategies and possible future action which the Company intends to pursue to
achieve strategic objectives constitute forward-looking information.
Implementation of these strategies and the achievement of such financial
performance are each subject to numerous conditions, uncertainties and risk
factors. Factors which could cause actual performance to differ materially from
these forward-looking statements include, without limitation, factors discussed
in conjunction with a forward-looking statement, changes in general economic
conditions, the ability of the combined businesses to be integrated with the
Company's operations, the Company's ability to meet deadlines regarding Year
2000 readiness, ability to penetrate new markets, the ability of joint venture
businesses to be integrated with the Company's operations, and the ability to
maintain large customer contracts or to enter into new contracts, and the other
risk factors set forth in the Company's SEC filings, copies of which are
available upon request from the Company's investor relations department.
34.
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 89,516,138 $ 44,232,899 $ 12,959,054
Cost and expenses:
Direct costs 46,606,625 23,882,725 6,630,916
Selling, general and administrative 27,430,414 13,537,870 4,823,390
Depreciation and amortization 4,711,258 1,583,521 315,541
- ---------------------------------------------------------------------------------------------------------
78,748,297 39,004,116 11,769,847
- ---------------------------------------------------------------------------------------------------------
Income from operations 10,767,841 5,228,783 1,189,207
Other income (expense):
Interest income 1,586,904 368,768 14,746
Interest expense (284,219) (424,768) (65,127)
Other (12,340) (59,053) (4,470)
- ---------------------------------------------------------------------------------------------------------
1,290,345 (115,053) (54,851)
Income before income taxes and extraordinary item 12,058,186 5,113,730 1,134,356
Income taxes 4,893,117 1,451,184
- ---------------------------------------------------------------------------------------------------------
Income before extraordinary item 7,165,069 3,662,546 1,134,356
Extraordinary item, net of tax benefit (1,139,823)
- ---------------------------------------------------------------------------------------------------------
Net income $ 7,165,069 $ 2,522,723 $ 1,134,356
Pro forma income data:
Income before extraordinary item $ 3,662,546 $ 1,134,356
Pro forma adjustment for income taxes 608,777 453,742
- ---------------------------------------------------------------------------------------------------------
Pro forma income before extraordinary item 3,053,769 680,614
Extraordinary item, net of tax benefit (1,139,823)
- ---------------------------------------------------------------------------------------------------------
Pro forma net income $ 1,913,946 $ 680,614
Income per share data (pro forma for 1997 and 1996):
Basic:
Income per share before extraordinary item $ 0.75 $ 0.60 $ 0.19
Extraordinary item per share (0.22)
- ---------------------------------------------------------------------------------------------------------
Net income per share $ 0.75 $ 0.38 $ 0.19
- ---------------------------------------------------------------------------------------------------------
Weighted average shares 9,588,915 5,055,452 3,650,000
Diluted:
Income per share before extraordinary item $ 0.70 $ 0.53 $ 0.17
Extraordinary item per share (0.20)
- ---------------------------------------------------------------------------------------------------------
Net income per share $ 0.70 $ 0.33 $ 0.17
- ---------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 10,226,352 5,763,308 4,017,493
</TABLE>
35.
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,980,300 $ 15,766,963
Available for sale securities 40,768,460 8,438,650
Accounts receivable 28,517,542 15,027,791
Unreimbursed investigator and project costs 4,072,214 5,174,967
Other current assets 4,051,540 1,845,297
- ------------------------------------------------------------------------------------------------------
Total current assets 91,390,056 46,253,668
Property and equipment, net 11,319,793 6,194,692
Excess of purchase price over net assets acquired, net 47,691,537 25,929,433
Other assets 2,838,496 1,246,815
- ------------------------------------------------------------------------------------------------------
Total assets $ 153,239,882 $ 79,624,608
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital leases $ 910,273 $ 627,836
Trade payables 6,252,061 9,837,358
Advances against investigator and project costs 2,695,608 1,303,310
Advance billings 9,722,037 8,066,286
Accrued compensation and related payroll withholdings and taxes 3,699,690 2,261,752
Income taxes payable 835,069 1,413,993
Other Accrued Liabilities 1,779,515 2,032,760
- ------------------------------------------------------------------------------------------------------
Total current liabilities 25,894,253 25,543,295
Obligations under capital leases, less current portion 1,512,680 1,617,256
Note payable 1,590,000 1,470,000
Other liabilities 1,742,902 645,248
- ------------------------------------------------------------------------------------------------------
Total liabilities 30,739,835 29,275,799
Shareholders' equity:
Preferred stock--no par value; 100,000 shares
authorized; none outstanding
Common stock--no par value; 15,000,000 shares authorized;
10,955,390 and 7,582,367 shares issued and outstanding at
December 31, 1998 and 1997, respectively 75,000 75,000
Additional paid-in capital 114,425,511 50,186,639
Retained earnings 7,517,039 351,970
Accumulated other comprehensive income:
Net unrealized holdings losses on available for sale securities (81,806) (759)
Foreign currency translation adjustment 564,303 (264,041)
- ------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income 482,497 (264,800)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 122,500,047 50,348,809
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 153,239,882 $ 79,624,608
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36.
