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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE
OCTOBER 7, 1996) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 33-69586
CLINTRIALS RESEARCH INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 62-1406017
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
20 BURTON HILLS BOULEVARD, SUITE 500 37215
NASHVILLE, TENNESSEE (Zip Code)
(Address of principal executive offices)
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(615) 665-9665
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value Nasdaq Stock Market
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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 requirement 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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $112,686,000 as of March 14, 1997. The number of Shares of Common
Stock outstanding as of March 14, 1997 was 17,871,017.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into Part II, Items
6, 7 and 8 of this Form 10-K: Portions of the Registrant's Annual Report to its
stockholders for fiscal year ended December 31, 1996.
The following documents are incorporated by reference into Part III, Items
10, 11 and 12 of this Form 10-K: Portions of the Registrant's definitive proxy
materials for its 1997 Annual Meeting of stockholders.
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PART I
ITEM 1. BUSINESS
ClinTrials Research Inc. (the "Company" or "ClinTrials") is a full service
contract research organization ("CRO") serving the pharmaceutical, biotechnology
and medical device industries. The Company designs, monitors and manages
preclinical and clinical trials, provides clinical data management and
biostatistical services, and offers product registration services throughout the
United States, Canada and Europe. The Company generates substantially all of its
revenue from the clinical testing of new pharmaceutical and biotechnology
products. At December 31, 1996, the Company had contracts in backlog to perform
clinical research services in over 30 countries worldwide. To date, the Company
has performed services for approximately 300 clients including the ten largest
pharmaceutical companies in the world. Net service revenue increased 61.6% to
$93.5 million in 1996 from $57.8 million in 1995.
New pharmaceutical and biotechnology products must undergo extensive
testing and regulatory review to determine their relative safety and
effectiveness. Companies seeking approval for these products are responsible for
performing and analyzing the results of preclinical and multi-phase clinical
trials. Preclinical trials typically last for up to three years and involve
animal testing. Clinical trials are conducted over a period typically lasting
eight to twelve years and involve hundreds or thousands of human subjects. These
trials were historically performed almost exclusively by inhouse personnel at
the major pharmaceutical companies. In recent years, pharmaceutical companies
have begun to outsource clinical trials management to CROs, which has resulted
in significant growth in the CRO industry. The Company believes worldwide
research and development expenditures by the pharmaceutical and biotechnology
industries reached an estimated $33 billion in 1995, approximately $11 billion
of which was spent on clinical trials, with approximately $2.5 billion being
outsourced to CROs. Research and development expenditures in 1995 for the top 50
pharmaceutical companies in the world increased approximately 10% from the
previous year. The Company believes that certain industry trends have led
pharmaceutical and biotechnology companies to increase research and development
for proprietary new drugs, conduct increasingly complex clinical trials, and
develop multinational clinical trial capability, while seeking to control
internal fixed costs. These trends include the increased emphasis on finding
treatments for chronic disorders and infectious diseases, the desire by
manufacturers to market pharmaceutical and biotechnology products simultaneously
in several countries, and cost containment pressures from certain governments,
managed care organizations and other payors. By providing experienced clinical
and database management personnel to conduct complex trials on a contract basis,
CROs have enabled pharmaceutical and biotechnology companies to respond to cost
containment pressures by turning the fixed costs of internal clinical research
into variable costs.
ClinTrials Research Inc. is an international research services organization
headquartered in Nashville, Tennessee, with offices in Research Triangle Park,
North Carolina; Lexington, Kentucky; Maidenhead, U.K.; Brussels, Belgium; Paris,
France; Melbourne, Australia; Jerusalem, Israel; Santiago, Chile; and Montreal,
Canada.
BACKGROUND
New Drug Development -- An Overview. Before a new drug may be marketed, it
must generally undergo extensive testing and regulatory review to determine that
it is safe and effective. This development process consists of two stages,
preclinical and clinical. In the preclinical stage, the sponsor of the new drug
conducts laboratory analyses and animal tests, generally over a one to three
year period, to determine the basic biological activity and safety of the drug.
Upon successful completion of the preclinical phase, the drug undergoes a series
of clinical tests in humans, including healthy volunteers as well as patients
with the targeted disease, generally over an eight to twelve year period. In the
United States, preclinical and clinical testing must comply with the
requirements of Good Clinical Practice ("GCP") and other standards promulgated
by the Food and Drug Administration (the "FDA") and other federal and state
governmental authorities. GCP stipulates procedures designed to ensure the
quality and integrity of data obtained from clinical testing and to protect the
rights and safety of clinical subjects. The FDA pioneered the use of clinical
trials in the regulation of new drug development, and the agency's approval
process has shaped much drug regulation worldwide. In
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recent years, the FDA and corresponding regulatory agencies of the major
industrial countries (Canada, Japan and the European Community ("EC")) commenced
discussions for the purpose of developing common standards for both the conduct
of preclinical and clinical studies and the format and content of applications
for new drug approvals. Data from multi-national studies adhering to GCP are now
generally acceptable to the FDA and the governments within the EC.
In the United States, a drug sponsor must file an Investigational New Drug
Application ("IND") with the FDA before the commencement of human testing of a
drug. The IND includes preclinical testing results and sets forth the sponsor's
plans for conducting human clinical trials. The design of these plans, also
referred to as the study protocol, is critical to the success of the drug
development effort because the protocol must correctly anticipate the data and
results that the FDA will require before approving the drug. In the absence of
any comments from the FDA, human clinical trials may begin 30 days after the IND
is filed.
Clinical trials usually start on a small scale to assess safety and then
expand to larger trials to test efficacy. Trials are usually grouped into four
phases, with multiple trials generally conducted within each phase.
Phase I. Phase I trials are conducted on healthy volunteers,
typically 20 to 80 persons, to develop basic safety data relating to
toxicity, metabolism, absorption and other pharmacological actions. These
trials last an average of six months to one year.
Phase II. Phase II trials are conducted on a small number of
subjects, typically 100 to 200 patients, who suffer from the drug's
targeted disease or condition. Phase II trials offer the first evidence of
clinical efficacy, as well as additional safety data. These trials last an
average of two years.
Phase III. Phase III trials are conducted on a significantly larger
population of several hundred to several thousand patients, some of whom
suffer from the targeted disease or condition and some of whom are healthy.
Phase III trials are designed to measure efficacy on a large scale as well
as long-term side effects. These trials involve numerous sites and
generally last two to three years.
Phase IV. As a condition of granting marketing approval, the FDA may
require that a sponsor continue to conduct additional clinical trials,
known as Phase IV trials, to monitor long-term risks and benefits, study
different dosage levels, or evaluate different safety and efficacy
parameters in target patient populations. With the increasing importance of
Phase IV trials has also come increased complexity in the scope of the
trials (i.e., the number of patients tested) and the manner in which they
are conducted (i.e., the number of sites at which testing is performed).
Phase IV trials generally last one to four years.
Clinical trials often represent the most expensive and time-consuming part
of the overall drug development process generally lasting from eight to twelve
years. The information generated during these trials is critical for gaining
marketing approval from the FDA or other regulatory agencies. After the
successful completion of Phase III trials, the sponsor of a new drug must submit
a New Drug Application ("NDA") to the FDA. The NDA is a comprehensive filing
that includes, among other things, the results of all preclinical and clinical
studies, information about the drug's composition and the sponsor's plans for
producing, packaging and labeling the drug. Most of the clinical data contained
in an NDA is generated during the Phase II and III trials. The FDA's review of
an NDA can last from several months to several years, with the average review
lasting two and one-half years. Drugs that successfully complete this review may
be marketed in the United States, subject to the conditions imposed by the FDA
in its approval. The FDA has been subject to increasing pressure to allow drugs
to reach the public more quickly. As a result, in some instances the FDA has
expedited the review process by granting conditional approval of lifesaving
drugs or those for conditions for which there is no current treatment so that
they can be marketed while Phase IV trials are being conducted. In recent years,
the FDA has encouraged the use of computer assisted NDAs ("CANDAs") in an effort
to expedite the approval process.
INDUSTRY TRENDS
The contract research industry derives substantially all of its revenue
from the research and development ("R&D") expenditures of pharmaceutical,
biotechnology and medical device companies. The Company
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believes that certain industry trends have led pharmaceutical and biotechnology
companies to increase the use of CROs for preclinical and clinical trials. These
trends include the following:
Increasing Cost Containment Pressures. The increasing pressure to control
rising health care costs, and the penetration of managed health care and health
care reform have caused the following changes in the pharmaceutical industry:
- Managed Care Organizations. Managed care organizations have become major
participants in the delivery of pharmaceuticals. These organizations limit
the selection of drugs from which affiliated physicians may prescribe,
thus increasing the competition among pharmaceutical companies to develop
more effective products in a shorter time frame.
- Consolidation. As pharmaceutical companies seek to create economies of
scale, there have been several large mergers within the pharmaceutical
industry, and as a result of these mergers, the pharmaceutical industry
has experienced large scale employee lay-offs and other cutbacks.
- Other Factors. Factors such as competition from generic drugs following
patent expiration, more stringent regulatory requirements and the
increasing complexity of clinical trials have resulted in increasing
market pressure on profit margins.
In response to these cost containment pressures, a number of United States
pharmaceutical companies have publicly committed to hold net effective price
increases generally in line with inflation. In the area of clinical development,
many pharmaceutical and biotechnology companies are seeking to reduce the high
fixed costs associated with peak-load staffing by reducing internal clinical
staff and relying on a combination of internal resources and external resources
such as CROs, thereby shifting fixed costs to variable costs.
Globalization of Clinical Research and Development. Due to the increasing
cost of new drug development, many projects that are not expected to achieve
sufficient annual worldwide revenue are abandoned. Pharmaceutical companies are
increasingly attempting to maximize returns from a given drug by pursuing
regulatory approvals in multiple countries simultaneously rather than
sequentially. A pharmaceutical company seeking approval in a country in which it
lacks experience or internal resources will frequently turn to a CRO for
assistance in interacting with regulators or in organizing and conducting
clinical trials. The Company believes that the globalization of clinical
research and development activities has increased the demand for CRO services.
Increasingly Complex and Stringent Regulation; Need for Technological
Capabilities. Increasingly complex and stringent regulatory requirements
throughout the world have increased the volume of data required for regulatory
filings and escalated the demand for data collection and analysis during the
drug development process. In addition, over the last ten years the average
number of clinical trials per new drug application has approximately doubled,
and the average number of patients participating in those trials has increased
approximately 25%. In recent years, the FDA and corresponding regulatory
agencies of Canada, Japan and the EC have commenced discussions to develop
common standards for preclinical and clinical studies and the format and content
of applications for new drug approvals. Further, the FDA encourages the use of
computer-assisted filings in an effort to expedite the approval process. As
regulatory requirements have become more complex, the pharmaceutical and
biotechnology industries are increasingly outsourcing to CROs to take advantage
of their data management expertise, technological capabilities and global
presence.
Escalating Research and Development Expenditures. Research and development
expenditures in 1995 for the top 50 pharmaceutical companies in the world (as
measured by such expenditures) increased approximately 10% from the previous
year. Such expenditures have resulted from an increased emphasis on developing
effective products for the treatment of chronic disorders and life threatening
acute conditions such as infectious diseases. The cost of developing therapies
for chronic disorders, such as arthritis, Alzheimer's disease and osteoporosis
is higher because the treatments must be studied for a longer period to
demonstrate their effectiveness in curbing the chronic disorder and to determine
any possible long-term side effects.
Reducing Drug Development Time Requirements. Pharmaceutical and
biotechnology companies face increased pressure to bring new drugs to market in
the shortest possible time, thereby reducing costs,
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maintaining market share and accelerating realization of revenue. Currently,
successful development of a new drug takes approximately eight to twelve years,
a significant portion of a drug's seventeen-year period for protection under
United States patent laws. Certain clients of the Company have expressed a
desire to reduce this time to approximately five to seven years. Pharmaceutical
and biotechnology companies are attempting to increase the speed of new product
development, and thereby maximize the period of marketing exclusivity and
economic returns for their products, by outsourcing development activities to
CROs. The Company believes that CROs are often able to perform the needed
services with a higher level of expertise or specialization, and more quickly,
than a pharmaceutical or biotechnology company could perform such services
internally. In addition, some pharmaceutical and biotechnology companies are
beginning to contract with large full-service CROs to conduct preclinical and
all phases of clinical trials for new product programs lasting several years,
rather than separately contracting specific phases of drug development to
several different CROs. The Company believes this approach may result in shorter
overall development times. In anticipation of this trend, the Company has
established itself as a firm capable of taking a pharmaceutical from its initial
testing through its licensing for commercialization.
New Drug Development Pressures. The Company believes that R&D expenditures
have increased as a result of the constant pressure to develop and patent
products, and to respond to the demand for products for an aging population and
for the treatment of chronic disorders and life-threatening conditions. In
response to this pressure, pharmaceutical and biotechnology companies are
outsourcing preclinical and clinical trials in order to use their own resources
to develop additional drugs.
Growth of Biotechnology Industry. The biotechnology industry and the
number of drugs produced by it which require FDA approval have grown
substantially over the past decade. Many biotechnology companies have chosen not
to expend resources to develop sufficient staff or expertise to conduct clinical
trials in-house, but rather have utilized providers such as CROs to perform
these services.
As the use of CROs increases, so do the demands placed upon CROs like
ClinTrials that provide a broad range of services in multiple countries for
larger clients. For example, larger CROs generally remain competitive by
sustaining internal growth and by opening offices in additional countries in
order to have a presence near either a client or a large test site.
Increasingly, large clients require CROS to meet certain credit-worthiness
standards. As a result of these factors, CROs such as ClinTrials have
experienced an increasing demand for working capital and strong balance sheets
in order to maintain their competitive standing within the industry.
BUSINESS STRATEGY
The trend toward outsourcing the clinical testing process for
pharmaceutical, biotechnology and medical device products is accelerating. The
CRO industry is highly fragmented with many small, limited-service providers as
well as in-house research departments, universities and teaching hospitals, and
other CROs, many of which have substantially greater resources than the Company.
However, the Company believes it is well positioned to take advantage of the
trend toward outsourcing as a result of its demonstrated ability to provide a
broad range of professional, cost-effective clinical research and development
services worldwide. The Company's strategy is comprised of the following
elements:
Provide Comprehensive Preclinical and Clinical Research Services. The
Company offers a broad range of clinical research services and believes that its
knowledge and experience in all stages of clinical research enhance its
credibility with prospective clients. The Company has the capability to provide
a full range of preclinical and clinical services on a turnkey basis, which the
Company believes can be especially important to clients without significant
relevant regulatory expertise, such as biotechnology companies and international
pharmaceutical companies seeking to enter new geographic markets. To meet the
needs of specific clients, the Company offers its services separately or as an
integrated package. This allows a client to use the Company to design a
protocol, conduct a trial, analyze the results of one or more trials, prepare
and submit a new drug application or computer-assisted filing to the FDA, or for
any combination of these services. This approach enables the Company to respond
to clients' requirements with flexibility and also allows it to establish a
relationship with a new client with a particular service that may in turn lead
to larger, more comprehensive
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projects. In addition, the Company believes its preclinical capabilities will
increase the prospect of being awarded contracts for later stage testing after
satisfactory completion of the preclinical tests.
Pursue Strategic Alliances. In these arrangements, the client agrees to
provide the Company with a minimum level of revenue and is guaranteed adequate
staffing over a multi-year period. The Company believes this type of arrangement
results in more predictable pricing to the client and more efficient management
of the Company's resources, and potentially increases the amount of work
outsourced to the Company by the strategic partner. In the past three years, the
Company has entered into strategic alliances with Baxter Healthcare Corporation,
Novartis Pharmaceuticals Corporation, SmithKline Beecham Corporation and Glaxo
Wellcome. In addition, the Company's preclinical subsidiary has "preferred
provider" relationships, which, in contrast to strategic alliances, are
noncontractual, informal relationships in which the client makes the Company
among its first choices of testing service providers.
Expand International Presence. The Company provides clinical research and
development services to major United States and European pharmaceutical and
biotechnology companies. The Company conducts multi-national clinical trials
designed to pursue concurrent regulatory approvals in multiple countries. The
Company believes that this experience is a competitive advantage, as
pharmaceutical and biotechnology companies increasingly are pursuing regulatory
approvals simultaneously in multiple countries. The Company has recently
increased and strengthened its European management team and increased its office
space in Maidenhead, England and Brussels, Belgium to provide more comprehensive
services to its United States clients doing business abroad and to better market
its services to existing and potential European clients. During 1996, the
Company expanded its geographic reach by opening trials management offices in
Australia, France, Israel and Chile, and now delivers services in over 30
countries.
Develop Capabilities in Emerging Areas. The Company attempts to establish
study protocols and expertise in a therapeutic area prior to the formal
announcement of a new product by a pharmaceutical or biotechnology company.
Manufacturers prefer to outsource to CROs that already have knowledge and have
developed testing models in the relevant area and that can therefore more
quickly begin the new drug application process. The Company learns of promising
research and potential new products by attending conferences, reading scientific
literature and by networking with industry experts, academics, manufacturers'
representatives and others.
Invest in Information Systems Technology. The Company maintains a
commitment to investment in technology with a focus on management information
systems. The Company has invested heavily in improving its standard operating
procedures, in continuous reengineering of the workflow processes and in the
infrastructure required to support the creation, maintenance and statistical
analysis of highly sophisticated databases. In particular, the Company has: (i)
extended its wide area communications network to include all Company locations,
enabling multi-national project teams to coordinate their activities on global,
multi-site programs; (ii) supplemented its existing suite of clinical database
tools with the implementation of industry-standard data management software;
(iii) implemented new project tracking systems internationally as well as
reengineered processes to reduce project set-up time; (iv) completed major
investments in computer hardware, including processors and disk storage systems,
which tripled its capacity to process study data; and (v) increased its
management, biostatistics and information systems team to more than 300
employees, one of the largest such groups in the industry. The Company intends
to continue to improve its management information systems with significant
capital expenditures anticipated in 1997.
Broaden Therapeutic Expertise. Prior working knowledge in specific
therapeutic areas is a highly valued criterion by which many decisions to work
with a CRO are made. ClinTrials has experience in a broad range of therapeutic
areas and is continuing to expand its ability and experience in more therapeutic
areas. ClinTrials has demonstrated depth and high quality performance in the
following areas: anti-viral infectious diseases, cardiology, central nervous
system, gastroenterology, endocrinology, respiratory and urology, osteoporosis
evaluation, cardiovascular pharmacology, biomaterials testing, bio-marker assays
and infusion delivery. The Company is a leader in the investigation of blood
substitutes and protease inhibitors and in the conducting of megatrials (trials
involving more than 1,000 participants).
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Increase Client Base and Number of Contracts. ClinTrials' strategy is to
seek contracts with new clients and new contracts with existing clients in
different therapeutic areas and cross-sell other services to existing clients.
Pursue Selected Acquisitions. The Company plans to pursue strategic
acquisitions of selected CROs or related businesses that provide one or more of
the following: complementary services, expanded geographic presence, new
therapeutic expertise or complementary client bases.
SERVICES
The Company's services and related products include preclinical and
clinical trials management services, clinical data management and biostatistical
services, and product registration services. The Company's services can be
provided separately or as an integrated package. Services from each of these
categories can be utilized for the development and execution of a turnkey NDA.
Preclinical Trials. The Company designs and conducts preclinical research
programs, based principally upon animal models, that generate the data required
to establish safe starting dosages and the potential efficacy of a product in
humans, and to determine organ toxicity and other potential risks of human
usage. Preclinical trial reports are submitted to regulatory authorities in
support of an application to initiate clinical testing in humans. The Company
also offers analytical laboratory services including assessment of product
concentration in suspensions, solutions, animal feed and plasma radiometric
determination in metabolite profiling of biological tissues, and radiopurity
assessment of dose solution.
Clinical Trials Management Services. The Company offers complete services
for the design, placement, performance and management of clinical trial
programs, a critical element in obtaining regulatory approval for drugs and
medical devices. The Company has performed services in connection with trials in
many therapeutic areas. The Company's multi-disciplinary clinical trials group
has the ability to examine a product's existing preclinical and clinical data
for the purposes of designing protocols for clinical trials in order to
ascertain evidence of the product's safety and efficacy.
