<PAGE> 1
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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
KENDLE INTERNATIONAL INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
Kendle Logo
KENDLE INTERNATIONAL INC.
1200 CAREW TOWER
441 VINE STREET
CINCINNATI, OHIO 45202
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2000
TO THE SHAREHOLDERS OF KENDLE INTERNATIONAL INC.:
The annual meeting of shareholders of Kendle International Inc. will be
held on Wednesday, May 17, 2000 at 9:30 a.m., Eastern Time, at the Rookwood Room
at the Omni Netherlands Plaza Hotel, 35 West Fifth Street, Cincinnati, Ohio, for
the following purposes:
1. To elect six directors to hold office for the ensuing year or until
their respective successors are elected and qualified;
2. To amend the Company's 1997 Stock Option and Stock Incentive Plan to
increase the number of authorized shares of Common Stock;
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent public accountants for the Company for the year ending
December 31, 2000; and
4. To consider and act upon any other matters that may properly come before
the meeting or any adjournment thereof.
The Board of Directors of the Company has designated the close of business
on March 31, 2000 as the record date for the determination of shareholders
entitled to receive notice of, and to vote at, the meeting or any adjournment
thereof. Only shareholders of record of the Company's Common Stock at the close
of business on that date will be entitled to vote.
You are cordially invited to attend the meeting. However, whether or not
you plan to be personally present at the meeting, please complete, date and sign
the enclosed proxy and return it promptly in the enclosed envelope. If you later
desire to revoke your proxy, you may do so at any time before it is exercised.
By Order of the Board of Directors,
Candace Kendle
Chairman of the Board and
Chief Executive Officer
DATED: APRIL 12, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, SIGN AND
PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE. PROXIES MAY BE REVOKED
BY WRITTEN NOTICE OF REVOCATION, THE SUBMISSION OF A LATER PROXY, OR BY
ATTENDING THE MEETING AND VOTING IN PERSON (ALTHOUGH PRESENCE AT THE ANNUAL
MEETING WILL NOT IN AND OF ITSELF CONSTITUTE REVOCATION OF THE PROXY).
<PAGE> 3
Kendle Logo
KENDLE INTERNATIONAL INC.
1200 CAREW TOWER
441 VINE STREET
CINCINNATI, OHIO 45202
-------------------------
PROXY STATEMENT
-------------------------
ANNUAL MEETING OF SHAREHOLDERS
INTRODUCTION
The Board of Directors of Kendle International Inc. is requesting your
proxy for use at the Annual Meeting of Shareholders on May 17, 2000, and at any
adjournment thereof, pursuant to the foregoing Notice. This Proxy Statement and
the accompanying proxy card are being mailed to shareholders with the Company's
1999 Annual Report on or about April 12, 2000.
VOTING AT THE ANNUAL MEETING
GENERAL
Shareholders may vote in person or by proxy at the Annual Meeting. Proxies
given may be revoked at any time prior to the Annual Meeting by filing with the
Company either a written revocation or a duly executed proxy card bearing a
later date, or by appearing at the Annual Meeting and voting in person. The vote
required on all matters to be voted upon is a majority of shares actually voted.
Abstentions and broker non-votes will have no effect on the election of
directors and will be counted as a vote against amending the Company's 1997
Stock Option and Stock Incentive Plan and against the ratification of the
appointment of PricewaterhouseCoopers LLP as the independent public accountants
for the Company.
As of March 31, 2000, the record date for determining shareholders entitled
to notice of and to vote at the Annual Meeting, Kendle had 11,500,651 shares of
Common Stock outstanding. Each share is entitled to one vote. Only shareholders
of record at the close of business on March 31, 2000 will be entitled to vote at
the Annual Meeting.
<PAGE> 4
PRINCIPAL SHAREHOLDERS
The following shareholders are the only persons known by the Company to own
beneficially 5% or more of its outstanding Common Stock as of February 29, 2000
or such other date as indicated in the footnotes below:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
------------------------------------ ----------------------- --------------------
<S> <C> <C>
Candace Kendle (2)..................... 1,333,168 11.6%
1200 Carew Tower
441 Vine St.
Cincinnati, OH 45202
Brown Capital Management, Inc. (3)..... 1,229,300 10.82%
1201 N. Calvert St.
Baltimore, MD 21202
Christopher C. Bergen (4).............. 1,024,124 8.9%
1200 Carew Tower
441 Vine St.
Cincinnati, OH 45202
Capital Group International, Inc. and
Capital Guardian Trust Company (5)... 878,500 7.7%
11100 Santa Monica Blvd.
Suite 1500
Los Angeles, CA 90025
Kendle Stock Trust..................... 620,500 5.4%
1200 Carew Tower
441 Vine St.
Cincinnati, OH 45202
</TABLE>
- ---------------
(1) Based on 11,497,731 shares of Common Stock outstanding. Shares of the
Company's Common Stock which a beneficial owner has the right to acquire
within 60 days of February 29, 2000 pursuant to the exercise of stock
options are deemed to be outstanding for the purpose of computing the
percentage ownership of such owner but are not deemed outstanding for the
purpose of computing percentage ownership of any other person.