<PAGE> 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
NUMBER PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
OF SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,650,000 $75,000 $ 270,396 $ 345,396
Net income and comprehensive
income $ 1,134,356 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 2,522,723 2,522,723 $2,522,723
Other comprehensive income:
Foreign currency translation
adjustment $(264,041) (264,041) (264,041)
Net unrealized holdings
gains on available for
sale securities, net of tax 35,031 35,031 35,031
Reclassification adjustment
for holdings gains included
in net income, net of tax (35,790) (35,790) (35,790)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $2,257,923
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (2,308,350) (2,308,350)
Reclassification of S corporation
retained earnings to
additional paid-in capital 461,468 (461,468)
Net proceeds from sale of
Common Stock 3,540,000 45,198,032 45,198,032
Issuance of Common Stock in
connection with the
acquisition of gmi 191,304 2,678,256 2,678,256
Warrants issued and subsequently
converted 153,738 1,501,537 1,501,537
Shares issued under stock plans 47,325 43,048 43,048
Income tax benefit from exercise
of stock options 33,902 33,902
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 7,582,367 75,000 50,186,639 351,970 (264,800) 50,348,809
Net income 7,165,069 7,165,069 $7,165,069
Other comprehensive income:
Foreign currency translation
adjustment 828,344 828,344 828,344
Net unrealized holdings gains
on available for sale
securities, net of tax 38,660 38,660 38,660
Reclassification adjustment
for holdings gains included
in net income, net of tax (119,707) (119,707) (119,707)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $7,912,366
- ------------------------------------------------------------------------------------------------------------------------------------
Net proceeds from sale of
Common Stock 2,315,000 51,370,656 51,370,656
Issuance of Common Stock in
connection with the
acquisition of ACER/EXCEL 987,574 12,542,190 12,542,190
Shares issued under stock plans 70,449 130,561 130,561
Income tax benefit from exercise
of stock options 195,465 195,465
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 10,955,390 $75,000 $114,425,511 $7,517,039 $482,497 $122,500,047
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37.
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 7,165,069 $ 2,522,723 $ 1,134,356
Adjustments to reconcile net income to cash provided
by (used in) operating activities:
Depreciation and amortization 4,711,258 1,583,521 315,541
Deferred income taxes 718,571 245,465
Extraordinary item, net of tax 1,139,823
Other (53,708) (31,205)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable (10,866,727) (6,079,930) (1,927,921)
Other current assets (1,110,703) (388,014) 25,007
Other assets (51,949) (140,903) (116,186)
Investigator and project costs 2,527,687 (3,667,626) (838,857)
Trade payables (4,262,157) 7,048,641 659,821
Advance billings (202,792) 1,292,162 3,906,574
Accrued liabilities and other (452,340) 2,955,261 162,636
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,877,791) 6,479,918 3,320,971
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available for sale securities (42,529,666) (10,938,650)
Proceeds from maturity of available for sale securities 12,121,736 2,500,000
Acquisitions of property and equipment (5,830,300) (2,545,164) (406,974)
Additions to internally developed software (1,432,581) (531,243) (40,005)
Acquisitions of businesses, less cash acquired (12,675,466) (22,872,203)
Other investments (359,601)
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (50,705,878) (34,387,260) (446,979)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 51,370,656 45,198,032
Proceeds from exercise of stock options 119,561 43,048
Debt issue costs (59,582) (538,698)
Borrowings under line of credit 3,100,000 4,267,000
Repayments under line of credit (3,100,000) (4,587,000)
Borrowings under senior credit facility 10,745,439
Repayment of senior credit facility (10,745,439)
Proceeds from subordinated debt borrowings 3,500,000
Proceeds from issuance and conversion of stock
purchase warrants 1,501,537
Repayment of subordinated debt borrowings (5,000,000)
Payments on capital lease obligations (845,908) (513,196) (236,492)
Distributions to shareholders (2,558,350) (285,291)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $50,584,727 $ 41,632,373 $ (841,783)
</TABLE>
38.