The Company manages every aspect of trials in Phases I through IV,
including design of operations manuals, identification and recruitment of trial
investigators, initiation of sites, monitoring for strict adherence to GCP, site
visits to ensure compliance with protocol procedures and proper collection of
data, interpretation of trial results and report preparation. Substantially all
of the Company's current clinical projects involve Phase II, III or IV clinical
trials, which, in most cases, are significantly larger and more complex than
Phase I trials.
In the CRO industry trials involving tests on over 1,000 patients over a
period of several years at multiple sites are becoming more routine. These
trials have resulted from the drug companies' emphasis on treating and curing
chronic disorders and the resulting need to thoroughly test large numbers of
patients for long-term side effects of new drugs. The Company is experienced in
managing such trials and actively markets its abilities in this area.
Clinical trials are monitored for strict adherence to GCP. Efficient data
collection, form design, detailed operations manuals and site visits by the
Company's clinical research associates ("CRA") are employed to determine whether
clinical investigators and their staffs follow established protocols and
accurately record the findings of the trials.
The Company assists clients with one or more of the following steps of
clinical trials:
- Study Protocol. The protocol defines the medical issues the study seeks
to examine and the statistical tests that will be conducted. Accordingly,
the protocol defines: (i) the frequency and type of laboratory and
clinical measures that are to be tracked and analyzed; (ii) the number of
patients required to produce a statistically valid result; (iii) the
period of time over which they must be tracked; and (iv) the frequency and
dosage of drug administration.
- Case Report Forms. Once the study protocol has been finalized, special
forms for recording the desired information must be developed. These forms
are called Case Report Forms ("CRFs"). The
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CRF may change at different stages of a trial. The CRF for one patient in
a given study may consist of as many as 100 pages or more.
- Site and Investigator Recruitment. The drug is administered to patients
by investigators, at hospitals, clinics or other locations, referred to as
sites. Potential investigators may be identified by the drug sponsor or
the CRO, which then solicits the investigators' participation in the
study. Generally, the investigators contract directly with the Company.
The trial's success depends on the successful identification and
recruitment of investigators with proper expertise and an adequate base of
patients who satisfy the requirements of the study protocol.
- Patient Enrollment. The investigators find and enroll patients suitable
for the study according to the study protocol. Prospective patients are
required to review information about the drug and its possible side
effects and sign an informed consent to record their knowledge and
acceptance of potential side effects. Patients also undergo a medical
examination to determine whether they meet the requirements of the study
protocol. Patients then receive the drug and are examined by the
investigator as specified by the study protocol.
- Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
CRFs and laboratory reports. The data are collected from study sites by
specially trained CRAs. CRAs visit sites regularly to ensure that the CRFs
are completed correctly and that all data specified in the protocol are
collected. CRFs are reviewed for consistency and accuracy before their
data are entered into an electronic database.
- Medical Affairs. Throughout the course of a clinical trial, the Company
may provide various medical research and services including medical
monitoring of clinical trials, interpretation of clinical trial results
and preparation of clinical study reports.
- Report Writing. The results of statistical analysis of data collected
during the trial together with other clinical data are included in a final
report generated for inclusion in a regulatory document.
Clinical Data Management and Biostatistical Services. The Company's data
management professionals assist in the design of protocols and CRFs, as well as
training manuals and training sessions for investigational staff, to ensure that
data are collected in an organized and consistent format. Databases are designed
according to the analytical specifications of the project and the particular
needs of the client. Prior to data entry, the Company's personnel screen the
data to detect errors, omissions and other deficiencies in completed CRFs. The
Company provides clients with data abstraction, data review and coding, data
entry, database verification and editing, and problem data resolution.
The Company's biostatistics professionals provide biostatistical
consulting, database design, data analysis and statistical reporting. The
Company's biostatisticians provide clients with assistance in all phases of drug
development. These professionals develop and review protocols, design
appropriate analysis plans and design report formats to address the objectives
of the study protocol as well as the client's individual objectives. Working
with the programming staff, biostatisticians perform appropriate analyses and
produce tables, graphs, listings and other applicable displays of results
according to the analysis plan. Frequently, biostatisticians assist clients
before panel hearings at the FDA.
The Company believes that its data management and biostatistical services
capabilities can be utilized by a client more effectively when packaged as part
of its total clinical trials management services and used to monitor Phases I
through IV rather than just one phase. This packaging permits a faster and less
costly clinical trial process, as the data are collected and analyzed more
rapidly and the decision to move to the next phase can be made more quickly.
Although the Company believes that many pharmaceutical companies treat each
phase as a distinct trial, the Company is emphasizing its "entire process"
approach in its marketing efforts. Currently, a significant portion of these
services are utilized by clients to process data that have previously been
collected either by the client itself or by another CRO as part of a distinct
phase in the drug development process.
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Product Registration Services. The Company provides comprehensive product
registration services throughout Europe and the United States. The Company
provides regulatory strategy formulation, document preparation, Good
Manufacturing Practice consultation and acts as liaison with the FDA and other
regulatory agencies. Although these services have not generated material revenue
to date, the Company offers these services in order to provide the full range of
services necessary to remain competitive in the CRO industry.
The Company works closely with clients to devise regulatory strategies and
comprehensive product development programs. The Company's regulatory affairs
experts review existing published literature, assess the scientific background
of a product, assess the competitive and regulatory environment, identify
deficiencies and define the steps necessary to obtain registration in the most
expeditious manner. Through this service, the Company helps its clients
determine the feasibility of developing a particular product or product line.
The Company's regulatory affairs professionals have experience in the
analysis, preparation and submission of FDA regulatory documents covering a wide
range of products, including drugs and over-the-counter products. The Company
also has experience with preparing regulatory documentation for submission to
European regulatory authorities.
CLIENTS AND MARKETING
The Company has served many of the leading pharmaceutical companies in the
United States and the EC. The Company's clients include the ten largest
pharmaceutical companies in the world. The Company's clients also include
companies in the biotechnology and medical device industries. For the year ended
December 31, 1996, the Company recognized revenue on contracts with 114 clients.
During 1996, approximately 83% of the Company's net service revenue was derived
from pharmaceutical companies, 15% from biotechnology companies and 2% from
medical device companies. In 1995, such companies contributed 88%, 10%, and 2%
of net service revenue, respectively.
The Company has had, and will continue to have, certain clients from which
at least 10% of the Company's overall revenue is generated over multiple
contracts. Such concentrations of business are not uncommon within the CRO
industry. During 1996, the Company generated approximately 23% of its net
service revenue from SmithKline Beecham Corporation. No other client represented
10% or more of the Company's net revenue in 1996. The Company's contracts are
entered into with numerous therapeutic areas or divisions within each client and
frequently involve different decision makers. Thus, there is a reduced
likelihood that the Company would simultaneously lose all contracts with any
single client.
Marketing activities are conducted by the Company's business development
personnel based in each of the Company's locations. In response to the highly
technical nature of the Company's business, most business development personnel
have scientific backgrounds. Additionally, the Company runs an extensive
advertising program in trade journals and publications and, from time to time,
employs direct mailings of information to existing and potential clients. The
Company also attends and exhibits at selected trade shows in the United States
and Europe. The Company is in the process of expanding its business development
group in order to serve additional clients.
CONTRACTUAL ARRANGEMENTS
The Company generally is awarded contracts based, among other things, upon
its response to requests for proposal ("RFP") received from pharmaceutical,
biotechnology and medical device companies. The contract may require the Company
to design a protocol, conduct the trial, analyze the results of one or more of
the trials, prepare and submit an NDA or CANDA to the FDA, or perform any
combination of these services. After negotiating a letter of intent or
definitive contract, the Company, and in many cases the client, will coordinate
the selection of clinical investigators and conduct pre-study site visits. The
clinical investigators, in conjunction with the Company, are then responsible
for enrolling participants in the trial, which may include persons with a given
disorder or disease, healthy persons and persons within defined populations.
Informed consents, in accordance with FDA and institutional regulations, are
obtained from all participants. Frequently, the Company obtains additional
revenue as a result of change orders to existing contracts. Change orders are
8
<PAGE> 10
typically generated at the request of the client based on the results of the
trial to date and include changes in the scope of the trial and in the services
to be provided by the Company.
Most contracts are fixed priced, multi-year contracts that require a
portion of the contract amount to be paid at or near the time the trial is
initiated. The Company generally bills its clients upon the completion of
negotiated performance requirements and, to a lesser extent, on a date certain
basis. The Company's contracts generally may be terminated with or without
cause. In the event of termination, the Company is typically entitled to all
sums owed for work performed though the notice of termination and all costs
associated with termination of the study. In addition, some of the Company's
contracts provide for an early termination fee, the amount of which usually
declines as the trial progresses. Termination or delay in the performance of a
contract occurs for various reasons, including, but not limited to, unexpected
or undesired results, inadequate patient enrollment or investigator recruitment,
production problems resulting in shortages of the drug, adverse patient
reactions to the drug, or the client's decision to deemphasize a particular
trial.
The Company's strategic alliance agreements, although larger in size and
covering several projects over multiple years, are generally the same as the
contracts described above.
BACKLOG
Backlog consists of anticipated net service revenue from letters of intent
and contracts that have not been completed. Once work under a letter of intent
or contract commences, net service revenue is recognized over the life of the
contract using the percentage-of-completion method of accounting. Since it is
common for clients to authorize projects and the Company to commence providing
services before a contract is signed, the Company believes reported backlog
should consist of anticipated net revenue from uncompleted projects which have
been authorized by a client, through a written contract or otherwise. At
December 31, 1994, 1995, and 1996, the Company's backlog was $71.1 million,
$90.2 million and $140.7 million, respectively. The Company believes that
backlog is not a consistent indicator of future results because backlog can be
affected by a number of factors, including the variable size and duration of
projects, many of which are performed over several years. Additionally, projects
may be terminated by the client or delayed by regulatory authorities for many
reasons, including unexpected test results. Moreover, the scope of a project can
change during the course of a study.
COMPETITION
The Company competes primarily against pharmaceutical companies' own
in-house research departments, other CROs, universities and teaching hospitals.
The CRO industry is highly fragmented, with approximately 20 full-service CROs
and many small, limited-service providers. In recent years, several large,
full-service competitors have emerged, some of which have substantially greater
capital and other resources, are better known and have more experienced
personnel than the Company. The Company's largest competitors include Covance
(formerly a division of Corning, Inc.), PPD Pharmaco, Inc., Parexel
International Corp., and Quintiles Transnational Corp. The recent trend toward
industry consolidation is likely to result in heightened competition among the
larger CROs. Although the financial costs of entry into the industry are
relatively low, the larger CROs are increasingly required to have substantial
amounts of working capital in order to sustain internal growth and international
expansion, and to meet the credit-worthiness standards of their larger clients.
The Company believes that clients choose a CRO based on several factors, the
most important of which is the quality of the work performed for existing
clients. Other important factors include references from existing clients,
trials management experience in and scientific knowledge of specific therapeutic
areas, the price for the services performed, the ability to organize and manage
large-scale trials on a global basis, the ability to manage large and complex
medical data bases, and the ability to hire and retain qualified investigators.
The Company believes that it competes favorably in these areas.
GOVERNMENT REGULATION
The clinical investigation of new pharmaceutical, biotechnology and medical
device products is highly regulated by governmental agencies. The purpose of
United States federal regulations is to ensure that only
9
<PAGE> 11
those products which have been proven to be safe and effective are made
available to the public. The FDA has set forth regulations and guidelines that
pertain to applications to initiate trials of products, approval and conduct of
studies, report and record retention, informed consent, applications for the
approval of new products, and post-marketing requirements. Pursuant to FDA
regulations, CROs that assume obligations of a drug sponsor are required to
comply with applicable FDA regulations and are subject to regulatory action for
failure to comply with such regulations. In the United States, the historical
trend has been in the direction of increased regulation by the FDA. The Company
believes that many pharmaceutical, biotechnology and medical device companies do
not have the staff and/or the available expertise to comply with all of the
regulations and standards, and this has contributed and will continue to
contribute to the growth of the CRO industry.
The services provided by the Company are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries is generally less
comprehensive than regulation present in the United States. The Company is
obligated to comply with FDA regulations governing such activities as selecting
qualified investigators, obtaining required forms from investigators, verifying
that patient informed consent is obtained, monitoring the validity and accuracy
of data, verifying drug/device accountability, and instructing investigators to
maintain records and reports. The Company must also maintain records for each
study for specified periods for inspection by the study sponsor and the FDA
during audits. If such audits document that the Company has failed to adequately
comply with Federal regulations and guidelines, it could have a material adverse
effect on the Company. In addition, the Company's failure to comply with
applicable regulations could possibly result in termination of ongoing research
or the disqualification of data, either of which could also have a material
adverse effect on the Company, including, without limitation, damage to the
Company's reputation.
POTENTIAL LIABILITY AND INSURANCE
The Company monitors the testing of new drugs on human volunteers pursuant
to study protocols in clinical trials. Clinical research involves a risk of
liability for personal injury or death to patients from adverse reactions to the
study drug, many of whom are seriously ill and are a great risk of further
illness or death as a result of factors other than their participation in a
trial. Additionally, although the Company's employees do not have direct contact
with the participants in a clinical trial, the Company, on behalf of its
clients, contracts with physicians who render professional services, including
the administration of the substance being tested, to such persons. As a result,
the Company could be held liable for bodily injury, death, pain and suffering,
loss of consortium, other personal injury claims and medical expenses arising
from any professional malpractice of such physicians. The Company maintains
insurance to cover malpractice liability of physicians who are employees or
consultants of the Company. To date, the Company has not received any claims
resulting from either the testing of new drugs or professional malpractice.
The Company believes that the risk of liability to patients in clinical
trials is mitigated by various regulatory requirements, including the role of
institutional review boards ("IRBs") and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed and
approved by the IRB at each study site. An IRB is an independent committee that
includes both medical and non-medical personnel and is obligated to protect the
interests of patients enrolled in the trial. After the trial begins, the IRB
monitors the protocol and the measures designed to protect patients, such as the
requirement to obtain informed consent.
To reduce its potential liability, the Company seeks to obtain indemnity
provisions in its contracts with clients and, in some cases, with investigators
contracted by the Company on behalf of its clients. These indemnities generally
do not, however, protect the Company against certain of its own actions such as
those involving negligence or misconduct. Moreover, these indemnities are
contractual arrangements that are subject to negotiation with individual
clients, and the terms and scope of such indemnities vary from client to client
and from trial to trial. The Company also, in some circumstances, indemnifies
and holds harmless its clients and investigators against liabilities incurred by
such parties due to the actions or inactions of the Company. Finally, since the
financial performance of these indemnities is not secured, the Company bears the
risk that an indemnifying party may not have the financial ability to fulfill
its indemnification obligations. The
10
<PAGE> 12
Company could be materially and adversely affected if it were required to pay
damages or incur defense costs in connection with a claim that is outside the
scope of an indemnity or where the indemnity, although applicable, is not
performed in accordance with its terms.
The Company currently maintains an errors and omissions professional
liabilities insurance policy in amounts it believes to be sufficient. There can
be no assurance that this insurance coverage will be adequate, or that insurance
coverage will continue to be available on terms acceptable to the Company.
INTELLECTUAL PROPERTY
The Company believes that factors such as its ability to attract and retain
highly-skilled professional and technical employees and its project management
skills and experience are significantly more important to its performance than
are any intellectual property rights developed by it. The Company has developed,
and continually develops and updates, certain computer software related
methodologies. The Company seeks to maintain its rights in the software it
develops through a combination of contract, copyright and trade secret
protection. While the Company does not consider any of this software or
methodology to be material to the Company's business, the Company believes its
software capabilities provide important benefits to its clients.
EMPLOYEES
At December 31, 1996, the Company had 1,632 employees, of which 53 held
Ph.D. or M.D. degrees, 9 held D.V.M. degrees, and 114 others held masters
degrees. Approximately 49% of the Company's employees are located in the United
States, 36% are located in Canada, and the remaining 15% are located in Europe.
The Company believes that its relations with its employees are good.
The Company's performance depends on its ability to attract and retain a
qualified management, professional, scientific and technical staff. Competition
from both the Company's clients and competitors for skilled personnel is high.
While the Company has not experienced any significant problems in attracting or
retaining qualified staff to date, there can be no assurance the Company will be
able to avoid these problems in the future.
ITEM 2. PROPERTIES
The Company both owns and leases its facilities. The Company's headquarters
are located in Nashville, Tennessee. Additionally, the Company has offices in
Research Triangle Park, North Carolina; Lexington, Kentucky; Maidenhead,
England; Brussels, Belgium; Melbourne, Australia; Santiago, Chile; Paris,
France; and Jerusalem, Israel. The Company utilizes both owned and leased
laboratory and office space in Senneville, Quebec.
The Company believes that the space leased is adequate for the Company's
operations and that the leases generally reflect market rates in their
respective geographic areas. The expiration dates of the leases range from 1998
to 2012.
In 1995, the Company agreed to lease space in a building to be constructed
in Nashville, Tennessee. In 1997, the Company will move its Nashville
operations and corporate headquarters into the new building.
In 1996, the Company agreed to lease approximately 151,000 square feet in a
building to be constructed in Cary, North Carolina. Upon its completion in 1998,
the Company will move its Research Triangle Park operations into the new
building.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the opinion of management, there are currently
no proceedings to which the Company is a party that will have a material adverse
effect upon its operations or financial condition.
In 1991, a customer commenced legal action against the predecessor of the
Company's preclinical subsidiary claiming damages resulting from statistical
errors in carrying out two clinical research studies. Judgment was rendered in
February 1997 by the Superior Court of Montreal against the Company's subsidiary
in the approximate amount of $586,000 plus interest to accrue from September
1991. The customer has appealed
11
<PAGE> 13
the amount of the judgment and the subsidiary's insurance company has appealed
the portion of the judgment which obligates the insurance company to pay this
claim. The preclinical subsidiary, now responsible for this action, has reserves
adequate to cover the current judgment amount. The Company believes it is, under
certain circumstances and subject to certain limitations, entitled to
indemnification from a prior transferor for a portion of this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market ("Nasdaq")
under the symbol "CCRO". On March 14, 1997, the last reported sale price for the
Common Stock on Nasdaq was $9.37. As of December 31, 1996, the Company had
approximately 215 holders of record of the Common Stock and the Company
estimates an additional 4,600 beneficial owners. The following table shows the
high and low sales prices for the Common Stock as reported by Nasdaq for the
periods indicated, as adjusted for a 3-for-2 stock split on November 25, 1996:
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1995
First Quarter............................................. 8.67 6.00
Second Quarter............................................ 9.00 6.92
Third Quarter............................................. 13.50 8.67
Fourth Quarter............................................ 14.08 11.33
1996
First Quarter............................................. 23.75 13.00
Second Quarter............................................ 33.67 22.67
Third Quarter............................................. 32.75 20.00
Fourth Quarter............................................ 29.17 16.88
1997
First Quarter (Through March 14).......................... 32.00 7.75
</TABLE>
The Company has paid no dividends since inception.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information concerning this Item is incorporated herein by reference to
page 8 of the Company's Annual Report to its stockholders for the fiscal year
ended December 31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information concerning this Item is incorporated herein by reference to
pages 9 through 12 of the Company's Annual Report to its stockholders for the
fiscal year ended December 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item is incorporated herein by reference to
pages 13 through 23 of the Company's Annual Report to its stockholders for the
fiscal year ended December 31, 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1997 Annual Meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
14
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements of the Company and its subsidiaries required to
be included in Part II, Item 8 are incorporated by reference to the Company's
Annual Report to stockholders for the fiscal year ended December 31, 1996.
(a)(2) and (d) Schedule VIII -- Valuation and Qualifying Accounts (filed as
Exhibit 99 hereto).
(a)(3) and (c) Exhibits.
<TABLE>
<C> <S> <C>
3.1 -- Restated Certificate of Incorporation, as amended, of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
3.2 -- Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement No.