(2) This total amount includes (i) 17,492 shares held directly by Hazel Kendle,
mother of Dr. Kendle; and (ii) 940 shares as to which Dr. Kendle holds
options exercisable within 60 days of February 29, 2000.
(3) This information is taken from the Schedule 13G, dated February 3, 2000,
filed by Brown Capital Management, Inc. with the Securities and Exchange
Commission, which disclosed that, as of December 31, 1999, Brown Capital
Management, Inc. has sole voting power with respect to 1,118,500 shares,
shared voting power with respect to 0 shares, and sole dispositive power
with respect to 1,229,300 shares. Percentages listed are those disclosed in
the referenced Schedules 13G and are not verified by the Company.
(4) This total amount includes 840 shares as to which Mr. Bergen holds options
exercisable within 60 days of February 29, 2000.
(5) This information is taken from the Schedule 13G, dated February 10, 2000,
filed by Capital Group International, Inc. with the Securities and Exchange
Commission, which disclosed that, as of December 31, 1999, Capital Group
International, Inc. has sole voting power with respect to 560,200 shares,
shared voting power with respect to 0 shares, and sole dispositive power
with respect to 878,500 shares. Percentages listed are those disclosed in
the referenced Schedules 13G and are not verified by the Company.
ELECTION OF DIRECTORS
The Board is nominating for re-election the following current directors,
namely Candace Kendle, Philip E. Beekman, Christopher C. Bergen, Robert R. Buck,
Timothy M. Mooney, and Charles A. Sanders.
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<PAGE> 5
All directors elected at the Annual Meeting will be elected to hold office
until the next Annual Meeting and until their successors are elected and
qualified.
Proxies will be voted in favor of election of the nominees named herein
unless authority to vote is withheld.
If any of the nominees should become unable to accept election or declines
to serve, neither of which the Board anticipates, it is intended, in the absence
of contrary direction, that the proxies will be voted for the balance of those
named above and for substitute nominees as the Board may designate. The proxies
will in no event be voted for a greater number of nominees than six. The six
nominees receiving the highest number of votes will be elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES FOR DIRECTOR.
INFORMATION ABOUT NOMINEES
CANDACE KENDLE, PHARM. D., 53, co-founded the Company in 1981 and has
served as Chief Executive Officer since its incorporation and has been Chairman
of the Board since 1991. From 1979-1981, Dr. Kendle served as Clinical Associate
Professor of Pediatrics at The University of Pennsylvania School of Medicine;
Clinical Assistant Professor at Philadelphia College of Pharmacy and Sciences;
and Director, Department of Pharmacy, The Children's Hospital of Philadelphia.
From 1974-1978, Dr. Kendle served in a variety of positions at the University of
North Carolina School of Pharmacy and School of Medicine. She has published more
than 15 scientific articles. Dr. Kendle serves as a director of H. J. Heinz
Company, a food products manufacturer, and is the wife of Christopher C. Bergen,
President and Chief Operating Officer of the Company.
PHILIP E. BEEKMAN, 68, was elected a director of the Company in January
1997. Mr. Beekman is the President of Owl Hollow Enterprises, a consulting and
investment company. Prior to July 1994, Mr. Beekman served as Chairman of the
Board and Chief Executive Officer of Hook-SupeRx, Inc. Mr. Beekman is a director
of the National Association of Chain Drug Stores; General Chemical Group Inc., a
supplier of soda ash and other chemicals; Linens 'N Things, a retail chain of
home furnishings; the Ladies Professional Golf Association; the National
Organization on Disability; Sunbeam Corporation, a designer, manufacturer and
marketer of durable household and outdoor leisure products; and Procurenet Inc.,
a company engaged in procuring products via electronic and other media for other
companies.
CHRISTOPHER C. BERGEN, 49, co-founded the Company in 1981 and has served as
President and Chief Operating Officer since 1981 and has served as a director of
the Company since its incorporation. From 1977 through 1981, Mr. Bergen served
in various capacities at The Children's Hospital of Philadelphia, most recently
as Associate Vice President. Mr. Bergen serves as a director of Digineer, Inc.,
an internet healthcare consulting and development company, and is the husband of
Candace Kendle, Chief Executive Officer of the Company.
ROBERT R. BUCK, 52, was elected a director of the Company in December 1998.
Mr. Buck joined Cintas Corporation, a manufacturer of corporate identity
uniforms, in 1982 and currently serves as President of its Uniform Rental
Division. Mr. Buck is also currently a member of the Dean's Advisory Council for
the College of Business Administration at the University of Cincinnati, a
trustee of the Fellowship of Christian Athletes and a director of Citizens for
Community Values and the International Association of Manufacturing Sciences.