continued
<PAGE> 13
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effects of exchange rates on cash and cash equivalents $ 212,279 $ (5,544)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,786,663) 13,719,487 $2,032,209
Cash and cash equivalents
Beginning of year 15,766,963 2,047,476 15,267
- --------------------------------------------------------------------------------------------------------
End of year $13,980,300 $ 15,766,963 $2,047,476
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 294,890 $ 424,768 $ 65,127
Cash paid during the year for income taxes $ 5,177,087 $ 479,973
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquisition of equipment under capital leases $ 75,337 $ 1,637,056 $1,116,418
Dividends declared and payable $ 250,000
Note payable under escrow agreement for
acquisition of U-Gene $ 1,530,000
Interest on note payable under escrow agreement
for acquisition of U-Gene $ 180,000
Acquisitions of businesses:
Fair value of assets acquired $ 30,193,345 $ 34,750,659
Fair value of liabilities assumed or incurred (4,975,689) (9,200,200)
Stock issued (12,542,190) (2,678,256)
- --------------------------------------------------------------------------------------------------------
Net cash payments $ 12,675,466 $ 22,872,203
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Kendle International Inc. (the "Company") is an international contract research
organization ("CRO") providing integrated clinical research services, including
Phase I through IV drug development, on a contract basis to the pharmaceutical
and biotechnology industries. The Company has operations in North America,
Europe and Asia.
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements include the financial information of
Kendle International Inc. and its wholly-owned subsidiaries. Investments in
unconsolidated companies which are at least 20% owned are carried at cost plus
equity in undistributed earnings since acquisition.
All intercompany accounts and transactions have been eliminated. The results of
operations of the Company's wholly-owned subsidiaries have been included in the
consolidated financial statements of the Company from the respective dates of
acquisition.
Certain amounts reflected in the prior years' consolidated financial statements
have been reclassified to be comparable with the current year.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's wholly-owned subsidiaries are translated
into U.S. dollars at year-end exchange rates. Income statement accounts are
translated at average exchange rates for the year. These translation adjustments
are recorded as a separate component of shareholders' equity. Foreign currency
transaction gains and losses are included in the consolidated statements of
income.
As a significant percentage of the Company's cash flow from operations is
derived from operations outside the United States, 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.
The Company maintains its demand deposits with certain financial institutions.
The balance 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.
AVAILABLE FOR SALE SECURITIES
Investments purchased with initial maturities greater than three months are
classified as available for sale securities and consist of highly liquid debt
securities. These securities are stated in the consolidated financial statements
at market value. Realized gains and losses are included in the consolidated
statements of income, calculated based on the weighted average cost of the
investments. Unrealized gains and losses, net of tax, are reported as a separate
component of shareholders' equity.
REVENUE RECOGNITION
Revenues are earned by performing services primarily under fixed-price
contracts. Net revenues from contracts are generally recognized on the
percentage of completion method, measured principally by the total costs
incurred as a percentage of 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.
40.
<PAGE> 15
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 two 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 leases is recorded at the present value of future
minimum lease payments and is amortized over the estimated useful lives of the
assets, not to exceed the terms of the related leases. Accumulated amortization
on equipment under capital leases was $1,880,053 and $898,122 at December 31,
1998 and 1997, respectively.
INTERNALLY DEVELOPED SOFTWARE
The Company capitalizes costs incurred to internally develop software used
primarily in the Company's proprietary clinical trial and data management, and
amortizes these costs on a straight-line basis over the estimated useful life of
the product, not to exceed five years. Unamortized software costs included in
the consolidated balance sheets at December 31, 1998 and 1997 were $2,003,829
and $571,248, respectively. The related accumulated amortization at December 31,
1998 and 1997 was $236,524 and $53,196, respectively.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of cost over the fair value of the net assets acquired in the
Company's acquisitions is being amortized on a straight-line basis over a thirty
year period. Excess of purchase price over net assets acquired will be evaluated
periodically as events or circumstances indicate a possible inability to recover
their carrying amount. Such evaluation will be based on various analyses,
including cash flow and profitability projections that incorporate, as
applicable, the impact on existing company businesses. The analyses will
necessarily involve significant management judgment to evaluate the capacity of
an acquired business to perform within projections. If future expected
undiscounted cash flows are insufficient to recover the carrying amount of the
asset, an impairment loss will be recognized based on discounted expected future
cash flows. Accumulated amortization of the excess of purchase price over net
assets acquired was $1,965,816 and $376,930 at December 31, 1998 and 1997,
respectively.
INVESTIGATOR AND PROJECT COSTS
In addition to various contract costs previously described, the Company incurs
costs, in excess of contract amounts, which are reimbursable by its customers.
Such pass-through costs incurred, but not yet reimbursed, are reflected as a
current asset in the accompanying consolidated balance sheets. Advances from
customers 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 $41,608,579, $48,657,085 and $3,043,802 for the years
ended December 31, 1998, 1997, and 1996, respectively.
NET INCOME PER SHARE DATA
Net income per basic share is computed using the weighted average common shares
outstanding. Net income per diluted share is computed using the weighted average
common shares and potential common shares outstanding.
41.