33-69586 on Form S-1)
4.1 -- Restated Certificate of Incorporation, as amended, of the
Registrant (see Exhibit 3.1)
4.2 -- Restated Bylaws of the Registrant (see Exhibit 3.2)
4.3 -- Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.1 -- Executive Compensation Plans and Arrangements
(a) Form of Employment Agreement between the Registrant and
certain of its officers
(b) Employment Agreement between the Company and Michael F.
Anckorn
10.2 -- Form of Indemnification Agreement between the Registrant and
each of its directors (incorporated by reference to Exhibit
10.2 to the Company's Registration Statement No. 33-69586 on
Form S-1)
10.3 -- 1989 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement No. 33-69586 on Form S-1)
10.4 -- Amendment No. 4 to 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994)
10.5 -- Profit Sharing 401(k) Plan (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement No.
33-69586 on Form S-1)
10.6 -- Lease Agreements for the Registrant's Nashville, Tennessee
office space (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement No. 33-69586 on Form
S-1)
10.7 -- Lease Agreements for the Registrant's Research Triangle
Park, North Carolina office space (incorporated by reference
to Exhibit 10.11 to the Company's Registration Statement No.
33-69586 on Form S-1)
10.7.1 -- Sublease Agreement dated June 3, 1994 for additional space
in Research Triangle Park, North Carolina (incorporated by
reference to Exhibit 10.8.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994)
10.8 -- Lease Agreement for the Registrant's Lexington, Kentucky
office space (incorporated by reference to Exhibit 10.12 to
the Company's Registration Statement No. 33-69586 on Form
S-1)
10.9 -- Lease Contract for the Registrant's Brussels, Belgium office
space (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement No. 33-69586 on Form S-1)
10.10 -- Agreement for Lease for the Registrant's Maidenhead, England
office space (incorporated by reference to Exhibit 10.14 to
the Company's Registration Statement No. 33-69586 on Form
S-1)
10.11 -- Second Amended and Restated Loan and Security Agreement
dated December 8, 1993 by and between NationsBank of
Tennessee, N.A., the Registrant and its subsidiaries
(incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).
</TABLE>
15
<PAGE> 17
10.12 -- Lease Agreement dated December 19, 1995 for future
headquarters space in Nashville, Tennessee (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13 -- Asset Purchase Agreement among Bio-Research Laboratories
Ltd., certain shareholders thereof, and the Company
(incorporated by reference to the Company's Current Report
on Form 8-K filed on June 19, 1996)
10.14 -- Lease dated September 30, 1996 for new offices (commencing
in 1998) in Cary, North Carolina
11 -- Statement re computation of per share earnings
13 -- Pages 8 through 23 of Annual Report to Stockholders for fiscal
year ended December 31, 1996
21 -- List of Subsidiaries of the Registrant
23 -- Consent of Ernst & Young LLP
27 -- Financial Data Schedule (for SEC use only)
99 -- Schedule VIII -- Valuation and Qualifying Accounts.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1996.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements 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.
CLINTRIALS RESEARCH INC.
By: /s/ William C. O'Neil, Jr.
--------------------------------------
William C. O'Neil, Jr.
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ William C. O'Neil, Jr. Chairman of the Board March 31, 1997
- ----------------------------------------------------- President and Chief
William C. O'Neil, Jr. Executive Officer
(Principal
Executive Officer)
/s/ Mary A. Chaput Chief Financial Officer and March 31, 1997
- ----------------------------------------------------- Secretary (Principal
Mary A. Chaput Financial
and Accounting Officer)
/s/ Edward G. Nelson Director March 31, 1997
- -----------------------------------------------------
Edward G. Nelson
/s/ Thomas G. Cigarran Director March 31, 1997
- -----------------------------------------------------
Thomas G. Cigarran
/s/ Richard J. Eskind Director March 31, 1997
- -----------------------------------------------------
Richard J. Eskind
/s/ Irwin B. Eskind, M.D. Director March 31, 1997
- -----------------------------------------------------
Irwin B. Eskind, M.D.
</TABLE>
17
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S> <C>
3.1 -- Restated Certificate of Incorporation, as amended, of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
3.2 -- Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement No.
33-69586 on Form S-1)
4.1 -- Restated Certificate of Incorporation, as amended, of the
Registrant (see Exhibit 3.1)
4.2 -- Restated Bylaws of the Registrant (see Exhibit 3.2)
4.3 -- Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.3 to the Company's annual Report on Form 10-K
for the year ended December 31, 1993)
10.1 -- Executive Compensation Plans and Arrangements
(a) Form of Employment Agreement between the Registrant and
certain of its officers
(b) Employment Agreement between the Company and Michael F.
Anckorn
10.2 -- Form of Indemnification Agreement between the Registrant and
each of its directors (incorporated by reference to Exhibit
10.2 to the Company's Registration Statement No. 33-69586 on
Form S-1)
10.3 -- 1989 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement No. 33-69586 on Form S-1)
10.4 -- Amendment No. 4 to 1989 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994)
10.5 -- Profit Sharing 401(k) Plan (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement No.
33-69586 on Form S-1)
10.6 -- Lease Agreements for the Registrant's Nashville, Tennessee
office space (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement No. 33-69586 on Form
S-1)
10.7 -- Lease Agreements for the Registrant's Research Triangle
Park, North Carolina office space (incorporated by reference
to Exhibit 10.11 to the Company's Registration Statement No.
33-69586 on Form S-1)
10.7.1 -- Sublease Agreement dated June 3, 1994 for additional space
in Research Triangle Park, North Carolina (incorporated by
reference to Exhibit 10.8.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994)
10.8 -- Lease Agreement for the Registrant's Lexington, Kentucky
office space (incorporated by reference to Exhibit 10.12 to
the Company's Registration Statement No. 33-69586 on Form
S-1)
10.9 -- Lease Contract for the Registrant's Brussels, Belgium office
space (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement No. 33-69586 on Form S-1)
10.10 -- Agreement for Lease for the Registrant's Maidenhead, England
office space (incorporated by reference to Exhibit 10.14 to
the Company's Registration Statement No. 33-69586 on Form
S-1)
</TABLE>
E-1
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<C> <S> <C>
10.11 -- Second Amended and Restated Loan and Security Agreement
dated December 8, 1993 by and between NationsBank of
Tennessee, N.A., the Registrant and its subsidiaries
(incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for year ended December 31, 1994)
10.12 -- Lease Agreement dated December 19, 1995 for future
headquarters space in Nashville, Tennessee (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.13 -- Asset Purchase Agreement among Bio-Research Laboratories
Ltd., certain shareholders thereof, and the Company
(incorporated by reference to the Company's Current Report
on Form 8-K filed on June 19, 1996)
10.14 -- Lease dated September 30, 1996 for new offices (commencing
in 1998) in Cary, North Carolina
11 -- Statement re: computation of per share earnings
13 -- Pages 8 through 23 of Annual Report to stockholders for
fiscal year ended December 31, 1996
21 -- List of Subsidiaries of the Registrant
23 -- Consent of Ernst & Young LLP
27 -- Financial Data Schedule (for SEC use only)
99 -- Schedule VIII -- Valuation and Qualifying Accounts
</TABLE>
E-2
<PAGE> 1
EXHIBIT 10.1(A)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of February 1,
1997, by and between CLINTRIALS RESEARCH, INC., a Delaware corporation
(hereinafter, the "Employer"), and _____________________, a resident of the
State of ________________ (the "Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to continue to employ Employee, and Employee
desires to continue such employment on the terms and conditions set forth
herein.
WHEREAS, Employer desires to assure continuance of a full-time
employment relationship with Employee on certain terms and conditions which are
set forth herein; and
WHEREAS, Employee is willing to accept such employment and terms and
conditions;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
1. Employment. Employer hereby continues to employ Employee, and
Employee hereby accepts employment with Employer on the terms and conditions
specified herein.
2. Term. The term of this Agreement shall be for a period commencing on
February 1, 1997 and ending January 31, 1998, except that the provisions of
Section 8 and 9 will survive the expiration or earlier termination of this
Agreement. This Agreement shall be automatically renewed for additional and
successive one (1) year periods unless either party provides ninety (90) days
notice prior to any anniversary date of its intent not to renew this Agreement
(the initial term and any and all renewal terms each being a "Period of
Employment"). In the event Employer elects not to renew this Agreement upon any
such anniversary date, Employee will be entitled to receive a severance payment
in an amount equal to Employee's base monthly compensation (not including
incentive compensation) at the time of non-renewal multiplied by six (6),
payable in a lump sum.
3. Duties of Employee. Employee's principal duties and
responsibilities shall be as follows: to serve as Vice President-Operations,
The Americas and be responsible for achieving annual revenue and profit goals,
as well as other quantitative and qualitative goals and plans. Employee shall
also perform such other executive duties and
<PAGE> 2
responsibilities assigned to Employee from time to time in accordance with the
policies and objectives established by the Board of Directors, Executive Vice
President-Worldwide Operations or Chief Executive Officer of Employer. Employee
agrees to devote his full business time, attention and skill to his duties
hereunder. Employee shall be required to engage in travel from time to time in
connection with his duties for the Employer.
4. Compensation. For his employment hereunder, Employee shall be
paid $15,833.33 per month during a Period of Employment and in accordance with
the Employer's standard payroll practices.
Employee shall also be eligible to participate in a bonus program pool
based on individual and company-wide performance under such programs as may from
time to time be provided to employees of Employer of similar rank, and shall
also receive a merit review after close of the books for the calendar year then
ending.
5. Benefits. Employee shall be entitled to such medical, dental,
disability and life insurance, vacation, participation in any profit sharing
plan of Employer and other employee benefits as may be provided to employees of
Employer of similar rank from time to time. Employee shall be entitled to four
weeks vacation per calendar year, and shall be entitled to all other fringe
benefits offered to Employer's employees of similar rank.
6. Stock Option. From time to time Employee shall be eligible for
consideration for a stock option award (the "Stock Options"), which Stock
Options shall be formally awarded by the Board of Directors and which shall be
exercisable at the option price that is the price per share at the close of
trading on the date of the grant.
7. Termination. The employment of Employee will terminate as
follows:
(a) Termination on Death. The employment of Employee will
automatically terminate upon the death of Employee.
(b) Termination by Employer for Cause. Employer may terminate
the employment of Employee for "cause" at any time upon written notice to the
Employee. For the purpose of this subparagraph 7(b), the term "cause" shall mean
any act or omission which constitutes a refusal on the part of the Employee to
perform the services required of him under this Agreement, any breach by
Employee of his fiduciary duties to the Employer, abuse of office amounting to
breach of trust, fraud, any conviction of a felony or any crime involving moral
turpitude or any act of theft or dishonesty. Any dispute which shall arise
between the parties hereto regarding whether Employee has committed any act
which could give Employer "cause" to terminate this Agreement shall be settled
by arbitration as provided below. Upon such termination, Employee shall continue
to be bound by the provisions of Sections 8 and 9 hereof and all obligations of
Employer to Employee shall cease other than obligations to pay compensation
and/or provide benefits earned and/or vested as of the date of termination.
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(c) Termination by Employer for Other Than Cause. Employer may
terminate the employment of Employee at any time upon written notice to the
Employee. In such event, Employee shall be paid an amount equal to Employee's
then current monthly base salary multiplied by twelve (12), payable in a lump
sum, and Employee shall continue to be bound by the provisions of Sections 8 and
9 hereof.
(d) Termination by Employee. Employee may terminate this
Agreement upon ninety (90) days written notice to Employer, in which case
Employer shall pay the Employee an amount equal to one months base salary on the
date the termination becomes effective, and Employee shall continue to be bound
by the provisions of Sections 8 and 9 hereof.
(e) Termination for Incapacity. If at any time during the term
of this Agreement, Employee becomes disabled or is unable for any reason
substantially to perform his duties hereunder, Employer may terminate his
employment, and provided he has not otherwise materially breached any of the
provisions of this Agreement, benefits shall be paid to him as delineated in the
Employer disability manual entitled "Your Disability Benefits" attached hereto
as Exhibit "B". In such event, Employee shall continue to be bound by the
provisions of Sections 8 and 9 hereof.
(f) Failure to Renew. If Employer gives Employee notice as
provided in Section 2 of its election not to renew this Agreement, Employee's
employment shall terminate upon the anniversary date. In such event, Employee
shall be paid an amount equal to Employee's then current monthly base salary
multiplied by six (6) in a lump sum, and Employee shall continue to be bound by
the provisions of Sections 8 and 9 hereof.
(g) Change in Control. In the event there is a "Change in
Control" of the ownership of the Employer, and the Employee's employment with
the Employer is terminated as a result of such Change in Control, the Employee
shall be entitled to receive as a severance payment following such termination
an amount equal to Employee's base monthly compensation (not including incentive
compensation) at the time of termination multiplied by twelve (12), payable in a
lump sum. In addition, any earned but unpaid base salary will be paid. Further,
any Stock Options granted to the Employee will be fully vested upon a Change of
Control, whether or not the Employee is terminated, notwithstanding any
previously stated vesting restrictions but subject to expiration or termination
pursuant to the governing stock option plan. Termination shall be deemed to be a
result of a Change in Control if such termination occurs within six months
following the Change in Control or if Employee's job responsibilities are
materially reduced in scope during such six month period.
A "Change in Control" shall be deemed to have occurred if (I)
a tender offer shall be made and consummated for the ownership of more than 50%
of the outstanding voting securities of the Employer, (ii) the Employer shall be
merged or consolidated with another corporation and as a result of such merger
or consolidation less than 50% of the
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outstanding voting securities of the surviving or resulting corporation shall be
owned in the aggregate by the former shareholders of the Employer, as the same
shall have existed immediately prior to such merger or consolidation, (iii) the
Employer shall sell all, or substantially all, of its assets to another
corporation that is not a wholly-owned subsidiary, or (iv) a person, within the
meaning of Section 3(a)(9) or of Section 13 (d)(3) (as in effect on the date
hereof) of the Securities and Exchange Act of 1934 ("Exchange Act"), shall
acquire more than 50% of the outstanding voting securities of the Employer
(whether directly, indirectly, beneficially or of record). For purposes hereof,
ownership of voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-3(d)(1)(I) (as in
effect on the date hereof) pursuant to the Exchange Act.
(h) Supersedes Prior Benefits. The provisions of this Section
7 concerning payments to Employee upon termination of employment shall supersede
and replace all other severance and termination arrangements in effect prior to
or after the date hereof, including without limitation, the provisions of this
Agreement shall supersede the Employee Manual where inconsistent. Whenever
Section 7 of this Agreement requires or permits the payment of an amount of
money calculated by reference to the Employee's base salary, the payment of such
amount to Employee shall be deemed a severance and/or termination payment and
shall not be deemed to extend the period of employment during the time which
such payments are made or to require the provision of Employer of any benefits
to Employee during such period of time, other than those benefits which may be
required by applicable law to be provided.
8. Confidential Information. In consideration of the covenants of
Employer contained herein, Employee agrees as follows:
(a) Employee hereby agrees and acknowledges that he has and
has had access to or is aware of certain confidential, restricted and/or
proprietary information concerning operation by the Employer and its affiliates
of their businesses (collectively the "Business"). Employee hereby undertakes
and agrees that he shall have a duty to Employer and its affiliates to protect
such information from use or disclosure.
(b) For the purposes of this Section 8, the following
definitions shall apply:
(i) "Trade Secret" as related to the Business, shall
mean any specialized technical information or data relating to (I)
management of clinical trials, biostatistical services, or product
registration services; (ii) marketing strategy or plans of Employer or
its affiliates; (iii) proprietary computer software; and (iv) terms of
contracts and specific contract proposals with existing and potential
suppliers, employees and customers of Employer or its affiliates, which
are of value and not generally known to the competitors of Employer and
which are or were treated as confidential by Employer or its
affiliates.
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(ii) "Confidential Information," as related to the
Business, shall mean any data or information, other than Trade Secrets,
which is material to Employer or its affiliates and not generally known
by the public and which are, or were treated as, confidential by
Employer or its affiliates. Confidential Information shall include,
without limitation, any information pertaining to the Business
Opportunities (as hereinafter defined) of Employer or its affiliates,
the details of this Agreement, and the business plans, financial
statements and projections of Employer or its affiliates.
(iii) "Business Opportunity" shall mean any
information or plans of Employer or its affiliates concerning the
purchase of or investment in any contract research organization
operations, or the availability of any such operations for purchase or
investment by Employer or its affiliates, together with all related
information, concerning the specifics of any contemplated purchase or
investment (including price, terms and the identity of such
operations), regardless of whether Employer or its affiliates have
entered into any agreement, made any commitment, or issued any bid or
offer to such operations.
(c) Employee shall not, without the prior written consent of
Employer, for so long as the information or data remain Trade Secrets, use or
disclose, or negligently permit any unauthorized person who is not an employee
of Employer to use, disclose, or gain access to, any Trade Secrets of Employer
or its affiliates or of any other person or entity making Trade Secrets
available for the use of Employer or its affiliates.
(d) Employee shall not, without the prior written consent of
Employer, use or disclose, or intentionally permit any unauthorized person who
is not employed by Employer or its affiliates to use, disclose, or gain access
to, any Confidential Information to which Employee obtained access by virtue of
his relationship with Employer or its affiliates.
(e) Employee hereby agrees to deliver to, or maintain on
behalf of, Employer and its affiliates all memoranda, notes, records, drawings,
manuals or other documents, including all copies of such materials, containing
Trade Secrets or Confidential Information, whether made or compiled by Employee
or furnished to him from any source by virtue of his relationship with Employer
or its affiliates.
9. Non-Compete, Etc. In consideration of the covenants of the Employer
contained herein, and provided he receives all payments and benefits due to him
upon termination, the Employee agrees as follows:
(a) During the Employee's employment with Employer, and for a
period of six (6) months immediately following the termination of his employment
with Employer, Employee shall not, except as an employee of Employer, either
directly or indirectly through any partnership, corporation or business entity
in which he has an ownership
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interest or serves as an officer, employee or independent contractor of or as a
consultant for, solicit, divert or take away the business of, or attempt to
solicit, divert or take way the business of, any of the customers of Employer
with whom Employee had significant contact at any time within the last two years
of the term of his employment with Employer or any prospective customers of
Employer that the Employee solicited on behalf of Employer within such two-year
period.
(b) During the term of his employment with Employer, and for a
period of six (6) months immediately following the termination of his employment
with Employer, Employee shall not solicit, entice or persuade any other
employees or agents of Employer to leave the services of Employer for any
reason.
(c) During the term of his employment with Employer and for a
period of six (6) months immediately following the termination of his employment
with Employer: (I) Employee shall not make any statements or perform any acts
intended to advance the interest of any existing or prospective competitors of
Employer in any way that will injure the interest of Employer; and (ii) without
the prior express written approval by the Board, Employee shall not directly or
indirectly own or hold any proprietary interest in or be employed by or receive
compensation from any party engaged in the same or any similar business in the
same geographic areas Employer does business, both within and without the United
States. For the purposes of this Agreement, proprietary interest means legal or
equitable ownership, whether through stock holdings or otherwise, of a debt or
equity interest (including options, warrants, rights, notes and convertible
interests) in a business firm or entity, or ownership of more than 5% of any
class of equity interest in a publicly-held company. The Employee acknowledges
that the covenants contained in this Section 9 herein are reasonable as to
geographic and temporal scope. In the event a court considering this Agreement
concludes that such provisions are not enforceable due to their duration or
scope, the parties hereto expressly consent to the revision of such provisions
by such court to a duration or scope which shall be enforceable.
(d) Employee acknowledges and agrees that the covenants
contained in Section 9 of this Agreement shall survive any termination of
employment, with or without cause, at the instigation or upon the initiative of
either party. Employee further acknowledges and agrees that the ascertainment of
damages in the event of Employee's breach of any covenant contained in this
Section 9 of this Agreement would be difficult, if at all possible. Employee
therefore acknowledges and agrees that Employer (in addition to and without
limiting any other remedy or right which it might have) shall have the right,
upon submitting whatever pleadings the law may require, and posting any
necessary bond, to have a court of competent jurisdiction enjoin Employee from
committing any such breach. Employee hereby waives the defense in such a case
that Employer has, or will then have, an adequate remedy at law.