TIMOTHY M. MOONEY, 52, joined the Company in May 1996, was elected to the
Board of Directors in January 1997 and currently serves as Executive Vice
President, Chief Financial Officer and Treasurer. Prior to joining the Company,
Mr. Mooney was the Vice President, Chief Financial Officer and Treasurer of The
Future Now, Inc., a computer reseller. From May 1988 to July 1994, Mr. Mooney
served as Senior Vice President and Chief Financial Officer of Hook-SupeRx,
Inc., a retail drugstore chain and was previously a partner with Coopers &
Lybrand L.L.P. Mr. Mooney serves as a director of Winton Financial Corporation,
a unitary savings and loan holding company.
CHARLES A. SANDERS, M.D., 68, was elected a director of the Company in
January 1997. From 1989 to 1994, Dr. Sanders was Chief Executive Officer of
Glaxo Inc., and he served as Chairman of that company from 1992 to 1995. Prior
to joining Glaxo Inc., Dr. Sanders spent eight years with Squibb Corp. where he
held a number of senior positions including Vice Chairman. Previously, Dr.
Sanders was general director of Massachusetts General
3
<PAGE> 6
Hospital and Professor of Medicine at Harvard Medical School. He is currently a
member of the Institute of Medicine of the National Academy of Sciences, a
trustee of the University of North Carolina at Chapel Hill, chairman of Project
HOPE and chairman of the Commonwealth Fund. Dr. Sanders serves as a director of
StaffMark, Inc., a provider of diversified staffing services to businesses,
healthcare providers and government agencies; Magainin Pharmaceuticals, Inc.,
Vertex Pharmaceuticals Incorporated, Pharmcopeia, Inc., Scios, Inc. and
Trimeris, Inc., all biopharmaceutical companies engaged in the development of
medicines for serious diseases; Biopure Corporation, a developer, manufacturer
and marketer of oxygen therapeutics; and Genentech, Inc., a biotechnology
company.
SECURITIES OWNERSHIP
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
February 29, 2000 by each director and named executive officer and by all
directors and named executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
<S> <C> <C>
Philip E. Beekman.................................... 39,932 *
Christopher C. Bergen (2)............................ 1,024,124 8.9%
Robert R. Buck....................................... 7,415 *
Candace Kendle (2) (3)............................... 1,333,168 11.6%
Timothy M. Mooney.................................... 142,774 1.2%
Charles A. Sanders................................... 21,858 *
Thomas E. Stilgenbauer............................... 3,490 *
All Directors and Named Executives as a group (7
persons)........................................... 2,572,761 22.0%
</TABLE>
- ---------------
* Less than 1%
(1) Based on 11,497,731 shares of Common Stock outstanding. Includes shares of
the Company's Common Stock which are exercisable by such individuals within
60 days of February 29, 2000. The following options are included in the
totals: 16,000 shares of Common Stock for Mr. Beekman; 840 shares of Common
Stock for Mr. Bergen; 6,000 shares of Common Stock for Mr. Buck; 940 shares
of Common Stock for Dr. Kendle; 135,420 shares of Common Stock for Mr.
Mooney; 16,000 shares of Common Stock for Dr. Sanders; and 2,040 shares of
Common Stock for Mr. Stilgenbauer.
(2) Shares beneficially owned do not include 620,500 shares of the Company's
Common Stock of which neither Dr. Kendle nor Mr. Bergen exercise voting or
investment control. See Principal Shareholders.
(3) Includes 17,492 shares of Common Stock held directly by Hazel Kendle, mother
of Dr. Kendle.
COMMITTEES OF THE BOARD OF DIRECTORS
During 1999, the Board of Directors held seven meetings. Each director
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors and all committees on which the individual director served.
There are two committees and one subcommittee of the Board of Directors which
assist the Board in discharging its responsibilities. These committees, their
members and functions are discussed below.
There are two committees and one subcommittee of the Company's Board of
Directors: the Management Development and Compensation Committee, the
Compensation Subcommittee and the Audit Committee. The Management Development
and Compensation Committee met three times during 1999, and is currently
composed of Mr. Beekman (Chairman), Mr. Buck, Dr. Kendle and Dr. Sanders and is
responsible for monitoring the performance and succession of senior management,
the review of the Company's compensation plans and the general review of the
Company's employee compensation policies. The Compensation Subcommittee met
three times during 1999, and is currently composed of Mr. Beekman (Chairman),
Mr. Buck and Dr. Sanders and is
4
<PAGE> 7
responsible for the approval of remuneration arrangements for executive officers
of the Company and for the administration of the Company's stock-related benefit
plans. The Audit Committee, which met twice during 1999, is currently composed
of Dr. Sanders (Chairman), Mr. Beekman, Mr. Bergen and Mr. Buck and is
responsible for the engagement of independent auditors, the review of audit
fees, the supervision of matters relating to audit functions, and the review of
internal policies and procedures regarding audit, accounting and other financial
controls.