<PAGE> 16
The weighted average shares used in computing net income per diluted share have
been calculated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C>
Weighted average
common shares
outstanding 9,588,915 5,055,452 3,650,000
Stock purchase warrants 97,718 153,738
Stock options 637,437 610,138 213,755
--------------------------------------------------------------
Weighted average shares 10,226,352 5,763,308 4,017,493
</TABLE>
INCOME TAXES
In August, 1997, upon terminating its S corporation
status, the Company recorded deferred taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
In accordance with SFAS No. 109, the Company records 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
year in which the differences are expected to reverse.
For periods prior to August, 1997, the consolidated financial statements of the
Company do not include a provision for income taxes because taxable income or
loss of the Company was included in the income tax returns of the individual
shareholders under the S corporation election. The consolidated statements of
income 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 had the Company filed corporate tax returns during these
periods.
STOCK OPTIONS
The Company accounts for stock options issued to associates 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.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement defines the
accounting for computer software developed or obtained (purchased) for internal
use, including (1) a requirement to capitalize specified costs as a long-lived
asset, (2) amortization of such amounts, and (3) recognition and measurement of
impairment of those amounts. The Company adopted the SOP beginning January 1,
1999. The adoption of this SOP had no impact on the consolidated financial
statements.
In June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Company). SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Since its only derivative transaction has historically been the use
of foreign currency exchange rate hedge instruments from time to time within a
year, management of the Company anticipates that the adoption of SFAS No. 133
will not have a significant effect on the Company's results of operations or its
financial position.
42.
<PAGE> 17
2. AVAILABLE FOR SALE SECURITIES:
The fair value of available for sale securities is estimated based on quoted
market prices. Information related to the Company's available for sale
securities at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST LOSS VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Debt securities:
Municipal securities $40,850,266 $(81,806) $40,768,460
1997
Debt securities:
U.S. government obligations 8,439,409 (759) 8,438,650
--------------------------------------------------------------------------------
</TABLE>
Contractual maturities of debt securities are as follows at December 31, 1998:
<TABLE>
<CAPTION>
COST FAIR VALUE
------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 50,000 $ 49,999
Due after one year through
five years 18,489,192 18,510,730
Due after five years through
ten years 22,311,074 22,207,731
------------------------------------------------------------------
Total debt securities $40,850,266 $40,768,460
</TABLE>
Proceeds from the maturities of investments in securities were $12,121,736 and
$2,500,000 in 1998 and 1997, respectively. Gross gains realized on these
maturities were $119,707 and $35,790 during 1998 and 1997, respectively.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, available for sale securities, and notes payable, approximate
their fair value.
4. ACCOUNTS RECEIVABLE:
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
------------------------------------------------------
<S> <C> <C>
Billed $20,269,243 $11,095,821
Unbilled 8,248,299 3,931,970
------------------------------------------------------
$28,517,542 $15,027,791
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
-------------------------------------------------------------------
<S> <C> <C>
Furnishings, equipment and other $12,068,633 $ 5,126,862
Equipment under capital leases 4,289,870 3,225,190
Less: accumulated depreciation
and amortization (5,038,710) (2,157,360)
-------------------------------------------------------------------
Property and equipment, net $11,319,793 $ 6,194,692
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997, and 1996 was
$1,839,278, $531,357, and $118,809, respectively.
6. DEBT:
The Company has a $30 million credit facility (the "Amended and Restated Senior
Credit Facility") which bears interest at either LIBOR plus the Applicable
Percentage (as defined) or the higher of the bank's prime rate or the Federal
Funds rate plus 0.50%, plus the Applicable Percentage. All amounts outstanding
thereunder are payable in February, 2001. The Amended and Restated Senior Credit
Facility contains various restrictive financial covenants, including the
maintenance of certain fixed coverage and leverage ratios and minimum net worth
levels. At December 31, 1998, there were no amounts outstanding under this
credit facility.
7. EMPLOYEE BENEFIT PLANS:
401(K) PLAN
The Company maintains a 401(k) retirement plan covering substantially all U.S.
associates who have completed at least six months of service and meet minimum
age requirements. The Company makes a matching contribution of 25% of each
participant's contribution of up to 6%
43.
<PAGE> 18
of salary. The Company's matching contribution to this plan totaled $238,885 and
$30,809 for the years ended December 31, 1998 and 1997, respectively.
INCENTIVE STOCK OPTION AND STOCK INCENTIVE PLAN
In 1997, the Company established a plan that provides for the grant of up to
1,000,000 stock options, consisting of both incentive and non-qualified stock
options (the "1997 Plan"). Participation in the 1997 Plan is at the discretion
of the Board of Director's Compensation Subcommittee, which is responsible for
administration of the Plan. The exercise price of incentive stock options
granted under the 1997 Plan must be no less than the fair market value of the
Common Stock, as determined under the 1997 Plan provisions, at the date the
option is granted (110% of fair market value for shareholders owning more than
10% of the Company's Common Stock). The exercise price of non-qualified stock
options must be no less than 95% of the fair market value of the Common Stock at
the date the option is granted. The vesting provisions of the options granted
under the 1997 Plan are determined at the discretion of the Compensation
Subcommittee of the Board of Directors. The options generally expire either 90
days after termination of employment or, if earlier, ten years after date of
grant. No options can be granted after August, 2007. The Company has reserved
1,000,000 shares of Common Stock for the 1997 Plan, of which 475,822 are
available for grant at December 31, 1998.