(e) The Employee will, with reasonable notice during or
after the Period of Employment, furnish information as may be in his possession
and cooperate with
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Employer as may reasonably be requested in connection with any claims or legal
actions in which Employer is may become a party other than actions of Employee
against Employer.
10. Assignments; Successors and Assigns. The rights and obligations of
Employee hereunder are not assignable or delegable, and any prohibited
assignment or delegation will be null and void. The Employer may assign and
delegate this Agreement. The provisions hereof shall inure to the benefit of and
be binding upon the permitted successors and assigns of the parties hereto.
11. Governing Law. This Agreement shall be interpreted under, subject
to and governed by the laws of the State of Delaware and all questions
concerning its validity, construction, and administration shall be determined in
accordance thereby.
12. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original but all of
which will together constitute one and same instrument.
13. Invalidity. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
14. Exclusiveness. This Agreement and the agreements referred to
herein constitute the entire understanding and agreement between the parties
with respect to the employment by Employer of Employee and supersedes any and
all other agreements, oral or written, between the parties.
15. Modification. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
16. Arbitration. Any dispute among the parties hereto shall be settled
by final and binding arbitration in Nashville, Tennessee, in accordance with the
then effective rules of the American Arbitration Association, and judgment upon
the award rendered may be entered in any court having jurisdiction thereof. In
any action or proceeding brought to enforce any provision of this Agreement, the
prevailing party shall be entitled to recover its costs from the opposing party,
including reasonable legal fees and expenses.
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17. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(a) If to the Employer, at:
One Burton Hills Blvd., Suite 210
Nashville, Tennessee 37215-6104
Attn: William C. O'Neil, Jr.
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mark Manner
or at such other address as may have been furnished to the Employee by the
Employer in writing; or
(b) If to Employee, at:
------------------
------------------
------------------
with a copy to:
---------------
---------------
---------------
or such other address as may have been furnished to Employer by Employee in
writing.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EMPLOYER"
CLINTRIALS RESEARCH, INC.
By:__________________________________
Title:_______________________________
"EMPLOYEE"
_____________________________________
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EXHIBIT 10.1(B)
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 31st day of July, 1996,
BY AND BETWEEN: MICHAEL F. ANKCORN
(hereinafter referred to as the "Employee")
AND: CLINTRIALS BIORESEARCH LTD.
(hereinafter referred to as the "Employer")
WHEREAS the Employee is a key executive of the Employer and has made
valuable contributions to the productivity and profitability of the Employer;
AND WHEREAS the Employer considers it essential and in the best
interests of the Employer that the Employee be encouraged to remain with the
Employer and to continue to devote his full attention to the Employer's
business;
AND WHEREAS the Employer and the Employee desire to enter into this
Agreement setting forth the terms and conditions of employment of the Employee
with the Employer and the benefits attaching thereto.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
INTERPRETATION
1.1 Definitions. Where used herein or in any amendments hereto or in any
communication required or permitted to be given hereunder, the following terms
shall have the following meanings, respectively, unless the context otherwise
requires:
(a) "Activity" shall mean any act, undertaking or decision whatsoever taken,
effectuated or made in respect of, or relating to, the Business; and
"Activities" shall mean the aggregate thereof.
(b) "Agreement" shall mean this Employment Agreement and all instruments
supplemental hereto or in amendment or confirmations hereof; "herein",
"hereof", "hereto", "hereunder" and similar expressions mean and refer to
this Agreement and not to any particular Article, Section, Subsection or
other subdivision; "Article", "Section", "Subsection" or other subdivision
of this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement.
<PAGE> 2
(c) "Bonus" shall mean the amounts payable to the Employee pursuant to any
bonus or incentive compensation plan referred to at Section 8.1.
(d) "Business" shall mean, in relation to the Employer, the business now and
hereafter conducted by the Employer up to the date of termination of this
Agreement, as well as the business that the Employer is in the process of
developing at the time of termination of this Agreement. Without limiting
the generality of the foregoing, the business at the time of signature of
this Agreement can generally be described as the business of designing and
conducting research programs for pharmaceuticals, bioengineered products,
chemical compounds, biomaterials and other similar substances.
(e) "Cause" shall mean any event or circumstance which, pursuant to applicable
law, constitutes cause for dismissal without either notice or payment in
lieu of notice.
(f) "Change of Control" shall mean:
the sale by ClinTrials Research, Inc. ("CTR") of shares and/or other
securities of the Employer to which are attached votes which may be cast to
elect directors of the Employer ("Voting Shares") such that the remaining
Voting Shares held by CTR are, in the aggregate, equal to or fewer than
fifty percent (50%) of all Voting Shares of the Employer, as a result of
which a Person, or a group of Persons, or Persons acting in concert, or
Persons associated or affiliated with any such Person or group withing the
meaning of the Canada Business Corporation Act, other than CTR would be in
a position to exercise effective control over the Employer.
(g) "Confidential Information" shall mean all information (including, without
limiting the generality of the foregoing, all information related to
processes, formulae, research and development, finance, marketing, and all
names of, or lists of, customers or sponsors) howsoever received by the
Employee from, through or relating to the Employer, and in whatever form
(whether oral, written, machine readable or otherwise), which pertains to
the Employer; provided, however, that the term "Confidential Information"
shall not include information which:
(i) is in the public domain without any fault or responsibility on the
Employee's part; or
(ii) is properly within the legitimate possession of the Employee prior to
its disclosure and without any obligation of confidentiality attaching
thereto; or
(iii) after disclosure, is lawfully received by the Employee from another
Person who is lawfully in possession of such Confidential Information
and such other Person was not restricted from disclosing the said
information to the Employer; or
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(iv) is independently developed by the Employee through Persons who have
not had access to, or knowledge of, the Confidential Information; or
(v) is approved by the Employer for disclosure prior to its actual
disclosure.
(h) "Embodiments" shall include, without limitation, all designs, drawings,
sketches, blueprints, photographs, films, models, charts and maps.
(i) "Governmental Body" shall mean:
(i) any domestic or foreign national, federal, provincial, state,
municipal or other government body;
(ii) any subdivision, ministry, department, secretariat, bureau,
agency, commission, board, instrumentality or authority of any of
the foregoing governments or bodies;
(iii) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the
account of any of the foregoing governments or bodies; or
(iv) any domestic or foreign judicial, quasi-judicial, arbitration or
administrative court, grand jury, commission, board or panel.
(j) "Incapacity" shall mean any medical condition whatsoever which leads to the
Employee's absence from the Employee's job function for a continuous period
of six (6) months, without the Employee being able to resume functions on a
full time basis at the expiration of such period, and any unsuccessful
attempts to return to work for periods under fifteen (15) days shall not
interrupt the calculation of the said six (6) months period; or
a condition of total and continuing disability which renders the Employee
incapable of performing his essential job duties and functions.
(k) "Involuntary Termination" shall mean:
(i) any actual or express termination by the Employer of the Employee's
employment following any Change of Control which is not due to the
death of the Employee, the Employee's voluntary resignation or
Incapacity;
(ii) any requirement by the Employer that the Employee's position and
principal office be based and located more than twenty (20) miles
outside the boundaries of the City of Montreal;
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(iii) any change in the Employee's title, reporting relationship,
responsibilities or authority as in effect immediately prior to any
Change of Control which is made within twenty-four (24) months of such
Change of Control and which adversely affects to a material degree his
role in the management of the Employer;
(iv) any reduction in the Employee's salary paid to him by the Employer as
in effect immediately prior to any Change of Control or, if such
salary has been subsequently increased at any time or from time to
time, any reduction in such increased salary;
(v) any termination or reduction in value of the Employee's employee
benefit programs, including, but not limited to, any pension plan,
stock option plan, investment plan, savings plan, incentive
compensation plan or life insurance, medical plans or disability plans
provided by the Employer to the Employee and in which the Employee is
participating or under which the Employer is covered, all as in effect
immediately prior to any Change of Control; and
(vi) any failure or refusal of the Employer to renew the Termination
Benefits under this Agreement as outlined in Section 19.2 after any
Change of Control shall have occurred.
(l) "PERMITTED USES" shall mean the analysis and utilization of Confidential
Information by the Employee in relation to any Activity for purposes of
fulfilling and executing the Employee's duties, responsibilities and
functions hereunder.
(m) "PERSON" shall mean any individual or other entity possessed of judicial
personality, including, without limitation, a corporation, company,
cooperative, partnership, trust, unincorporated association, Affiliate or
Governmental Body; and pronouns when they refer to a Person shall have a
similarly extended meaning.
(n) "TERMINATION BENEFITS" shall mean the rights and benefits in favour of the
Employee provided for under Article 17 of this Agreement as well as the
obligations of the Employer under the said Article.
(o) "TERRITORY" shall mean North America, as well as any other country in which
the Employer may carry on business at any time during the three (3) year
period following the date of termination of this Agreement.
ARTICLE 2.
TERM
2.1 Term. This Agreement is hereby concluded for a term of five (5) years,
effective as of the date hereof.
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ARTICLE 3.
DUTIES AND RESPONSIBILITIES
3.1 Duties and Responsibilities. As Chairman of the Board, President and Chief
Executive Officer of the Employer, the Employee's duties and responsibilities
shall include, above and beyond those inherent to the Employee's office and
normally pertaining to it, those compatible with the Employee's position and
which the Employer or its Board of Directors or the Board of Directors of
ClinTrials Research, Inc. may delegate to the Employee from time to time.
3.2 Additional Duties. The Employee hereby agrees to execute such
additional tasks compatible with his position as may be assigned by the
Employer from time to time, the whole according to the directives of the
Employer.
ARTICLE 4.
LOYALTY
4.1 Loyalty. The Employee shall devote the whole of his working time, attention,
skills and competence to the Employer and to the Business. The Employee shall
act with diligence, loyalty and honesty and shall make all necessary efforts to
promote the Employer's legitimate interests for the term of this Agreement.
ARTICLE 5.
CONFIDENTIALITY
5.1 Obligation of Confidentiality. The Employee hereby agrees not to, use,
divulge, diffuse, sell, transfer, give, circulate, or otherwise distribute to
any Person, or otherwise make public, any Confidential Information during the
term of this Agreement and for a period of thirty -six (36) months following the
termination of this Agreement.
5.2 Trade Secrets. Notwithstanding any provisions of this Agreement to the
contrary, the Employee shall not, at any time while an employee of the Employer
or at any time thereafter, use, divulge, diffuse, sell, transfer, give,
circulate or otherwise distribute to any Person Confidential Information which
constitutes a trade secret of the Employer.
5.3 Exception. Notwithstanding any provision hereof to the contrary, the
Employee shall have the right to use Confidential Information in relation to
Permitted Uses; in which event, the Employee shall, at all times, take all
necessary, useful or desirable measures in order to prevent the disclosure or
non-authorized use of such Confidential Information.
5.4 No Unauthorized Reproductions. Except when authorized in accordance with the
Permitted Uses, under no circumstances shall the Employee reproduce any
Confidential Information without
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the Employer's prior written consent. All reproductions of Confidential
Information shall be governed by this Agreement and shall be treated as
Confidential Information hereunder.
5.5 Return of Confidential Information. All Confidential Information and all
Embodiments thereof (including any reproductions) shall remain the sole property
of the Employer and shall be returned to the Employer immediately upon request
to this effect or immediately after the termination of this Agreement.
5.6 Exceptions. Notwithstanding any provision hereof to the contrary, nothing in
this Agreement shall prevent the disclosure of Confidential Information if such
disclosure must be made in response to the formal request of a Governmental Body
or is otherwise required under any applicable law; it being understood, however,
that to the extent possible, the Employee shall inform the Employer of such a
request for disclosure in order that the latter may, at the appropriate time,
decide whether or not the contest the said disclosure. The Employee shall fully
cooperate with the Employer in any efforts to obtain any type of protective
order or any other remedy or recourse which the Employer may seek to obtain in
this regard.
ARTICLE 6.
OBLIGATION OF NON-COMPETITION AND NON-SOLICITATION
6.1 Obligation of Non-Competition. The Employee shall not, during the term of
this Agreement and, on condition that the Employee receives payment of the
Termination Benefits as a result of an Involuntary Termination, for a period of
thirty-six (36) months after the date of termination of the Employee's
employment, on the Employee's own behalf or on behalf of any Person, whether
directly or indirectly, in any capacity whatsoever, whether alone, through or in
connection with any Person, carry on or be engaged in or have any financial or
other interest in or be otherwise commercially involved in any endeavor,
activity or business in all or part of the Territory which is in competition, in
whole or in part, with the Business.
6.2 Exception. The Employee shall not be in default under this Article by virtue
of the Employee holding, strictly for portfolio purposes and as a passive
investor, no more than five percent (5%) of the issued and outstanding shares of
any body corporate which is listed on a recognized stock exchange, the business
of which body corporate is in competition, in whole or in part, with the
Business.
6.3 Obligations of Non-Solicitation. The Employee shall not, during the term of
this Agreement and, on condition that the Employee receives payment of the
Termination Benefits as a result of an Involuntary Termination, for a period of
thirty-six (36) months after the date of termination of the Employee's
employment, solicit the employment or other services of any employee of the
Employer.
ARTICLE 7.
SALARY
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7.1 Salary. The Employee shall receive an annual gross base salary of two
hundred and twenty thousand dollars Canadian ($220,000) (the "Base Salary"),
less the appropriate legal deductions, to be paid in twenty-six (26) bi-weekly
and equal instalments. Such salary shall be reviewed annually by the
Compensation Committee of the Employer in accordance with its internal policies
in effect from time to time but shall not, at any time, be reduced to less than
two hundred and twenty thousand dollars Canadian ($220,000).
ARTICLE 8.
BONUS AND INCENTIVE PLANS
8.1 Bonus and Incentive Plans. The Employee shall be eligible to participate in
all of the Employer's bonus and incentive compensation plans in force and
offered to senior executives of the Employer at the time, which plans may be
modified by the Employer at its sole discretion from time to time.
ARTICLE 9.
BENEFITS AND VACATION
9.1 Benefits and Vacation. The Employee shall have the right to participate in
all benefit programs and/or plans granted to senior executives of the Employer,
the whole in accordance with the actual programs or plans that the Employer may
institute from time to time or as otherwise required under any applicable law.
The Employee shall be granted vacation in accordance with the Employer's policy
as amended from time to time, which at the date of signing of the present
Agreement is the following: four (4) weeks of vacation after fifteen (15) years
of uninterrupted service and five (5) weeks of vacation after twenty (20) years
of uninterrupted service.
ARTICLE 10.
EXPENSES
10.1 Expenses. The Employer hereby agrees to reimburse to the Employee all
expenses and fees reasonably incurred by the Employee in the exercise of the
Activities upon presentation of appropriate receipts or other evidence thereof.
ARTICLE 11.
AUTOMOBILE
11.1 Automobile. The Employee shall be entitled during the term of the Agreement
to the use of one (1) automobile vehicle fully expensed by the Employer and
commensurate to the Employee's position.
ARTICLE 12.
CLUB MEMBERSHIPS
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12.1 Club Memberships. The Employee shall be entitled to membership in the
Forest and Stream Club, the West Island Health Club and in any other club(s) or
association(s) selected by the Employee and acceptable to the Employer,
whereupon all membership fees and dues shall be paid by the Employer and the
ownership of which shall be the property of the Employee.
ARTICLE 13.
STOCK OPTIONS
13.1 Stock Options. The Employee shall be eligible to participate in and benefit
from any stock option and/or stock purchase plan that is offered or adopted by
ClinTrials Research Inc. for the benefit of its senior executives and key
employees, the whole in accordance with the terms and conditions of such a plan,
as approved and modified from time to time by the Board of Directors of
ClinTrials Research Inc.
ARTICLE 14.
PENSION BENEFITS
14.1 Pension Benefits. The Employee shall continue to participate in and benefit
from the existing Pension Plan for Designated Employees of Employer, in
accordance with the terms and conditions of the said plan, as approved and
modified from time to time by the Board of Directors of the Employers. This
Agreement does not affect Employee's pension rights under existing pension
agreements.
ARTICLE 15.
TERMINATION OF THE AGREEMENT
15.1 Termination of the Agreement. The parties hereto acknowledge and expressly
agree that the present Agreement may only be terminated in any of the following
eventualities:
a) at any time, for fraud or gross misconduct, on simple notice from the
Employer to the Employee, the whole without other notice or any pay in
lieu of notice or any indemnity whatsoever, except as may otherwise be
required by applicable law; or
(b) at any time for any reason other than fraud or gross misconduct, by
remitting to the Employee the amounts and benefits referred to in
section 17.2, applied mutatis mutandis, whether or not there is a Change
of Control; or
(c) at any time in accordance with Article 17; or
(d) upon the death or the Incapacity of the Employee.
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<PAGE> 9
ARTICLE 16.
OBLIGATION TO REMAIN EMPLOYED
16.1 Employee to Remain Employed. If a Person takes any steps to effect a Change
of Control, the Employee shall not voluntarily leave his employment with the
Employer, other than by way of normal retirement, and shall continue to perform
his duties related to his employment until such person has abandoned or
terminated his or its efforts to effect a Change of Control or until after a
Change of Control has been effected, except as may be permitted by other
provisions of this Agreement.
ARTICLE 17.
TERMINATION BENEFITS
17.1 Conditions of Payment. The benefits outlined in Section 17.2 shall become
due and payable if:
(a) there has been a Change of Control of the Employer; and
(b) the employment of the Employee with the Employer has been terminated by an
Involuntary Termination;
but, subject to Section 17.7 hereof, no such benefits shall be payable in
relation to any particular Change of Control if within twenty-four (24) months
next following that particular Change of Control, the employment of the Employee
with the Employer has not been terminated by an Involuntary Termination.
17.2 Termination Benefits. If the events outlined in Section 17.1 have occurred,
the Employer shall:
(a) pay to the Employee on the same basis as in effect immediately prior to
such Involuntary Termination for a period of three (3) years following such
Involuntary Termination an amount equivalent to the Employee's salary and
Bonus at the rate in effect immediately prior to such Involuntary
Termination or on the effective date of the Change of Control, whichever is
higher;
(b) pay to the Employee within sixty (60) days following the end of the fiscal
year of the Employer in which the Involuntary Termination occurs, a lump
sum equivalent to the amount, if any, of such Bonus which would otherwise
have been payable to the Employee had he remained employed to the end of
such fiscal year, calculated on the basis that the number of months,
including the month in which such Involuntary Termination occurs, bears to
the total number of months for which the Bonus would otherwise have been
paid during such fiscal year and calculated in accordance with the terms
for Bonus payments as in effect
9
<PAGE> 10
immediately prior to such Involuntary Termination or on the effective date
of the Change of Control, whichever would yield a higher Bonus payment to
the Employee;
(c) pay to the Employee the amount of any unpaid salary earned by the Employee
up to and including the date of such Involuntary Termination;
(d) pay to the Employee any unpaid vacation pay earned by him up to and
including the date of such Involuntary Termination;
(e) continue to make the employer contributions necessary to maintain the
Employee's coverage pursuant to all benefit plans provided to the Employee
by the Employer immediately prior to such Involuntary Termination or on the
effective date of the Change of Control, whichever is more beneficial to
the Employee, for a period of three (3) years following such Involuntary
Termination and shall deduct from any payments payable to the Employee
pursuant to Subsection 17.2(a) hereof the amount of any employee
contributions necessary to maintain such coverage for the above-noted
period based on any such contributions which were in effect immediately
prior to such Involuntary Termination or on the effective date of the
Change of Control, whichever are lower;
(f) pay to the Employee an amount equivalent to the leasing cost of any car
provided by the Employer to the Employee and any operating expenses of such
car paid for by the Employer, all as in effect immediately prior to such
Involuntary Termination or on the effective date of the Change of Control,
whichever is more beneficial to the Employee, for a period of three (3)
years following such Involuntary Termination;
(g) pay to the Employee for a period of three (3) years following such
Involuntary Termination the amount of any annual club dues and club
expenses paid for by the Employer on behalf of the Employee immediately
prior to such Involuntary Termination or on the effective date of the
Change of Control, whichever is more beneficial to the Employee;
(h) in respect of all stock options granted to Employee under any stock option
plan in effect immediately prior to such Involuntary Termination whether or
not such options are currently exercisable all options shall vest, and
remain exercisable for a six (6) month period following Termination.