The Board of Directors does not have a nominating committee or executive
committee.
COMPENSATION OF DIRECTORS
Non-employee directors are paid $1,000 for each directors' meeting attended
and $500 for each committee meeting attended. Such compensation for meetings is
reduced by 50% if the director participates in the meeting by telephone. The
foregoing compensation is paid quarterly, in arrears, in the form of Company
Common Stock. Under the Company's 1997 Stock Option and Stock Incentive Plan,
each non-employee director is granted a non-qualified option to purchase 5,000
shares of Common Stock on the date of their first election or appointment to the
Board and an option for 1,000 shares of Common Stock upon each annual election
as a director thereafter. The option price for all such options equals the fair
market value of Common Stock on the grant date. Directors who are employees of
the Company are not separately compensated for serving as directors.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid for
the last three fiscal years to its Chief Executive Officer and the three other
executive officers (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
----------------------- SECURITIES ALL OTHER
NAME AND SALARY BONUS UNDERLYING OPTIONS COMPENSATION(1)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------------ ---- ------- ------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Candace Kendle............... 1999 222,500 0 200 0
Chairman of the Board 1998 193,750 58,000 200 0
and Chief Executive Officer 1997 153,444 70,000 2,250 0
Christopher C. Bergen........ 1999 193,750 0 200 16,667
President and Chief 1998 171,250 40,250 200 12,934
Operating Officer 1997 145,944 56,000 2,000 0
Timothy M. Mooney............ 1999 170,000 0 200 0
Executive Vice President 1998 151,866 32,550 200 0
Chief Financial Officer 1997 134,671 42,000 1,650 0
and Treasurer
Thomas E. Stilgenbauer (2)... 1999 150,230 0 200 0
Executive Vice President - 1998 76,760 9,441 10,200 0
Operations 1997 -- -- -- --
</TABLE>
- ---------------
(1) Represents insurance premium payments
(2) Mr. Stilgenbauer joined Kendle in June, 1998. Prior to being elected
Executive Vice President-Operations in 1999, Mr. Stilgenbauer was Senior
Vice President-Organizational Development; prior thereto he was Vice
President-Operations for The Loewen Group; and prior therto, he was the
Senior Vice President-Operations of Hook-SupeRx, Inc.
5
<PAGE> 8
STOCK OPTIONS
The tables below provide certain information with respect to grants and
exercises of stock options to the Named Executives pursuant to the Company's
stock option plans during the year ended December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATE
OF STOCK PRICE
NUMBER OF APPRECIATION
SECURITIES PERCENT OF TOTAL FOR OPTION
UNDERLYING GRANTED TO TERM(2)(3)
OPTIONS EMPLOYEES IN EXERCISE ----------------
GRANTED(1) FISCAL YEAR PRICE EXPIRATION 5% 10%
NAME (#) (%) ($/SHARE) DATE ($) ($)
---- ---------- ---------------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Candace Kendle.............. 200 0.05 10.53 09/01/09 1,324 3,356
Christopher C. Bergen....... 200 0.05 10.53 09/01/09 1,324 3,356
Timothy M. Mooney........... 200 0.05 10.53 09/01/09 1,324 3,356
Thomas E. Stilgenbauer...... 200 0.05 10.53 09/01/09 1,324 3,356
</TABLE>
- ---------------
(1) All options granted to the Named Executives are exercisable in five equal
annual installments beginning one year after the date of grant.
(2) Potential realizable value is calculated from the exercise price of the
options granted.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the Company's Common Stock price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNEXERCISED SECURITIES IN-THE-MONEY OPTIONS
UNDERLYING OPTIONS VALUE OPTIONS AT DECEMBER 31,
EXERCISED REALIZED AT DECEMBER 31, 1999(#) 1999($)(1)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------------- -------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Candace Kendle........... 0 0 940 1,710 0 0
Christopher C. Bergen.... 0 0 840 1,560 0 0
Timothy M. Mooney........ 0 0 135,420 1,350 1,170,208 0
Thomas E. Stilgenbauer... 0 0 2,040 8,360 0 0
</TABLE>
- ---------------
(1) Represents the number of shares optioned multiplied by the difference
between $9.88, the fair market value of the Common Stock at December 31,
1999, and the exercise price for that option.
PROTECTIVE COMPENSATION AND BENEFIT AGREEMENTS
The Company has entered into Protective Compensation and Benefit Agreements
with certain employees, including the Named Executives of the Company. These
agreements are subject to annual review by the Company's Board of Directors,
expire on December 31, 2000, and will be automatically extended in one year
increments unless cancelled by the Company. The agreements provide for specified
benefits, including two years' compensation, in the event of a change in control
as that term is defined in the agreements.