The 1997 Plan replaced a similar plan under which 591,055 options were
outstanding at December 31, 1998.
Aggregate stock option activity during 1998, 1997, and 1996 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------------------------------------------------------------
<S> <C> <C>
Options outstanding at 1/1/96 219,219 $ 0.91
Granted 451,652 1.21
Canceled (3,103) 0.91
------------------------------------------------------------
Options outstanding at 12/31/96 667,768 1.12
Granted 512,408 8.37
Canceled (218,869) 1.93
Exercised (47,325) 0.91
------------------------------------------------------------
Options outstanding at 12/31/97 913,982 5.00
Granted 361,520 23.01
Canceled (90,486) 16.33
Exercised (69,783) 1.77
------------------------------------------------------------
Options outstanding at 12/31/98 1,115,233 $10.06
------------------------------------------------------------
</TABLE>
The weighted average fair value of the options granted in 1998, 1997, and 1996
was estimated as $15.35, $5.37, and $0.89, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
expected dividend yield: zero; risk-free interest rate: 5.0% in 1998 and a range
from 5.6% to 7.69% in 1997; expected volatility: 63.5% for grants made during
1998, 58.3% for grants made between August 22 and December 31, 1997 and zero for
grants made prior to August 22, 1997; and an expected holding period of seven
years. A summary of options outstanding and exercisable at December 31, 1998 is
as follows:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING AVERAGE WEIGHTED
RANGE OF AT REMAINING AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE
PRICE 1998 LIFE PRICE
---------------------------------------------------------------------
<S> <C> <C> <C>
$0.91 - $2.01 585,583 7.4 $ 1.47
$9.50 - $9.50 8,600 8.8 9.50
$14.00 - $15.31 230,080 8.6 14.38
$15.75 - $20.00 7,500 9.1 19.67
$22.25 - $31.00 283,470 9.4 24.25
</TABLE>
44.
<PAGE> 19
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
RANGE OF OPTIONS EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT DECEMBER 31, 1998 EXERCISE PRICE
------------------------------------------------------------
<S> <C> <C>
$0.91 - $2.01 242,649 $ 1.11
$9.50 - $9.50 1,720 9.50
$14.00 - $15.31 35,260 14.16
$15.75 - $20.00 40 16.50
$22.25 - $31.00 10,000 22.73
</TABLE>
At December 31, 1997, options to purchase 279,022 shares were exercisable at a
weighted-average exercise price of $1.06 and with a weighted-average life of
eight years.
Had the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
for expense recognition purposes, the amount of compensation expense that would
have been recognized in 1998, 1997, and 1996 would have been $1,097,650,
$271,092 and $41,295, respectively. The Company's pro forma net income and pro
forma net income per diluted share for 1998, 1997, and 1996 would have been
reduced to the amounts below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income
As reported $7,165,069 $1,913,946 $680,614
Pro forma 6,434,130 1,751,291 655,837
Pro forma net income
per diluted share
As reported 0.70 0.33 0.17
Pro forma 0.63 0.30 0.16
</TABLE>
PROTECTIVE COMPENSATION AND BENEFIT AGREEMENTS
The Company has entered into Protective Compensation and Benefit Agreements with
certain associates, including all Executive Officers of the Company. These
Agreements, 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, 1998, the maximum amount which could be required to be paid under these
Agreements, if such events occur, is approximately $7,906,000.
8. 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 two to seven years, with eight facility leases that have
provisions to extend the leases for an additional three to five years. Future
minimum payments, by year and in the aggregate, under non-cancelable capital and
operating leases with initial or remaining terms of one year or more, are as
follows at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-----------------------------------------------------------------
<S> <C> <C>
1999 $1,056,265 $ 3,740,287
2000 865,220 3,622,186
2001 604,923 2,859,446
2002 167,013 1,917,634
2003 31,215 1,428,019
thereafter 1,784 2,329,676
-----------------------------------------------------------------
Total minimum lease payments 2,726,420 $15,897,248
Amounts representing interest (303,467)
-----------------------------------------------------------------
Present value of net minimum
lease payments 2,422,953
Current portion (910,273)
-----------------------------------------------------------------
Obligations under capital leases,
less current portion $1,512,680
</TABLE>
Rental expense under operating leases for 1998, 1997, and 1996 was $3,150,404,
$1,763,857 and $502,628, respectively.