(i) credit the Employee with service for the purposes of any pension plan or
pension arrangements in which the Employee participated or which pertained
to the Employee immediately prior to such Involuntary Termination or which
were in effect on the effective date of the Change of Control, whichever
were more beneficial to the Employee, for the period of three (3) years
following such Involuntary Termination and include in calculating the
Employee's earnings for the purpose of determining any benefits payable to
the
10
<PAGE> 11
Employee pursuant to such plan or arrangements all amounts (other than any
Bonus) payable to the Employee pursuant to Subsection 17.2(a);
(j) until the Employee accepts a position of substantially similar character
and compensation in the industry, his Retirement Compensation Arrangement
(or supplementary pension plan) with the Employer will be properly funded
annually, for past services, on the basis of the information set forth in
the letter of Towers Perrin dated November 16, 1990, a copy of which is
annexed hereto as Appendix "A";
(k) until the Employee accepts a position of substantially similar character
and compensation in the industry, his pension plan will continue to be
available and fully paid-up, on the basis of the information set forth in
the letter of Towers Perrin dated November 16, 1990, copy attached, until
the Employee attains the age of sixty (60), as though the Employee's
employment with the Employer was uninterrupted until that time;
(l) proper arrangements satisfactory to the parties will be made at the time of
termination of the Employee's employment by an Involuntary Termination so
as to secure the payment of all sums due to him; and
(m) should the Employee accept alternative work outside Quebec, Employee shall
use his best efforts to cause his new employer to pay moving expenses, and
failing that, then the Employee will also be reimbursed for unreimbursed
moving expenses up to twenty thousand dollars ($20,000).
17.3 SUCCESSOR. The Employer shall use its best efforts to require any
successor, whether direct or indirect, to all or substantially all of the
business and/or assets of the Employer to expressly agree to assume and to
perform this Agreement in the same manner that the Employer would have been
required to perform it if no such succession had occurred. If the Employer fails
to obtain such agreement prior to the effective date of such succession, such
failure shall be deemed to be an Involuntary Termination of the Employee's
employment by the Employer and such termination shall be deemed to have occurred
on the said effective date.
17.4 MITIGATION. Following an Involuntary Termination of the Employee's
employment with the Employer after a Change of Control the Employee shall use
all reasonable efforts to mitigate any damages resulting from such Involuntary
Termination provided, however, that the Employee shall not be required to accept
a position of substantially different character than the position held by him
with the Employer immediately prior to such Involuntary Termination or on the
effective date of the Change of Control, whichever was a more responsible
position, nor shall he be required to accept a position in a location which is
unreasonable, given the personal circumstances of the Employee at the time any
such position is offered to him.
11
<PAGE> 12
17.5 LUMP SUM PAYMENT. Notwithstanding any other provisions in this Agreement,
if the Employee successfully mitigates any damages as outlined in Section 17.4
within the period of three (3) years following such Involuntary Termination:
(a) the Employer's obligations pursuant to Subsections 17.2(a), (e), (f) and
(g) shall thereupon cease;
(b) the Employee shall immediately notify the Employer of such mitigation; and
(c) following receipt of such notice, the Employer shall pay to the Employee a
lump sum equivalent to the balance of the payment which it would otherwise
have made to the Employee pursuant to Subsection 17.2(a) but for such
mitigation.
17.6 FAIR AND REASONABLE. The parties confirm that the provisions of this
Article 17 are reasonable and that the total benefits payable as outlined herein
are reasonable estimates of the damages which will be suffered by the Employee
in the event of an Involuntary Termination following a Change of Control.
17.7 OTHER RIGHTS NOT AFFECTED. The lapse of rights under Section 17.1 with
respect to any particular Change of Control shall not limit the entitlement of
the Employee to benefits becoming due and payable with in twenty-four (24)
months next following any subsequently Change of Control.
ARTICLE 18.
LIMITATION
18.1 LIMITATION. The Employee hereby recognizes and accepts that the Employer
shall not, under any circumstances, be responsible of any additional amount,
indemnity in lieu of notice, severance pay or other damages arising from the
termination of this Agreement, above and beyond the amounts specifically
provided for herein.
ARTICLE 19.
TERM AND RENEWAL OF TERMINATION BENEFITS
19.1 TERM OF TERMINATION BENEFITS. Notwithstanding anything to the contrary
contained in this Agreement, the Termination Benefits under this Agreement shall
extend for an initial period of five (5) years, commencing on the date hereof.
19.2 OFFER TO RENEW BY EMPLOYER. The Employer may offer to renew the Termination
Benefits under this Agreement for a period of Five (5) years and so on for
successive periods of five (5) years
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<PAGE> 13
each (a "Renewal Period") by giving notice in writing to the Employee by not
later than the 31st day of July, 2001 or the last day of any Renewal Period, as
applicable.
19.3 NON-RENEWAL. If the Employer offers to renew the Termination Benefits under
this Agreement and the Employee does not accept such offer, then the Termination
Benefits under this Agreement shall terminate on the 31st day of July, 2001 or
on the last day of the applicable Renewal Period, as the case may be. In the
event Employer does not intend to renew this Agreement or the Termination
Benefits at the end of the initial period of five (5) years, the Employer shall
give notice to Employee of its present intention not to so renew on or before
six months from the fifth anniversary hereof. In the event that Employer does
not renew this Agreement beyond the initial term of five years, Employer shall
pay Employee upon termination of this Agreement a lump sum of money equal to
Employee's most recent annual base salary as a severance payment.
ARTICLE 20.
GENERAL
20.1 NUMBER. In this Agreement, words importing the singular number only shall
include the plural and vice versa, and words importing the masculine gender
shall include the feminine and neuter genders and vice versa, and words
importing persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations.
20.2 BENEFITS OF AGREEMENT. This Agreement shall enure to the benefit of and be
binding upon the heirs, executors, administrators and legal personal
representatives of the Employee as well as the successors and permitted assigns
of the Employers.
20.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and cancels and supersedes
any prior understandings and agreements between the parties hereto with respect
thereto. There are no representations, warranties, forms, conditions,
undertakings or collateral agreements, express, implied or statutory between the
parties with respect to the subject matter dealt with herein other than as
expressly set forth in this Agreement.
20.4 AMENDMENTS AND WAIVERS. No amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by both of the parties
hereto. No waiver of any breach of any provision of this Agreement shall be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided in the written waiver, shall be
limited to the specific breach waived.
20.5 SEVERABILITY. If any provision of this Agreement is determined to be
invalid or unenforceable, in whole or in part, such invalidity or
uneforceability shall attach only to such provision or part thereof and the
remaining part of such provision and all other provisions hereof shall continue
in full force and effect.
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<PAGE> 14
20.6 NOTICES. Any notice consent, authorization, direction or other
communication required or permitted to be given hereunder shall be in writing
and shall be delivered either by personal delivery or by telex, telecopier or
similar telecommunications device and addressed as follows:
(a) in the case of the Employee, to:
3 Kirkland Avenue
Beaconsfield, Quebec H9W 5L1 Canada
Attention: Michael Ankcorn
Fax: (514) 630-8239
(b) in the case of the Employer, to:
ClinTrials BioResearch Ltd.
Care of:
ClinTrials Research, Inc.
One Burton Hills Blvd., Suite 210
Nashville, TN 37215
Attention: Chief Executive Officer
Copy: Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, Tennessee 37238
Attention: Mark Manner
Any notice, consent, authorization, direction or other communication delivered
as aforesaid shall be deemed to have been effectively delivered and received, if
sent by telex, telecopier or similar telecommunications device, on the calendar
day next following receipt of such transmission or, if delivered, to have been
delivered and received on the date of such delivery, provided, however, that if
such date is not a business day, then it shall be deemed to have been delivered
and received on the business day next following such delivery. Either Party may
change its address for service by notice delivered as aforesaid.
20.7 Governing Laws. This Agreement shall be governed by and construed in
accordance withe the laws of the Province of Quebec.
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<PAGE> 15
20.8 ARBITRATION. Any dispute, controversy or claim arising out of, or relating
to this Agreement, or the breach, interpretation, termination or invalidity
thereof (hereinafter "Dispute"), shall be definitely settled in accordance with
the provisions on arbitration in the Code of Civil Procedure of Quebec and the
Civil Code of Quebec by a tribunal of three (3) arbitrators. Each party shall
appoint one arbitrator.
(a) The party wishing to initiate arbitration (hereinafter "Claimant") shall
send a notice of arbitration (hereinafter "Notice") to the other party
(hereinafter "Respondent"), specifying the object of the Dispute and naming
the Arbitrator of its choice..
(b) The Respondent will then have fifteen (15) calendar days to notify the
Claimant of its choice of arbitrator.
(c) The two arbitrators thus appointed by the parties shall together, within
thirty (30) days of the receipt by the Claimant of the Respondent's notice
of its choice of arbitrator, designate the third (3rd) arbitrator who shall
preside over the Arbitration Tribunal.
(d) The presiding arbitrator shall be a member of the Quebec Bar with at least
ten (10) years experience in the filed of labor relations and employment
law.
(e) If the two arbitrators appointed by the parties are unable to agree on the
selection of the third arbitrator within thirty (30) days of the receipt by
the Claimant of the Respondent's Notice of its choice of arbitrator, the
third arbitrator shall be designated by the highest ranking officer of the
Quebec National and International Commercial Arbitration Centre upon a
motion of either party hereto.
(f) The seat of arbitration shall be Montreal, Canada and the language of
arbitration shall be English. The arbitral tribunal may, without changing
the seat of arbitration, hold hearings elsewhere for reasons of
convenience, but only with the agreement of the parties.
20.9 COPY OF AGREEMENT. The Employee hereby acknowledges receipt of a copy of
this Agreement duly signed by the Employer
20.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which when so executed shall be deemed an original, and such
counterparts together shall constitute one and the same instrument.
20.11 LANGUAGE. The parties hereto acknowledge that they have requested and are
satisfied that this Agreement and all related documents be drawn up in the
English language. Les parties aux presentes reconnaisset avoir requis que la
presente enrente et les documents qui y sont relarifs soient rediges en langue
anglaise.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first hereinabove mentioned.
---------------------------------
MICHAEL F. ANKCORN
CLINTRIALS BIORESEARCH LTD.
Per:
----------------------------
Name: William C. O'Neil, Jr.
16
<PAGE> 1
EXHIBIT 10.14
LEASE
THIS LEASE is made this 30th day of September, 1996, between
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP ("Landlord"), a North Carolina Limited
Partnership, the address of which is c/o Highwoods Properties, Inc., 3100
Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and CLINTRIALS
RESEARCH, INC. ("Tenant"), a Tennessee corporation the address of which before
the Commencement Date, as hereinafter defined, is Suite 210, One Burton Hills
Boulevard, Nashville, Tennessee 37215 and thereafter the Premises, as
hereinafter defined.
I. GENERAL.
1.1 CONSIDERATION. Landlord enters into this Lease in consideration of
the payment by Tenant of the rents herein reserved and the keeping, observance
and performance by Tenant of the covenants and agreements herein contained.
1.2 EXHIBITS TO LEASE. The Exhibits listed below shall be attached to
this Lease and be deemed incorporated in this Lease by this reference. In the
event of any inconsistency between such Exhibits and the terms and provisions of
this Lease, the terms and provisions of the Exhibits shall control. The Exhibits
to this Lease are:
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Demised Premises
Exhibit A-1 Land
Exhibit B Building and Site Plan
Exhibit C Plans and Specifications - Tenant Improvements
Exhibit D Rent Schedule
Exhibit E Signage Criteria
Exhibit F Environmental Compliance
Exhibit G Base Building Plans and Specifications
Exhibit H Options to Extend
Exhibit I Attornment, Subordination and Non-Disturbance Agreement
Exhibit J Estoppel Certificate
Exhibit K Restrictive Covenants
Exhibit L Commencement Agreement
Exhibit M Additional Rent/Operating Expense
Exhibit N Janitorial Schedule
</TABLE>
1.3 CONDITIONS PRECEDENT TO PARTIES' EFFECTIVE EXECUTION OF LEASE. The
effective execution of this Lease is expressly conditioned upon Landlord,
within forty-five (45) days of the date first above written (i) purchasing the
Land (as hereinafter defined) on terms and conditions reasonably satisfactory
to Landlord and (ii) conducting the necessary due diligence to determine in
good faith that it shall be able to obtain all approvals required by the
Restrictive Covenants, set forth in Exhibit K, and the issuance of the
necessary permits for the construction of the Building (as hereinafter defined)
by the appropriate governmental authorities. Landlord will use all commercially
reasonable efforts to satisfy these conditions as soon as possible after the
date first above written. Within said forty-five (45) day period, Landlord
shall deliver to Tenant, in writing, reasonably sufficient evidence
<PAGE> 2
that Landlord has conducted such due diligence and that Landlord's
determination is reasonable. Upon the date of Landlord's delivery of such
written evidence, the parties' effective execution of this Lease shall be
satisfied.
1.4 CONSTRUCTION COMMENCEMENT AND BUILDING PERMITS. Landlord shall use
its best efforts to obtain all necessary approvals required by the Restrictive
Covenants and the necessary permits for the construction of the Building by the
appropriate governmental authorities by the earliest date possible (the
"Construction Commencement Date"), but in no event shall the Construction
Commencement Date be later than March 31, 1997.
II. DEMISE OF PREMISES AND SERVICES BY LANDLORD.
2.1 DEMISE. Subject to the provisions, covenants and agreements herein
contained, Landlord hereby leases and demises to Tenant, and Tenant hereby
leases from Landlord, the Premises, as hereinafter defined, together with the
nonexclusive right to use the Parking Area, as hereinafter defined, for the
Lease Term, as hereinafter defined, subject to existing covenants, restrictions,
easements and encumbrances affecting the same. Landlord grants to Tenant, its
officers, employees, agents, representatives, contractors, sublessees, guests
and invitees an easement over the Land for access to and egress from the
Premises and the Parking Area.
2.2 PREMISES. The "Premises" shall mean the space to be occupied by
Tenant as depicted on Exhibit A attached hereto. The Premises are within the
Building which is located on the Land, as the terms Building and Land are
hereinafter defined.
2.3 SQUARE FOOTAGE AND ADDRESS. The Premises contains approximately
156,300 gross square feet and 150,965 rentable square feet and is located in the
Building to be constructed on the Land located on Weston Parkway, Cary, North
Carolina.
2.4 LAND. "Land" shall mean the parcel of real property more
particularly described in Exhibit A-1 attached hereto, containing approximately
31.96 acres.
2.5 BUILDING. "Building" shall mean the Building constructed or to be
constructed on the Land, containing approximately 184,600 gross square feet and
178,300 rentable square feet.
2.6 IMPROVEMENTS. "Improvements" shall mean the Building, the Parking
Area (as hereinafter defined), and all other improvements on the Land, including
landscaping thereon.
2.7 PROPERTY. "Property" shall mean the Land, the Building and the
Improvements and any fixtures and personal property used in the operation and
maintenance of the Land, the Building and the Improvements, other than fixtures
and personal property of Tenant and other potential users of space in the
Building.
2.8 PARKING AREA. "Parking Area" shall mean that portion of the Land
which is for the parking of motor vehicles. Landlord agrees to provide at no
additional cost to Tenant a minimum of 900 parking spaces (including spaces
required by applicable laws to be designated as handicap parking) but in no
event less than the number of parking spaces required under applicable
ordinances of any governmental authority having jurisdiction over the Premises.
2.9 PARK. The Property is located in and is part of the development
commonly known as Weston, Cary, North Carolina.
2.10 PHASE II AND PHASE III. The two additional buildings that may be
developed on the Land, the general locations of which are shown on Exhibit B
attached hereto.
2
<PAGE> 3
2.11 COVENANT OF QUIET ENJOYMENT. Provided that no action by Tenant or
Tenant's agents shall be deemed a breach of this Lease, Tenant shall peacefully
have and enjoy the possession of the Premises during the Term hereof, provided
that no action of Landlord or other tenants working in other space in the
Building, or of Landlord in repairing or restoring the Premises, shall be deemed
a breach of this covenant, or give Tenant any right to modify this Lease either
as to term, rent payable or other obligations to be performed.
2.12 CONDITION OF PREMISES. Tenant covenants and agrees that, upon
taking possession of the Premises, Tenant shall execute Commencement Letter, in
the form attached hereto as Exhibit L, acknowledging (i) the Commencement Date,
as defined hereinafter and the expiration date of this Lease, and (ii) that
Tenant has accepted the Premises for occupancy and that the condition of the
Premises, including the Tenant Improvements (as herein under defined)
constructed thereon by Landlord and the Building was at that time satisfactory
and in conformity with the provisions of this Lease subject to Landlord's
completion of the details of construction, decoration and mechanical adjustment
which, in the aggregate, are minor in character and do not materially interfere
with the Tenant's use or enjoyment of the Premises, except for any defects as to
which Tenant shall give written notice to Landlord on the date of possession.
Landlord shall promptly thereafter repair all such defects, but in all events
not later than sixty (60) days, provided that in the event such defect cannot be
cured within sixty (60) days, Landlord shall have commenced said repair within
sixty (60) days and completed the same within a reasonable time. Such
Commencement Letter shall become a part of this Lease. Notwithstanding if
Landlord has not made and completed the repairs to defects as described in said
written notice provided by the Tenant, Tenant shall have the right to cure such
defects and Landlord shall pay the reasonable costs and expenses incurred by or
charged to Tenant within ten (10) days of Tenant's written notice to Landlord of
such costs and expenses. Any and all hidden defects, latent defects or defects
shall be made known to Landlord by Tenant within 180 days after the Commencement
Date or, if longer than 180 days after the Commencement Date, within any period
covered by any warranties for any and all work performed on the Premises, which
defects Landlord shall correct promptly after receipt of written notice
describing such defects in reasonable detail. Landlord further covenants and
agrees that correction of any hidden defects, latent defects or defects
affecting the Premises concerning the roof, structure and exterior areas of the
Building will be the responsibility of Landlord, which defects Landlord shall
correct promptly after receipt of written notice describing such defects in
reasonable detail.
2.13 TENANT IMPROVEMENTS.
A. PRELIMINARY PLANS AND SPECIFICATIONS. Within 75 days of the
commencement of work on the Land for the construction of the Building, Tenant
shall prepare and deliver to Landlord for approval a copy of preliminary plans
and specifications ("Preliminary Plans") for the Tenant Improvements to the
Premises. "Tenant Improvements" consist of those items set forth in Exhibit C,
which are in addition to the base building improvements to be constructed by
Landlord as set forth in Exhibit G of this Lease. Within fifteen (15) days after
receipt of the Preliminary Plans, Landlord shall approve in writing the
Preliminary Plans, such approval not to be reasonably withheld, or deliver to
Tenant its specific objections to the Preliminary Plans, together with its
proposed solution to each objection. If Landlord fails to either approve or
disapprove the Preliminary Plans within such period, Landlord shall be deemed to
have approved the Preliminary Plans.
If the parties are unable to resolve Landlord's objections to the
Preliminary Plans within fourteen (14) days after Tenant has received notice of
Landlord's objections, Tenant and Landlord agree to submit Landlord's objections
to the Preliminary Plans to an accredited design review or architectural firm
mutually acceptable to Landlord and Tenant (the "Design Arbitrator"). The Design
Arbitrator shall mediate and resolve the objections to the Preliminary Plans
within thirty (30) days after the selection of the Design Arbitrator
by Landlord and Tenant. Landlord and Tenant shall pay equally all costs and fees
associated with the use of the Design Arbitrator.
B. FINAL PLANS AND SPECIFICATIONS. Within thirty (30) days after the
Preliminary
3
<PAGE> 4
Plans have been approved, Tenant shall prepare and deliver to
Landlord a copy of the approved final plans and specifications and working
drawings ("Final Plans"), based on the approved Preliminary Plans, covering
construction of the Tenant Improvements.