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<PAGE> 9
COMPENSATION SUBCOMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Subcommittee of the Management Development and
Compensation Committee (the "Subcommittee") is composed of three directors, none
of whom is an officer or employee of the Company or its subsidiaries. The
Subcommittee is responsible for the establishment of policies governing, and for
the implementation, administration and interpretation of, all aspects of
executive officer compensation.
The Company's executive compensation policy is designed to align executive
compensation with the achievement of strategic business goals which promote the
long-term financial growth of the Company. This strategy is designed to attract
and retain the highest caliber executive officers, to maximize shareholder
value, and to provide a compensation package that recognizes individual
contributions as well as overall Company performance. The Subcommittee reviews
the executive compensation program annually in relation to the Company's annual
financial goals and performance.
The key elements of the Company's 1999 executive compensation program
consisted of base salary, the Performance Bonus Plan, and the 1997 Stock Option
and Stock Incentive Plan. The compensation of Dr. Candace Kendle, Chief
Executive Officer, consists of these same elements.
BASE SALARY
At a meeting held on February 25, 1999, the Subcommittee set salaries for
the Named Executives, effective April 1, 1999. In establishing these salaries,
the Subcommittee reviewed recommendations of management against the pay
practices of comparable companies and the Company's competitors. The
Subcommittee considered corporate profitability, position responsibility levels
and individual qualifications and performance. Dr. Kendle's salary was set on
the same basis.
BONUSES
Pursuant to the Company's 1999 Performance Bonus Plan (the "Bonus Plan"),
performance-based annual incentive awards are paid to supervisory, management
and executive officers on the basis of achievement of specified individual and
Company financial results, such as revenue and earnings per share ("EPS")
thresholds and targets. Awards under the Bonus Plan are paid in cash. The
participants in the Bonus Plan, including the Named Executives, are assigned
target awards, expressed as a percentage of base salary, that are payable if the
applicable performance criteria are met. Participant's awards are determined on
the basis of the Company's financial performance and an assessment of the
participant's performance generally, including against the participant's stated
objectives. Fifty percent of the bonus is based on corporate performance and 50
percent is based on achievement of individual personal objectives and overall
performance. For 1999, target level bonus on corporate performance would be
achieved when revenues were $120 million and EPS were $0.90. In 1999, the
Company reported revenues of $117 million and EPS of $0.65. Based on these
results, no bonus payments were made to any of the Named Executives, including
Dr. Kendle.
STOCK OPTIONS
Under the Company's 1997 Stock Option and Stock Incentive Plan (the
"Plan"), the Subcommittee may grant stock options to the Company's employees,
including executive officers. On August 27, 1999, the Subcommittee reviewed and
approved stock option grants of 200 shares to each of the Company's employees,
including grants to the Named Executives, with an exercise price equal to the
fair market value of the Common Stock on the date of grant and become
exercisable at a rate of 20% per year over five years beginning one year from
the date of grant. This approach is designed to create shareholder value over
the long term since the full benefit of the options cannot be realized until
appreciation in the price of the Common Stock occurs. Dr. Kendle received the
same option grant of 200 shares as every other employee receiving grants which
is reflected on the Option Grants in Last Fiscal Year table on page 6 herein.
7
<PAGE> 10
POLICY ON SECTION 162(m)
Under Section 162(m) of the Internal Revenue Code of 1986, as amended, a
public company may not deduct more than $1 million in compensation paid to any
one of its executive officers, unless the excess amount is performance-based
compensation satisfying certain rules. The Company's Stock Option Plan is
designed to qualify under the compensation requirements of this provision. Due
to current salary levels and anticipated bonus targets, the Subcommittee
believes that it is unlikely that application of Section 162(m) will prevent the
Company from claiming a deduction for the amount of compensation paid to its
named executives.
Submitted by the Compensation Subcommittee of the
Board of Directors
Philip E. Beekman, Chairman
Robert R. Buck
Charles A. Sanders
CERTAIN TRANSACTIONS
In 1999, the Company paid approximately $500,000 to a construction company
owned by a relative of Dr. Kendle for construction and renovations at its
principal executive offices. Such work is continuing. Management believes that
payments to the construction company are on terms no less favorable than those
that could have been negotiated with unaffiliated third parties.
During 1999, Kendle paid approximately $96,000 for legal services to
Keating, Muething & Klekamp, P.L.L., of which William J. Keating, Jr., trustee
of the Kendle Stock Trust, is a partner.
COMPENSATION SUBCOMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Subcommittee for 1999 were Philip E.
Beekman (Chairman), Robert R. Buck and Charles A. Sanders, none of whom is or
was a current or former officer or employee of the Company or any of its
subsidiaries. No Named Executives of the Company serves as a director or as a
member of a committee of any company of which any of the Company's directors are
executive officers.