9. MAJOR CUSTOMERS:
Net revenues from G.D. Searle and Co. accounted for approximately 38%, 54%, and
48% of net revenues in 1998, 1997, and 1996, respectively.
The CRO industry in general continues to be dependent on the research and
development efforts of the principal pharmaceutical and biotechnology companies
as major customers, and the Company believes this dependence will continue. The
loss of business from any of the Company's major customers would have a material
adverse effect on the Company.
45.
<PAGE> 20
10. INCOME TAXES:
The provision for income taxes for the year ended December 31, 1998 and 1997, is
as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
<S> <C> <C>
Current:
Federal, state and local $4,485,737 $ 861,095
Foreign (655,265) 344,624
---------------------------------------------------------------------
Subtotal 3,830,472 1,205,719
Deferred:
Federal and state 825,991 91,328
Effect of termination of S corporation
status 144,572
Foreign (107,420) 9,565
---------------------------------------------------------------------
Subtotal 718,571 245,465
Benefit applied to reduce goodwill 344,074
---------------------------------------------------------------------
Total provision $4,893,117 $1,451,184
</TABLE>
The Company's consolidated effective income tax rate differed from the U.S.
federal statutory income tax rate of 35% and 34% in 1998 and 1997, respectively
as set forth below:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
<S> <C> <C>
Income tax expense at the U.S. federal
statutory rate 35.0% 34.0%
S corporation income for which no
current income taxes were provided (14.4)
Effects of foreign taxes 2.4 3.2
State and local income taxes, net of
federal benefit 5.3 1.6
Effect of termination of S corporation status 2.8
Other (2.1) 1.2
---------------------------------------------------------------------
Total 40.6% 28.4%
</TABLE>
A provision has not been made for U.S. or additional foreign taxes on the
undistributed portion of earnings of foreign subsidiaries as those earnings have
been permanently reinvested. It is not practicable to determine the amount of
applicable taxes that would be due were such earnings distributed.
Components of the Company's net deferred tax asset and liability included in the
consolidated balance sheet at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Compensation and employee benefits $116,169 $113,966
Accrued expenses and other future
deductible items 198,517 70,700
Operating loss carryforward 152,150
Other 70,068
---------------------------------------------------------------------
Total deferred tax assets 536,904 184,666
---------------------------------------------------------------------
Deferred tax liabilities:
Software costs 953,857 217,054
Depreciation 154,191 135,940
Intangible assets 306,198 22,318
Other 60,944
---------------------------------------------------------------------
Total deferred tax liability 1,475,190 375,312
---------------------------------------------------------------------
Total net deferred tax liability $938,286 $190,646
---------------------------------------------------------------------
</TABLE>
The operating loss carryforward of approximately $480,000 can be carried forward
indefinitely.
11. SHAREHOLDERS' EQUITY:
In June, 1998, the Company completed its follow-on offering of 2,415,000 shares
of common stock at a price to the public of $23.50 per share. Of the 2,415,000
shares sold, 2,315,000 were sold by the Company and 100,000 shares were sold by
selling shareholders. Proceeds to the Company approximated $51.4 million, net of
underwriting commissions and discounts and offering expenses of $3.0 million.
In August, 1997, the Company and its shareholders completed an initial public
offering ("IPO") of 4,140,000 shares of common stock at a price to the public of
$14.00 per share. Of the 4,140,000 shares sold, 3,540,000 were sold by the
Company and 600,000 shares were sold by selling shareholders. Proceeds to the
Company approximated $45.2 million, net of underwriting commissions and
discounts and offering expenses of $4.4 million.
46.
<PAGE> 21
12. ACQUISITIONS:
In February, 1998, the Company completed its acquisition of ACER/EXCEL Inc.
("ACER/EXCEL"), headquartered in Cranford, New Jersey. Total acquisition costs
consisted of $14.4 million in cash and 987,574 shares of the Company's Common
Stock. The value of the stock consideration was determined for financial
reporting purposes as of December 23, 1997, the date the purchase price was
agreed to. Valuation of the Common Stock was based on an appraisal obtained by
the Company which discounted the shares due to lock-up restrictions and the lack
of registration of the shares.
A general escrow, which was established at the acquisition date to provide
indemnification of sellers' representations and warranties and currently
consists of 186,336 shares of the Company's Common Stock, was scheduled to be
released to the sellers, 50% in February, 1999 and the remainder in February,
2000. The February, 1999 scheduled release of the escrow is pending resolution
of ongoing discussions between the parties.
In September, 1997, the Company acquired GMI Gesellschaft fur Angewandte
Mathematik und Informatik mbH ("gmi"). Acquisition costs of $12.7 million
consisted of $10.0 million in cash and the issuance of 191,304 shares of the
Company's Common Stock, valued at $14 per share or $2.7 million.