C. CONSTRUCTION. Landlord shall cause construction of the Tenant
Improvements to be performed by a general contractor selected as follows: Tenant
and Landlord may elect to use the same general contractor as used by the
Landlord in the construction of the base building and require that the general
contractor shall seek competitive bids from the prime subcontractors or Landlord
shall bid the work to three (3) reputable general contractors as mutually agreed
upon by Landlord and Tenant and shall use the contractor with the lowest
qualified bid. All contractors shall be encouraged to use the same
subcontractors as used in the construction of the base building.
D. COST OF CONSTRUCTION OF THE TENANT IMPROVEMENTS. Tenant shall be
solely responsible for the payment of the cost of the Tenant Improvements, (i)
in excess of $16.42 per rentable square foot and including (ii) the cost of
Tenant's Preliminary Plans and Specifications so improved in the Premises.
Payment of the cost of the Tenant Improvements shall be made as follows: on or
about the fifteenth (15th) day of each calendar month after the commencement of
construction of the Tenant Improvements the Landlord shall submit an invoice to
the Tenant certifying an itemized statement of the actual costs and expenses
incurred by the Landlord with respect to the work performed and materials
provided in connection with the Tenant Improvements and certifying that all such
costs and expenses (subject to such retainages as provided in the applicable
contracts) have been or will be, with payment by Tenant of the Tenant's Share
(as hereinafter defined), paid in full, together with evidence satisfactory to
Tenant to such effect, including the Landlord's and Tenant's architects'
certificate (an AIA Pay Application Form shall be a satisfactory form of
certificate) authorizing payment and appropriate lien waivers from the general
contractor upon receipt of payment. Tenant shall pay Tenant's Share (as
hereinafter defined) to Landlord on or before the last day of the calendar month
in which Landlord submitted its invoice. The Tenant's Share shall be the
difference between the actual cost of the Tenant Improvements per rentable
square foot improved and $16.42 per rentable square foot which shall be
calculated prior to completion by calculating the cost per rentable square foot
based upon the contract price as the same may be revised by Tenant's written
approved change orders. For example, if Tenant elects to improve all of the
Premises, except the Expansion Space (as hereinafter defined), consisting of
150,971 rentable square feet at a total contracted cost of $3,396,847.50, or
$22.50 per rentable square foot, Tenant's Share would be 27% of the cost or
$6.08 per square foot. Neither Landlord nor Tenant shall pay for Tenant
Improvements to the Expansion Space until such improvements are commenced.
Landlord's cost for Tenant Improvements shall be $16.42 per rentable square foot
so improved. In the event that the Tenant Improvements cost less than $16.42 per
rentable square foot, Tenant may apply the difference to initial monthly rent
payments and/or may use the difference for additional improvements to the
Premises.
E. MISCELLANEOUS. Tenant agrees that to the extent the Tenant
Improvements (including but not limited to installation of voice/data cabling
and systems furniture) are not constructed by Landlord or entities engaged by
Landlord, Tenant will provide or cause to be provided such insurance and other
assurances as Landlord may reasonably require to protect Landlord and the
Property from any claims or liens arising out of the construction of the Tenant
Improvements by Tenant or entities engaged by Tenant.
2.14 CONSTRUCTION OF IMPROVEMENTS - LEASED PREMISES.
A. DEFINITIONS. The following terms as used herein shall have the
following meanings:
(I) "Commencement Date" shall mean the earlier of:
(A) sixty (60) days after the date on which Tenant receives
the "fixture installation notice" given by Landlord under
2.14C. hereunder, provided the Premises are "Substantially
Completed," as provided in subparagraph (ii) below, or would
have been completed except for delays caused by Tenant
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such as failure to timely submit plans, unless such delays
are for reasons beyond Tenant's reasonable control, provided
that Tenant has notified Landlord in writing of such delay
within ten (10) days of the commencement of the same, or
(B) the date Tenant opens for the normal conduct of its
business in the Premises, provided that any details of
construction yet to be completed by Landlord, in the
aggregate, are minor in character and do not interfere with
Tenant's use of the Premises.
(II) The Premises shall be "Substantially Completed" when the
construction of the Improvements thereon has been sufficiently completed by
Landlord, in substantial accordance with the Plans set forth in Exhibits C and G
(except for items to be completed or installed by Tenant), so as to permit use
and occupancy of the Premises for the normal conduct of Tenant's business, and
all of the following conditions have been satisfied:
(A) The appropriate governmental entity having responsibility
therefor has issued a Certificate of Occupancy or similar
certificate indicating completion, except for items to be
completed or installed by Tenant;
(B) The requirements of 2.13 D hereof shall have been met; and
(C) Landlord's architect shall have furnished to Tenant a
certificate to the effect that the Improvements to be
constructed by Landlord have been completed substantially in
accordance with the Plans, except for punch list items which
do not materially interfere with Tenant's use and quiet
enjoyment of the Premises ("Certificate of Substantial
Completion").
The term "Substantially Completed" shall include the installation and
connection by Landlord of all lateral water and sewer lines and appurtenances
thereto necessary to serve the Premises.
B. CONSTRUCTION OF IMPROVEMENTS. Landlord shall commence construction
of the Improvements on the Land at the earliest possible date after effective
execution of the Lease, pursuant to Section 1.3 herein, and shall use its best
and diligent efforts to Substantially Complete the same on or before June 1,
1998 ("Proposed Completion Date"). In the event, the Commencement Date falls
after the Proposed Completion Date, Tenant shall be entitled to rent abatement
for all current leases and subleases under which Landlord is the landlord or
main landlord until and through the Commencement Date. Provided, however that
the Proposed Completion Date shall be extended for thirty (30) days if Tenant
desires that the Tenant Improvements be constructed by a general contractor
other than the general contractor constructing the base building. Landlord shall
cause the Improvements to be constructed in a good and workmanlike manner.
Landlord warrants and represents to Tenant that the Premises shall be free from
defects in materials and workmanship for a period of one year after the
Commencement Date and for such additional periods as Landlord has been provided
in warranties from its builders, contractors, and suppliers.
Tenant shall be entitled to inspect the construction of the
Improvements as the work progresses, at all reasonable times (so long as
Landlord's progress is not in any material manner impeded thereby); and Landlord
shall permit Tenant access during the construction period for such purposes.
Provided, however, Tenant shall assume all responsibility for damage to property
and personal injury suffered by Tenant and those parties upon the Land at
Tenant's invitation for such inspections to the extent not covered by Landlord's
insurance, unless such damage to property and personal injury is proximately
caused by the negligent acts, omissions, recklessness or willful misconduct of
Landlord, its agents, employees or representatives.
In the event completion of construction is delayed due to any act or
neglect of Tenant (or Tenant's agents, employees, or representatives), the
presence of rock, inclement weather, strikes, lockouts or other labor disputes
affecting either Landlord or any
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of Landlord's suppliers of material or labor, delay in issuance of certificates,
permits or licenses not due to any act or neglect of Landlord, delayed
inspections not due to any act or neglect of Landlord, acts of war or civil
commotion, emergency proclamation, governmental regulations, or for any other
reason beyond Landlord's reasonable control, it is agreed that the date for
Substantial Completion may be extended for the same number of days as any such
event beyond Landlord's reasonable control shall delay Landlord in completing
the Improvements provided Landlord promptly gave Tenant written notice of the
occurrence of any event or condition causing any delay contemporaneously with
the occurrence of such event or condition and provided further that the
financial condition or the unavailability or cost of funds to Landlord shall not
constitute an event or condition beyond Landlord's reasonable control and
provided further that the occurrence of an event or condition that might
otherwise constitute a delay but which with reasonable diligence could be
avoided by Landlord shall not constitute grounds for extension of the date for
Substantial Completion of the Improvements. In the event Landlord has failed to
complete the Premises by sixty (60) days after the Proposed Completion Date and
such failure is not the result of delays caused by Tenant's actions or inactions
within its reasonable control, upon written notice from Tenant that it
reasonably requires additional space for the conduct of Tenant's business until
such time as Premises is completed, Landlord shall use all commercially
reasonable efforts to make available for Tenant's use until the Commencement
Date up to 10,000 square feet of additional office space reasonably suitable for
the conduct of Tenant's business on terms and conditions, including rent, at
least as favorable to Tenant as contained in this Lease. Landlord agrees to
endeavor to supply such temporary space in Landlord's facilities that may be
available in the Park and shall pay the reasonable costs and expenses incurred
by the Tenant in locating to such additional office space. Tenant acknowledges
and agrees that Landlord shall not be required to make any tenant improvements
to any such temporary additional office space except as reasonably necessary for
Tenant to be able to conduct its business in such space. If the Landlord is
unable to provide such additional space within three (3) days of Tenant's
notice, Tenant shall have the right to find such additional space and to enter
into an agreement with a third party to provide such additional space, and
Landlord until Tenant vacates such additional space, but not later than thirty
(30) days after the Commencement Date, shall promptly reimburse Tenant for
Tenant's actual costs of moving to such additional space and for Tenant's rent
for such additional space as a result of Tenant entering into such third party
agreement, provided however that Tenant shall make payments to Landlord in the
amount equal to the product of $17.85 times the number of rentable square feet
of such additional space divided by 12 ($17.85 X # of sq./ft. / 12), each month
during the time Tenant occupies said additional space. Landlord shallnot be
responsible for the costs of tenant improvements to such additional space
provided by third parties.
C. COMPLETION OF IMPROVEMENTS AND INSPECTION. Landlord shall notify
Tenant in writing (the "fixture installation notice") at least twenty (20) days
prior to the date on which the Premises will be ready for installation of
Tenant's fixtures and other property to be installed by Tenant. Tenant shall
then have sixty (60) days, commencing upon the expiration of said twenty (20)
day period, in which to complete the installation of its fixtures, equipment and
up fittings to be installed by Tenant in the Premises and to inspect the
Premises for defects in the details of construction, decoration and mechanical
adjustment (the "Fixture Installation Period"). During the last thirty (30) days
of the Fixture Installation Period, Landlord shall furnish adequate heat,
electricity services, public water, public sanitary sewer and light to the
Premises in order to enable Tenant to complete the installation of its fixtures
and other property to be installed by Tenant.
Tenant shall have the right to prepare, in cooperation with Landlord, a
"punch list" setting forth any work which is not in accordance with the Plans or
the Final Plans or which has not been completed to Tenant's reasonable
satisfaction, and Landlord, within sixty (60) days after receipt of the "punch
list," shall complete and/or correct all items described therein to the
reasonable satisfaction of Tenant, unless delayed for reasons beyond Landlord's
reasonable control. In the event of such delay, Landlord shall commence
completion and/or correction of such items within sixty (60) days after receipt
of the "punch list".
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Upon Substantial Completion of the Improvements, Landlord shall furnish
Tenant the Certificate of Occupancy (or similar certificate indicating
completion) and the Certificate of Substantial Completion from Landlord's
architect, both as specified above.
D. UTILITY SERVICE. Prior to Substantial Completion of the
Improvements, Landlord shall have:
(I) obtained all easements and all permits, approvals and consents of
all governmental and quasi-governmental authorities and utility companies
necessary to provide public water, public sanitary sewer, telephone,
electricity, or any other utilities shown on the Plans, to the Premises; and
(II) constructed and installed conduits, wiring, lines, pipes, mains
and sanitary sewer systems as necessary to furnish adequate public water, public
sanitary sewer, light, heat, electricity service and all other utilities shown
on the Plans to the Improvements in accordance with all applicable laws,
governmental codes, ordinances, regulations and orders, and in substantial
accordance with the Plans; provided, however, Tenant shall make all arrangements
for, and pay all costs and expenses incident to, the installation of any utility
meters in excess of the number or kind of utility meters typically required of a
single-tenant user of buildings similar to the Building. Landlord shall
cooperate with Tenant in regard to any excess utility meter installations
required by Tenant, provided Landlord shall incur no out-of-pocket expense in so
doing.
Tenant shall pay for all electricity furnished to and used by it in the
Premises during the Term of the Lease from the Commencement Date.
2.15 SERVICES BY LANDLORD. Landlord shall cause to be furnished to the
Premises, during the hours of 7:00 A.M. to 6:00 P.M., Monday through Friday, and
8:00 a.m. to 1:00 p.m. on Saturday each and every week (excluding New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day) for all areas of the Premises (collectively, "Standard Hours of Operation")
the following services: janitorial services (as described in Exhibit N attached
hereto); water for drinking, lavatory and toilet purposes on each floor;
operatorless elevator service; trash removal in accordance with city schedules;
electricity for general office space use; and heating, ventilation and air
conditioning sufficient for the reasonable comfort of the occupants of the
Premises, provided heating, ventilation, and cooling conforming to any valid
governmental regulation prescribing limitations thereon shall be deemed to
comply with this service.
Landlord shall furnish the Premises with sufficient and proper
electricity for routine usage and lighting, which includes, but is not limited
to, the operation of general office machines, such as electric typewriters,
personal computers, word processing equipment, dictating equipment, calculating
machines, work station peripherals, printers, and general service non-production
type office copy machines. Landlord shall further maintain, service and replace
building standard fluorescent lighting fixtures, including the replacement of
fluorescent bulbs, and all other lighting fixtures, lamps and controls. Tenant
shall not install equipment with unusual demands for any of the foregoing
without Landlord's prior written consent, which Landlord may withhold if it
determines that in its reasonable opinion such equipment may not be safely used
in the Premises or that electrical service is not adequate therefor. If heat
generating machines or equipment other than as set forth or contemplated above
shall be used in the Premises by Tenant which affect the temperature otherwise
maintained by the heating and air conditioning system, Landlord shall have the
right to install supplemental air conditioning units in the Premises and the
actual cost thereof, including the cost of engineering, installation, operation
and maintenance thereof, shall be paid by Tenant within thirty (30) days of
demand therefor by Landlord.
Landlord shall be responsible for the maintenance, replacement and
repair of the common areas of and around the Building, structural components of
the Building, including, but not limited to, roof, elevators, and plumbing,
heating, air conditioning, ventilation and electrical distribution systems.
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Not withstanding any provision in this Lease to the contrary, Tenant
covenants and agrees to pay all charges for electricity used, rendered, or
supplied exclusively to or for the Premises and the parking area, after the
Commencement Date, and to contract for the same in Tenant's own name. In the
event Landlord shall expand into Phase II and/or Phase III, as referenced in
Section 11.19 hereunder, all costs and expenses related to electricity used for
the parking lot and driveway shall be prorated between Tenant and other tenants
of said Phases II and III.
Tenant shall notify Landlord in writing of interruption of services,
and Landlord shall reasonably and in good faith and within the means and
obligations hereunder cure such interruptions. For as long as Landlord acts
reasonably and in good faith and within the means and obligations hereunder, to
cure the interruption of service, there shall be no abatement or reduction of
rent by reason of any of the foregoing services not being continuously provided
to Tenant. Notwithstanding, if said interruption of services fails to be cured
within sixty (60) days of Tenant's notice to Landlord of such interruption,
Tenant shall have the right to abatement or reduction of rent for the period of
interruption until such interruption is cured, provided however, to the extent
that such interruption adversely and materially affects Tenant's use of the
Premises, such interruption is not the result of Tenant's actions or inactions,
and such interruption is not the result of the failure of a utility to provide
such service to the Property.
Tenant shall report promptly to Landlord any defective condition in or
about the Premises actually known to Tenant, and if such defect is not so
reported and such failure to promptly report results in other damage Tenant
shall be liable for same. Landlord shall not be liable to Tenant for any damage
caused to Tenant and its property due to the Building or any part or pertinence
thereof being improperly constructed or being or becoming out of repair, or
arising from the leaking of gas, water, sewer or steam pipes or from electricity
unless such damage is the result of Landlord's or Landlord's agents', employees'
and representatives' gross negligence or willful misconduct. This covenant or
obligation of Tenant shall not in any manner create rights in any party not a
signatory to this Lease.
2.16 EXPANSION SPACE. Approximately 28,300 gross square feet in the
Building ("Expansion Space") will available for Tenant's expansion at no cost to
Tenant during the first year of the Lease Term. Tenant will begin paying rent
for the Expansion Space the earlier of (a) beginning of the second year of the
Lease Term or (b) upon occupancy, if occupied prior to the second year of the
Lease Term. Landlord grants Tenant the right to lease the Expansion Space at
rates equal to the then current rental rates in effect under this Lease and with
an expiration date to be coterminous with the existing Lease. Tenant Improvement
allowance for Expansion Space is to be $16.42 per rentable square foot.
Improvement of the Expansion Space shall be comparable in quality of materials
as to the improvements outlined in Exhibit C. All costs attributable to the
finish and/or improvement of Expansion Space in excess of the Tenant Improvement
allowance shall be paid by Tenant.
III. TERM OF LEASE.
3.1 LEASE TERM. "Lease Term" or "Term" shall mean the period
commencing on the Commencement Date as set forth in Section 2.13 and expiring on
the fifteenth (15th) anniversary thereof unless extended as provided in this
Lease.
3.2 EXTENSION. Tenant shall have the option to extend the Term of this
Lease in accordance with Exhibit H attached hereto.
IV. RENT AND OTHER AMOUNTS PAYABLE.
4.1 BASE RENT. Tenant covenants and agrees to pay to Landlord, without
prior demand and without offset, deduction or abatement, except as expressly
provided for in this Lease, Base Rent for the full Lease Term in the amounts set
forth on the Rent Schedule attached hereto as Exhibit D ("Base Rent").
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4.2 MONTHLY RENT. Base Rent shall be payable monthly in advance, in
accordance with the Rent Schedule attached hereto as Exhibit D, commencing on
the first day of the first month of the Lease Term and continuing on the same
day of each month thereafter for the balance of the Lease Term, unless the
Commencement Date of the Lease Term is other than the first day of a calendar
month, in which event Base Rent shall be payable on the Commencement Date for
the remaining number of days in that month prorated for such partial month, and
thereafter as provided above.
4.3 PLACE OF PAYMENTS. Base Rent and all other sums payable by Tenant
to Landlord under this Lease shall be paid to Landlord at the place for payments
specified for notices in Section 11.6, or such other place as Landlord may, from
time to time, designate in writing. In addition to such remedies as may be
provided under the Default provisions of this Lease, Landlord shall be entitled
to collect a late charge of two percent (2%) of the amount of each monthly
payment not received within fifteen (15) days of the date when due, and in the
event any check given by Tenant is not paid when first presented by Landlord, a
charge of the lower of the maximum lawful bad check fee allowed by law or five
percent (5%) of the amount of such non-paid check.
4.4 CONCOURSE RENT ABATEMENT. Provided that Tenant is not in default
under this Lease, is not in default under any other lease with Landlord or
sublease in which Landlord is the main landlord and upon receipt of Tenant's
first rent payment hereunder, Landlord shall abate Tenant's obligation to pay
Base Rent under its lease(s) and subleases with Landlord for space leased in the
Concourse Building located at One Copley Parkway, Morrisville, North Carolina as
and to the extent that Tenant vacates such premises. Tenant shall not be
relieved of its obligation to pay Additional Rent or its other obligations under
such lease(s), including the obligation to restore such premises, however,
Tenant's obligation to pay such Additional Rent shall be pro rata through the
day Tenant vacates the Concourse Building.
4.5 ADDITIONAL RENT. Tenant further shall pay as additional rent
("Additional Rent") any increase in Landlord's expenses as set forth on Exhibit
M in addition to and at the same time as Base Rent.
V. INSURANCE
5.1 LIABILITY INSURANCE. Tenant covenants and agrees at its expense to
obtain and keep in full force and effect during the Lease Term Liability
Insurance as hereinafter defined. "Liability Insurance" shall mean comprehensive
general liability insurance covering public liability with respect to the use
and operation of the Premises, with combined single limit coverage of not less
than $2,000,000, with endorsements for assumed contractual liability with
respect to the liabilities assumed by Tenant under Section 6.24 of this Lease,
and with no deductible greater than One Thousand Dollars ($1,000), retention or
self-insurance provision contained therein, unless otherwise approved in writing
by Landlord, said approval not to be unreasonably withheld, conditioned or
delayed.