8
<PAGE> 11
PERFORMANCE GRAPH
The following graph shows cumulative total shareholder returns for the
period beginning August 22, 1997 and ending on December 31, 1999 with a
published industry index or line-of-business index. The Company has selected the
Nasdaq Stock Market (U.S.) Index and a composite peer group consisting of
ClinTrials Research Inc., Parexel International, Pharmaceutical Product
Development, Inc. and Quintiles Transnational Corp. The graph assumes that $100
was invested on August 22, 1997 in Kendle International Inc. stock and in the
index and peer group on August 22, 1997. The graph further assumes the
reinvestment of all dividends.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
KENDLE NASDAQ STOCK
INTERNATIONAL INC PEER GROUP MARKET (U.S.)
----------------- ---------- -------------
<S> <C> <C> <C>
8/22/97 100.00 100.00 100.00
12/97 119.64 93.10 98.62
12/98 166.96 118.39 138.97
12/99 70.54 44.96 251.07
</TABLE>
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1997 STOCK OPTION AND STOCK INCENTIVE
PLAN
The Company's 1997 Stock Option and Stock Incentive Plan (the "Plan")
allows the grant of incentive stock options or non-qualified stock options to
acquire shares of the Company's Common Stock, alone or with stock appreciation
rights, restricted stock awards and unrestricted stock awards and performance
awards. Currently 1,000,000 shares of Common Stock are reserved for issuance
under the Plan. On February 24, 2000, the Board of Directors approved an
increase in the number of shares reserved for issuance to 3,000,000 shares
subject to the approval of the Company's shareholders. As of February 29, 2000,
non-qualified options to purchase 631,940 shares of Common Stock under the Plan
were issued and outstanding and incentive stock options to purchase 209,340
shares were issued and outstanding.
The Plan is administered by the Compensation Subcommittee of the Board of
Directors (the "Subcommittee") consisting exclusively of non-employee Directors.
The Subcommittee selects employee and advisor participants and determines the
terms and conditions and types of options and stock appreciation rights
("SARs"), including number of shares, exercisability, and price. The Plan
contains no predetermined performance measures or other criteria for determining
the number of options to be granted to participants. The Subcommittee also fixes
the terms and restrictions on the offer and sale of restricted shares. The
Subcommittee also may make awards of unrestricted Common Stock to key eligible
employees and advisors. The Subcommittee may also grant performance awards to
eligible employees and advisors and determines the terms and conditions,
including the number of shares, the duration of the performance period, and the
conditions under which a participant's performance award will vest.
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INCENTIVE STOCK OPTIONS ("ISOs")
The Subcommittee may grant ISOs to employees under the Plan. The option
price of an ISO may not be less than 100% of the fair market value of the Common
Stock at the time the ISO is granted (or less than 110% in the case of 10%
shareholders of the Company). ISOs and Tandem SARs must be exercised within ten
years of the date of grant (or five years in the case of 10% shareholders of the
Company) or such shorter period as specified by the Subcommittee. Upon
termination of the optionee's employment (or business relationship), the period
of time during which an ISO or Tandem SAR remains exercisable may not exceed 90
calendar days after termination of employment or business relationship, or one
year in the case of termination as a result of death, disability or retirement.
The aggregate fair market value of the shares of Common Stock with respect to
which an ISO is first exercisable during any calendar year may not exceed
$100,000.
NONQUALIFIED STOCK OPTIONS ("NQSOs")
The Subcommittee may also grant NQSOs to eligible participants under the
Plan. The option price of a NQSO may not be less than 95% of the fair market
value at the time of grant. NQSOs and any related SARs granted under the Plan
must be exercised within ten years of the date of grant or such shorter period
as specified by the Subcommittee. Upon termination of the optionee's employment
(or business relationship), the period of time during which a NQSO or Tandem SAR
remains exercisable may not exceed 90 calendar days after termination of
employment or business relationship, or one year in the case of termination as a
result of death, disability or retirement.
STOCK APPRECIATION RIGHTS ("SARs")
The Subcommittee may grant SARs to eligible participants under the Plan,
either in connection with an ISO or a NQSO ("Tandem SAR") or independent of any
related stock option. Any Tandem SAR granted under the Plan will be subject to
the same terms and conditions as the related stock option, and will be
exercisable only to the extent the stock option is exercisable. If the related
stock option terminates, the SAR will also terminate. The exercise of a Tandem
SAR will result automatically in the surrender of the applicable portion of the
related stock option.
AWARD OF OPTIONS TO NON-EMPLOYEE DIRECTORS
The Plan provides that the Company shall grant NQSOs to non-employee
directors to purchase 5,000 shares upon becoming a non-employee director, and
shall grant NQSOs to purchase 1,000 shares upon each annual election as a
director. The NQSOs must be exercised within 10 years from the date of grant and
the option price shall be the fair market value at the time of grant.