The Company acquired U-Gene Research B.V. ("U-Gene") in June, 1997 for
approximately $15.9 million in cash. Approximately $1.6 million of the purchase
price was payable to the U-Gene shareholders and was deposited in an escrow
account pursuant to the U-Gene Purchase Agreement. In January, 1999,
approximately $700,000 held in escrow was paid to the U-Gene shareholders. The
remaining $900,000 of the promissory note has not been released and is pending
resolution of ongoing discussions between the parties.
The following unaudited pro forma results of operations assume the acquisitions
of U-Gene, gmi and ACER/EXCEL occurred at the beginning of 1997:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Net revenues $90,779,761 $67,484,265
Income before extraordinary item 7,052,478 6,319,541
Net income 7,052,478 5,179,718
Income before extraordinary item
(assuming the Company was taxed as
a C corporation throughout 1997) 7,052,478 4,641,016
Net income per diluted share 0.67 0.75
Income per diluted share before
extraordinary item (assuming the
Company was taxed as a C corporation
throughout 1997) 0.67 0.67
Weighted average shares 10,463,864 6,879,816
-----------------------------------------------------------------------
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions been consummated
at January 1, 1997 and 1998, nor are they necessarily indicative of future
operating results.
13. RELATED PARTY TRANSACTION:
The Company made payments in 1998, 1997, and 1996 totaling approximately
$426,000, $397,000, and $97,500, respectively, to a construction company owned
by a relative of the Company's primary shareholder, for construction and
renovations at various Company locations.
14. EXTRAORDINARY ITEM:
In 1997, the Company recorded an extraordinary item for the early extinguishment
of indebtedness of $1.1 million, net of tax benefits of approximately $426,000.
The extraordinary item resulted from the write-off of the debt discount recorded
in connection with long-term borrowings. Such borrowings were made by the
Company in connection with the acquisition of U-Gene prior to the Company's IPO
and were repaid with the proceeds of the IPO.
47.
<PAGE> 22
15. SUBSEQUENT EVENT:
In January, 1999, the Company acquired Research Consultants (International)
Holdings Ltd. ("IRC"), a U.K.-based company. Total acquisition costs consisted
of approximately $4.1 million in cash and 87,558 shares of the Company's Common
Stock. The shares have been placed in an escrow account pursuant to the IRC
Share Purchase Agreement, 50% to be released in January, 2000 and the remainder
in 2001. This acquisition will be accounted for using the purchase method of
accounting.
Additionally, in January, 1999, the Company acquired a minority interest in
Component Software International, Inc. ("CSI"), a software consulting and
development company, for approximately $1.6 million in cash and 19,995 shares of
the Company's Common Stock. Concurrent with this transaction, the Company
entered into a Multi-Year Strategic Service Agreement with CSI whereby the
Company will pay CSI $7.0 million over the next four years in exchange for
strategic software consulting and development services from CSI.
16. SEGMENT INFORMATION:
The Company does not manage nor is it organized into separate operating
segments. The Company manages its business in the aggregate, as a full-service
international CRO. Principal financial information by geographic areas is as
follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Net Revenues
North America $ 67,167,833 $ 33,850,189
Foreign 22,348,305 10,382,710
-----------------------------------------------------------------------
$ 89,516,138 $ 44,232,899
Identifiable Assets
North America $113,125,603 $ 40,893,382
Foreign 40,114,279 38,731,226
-----------------------------------------------------------------------
$153,239,882 $ 79,624,608
</TABLE>
Net revenues of the Company's wholly-owned subsidiaries have been included in
the consolidated statements of income from the respective dates of acquisition.
48.
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kendle International Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Kendle International
Inc. and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
February 15, 1999
Cincinnati, Ohio
49.
<PAGE> 24
MANAGEMENT TEAM
<TABLE>
<CAPTION>
<S> <C> <C>
EXECUTIVE OFFICERS Brenda J. Hoeper Dennis C. Glaser
Candace Kendle, PharmD Director, Clinical Data Director, Global Proposals
Chairman & CEO Management
Mary W. Kuramoto
Christopher C. Bergen Maro L. Hoffman, MD Director, Corporate Communications
President & COO Senior Director, Global Safety
Michael E. Laird
Timothy M. Mooney Ronald P. Koning, MD Director, Strategic Account
Executive Vice President & CFO Managing Director, Utrecht Development North America
CLINICAL OPERATIONS John H. Lasley James C. Linde
Bruce Kreter, PharmD Managing Director, Cincinnati Director, Target Excellence
Vice President, Clinical Development
Kathleen A. Lukacs Joseph D. Loudon
Nigel G. Page Managing Director, Cranford Director, Integration
Vice President, European
Operations Inge M. Neiss Rafael J. Manoera
Co-Managing Director, Munich Director, Mergers & Acquisitions
Frank L. Santoro, MD
Vice President, North American Susan E. Oakley Michael G. Minor
Operations Director, Clinical Operations Vice President, Strategic Accounts
Europe
Michael F. Bayer Douglas G. Moehring
Managing Director, Chicago and Lois B. Rosenberger, PhD Senior Director, Client Services
Los Angeles Vice President, Regulatory
Affairs/Quality Assurance Ann Nightingale
Janet L. Brennan Director, Strategic Accounts
Director, Project Management William K. Stetsema, PhD
Director, Clinical Research Paul F. Ritter, Esq.