Landlord shall at all times during the term of this Lease carry, at its
own expense, a policy of insurance that insures the Building, including the
Premises, against loss or damage by fire or other casualty (namely, the perils
against which insurance is afforded by a standard "all-risk" casualty insurance
policy); provided, however, that Landlord shall not be responsible for, and
shall not be obligated to insure against, any loss of or damage to any personal
property of Tenant or that Tenant may have in the Building or the Premises or
any trade fixtures installed by or paid for by Tenant on the Premises or any
additional improvements that Tenant may construct on the Premises, and Landlord
shall not be liable for any loss or damage to such property, regardless of
cause, including the negligence of Landlord and its employees, agents, customers
and invitees.
Landlord shall, during the Lease Term, procure and keep in force the following
insurance.
1. Property insurance insuring the Property and improvements
against such hazards as are presently included in so-called
"all-risk" coverage. Such coverage shall be written on a
replacement cost basis equal to not less than
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one hundred percent (100%) of the full insurable replacement
value of the foregoing. Such insurance shall not cover
Tenant's equipment, trade fixtures, inventory, fixtures or
personal property located on or in the Building or Premises.
2. Commercial general liability insurance against any and all
claims for bodily injury and property damage occurring in or
about the Property. Such insurance shall have a combined
single limit of not less than Two Million Dollars
($2,000,000) with endorsements for assumed contractual
liability with respect to the liabilities assumed by
Landlord under Section 6.24 of this Lease, and with no
deductible greater than Two Thousand Five Hundred Dollars
($2,500), retention or self-insurance provision contained
therein, unless otherwise approved in writing by Tenant,
said approval not to be unreasonably withheld, conditioned
or delayed.
3. Such other insurance as Landlord deems necessary and prudent
or required by Landlord's beneficiaries or mortgagees of any
deed of trust or mortgage encumbering the Premises.
5.2 GENERAL PROVISIONS RESPECTING INSURANCE. Except as otherwise
approved in writing by Landlord, said approval not to be unreasonably withheld,
conditioned or delayed, all insurance obtained by Tenant shall be with insurers
authorized to do business in the State of North Carolina and rated at least A in
Best's Insurance Reports; shall name Landlord and the holder of any first
mortgage or deed of trust encumbering the Property as insured parties, as their
interests may appear; shall contain a waiver of rights of subrogation as among
Tenant, Landlord and the holder of any such first mortgage or deed of trust if
such waiver is available without additional cost; and shall provide, by
certificate of insurance or otherwise, that the insurance coverage shall not be
canceled or altered except upon thirty (30) days prior written notice to
Landlord and the holder of any such first mortgage or deed of trust.
Certificates of insurance obtained by Tenant shall be delivered to Landlord, who
may deposit the same with the holder of any such first mortgage or deed of
trust. The amount of any deductible under any insurance required to be obtained
by Landlord or Tenant under this Lease shall be commercially reasonable.
5.3 COOPERATION IN THE EVENT OF LOSS. Landlord and Tenant shall
cooperate with each other in the collection of any insurance proceeds which may
be payable in the event of any loss, including the execution and delivery of any
proof of loss or other actions required to effect recovery.
VI. OTHER COVENANTS.
6.1 LIMITATION ON USE BY TENANT. Tenant covenants and agrees to use the
Premises only for general office purposes, which shall include, but not be
limited to, employee training, employee lunch room (including vending machines
for Tenant's use only), data processing and any other legally permitted uses
consistent with the Restrictive Covenants.
6.2 COMPLIANCE WITH LAWS. Tenant covenants and agrees that it shall not
cause or allow (to the extent within Tenant's reasonable control) anything to be
done or kept on the Premises in violation of any law, ordinance, order, rule or
regulation of any governmental authority having jurisdiction, and that the
Premises shall be used, kept and maintained in compliance with any such law,
ordinance, order, rule or regulation (now existing or hereafter enacted) and
with the Certificate of Occupancy issued for the Building and the Premises.
6.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. Tenant covenants and agrees
that it shall not cause or allow (to the extent within Tenant's reasonable
control) anything to be done or kept on the Premises which might make
unavailable or increase the cost of insurance maintained with respect to the
Premises or the Property, which might increase the insured risks or which might
result in cancellation of any such insurance.
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6.4 NO WASTE OR IMPAIRMENT OF VALUE. Tenant covenants and agrees that
it shall not cause or allow (to the extent within Tenant's reasonable control)
anything to be done or kept on the Premises or the Property which would
significantly impair the value of the Premises or the Property, or which would
constitute waste.
6.5 NO HAZARDOUS USE. Tenant covenants and agrees that it shall not
cause or allow (to the extent within Tenant's reasonable control) anything to be
done or kept on the Premises or the Property and that no improvements, changes,
alterations, additions, maintenance or repairs shall be made to the Premises
which would be unsafe or hazardous to any person or property. Tenant shall at
all times comply with its representations, warranties and covenants as set forth
in Exhibit F.
6.6 NO STRUCTURAL IMPAIRMENT OR OVERLOADING. Except for usage allowed
for in the design standards as shown on the Plans (Exhibit C and Exhibit G),
Tenant covenants and agrees that it shall not cause or allow (to the extent
within Tenant's reasonable control) anything to be done or kept on the Premises
or the Building and that no improvements, changes alterations, additions,
maintenance or repairs shall be made to the Premises which might impair the
structural soundness of the Building, which might result in an overload of the
weight capacity of floors or of electricity lines serving the Building, or which
might interfere with electric or electronic equipment in the Building or on any
adjacent or nearby property. In the event of violations hereof, Tenant covenants
and agrees to remedy promptly the violation at Tenant's expense and in
compliance with all requirements of governmental authorities and insurance
underwriters. Landlord warrants and represents to Tenant that the floor load of
the Premises is 100 pounds live load and that such load is sufficient to carry
the Improvements in the Premises shown on the Plans and the Final Plans,
together with Tenant's anticipated office equipment and fixtures as shown on the
Final Plans.
6.7 NO NUISANCE, NOXIOUS OR OFFENSIVE ACTIVITY. Tenant covenants and
agrees that it shall not cause or allow (to the extent within Tenant's
reasonable control) activity that would be noxious or offensive to be carried on
upon the Premises or the Property; nor cause anything be done or kept on the
Premises or the Property which may be or become a public or private nuisance or
which may cause embarrassment, disturbance, or annoyance to others in the
Building or on adjacent or nearby property.
6.8 NO ANNOYING LIGHTS, SOUNDS OR ODORS. Provided that Tenant may use
the Premises as designed by the Plans (Exhibit C and Exhibit G), Tenant
covenants and agrees that it shall not cause or allow (to the extent within
Tenant's reasonable control) light to be emitted from the Premises which is
unreasonably bright or causes unreasonable glare; sound to be emitted from the
Premises which is unreasonably loud or annoying; and odor to be emitted from the
Premises which is or might be noxious or offensive to others in the Building or
on adjacent or nearby property.
6.9 NO UNSIGHTLINESS. Tenant covenants and agrees that it shall not
cause or allow (to the extent within Tenant's reasonable control) unsightliness
to be permitted on the Premises or the Property. Without limiting the generality
of the foregoing, all unsightly conditions, equipment, objects and conditions
shall be kept enclosed within the Premises; hallways adjoining the Premises may
not be used for discarding or storing any materials; no refuse, scrap, debris,
garbage, trash, bulk materials or waste shall be kept, stored or allowed to
accumulate on the Premises or the Property except as may be enclosed within the
Premises; all pipes, wires, poles, antenna and other facilities for utilities or
the transmission or reception of audio or visual signals or electricity shall be
kept and maintained underground or enclosed within the Premises or appropriately
screened from view; and no temporary structure shall be placed or permitted on
the Premises or the Property without the prior written consent of Landlord, said
consent not to be unreasonably withheld, conditioned or delayed.
6.10 NO ANIMALS. Tenant covenants and agrees that no animals shall
be permitted or kept on the Premises or the Property.
6.11 RESTRICTION ON SIGNS AND EXTERIOR LIGHTING. Tenant may install
only such
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exterior signs as comply with Landlord's "Signage Criteria," a copy of which is
attached as Exhibit E. Tenant covenants and agrees that no other signs or
advertising devices of any nature shall be erected or maintained by Tenant on
the Premises or the Property and no exterior lighting shall be permitted on the
Premises or the Property except as approved in writing by Landlord, said
approval not to be unreasonably withheld, conditioned or delayed.
6.12 NO VIOLATION OF COVENANTS. Tenant covenants and agrees not to
commit, suffer or permit any violation of any covenants, conditions or
restrictions affecting the Premises or the Property, as they may be amended from
time to time provided such amendment does not prohibit or materially interfere
with Tenant's use of the Premises as set forth herein. A copy of the Restrictive
Covenants is attached hereto as Exhibit K and incorporated herein by reference.
6.13 RESTRICTION ON CHANGES AND ALTERATIONS. Subject to Landlord's
prior written approval, such approval not to be unreasonably withheld,
conditioned or delayed, during the initial Lease Term plus any renewals hereof,
Tenant shall have the right to undertake alterations (except where same relate
to base building structural, electrical, mechanical and/or plumbing), within the
Premises, through outside contractor(s) reasonably approved by Landlord,
provided the entry and work on the part of such outside contractors shall be in
harmony with Landlord's contractors in the operation of the Building. It is
expressly agreed that such alterations can include roof-top communications
equipment provided such does not adversely affect the integrity of the roof, are
appropriately screened and comply with applicable covenants.
There shall be no overhead or supervision fee charges by Landlord for
the above, except where the involvement of Landlord (excluding scheduling and
coordination of entry, plus moving and storage of material) is expressly
requested and agreed to by Tenant. Tenant shall, on a timely basis, provide
Landlord with copies of blue-line drawings of alterations completed by Tenant or
Tenant's contractors within the Premises.
Tenant shall not at any time permit any work to be performed on the
Premises except by duly licensed contractors or artisans, each of whom must
carry workmen's compensation and general public liability insurance reasonably
satisfactory to Landlord, certificates of which shall be furnished to Landlord
prior to commencement of any such work. At no time may Tenant do any work that
results in a claim of lien against Landlord. Tenant shall cause any lien filed
against Tenant's interest in the Premises to be released pursuant to NCGS 44A-16
within thirty (30) days after Tenant has been notified that such lien has been
filed.
If requested by Landlord at the termination of this Lease or vacation
of the Premises by Tenant, Tenant shall restore (at Tenant's sole cost and
expense) the Premises to the same condition as existed at the commencement of
the Term, ordinary wear and tear, and damage by insured casualty only excepted.
However, Landlord may elect to require Tenant to leave alterations performed,
only if before the time such alterations were performed, Landlord notified
Tenant in writing that Tenant could not remove them on expiration or termination
of this Lease. If Tenant does so remove alterations performed Tenant shall
repair any damage occasioned by such removal.
6.14 NO MECHANICS LIENS. Tenant covenants and agrees not to permit or
suffer, and to cause to be removed and released, any mechanics, materialmen or
other lien on account of supplies, machinery, tools, equipment, labor or
material furnished or used in connection with the construction, alteration,
improvement, addition to or repair of the Premises by, through or under Tenant.
Tenant shall have the right to contest, in good faith and with reasonable
diligence, the validity of any such lien or claimed lien, provided that, on
final determination of the lien or claim for lien, Tenant shall immediately pay
any judgment rendered, with interest and costs, and will cause the lien to be
released and any judgment satisfied. In the event a lien or claim for lien is in
excess of $10,000 per lien (or $50,000 in the aggregate), Tenant shall give to
Landlord such assurances may be reasonably required by Landlord to insure the
payment of any amounts claimed, including interests and costs, and to prevent
any sale, foreclosure or forfeiture of any interest in the Property on account
of any such lien.
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6.15 NO OTHER ENCUMBRANCES. Tenant covenants and agrees not to obtain
any financing secured by Tenant's interest in the Premises and not to encumber
the Premises, or Landlord or Tenant's interest therein, without the prior
written consent of Landlord such consent not to be withheld, conditioned or
delayed, and to keep the Premises free from all liens and encumbrances except
those created by Landlord; provided, however, Landlord consents to and agrees
that it will reasonably cooperate with Tenant obtaining financing secured by
Tenant's personal property and trade fixtures located on the Premises.
6.16 SUBORDINATION TO LANDLORD MORTGAGES. Tenant covenants and agrees
that, at Landlord's option, this Lease and Tenant's interest in the Premises
shall be junior and subordinate to any mortgage or deed of trust now or
hereafter encumbering the Property if in any mortgage or deed of trust given
hereunder, the mortgagee or beneficiary under such mortgage or deed of trust
agrees in writing, or adequate provision is made in the mortgage or deed of
trust, that, in the event of foreclosure of any such mortgage or deed of trust,
Tenant shall not be disturbed in its possession and quiet enjoyment of the
Premises conditioned only on Tenant attorning to the party acquiring title to
the Property as the result of such foreclosure. Tenant covenants and agrees,
within fifteen (15) days after notice by Landlord as provided in Section 11.6
hereof, to execute such documents as may be necessary or appropriate to confirm
and establish this Lease as subordinate to any such mortgage or deed of trust in
accordance with the foregoing provisions by the execution of an agreement
substantially in the form attached hereto as Exhibit I. Alternatively, Tenant
covenants and agrees that, at Landlord's request, Tenant shall execute documents
as may be necessary to establish this Lease and Tenant's interest in the
Premises as superior to any such mortgage or deed of trust. If Tenant fails to
execute any documents required to be executed by Tenant under the provisions
hereof for any reason other than noncompliance by such documents with the terms
of this Lease, Tenant hereby makes, constitutes and irrevocably appoints
Landlord as Tenant's attorney in fact and in Tenant's name, place and stead to
execute any such documents.
6.17 NO ASSIGNMENT OR SUBLETTING. Tenant may not assign or encumber
this Lease or its interest in the Premises arising under this Lease, and may not
sublet any part or all of the Premises without the written consent of Landlord
first had and obtained, which consent Landlord shall not unreasonably withhold,
condition or delay. Any assignment or sublease to which Landlord may consent
(one consent not being any basis that Landlord should grant any further consent)
shall not relieve Tenant of any or all of its obligations hereunder. For the
purpose of this Section 6.17, the word "assignment" shall be defined and deemed
to include the following: (i) if Tenant is a partnership, the withdrawal or
change, whether voluntary, involuntary or by operation of law of partners owning
thirty percent (30%) or more of the partnership, or the dissolution of the
partnership; (ii) if Tenant consists of more than one person, an assignment,
whether voluntary, involuntary, or by operation of law, by one person to one of
the other persons that is a Tenant; (iii) if Tenant is a corporation, any
dissolution or reorganization of Tenant, or the sale or other transfer of a
controlling percentage (hereafter defined) of capital stock of Tenant other than
to an affiliate or subsidiary or the sale of fifty-one percent (51%) in value of
the assets of Tenant; (iv) if Tenant is a Limited Liability Company, the change
of members whose interest in the Company is 50% or more. The phrase "controlling
percentage" means the ownership of, and the right to vote, stock possessing at
least fifty-one percent (51%) of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote for the
election of directors, or such lesser percentage as is required to provide
actual control over the affairs of the corporation. Acceptance of Rent by
Landlord after any non-permitted assignment shall not constitute approval
thereof by Landlord. Notwithstanding the foregoing provisions of this Section
6.17, Tenant may assign or sublease part or all of the Premises without
Landlord's consent to: (i) any corporation or partnership that controls, is
controlled by, or is under common control with, Tenant; or (ii) any corporation
resulting from the merger or consolidation with Tenant or to any entity that
acquires all of Tenant's assets as a going concern of the business that is being
conducted on the Premises, as long as the assignee or sublessee is a bona fide
entity and assumes the obligations of Tenant, and continues the same use as
permitted under Section 6.1. Tenant shall give prior written notice of any such
assignment or subletting to Landlord.
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In no event shall this Lease be assignable by operation of any law, and
Tenant's rights hereunder may not become, and shall not be listed by Tenant as
an asset under any bankruptcy, insolvency or reorganization proceedings. Tenant
is not, may not become, and shall never represent itself to be an agent of
Landlord, and Tenant acknowledges that Landlord's title is paramount, and that
it can do nothing to affect or impair Landlord's title.
If this Lease shall be assigned or the Premises or any portion thereof
sublet by Tenant at a rental that exceeds the rentals to be paid to Landlord
hereunder, attributable to the Premises or portion thereof so assigned or
sublet, then any such excess shall be paid over to Landlord by Tenant.
6.18 ANNUAL FINANCIAL STATEMENTS. Tenant covenants and agrees to
furnish to Landlord annually, within thirty (30) days after publication, the
Annual Report and Form 10K of Tenant or Tenant's parent company, and agrees that
Landlord may deliver any such documents to any existing or prospective mortgagee
or purchaser of the Property.
6.19 PAYMENT OF INCOME AND OTHER TAXES. Tenant covenants and agrees to
pay before delinquent all property taxes on personal property of Tenant on the
Premises and all federal, state and local income taxes, sales taxes, use taxes,
Social Security taxes, unemployment taxes and taxes withheld from wages or
salaries paid to Tenant's employees, the nonpayment of which might give rise to
a lien on the Premises or Tenant's interest therein, and to furnish, if
reasonably requested by Landlord, written evidence of such payments.
6.20 ESTOPPEL CERTIFICATES. Tenant covenants and agrees to execute,
acknowledge and deliver to Landlord, within fifteen (15) days of Landlord's
written request, a written statement certifying that this Lease is unmodified
(or, if modified, stating the modifications) and in full force and effect;
stating the dates to which Base Rent has been paid; stating the amount of
payments of Taxes and Assessments and Insurance Premiums for the then tax and
insurance year; and stating whether or not Landlord is in default under this
Lease (and, if so, specifying the nature of the default). Tenant agrees that
such statement shall be substantially in the form of Exhibit J hereto and may be
delivered to and relied upon by any existing or prospective mortgagee or
purchaser of the Property but without same being an inducement to any such
mortgagee or purchaser. Tenant agrees that a failure to deliver such a statement
within fifteen (15) days after written notice from Landlord shall be conclusive
upon Tenant that this Lease is in full force and effect without modification
except as may be represented by Landlord; that there are no uncured defaults by
Landlord under this Lease; and that any representation by Landlord disclosed to
Tenant in Landlord's request to Tenant to execute the estoppel certificate with
respect to Base Rent is true.
6.21 LANDLORD RIGHT TO INSPECT AND SHOW PREMISES AND TO INSTALL FOR
SALE SIGNS. Tenant covenants and agrees that Landlord and authorized
representatives of Landlord upon 24 hour notice to Tenant shall have the right
to enter the Premises at any reasonable time for the purposes of inspecting or
maintaining the same and making such repairs, alterations or changes as Landlord
deems necessary and for the purposes of showing the Premises to any existing or
prospective mortgagee or purchaser or, during the last year of the Term, to any
prospective lessee of the Property or the Premises (Tenant may require persons
visiting the business to sign reasonable confidentiality agreements). Tenant
shall be entitled to have a representative of Tenant accompany Landlord and its
agents during such entry.
6.22 LANDLORD TITLE TO FIXTURES, IMPROVEMENTS AND EQUIPMENT. Tenant
covenants and agrees that all fixtures and improvements on the Premises and all
equipment and personal property relating to the use and operation of the
Premises (as distinguished from operations incident to the business of Tenant)
attached to or affixed to the Premises, including all plumbing, heating,
lighting, electrical and air conditioning fixtures and equipment, shall be and
remain the property of Landlord upon expiration of the Lease Term.
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6.23 REMOVAL OF TENANT'S EQUIPMENT. Tenant covenants and agrees to
remove, not later than the expiration date of the Lease Term, all of Tenant's
Equipment, as hereinafter defined. "Tenant's Equipment" shall mean all
equipment, apparatus, machinery, signs, furniture, furnishings and personal
property used in the operation of the business of Tenant (as distinguished from
the use and operation of the Premises). If such removal shall injure or damage
the Premises in excess of normal wear and tear associated with moving a
business, Tenant covenants and agrees, at its sole cost and expense, at or prior
to the expiration of the Lease Term, to repair such injury and damage in good
and workmanlike fashion and to place the Premises in the same condition as the
Premises would have been in if such Tenant's Equipment had not been installed,
ordinary wear and tear and insured casualty excepted. If Tenant fails to remove
any Tenant's Equipment by the expiration of the Lease Term, Landlord may, at its
option, keep and retain any such Tenant's Equipment or dispose of the same and
retain any proceeds thereof and Landlord shall be entitled to recover from
Tenant any costs or expenses of Landlord in removing the same and in restoring
the Premises in excess of the actual proceeds, if any, received by Landlord from
disposition thereof.