RESTRICTED AND UNRESTRICTED STOCK AWARDS
The Subcommittee may grant restricted stock awards to eligible employees or
advisors under the Plan. A restricted stock award is an award of shares of
Common Stock that the holder may not sell, transfer, pledge or assign, and that
may be subject to such other restrictions as the Committee, in its sole
discretion, may impose. In addition to determining the applicable restrictions
on restricted stock, which may include service or performance restrictions, the
Subcommittee may also determine the purchase price, if any, to be paid for such
restricted stock. Unless otherwise determined by the Subcommittee at the time of
grant, participants receiving restricted stock awards shall not be entitled to
dividends or voting rights for the restricted shares until such shares are fully
vested. Upon termination of employment of a participant prior to the lapse of
such restrictions, all shares of restricted stock then held by the participant
will be forfeited unless otherwise provided by the Subcommittee. The
Subcommittee may also make awards of unrestricted Common Stock to key eligible
employees and advisors in recognition of outstanding achievements or
contributions by such employees and advisors. The unrestricted stock awards may
be issued for no cash consideration.
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PERFORMANCE AWARDS
The Subcommittee may grant performance awards to eligible employees and
advisors. A performance award may consist of either (i) Common Stock or cash
equivalent, or a combination of both, at the end of a performance period
specified by the Subcommittee, or (ii) a fixed dollar amount payable in cash or
shares, or a combination of both, at the end of a performance period specified
by the Subcommittee. The Subcommittee determines the duration of the performance
period and the conditions under which a performance will vest, including but not
limited to attainment of specified performance goals, the appreciation in the
fair market value of the Common Stock or the performance of the Company based on
earnings. Unless otherwise determined by the Subcommittee at the time of the
grant, no dividends will be paid during the performance period. Upon termination
of employment or the advisory relationship for any reason during the performance
period, the performance award will vest or be forfeited in accordance with the
terms and conditions established by the Subcommittee.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the current federal income tax rules
generally applicable to non-qualified stock options and incentive stock options.
NONQUALIFIED OPTIONS
An optionee granted a NQSO realizes no taxable income at the time of the
grant. Upon exercise, the optionee is deemed to receive compensation, taxable at
ordinary income rates in an amount equal to the excess of the fair market value
of the shares acquired on exercise over the option price. The amount of such
income will constitute an addition to the optionee's tax basis in the optioned
stock. The Company is entitled to a federal tax deduction at the same time and
to the same extent that the optionee recognizes ordinary income. Sale of stock
acquired through exercise of the NQSOs will result in capital gain or loss
(long-term or short-term depending on the optionee's holding period).
INCENTIVE STOCK OPTIONS
An optionee is not subject to Federal income tax upon either the grant or
exercise of an ISO, however, the option spread on the exercise of an ISO is an
adjustment in computing alternative minimum taxable income for the optionee in
the year when the optionee exercises the option. If the optionee holds the
shares of Common Stock acquired upon exercise for at least one year after
issuance of the optioned shares and until at least two years after grant of the
option, the optionee will not realize any ordinary income on the exercise but
will be taxed at capital gains or loss rates upon the disposition of such stock.
The Company is not permitted to take a federal income tax deduction. If the
optionee sells the shares acquired under an ISO before the expiration of the
requisite holding period, he or she will be deemed to have made a "disqualifying
disposition" of the shares and will realize compensation income in the year of
disposition equal to the lesser of the fair market value of the shares at
exercise or the amount realized on their disposition over the option price of
the shares. Any gain recognized upon a disqualifying disposition in excess of
the ordinary income portion will constitute either short-term or long-term
capital gain. In the event of a disqualifying disposition, the Company will be
entitled to a federal tax deduction in the amount of the compensation income
realized by the optionee.
STOCK APPRECIATION RIGHTS
Upon the exercise of a stock appreciation right, the holder will realize
ordinary income equal to the amount of the gain. This amount is generally
treated as a tax deductible expense to the Company at the time of exercise.
RESTRICTED SHARES
The recipient must recognize ordinary income equal to the fair market value
of the Common Stock at the first time the Common Stock becomes transferable or
not subject to a substantial risk of forfeiture, whichever occurs earlier. The
Company generally will be entitled to a deduction for the same amount at the
time the recipient recognizes such income.
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<PAGE> 14
The Plan presently provides for 1,000,000 shares of Common Stock to be
available for issuance. At February 29, 2000, approximately 152,440 shares
remained available. Management estimates that option grants to employees over
the next three years will amount to approximately 2,000,000 shares, based on
current option grant policies which are expected to continue. Accordingly, the
Board of Directors has approved an amendment to the Plan which, if approved by
the shareholders, would increase the number of shares available under the Plan
by 2,000,000 additional shares, to a new total of 3,000,000 shares.
The affirmative vote of the holders of a majority of the Company's Common
Stock, present in person or by proxy at the Annual Meeting and entitled to vote
is required to adopt the resolution. Proxies will be voted in favor of the
resolution unless otherwise instructed by the shareholders. Abstentions and
shares not voted by brokers and other entities holding shares on behalf of
beneficial owners will have the same effect as votes cast against the resolution
provided such shares are properly present at the meeting in person or by proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RESOLUTION TO AMEND THE
PLAN TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK THAT MAY BE
ISSUED FROM 1,000,000 TO 3,000,000.