Dagmar M. Chase, PhD Senior Director & General Counsel
Co-Managing Director, Munich Mandyam K. Srirama, PhD
Senior Director, Biostatistics Stephen G. Scheurer
Philip J.W. Davies Senior Director, Human Resources
Director, Clinical Pharmacology Unit Carl R. Torchio
Managing Director, Princeton Kevin M. Schwarz
Peter E. Djuric, PharmD Senior Director & Corporate
Director, Post Marketing ADMINISTRATION Controller
Surveillance Thomas E. Stilgenbauer
Senior Vice President, Dieter Seitz-Tutter, PhD
Philip E. Doren, PhD Organizational Development Senior Director, Strategic Account
Director, Clinical Monitoring Development Europe
North America Gary M. Wedig
Vice President & CIO Amy B. Shannon
John Glasby, PhD Director, Corporate Training &
Co-Director, Regulatory Affairs Kevin L. Brandenburg Development
Europe Director, Facilities
Cathy J. Thompson
Gillian Gregory Anthony L. Forcellini Director, Strategic Accounts
Co-Director, Regulatory Affairs Executive Director, Mergers &
Europe Acquisitions
Jere M. Hardy Jeffrey A. Glancy
Vice President, Clinical Data Director, Taxation
Management
</TABLE>
50.
<PAGE> 25
CORPORATE INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF DIRECTORS AND STOCK INFORMATION ANNUAL MEETING
EXECUTIVE OFFICERS*
The Common Stock of Kendle The 1999 Annual Meeting of
Candace Kendle* International Inc. trades on The Shareholders will be held at 10:00
Chairman of the Board & CEO Nasdaq Stock Market(R) under the a.m. on Thursday, May 20, 1999 at
symbol KNDL. The Common Stock the Media Center, RiverCenter
Christopher C. Bergen* was initially offered to the public Tower Offices, 50 East RiverCenter
President & COO on August 22, 1997 at a price of Boulevard, Covington, Kentucky,
Director $14.00 per share and commenced 41011
trading on that date.
Timothy M. Mooney* TRANSFER AGENT AND REGISTRATION
Executive Vice President & CFO At March 10, 1999, there were
Director approximately 2,789 beneficial Fifth Third Bank
shareholders. The Company has Shareholder Services
Philip E. Beekman not paid dividends on its Common Mail Drop 1090FS
Director Stock since inception. 38 Fountain Square Plaza
Former Chairman of the Board & Cincinnati, Ohio 45263
CEO, Hook-SupeRx, Inc. FINANCIAL REPORTS
INDEPENDENT ACCOUNTANTS
Robert Buck Copies of the Company's Annual
Director Report on Form 10-K and PricewaterhouseCoopers LLP
President, Uniform Rental Division Quarterly Reports on Form 10-Q Cincinnati, Ohio
Cintas Corporation filed with the Securities and
Exchange Commission, as well as OUTSIDE LEGAL COUNSEL
Mary Beth Price other investor materials, are avail-
Director able upon request from: Keating, Muething & Klekamp, P.L.I.
Founder, Empower MediaMarketing Cincinnati, Ohio
Professor, Richard A. Forsythe Julie G. Lerner
Chair in Entrepreneurship at the Investor Relations
Richard T. Farmer School of Kendle International Inc.
Business, Miami University 700 Carew Tower
441 Vine Street
Charles A. Sanders, MD Cincinnati, Ohio 45202
Director
Former Chairman of the Board & or access these reports electroni-
CEO, Glaxo, Inc. cally on the Internet. Kendle's
web site address is:
http://www.kendle.com
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Kendle International Inc. on Form S-8 (File Nos. 333-57577 and 333-34261) of our
report dated February 15, 1999, on our audits of the consolidated financial
statements of Kendle International Inc. as of December 31, 1998 and 1997, and
for the years ended December 31, 1998, 1997, and 1996, which report is included
in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 29, 1999
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 13,980
<SECURITIES> 40,768
<RECEIVABLES> 28,518
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 153,240
<SALES> 89,516
<TOTAL-REVENUES> 89,516
<CGS> 46,607
<TOTAL-COSTS> 78,748
<OTHER-EXPENSES> (1,575)
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<INTEREST-EXPENSE> 284
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<INCOME-TAX> 4,893
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</TABLE>