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Audit Committee of the Board of Directors appointed
PricewaterhouseCoopers LLP as the Company's independent public accountants for
the year ending December 31, 2000. PricewaterhouseCoopers has been the
independent accounting firm for the Company since 1996. Although not required by
law, the Board of Directors is seeking shareholder ratification of this
selection. The affirmative vote of a majority of shares voting at the Annual
Meeting is required for ratification. If ratification is not obtained, the Board
of Directors intends to continue the employment of PricewaterhouseCoopers at
least through 2000. Representatives of PricewaterhouseCoopers are expected to be
present at the Annual Meeting and will be given an opportunity to comment, if
they so desire, and to respond to appropriate questions that may be asked by
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR
THE YEAR ENDING DECEMBER 31, 2000.
OTHER MATTERS
The Board knows of no other matters which will be presented at the Annual
Meeting. If, however, any other matter is properly presented at the Annual
Meeting, it will require the affirmative vote of a majority of shares voting for
approval.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than ten percent of the Company's
Common Stock to file reports of ownership with the Securities and Exchange
Commission and to furnish the Company with copies of these reports. Based solely
upon its review of reports received by it, or upon written representation from
certain reporting persons that no reports were required, the Company believes
that during 1999 all filing requirements were met, except for Timothy M. Mooney
and Philip E. Beekman who each inadvertently filed one Form 4 late, reporting
acquisitions of shares of Common Stock.
VOTING BY PROXY
All proxy cards properly signed will, unless a different choice is
indicated, be voted "FOR" election of all nominees for directors proposed by the
Board of Directors, "FOR" the proposed resolution to amend the Plan to increase
the authorized shares of Common Stock that may be issued from 1,000,000 to
3,000,000, and "FOR" ratification of the selection of independent public
accountants.
If any other matters come before the Annual Meeting or any adjournment,
each proxy will be voted in the discretion of the individuals named as proxies
on the card.
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SHAREHOLDER PROPOSALS
Shareholders who desire to have proposals included in the notice for the
Annual Meeting of Shareholders to be held in the Spring of 2001 must submit
their proposals in writing by January 18, 2001 to the Company, Attention Julie
G. Lerner, Investor Relations, 1200 Carew Tower, 441 Vine Street, Cincinnati,
Ohio 45202.
The form of Proxy for this meeting grants authority to the designated
proxies to vote in their discretion on any matters that come before the meeting
except those set forth in the Company's Proxy Statement and except for matters
as to which adequate notice is received. For notice to be deemed adequate for
the 2001 Annual Shareholders' Meeting, it must be received prior to February 26,
2001. If there is a change in the anticipated date of next year's Annual
Shareholders' Meeting or in the notice deadline by more than 30 days, we will
notify you of this change through our Form 10-Q filings.
April 12, 2000
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Kendle International Inc.
1200 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
PROXY The undersigned hereby appoints Paul F. Ritter and Anthony L.
FOR Forcellini, or either of them, proxies of the undersigned, each with
ANNUAL the power of substitution, to vote all shares of Common Stock which
MEETING the undersigned would be entitled to vote on the matters specified
below and in their discretion with respect to such other business as
may properly come before the Annual Meeting of Shareholders of
Kendle International Inc. to be held on May 17, 2000 at 9:30 A.M.
Eastern Time at the Rookwood Room at the Omni Netherlands Plaza
Hotel, 35 West Fifth Street, Cincinnati, Ohio or at any adjournment
of such Annual Meeting.
<TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. Authority to elect as directors the following six (6) nominees:
Candace Kendle, Philip E. Beekman, Christopher C. Bergen, Robert R. Buck, Timothy M. Mooney, AND Charles A. Sanders
<S> <C> <C>
[ ] FOR [ ] WITHHOLD AUTHORITY
WRITE THE NAME OF ANY NOMINEE(S) FOR WHOM AUTHORITY TO VOTE IS WITHHELD _______________________________
2. To amend the Company's 1997 Stock Option and Stock Incentive Plan to increase the number of authorized shares of Common
Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratify and approve the appointment of PricewaterhouseCoopers LLP as independent public accountants for 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A CONTRARY CHOICE IS SPECIFIED.
(This proxy is continued and is to be signed on the reverse side)
</TABLE>
<PAGE> 17
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders dated April 12, 2000 and the Proxy Statement furnished therewith.
Any proxy heretofore given to vote said shares is hereby revoked.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Dated: __________________, 2000
________________________________
(Signature)
________________________________
(Signature)
(Important: Please sign exactly
as name appears hereon
indicating, where proper,
official position or
representative capacity. In the
case of joint holders, all
should sign.)