6.24 INDEMNIFICATION OF THE PARTIES.
A. Tenant covenants and agrees to protect, indemnify and save Landlord
harmless from and against all liability, obligations, claims, damages,
penalties, causes of action, costs and expenses, including reasonable attorneys'
fees at all tribunal levels, imposed upon, incurred by or asserted against
Landlord by reason of (a) any accident, injury to or death of any person or loss
of or damage to any property occurring on or about the Premises, except for any
loss or damage from fire or casualty covered under Landlord's insurance policies
and except for that loss or damage caused by Landlord's, its employees' and
invitees' negligence, recklessness, willful misconduct, or Landlord's breach of
its obligations under this Lease; (b) any act or omission of Tenant or Tenant's
officers, employees, agents, guests or invitees or of anyone claiming by,
through or under Tenant; (c) any use which may be made of, or condition existing
upon, the Premises; (d) any improvements, fixtures or equipment performed or
installed by Tenant upon the Premises; (e) any failure on the part of Tenant to
perform or comply with any of the provisions, covenants or agreements of Tenant
contained in this Lease; (f) any violation of any law, ordinance, order, rule or
regulation of governmental authorities having jurisdiction by Tenant or Tenant's
officers, employees, agents, guests or invitees or by anyone claiming by,
through or under Tenant; and (g) any repairs, maintenance or changes to the
Premises by, through or under Tenant. Tenant further covenants and agrees that,
in case any action, suit or proceeding, is brought against Landlord by reason of
any of the foregoing, Tenant will, at Tenant's sole cost and expense, defend
Landlord in any such action, suit or proceeding, with counsel reasonably
acceptable to Landlord.
B. Landlord covenants and agrees to protect, indemnify and save Tenant
harmless from and against all liability, obligations, claims, damages,
penalties, causes of action, costs and expenses, including reasonable attorneys'
fees at all tribunal levels, imposed upon, incurred by or asserted against
Tenant by reason of (a) any accident, injury to or death of any person or loss
of or damage to any property occurring on or about the Property, except for any
loss or damage from fire or casualty covered under Tenant's insurance policies
and except for that loss or damage caused by Tenant's, its employees', agents,
customers' invitees' negligence, recklessness or willful misconduct, or Tenant's
breach of its obligations under this Lease; (b) any act or omission of Landlord
or Landlord's officers, employees, agents, guests, invitees or partners or of
anyone claiming by, through or under Landlord; (c) any use which may be made of,
or condition existing upon, the Property; (d) any improvements, fixtures or
equipment placed upon the Property by Landlord; (e) any failure on the part of
Landlord to perform or comply with any of the provisions, covenants or
agreements of Landlord contained in this Lease; (f) any violation of any law,
ordinance, order, rule or regulation of governmental authorities having
jurisdiction by Landlord or Landlord's partners, officers, employees, agents,
guests or invitees or by anyone claiming by, through or under Landlord; and (g)
any repairs, maintenance or changes to the Property by, through or under
Landlord. Landlord further covenants and agrees that, in case any action, suit
or proceeding is brought against Tenant by reason of any of the foregoing,
Landlord will, at Landlord's sole cost and expense,
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defend Tenant in any such action, suit or proceeding, with counsel reasonably
acceptable to Tenant.
6.25 WAIVER BY THE PARTIES.
A. Tenant waives and releases any claims Tenant may have against
Landlord or Landlord's partners, officers, agents or employees for loss, damage
or injury to person or property sustained by Tenant or Tenant's officers,
agents, employees, guests, invitees or anyone claiming by, through or under
Tenant resulting from any cause whatsoever other than Landlord's negligence or
misconduct.
B. Landlord waives and releases any claims Landlord may have against
Tenant or Tenant's officers, agents or employees for loss, damage or injury to
person or property sustained by Landlord or Landlord's partners, officers,
agents, employees, guests, invitees or anyone claiming by, through or under
Landlord resulting from any cause whatsoever other than Tenant's negligence or
misconduct.
6.26 RELEASE UPON TRANSFER BY LANDLORD; RIGHT OF FIRST OFFER.
A. In the event of a transfer by Landlord of the Property or of
Landlord's interest as Landlord under this Lease, Landlord's successor or assign
shall take subject to and be bound by this Lease and, in such event, Tenant
covenants and agrees that: Landlord shall be released from all obligations of
Landlord under this Lease, except obligations which arose and matured prior to
such transfer by Landlord; that Tenant shall thereafter look solely to
Landlord's successor or assign for satisfaction of the obligations of Landlord
under this Lease; and that Tenant shall attorn to such successor or assign.
B. At the end of the tenth anniversary of the Commencement Date of this
Lease and provided that Tenant is not in default hereunder, Tenant shall have a
first right to purchase the Building, any expansion space of Phase II and/or
Phase III, pursuant to Section 11.19 herein, and the Parking Area (the "Offered
Property") during the remainder of the original term of this Lease subject to
the terms and conditions hereof. If Landlord desires to sell the Offered
Property, Landlord shall provide Tenant with written notice establishing the
minimum cash purchase price for the property to be sold (the "FRP Notice").
Tenant shall have thirty days from its receipt of the FRP Notice to notify
Landlord in writing of its intent to purchase the Offered Property for cash at
the price set forth in the FRP Notice. If Tenant fails to accept the offer set
forth in the FRP Notice within the thirty days or if Tenant fails to complete
the purchase of the Offered Property within ninety days of the FRP Notice,
Tenant shall be deemed to have waived its first right to purchase and Landlord
shall be free thereafter to sell the Offered Property to any third party
purchaser selected by Landlord for the same price as or greater than that set
forth in said FRP Notice. This right shall only apply to the sale of the portion
of the Land including the Offered Property and shall not apply to sales of other
portions of the Land and other buildings that may be constructed on the Land.
Landlord may reasonably elect to include such portions of the Land and other
improvements thereon as is deems advisable in the FRP Notice.
6.27 COMPLIANCE WITH ADA. Tenant covenants and agrees that nothing
shall be done or kept by Tenant on the Premises or in the Building in violation
of the Americans With Disabilities Act ("ADA") and that Tenant shall in
accordance with the requirements of the ADA conduct its business within the
Premises, in accordance with the requirements of ADA. Tenant covenants and
agrees, and shall cause its architect to certify to Landlord in writing, that
the Tenant Improvements, set forth in Exhibit C herein, are in complaince with
the ADA. Landlord shall maintain, repair, replace, keep and use the Premises and
all improvements, fixtures and personal property therein and thereon, in
accordance with the requirements of the ADA. If any improvements, alterations or
repairs to the Premises are required by governmental authority under ADA or its
implementing regulations or guidelines arising solely out of Tenant's specific
use of the Premises after the Commencement Date which were not applicable to the
Premises or to Tenant's proposed use of the Premises on the Commencement Date,
Tenant shall be solely responsible for all non-structural items and any
structural items arising from such improvements, alterations or repairs. Tenant
covenants and agrees to pay all costs and expenses in connection with the
performance
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of its obligations under this Section 6.27. Nothing contained in this Section
6.27 shall be construed to limit the generality of the provisions of Section 6.2
respecting Tenant's obligation to comply with applicable laws and of the
provisions of Section 6.13 respecting Tenant's obligation to comply with ADA and
other applicable laws in connection with any alteration. Unless expressly
provided above as an obligation of Tenant, Landlord covenants and agrees that
Landlord shall maintain, repair, replace and keep the Property in accordance
with the requirements of ADA at Landlord's sole cost and expense.
In the event that Landlord is required to make any repair, renovation
or improvement to the Premises with an out-of-pocket cost in excess of
$20,000.00 in order to comply with the provisions of this section and such
repair, renovation or improvement was not the result of noncompliance of the
Improvements at the Commencement Date of the Lease, then the parties agree that
Tenant will pay at the same time and in addition to the monthly installments of
Base Rent for the balance of the Term of the Lease, an amount equal to the cost
of such improvements in excess of Twenty Thousand and No/100 Dollars
($20,000.00) amortized over twenty years at an interest rate of twelve percent
(12.00%) per annum.
VII. DAMAGE OR DESTRUCTION.
7.1 TENANT'S NOTICE OF DAMAGE. If any portion of the Premises shall be
damaged or destroyed by fire or other casualty, Tenant shall give prompt written
notice thereof to Landlord ("Tenant's Notice of Damage").
7.2 OPTIONS TO TERMINATE IF DAMAGE SUBSTANTIAL. Upon receipt of
Tenant's Notice of Damage, Landlord shall promptly proceed to determine the
nature and extent of the damage or destruction and to estimate the time
necessary to repair or restore the Premises. Within ten (10) business days after
Landlord's receipt of Tenant's Notice of Damage, Landlord shall give written
notice to Tenant stating Landlord's estimate of the time necessary to repair or
restore the Premises ("Landlord's Notice of Repair Time"). If more than 25% of
the Building is untenantable for Tenant's purposes and Landlord reasonably
estimates that repair or restoration of the Premises cannot be completed within
180 days after the time of Landlord's receipt of Tenant's Notice of Damage,
Landlord and Tenant shall each have the option to terminate this Lease. In the
event, however, that the damage or destruction was caused by willful misconduct
of Tenant or Tenant's officers, employees, agents, guests or invitees or of
anyone claiming by, through or under Tenant, Landlord shall have the option to
terminate this Lease if Landlord reasonably estimates that such repair or
restoration cannot reasonably be completed within 100 days after the time of
Landlord's receipt of Tenant's Notice of Damage, but Tenant shall not have the
option to terminate this Lease. In such event, if the damage is expected to
prevent Tenant from carrying on its normal business activity in the Premises to
a reasonable extent, rent shall be abated in the proportion that the approximate
area of the damaged part bears to the total area in the Premises from the date
of the casualty until substantial completion of the reconstruction repairs. Any
option granted hereunder shall be exercised by written notice to the other party
given within ten (10) days after Tenant's receipt of Landlord's Notice of Repair
Time. In the event either Landlord or Tenant exercises its option to terminate
this Lease, the Lease Term shall expire ten (10) days after receipt of the
notice by either Landlord or Tenant exercising such party's option to terminate
this Lease.
7.3 OBLIGATIONS TO REPAIR AND RESTORE. If neither party terminates this
Lease under Section 7.2, this Lease shall continue in full force and effect and
Landlord shall proceed forthwith to cause the Premises to be repaired and
restored with reasonable diligence unless, despite Landlord's use of all
commercially reasonable efforts, the holder of any mortgage or deed of trust now
or hereafter encumbering the Property will not allow the use of Casualty
Insurance Proceeds for such repair or restoration. In such event, if Landlord,
within three (3) days of such holder's refusal of allowance, does not provide
written notice and reasonable assurances as required by Tenant that Landlord
intends and has the financial resources to promptly complete such repairs and
restoration then Tenant in its sole discretion may terminate the Lease by giving
Landlord written notice and Tenant's obligations hereunder shall cease upon the
date of its removal from the Premises.
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7.4 APPLICATION OF INSURANCE PROCEEDS. The proceeds of the Casualty
Insurance maintained by Landlord on the Premises ("Casualty Insurance
Proceeds"), other than casualty insurance maintained by Tenant on fixtures and
personal property of Tenant, shall be paid to and become property of Landlord
subject to any obligation of Landlord to cause the Premises to be repaired and
restored. Landlord agrees that Landlord shall exercise commercially reasonable
efforts to obtain from any mortgagee that is an insured under any policy of
Casualty Insurance an agreement that the proceeds of the Casualty Insurance
shall be made available to Landlord for the repair or the restoration of the
Premises on terms and conditions that are commercially reasonable. Landlord
shall exercise its best efforts to satisfy such terms and conditions so that the
proceeds of Casualty Insurance will be made available to Landlord. Landlord
agrees that the amount of the deductible under any policy of Casualty Insurance
shall not excuse Landlord's failure to repair or restore the Premises provided
the proceeds of the Casualty Insurance are made available to Landlord. Landlord
also agrees that in the event Landlord does not repair or restore the Premises
because the proceeds of Casualty Insurance are not made available to Landlord
and this Lease is consequently terminated, Landlord will not repair
or restore the Premises or erect any improvements on the Land with other funds
without first offering Tenant the opportunity in writing of being the tenant in
the repaired or restored Premises or newly constructed improvements on terms no
less favorable than the terms and conditions of this Lease. Tenant shall have a
period of fifteen (15) days after receipt of Landlord's offer in which to notify
Landlord whether it desires to be such tenant of Landlord. The failure of
Landlord to maintain Casualty Insurance covering the Building in an amount equal
to its full replacement value shall be a material default by Landlord under this
Lease.
7.5 TEMPORARY SPACE. Upon the request of Tenant, Landlord shall make
all commercially reasonable efforts to provide to Tenant during the period of
time required for repair or restoration of the damaged Premises space in Wake
County, North Carolina reasonably suitable for the conduct of Tenant's business
on terms and conditions, including rent, at least as favorable to Tenant as
contained in this Lease. Tenant agrees that Tenant may be required to take such
space on an "as is" basis with appropriate adjustments in rent and Tenant's
obligations with respect to such space. Landlord agrees to endeavor to supply
such temporary space in Landlord's facilities that may be available in the
Property. In the event Landlord is unable to provide such temporary space in
Landlord's facilities in the Property, Landlord shall provide such temporary
space within a fifteen (15) mile radius of the Property. In the event the fire
or other casualty damaging the Premises is caused by the act or omission of
Landlord or Landlord's partners, officers, employees, agents, contractors,
guests or invitees or of anyone claiming by, through or under Landlord, Landlord
shall supply such temporary space to Tenant at no cost.
VIII. CONDEMNATION.
8.1 TAKING - SUBSTANTIAL TAKING - INSUBSTANTIAL TAKING. A "Taking"
shall mean the taking of all or any portion of the Premises as a result of the
exercise of the power of eminent domain or condemnation for public or
quasi-public use or the sale of all or part of the Premises under the threat of
condemnation. A "Substantial Taking" shall mean a Taking of so much of the
Premises that the Premises cannot thereafter be reasonably used by Tenant for
carrying on, at substantially the same level or scope, the business theretofore
conducted by Tenant on the Premises. An "Insubstantial Taking" shall mean a
Taking such that the Premises can thereafter continue to be used by Tenant for
carrying on, at substantially the same level or scope, the business theretofore
conducted by Tenant on the Premises.
8.2 TERMINATION ON SUBSTANTIAL TAKING. If there is a Substantial Taking
with respect to the Premises, the Lease Term shall expire on the date of vesting
of title pursuant to such Taking. In the event of termination of this Lease
under the provisions hereof, Landlord shall refund to Tenant such amounts of
Base Rent and Additional Rent theretofore paid by Tenant as may be applicable to
the period subsequent to the time of termination of this Lease.
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8.3 RESTORATION ON INSUBSTANTIAL TAKING. In the event of an
Insubstantial Taking, this Lease shall continue in full force and effect,
Landlord shall proceed forthwith to cause the Premises to be restored as near as
may be to the original condition thereof and there shall be abatement of Base
Rent and Additional Rent proportionate to the extent of the space so taken.
8.4 RIGHT TO AWARD. The total award, compensation, damages or
consideration received or receivable as a result of a Taking ("Award") shall be
paid to and be the property of Landlord, whether the Award shall be made as
compensation for diminution of the value of the leasehold or the fee of the
Premises or otherwise and Tenant hereby assigns to Landlord, all of Tenant's
right, title and interest in and to any such Award. Tenant covenants and agrees
to execute, immediately upon demand by Landlord, such documents as may be
necessary to facilitate collection by Landlord of any such Award. Tenant,
however, shall be entitled to apply for compensation, if available, for its
relocation, for any of its personal property taken, and for any fixtures
installed and paid for by Tenant.
IX. DEFAULTS AND REMEDIES.
9.1 If Tenant: (i) fails to pay when due any Base Rent or Additional
Rent, or any other sum of money which Tenant is obligated to pay, as provided in
this Lease and shall fail to pay such within five (5) days after written notice
thereof by Landlord (provided that Tenant shall not be entitled to notice or an
opportunity to cure more than twice in any consecutive twelve (12) month period
during the Term hereof); or (ii) breaches any other agreement, covenant or
obligation herein set forth and such breach shall continue and not be remedied
within thirty (30) days after Landlord shall have given Tenant written notice
specifying the breach, or if such breach cannot, with due diligence, be cured
within said period of thirty (30) days and Tenant does not within said thirty
(30) day period commence and thereafter with reasonable diligence completely
cure the breach within a reasonable time; or (iii) files (or has filed against
it and not stayed or vacated within sixty (60) days after filing) any petition
or action for relief under any creditor's law (including bankruptcy,
reorganization, or similar action), either in state or federal court; or (iv)
makes any transfer in fraud of creditors as defined in Section 548 of the United
States Bankruptcy Code (11 U.S.C. [1548, as amended or replaced), has a receiver
appointed for its assets (and appointment shall not have been stayed or vacated
within thirty (30) days), or makes an assignment for benefit of creditors (each,
if uncured, a "Default"); then Tenant shall be in default hereunder, and, in
addition to any other lawful right or remedy which it may have, Landlord may do
the following: (i) terminate this Lease; (ii) repossess the Premises, and with
or without terminating, relet the same at such amount as Landlord deems
reasonable; and if the amount for which the Premises is relet is less than
Tenant's Base Rent and all other obligations of Tenant to Landlord hereunder,
Tenant, provided the amount for which the Premises is relet is approximately
equal to the fair market rental value of the Premises, shall pay the difference
between the amount as paid by the new tenant and the amounts due hereunder to
Landlord, but if in excess of Tenant's Base Rent, and all other obligations of
Tenant hereunder, the entire amount obtained from such reletting shall belong to
Landlord, free of any claim of Tenant thereto. All reasonable expenses of
Landlord in repairing, restoring or altering the Premises for reletting as
general office space, together with leasing fees and all other reasonable
expenses in seeking and obtaining a new tenant, shall be charged to and be a
liability of Tenant. Landlord's reasonable attorneys' fees (not exceeding such
attorneys' actual fees at customary hourly rates) in pursuing any of the
foregoing remedies, or in collecting any Base Rent or Additional Rent due by
Tenant hereunder, shall be paid by Tenant.
Tenant further agrees that Landlord may obtain an order for summary
ejectment from any court of competent jurisdiction without prejudice to
Landlord's rights to otherwise collect rents from Tenant.
All rights and remedies of Landlord are cumulative, and the exercise of
any one shall not be an election excluding Landlord at any other time from
exercise of a different or inconsistent remedy. No exercise by Landlord of any
right or remedy granted herein shall constitute or effect a termination of this
Lease unless Landlord shall so elect by written notice delivered to Tenant.
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<PAGE> 20
No waiver by Landlord of any covenant or condition shall be deemed to
imply or constitute a further waiver of the same at a later time, and acceptance
of Base Rent or Additional Rent by Landlord, even with knowledge of a Default by
Tenant, shall not constitute a waiver of such Default.
9.2 It shall be a default under and breach of this Lease by Landlord if
it shall fail to perform or observe any term, condition, covenant or obligation
required to be performed or observed by it under this Lease for a period of
thirty (30) days after written notice thereof from Tenant; provided, however,
that if the term, condition, covenant or obligation to be performed by Landlord
is of such nature that the same cannot reasonably be performed within such
thirty (30) day period, such default shall be deemed to have been cured if
Landlord commences such performance within said thirty day (30) day period and
thereafter completes the same within a reasonable time period. Tenant shall be
entitled to recover such money damages or seek specific performance from
Landlord by reason of any such default, and, in the event such default under
and/or breach of this Lease is deemed to be constructive eviction, Tenant shall
be entitled to terminate this Lease and/or withhold or abate any rent due
hereunder.
Tenant may bring a separate action against Landlord for any claim
Tenant may have against Landlord under this Lease, provided Tenant shall first
give written notice thereof to Landlord and shall afford Landlord a reasonable
opportunity to cure any such default. In addition Tenant shall send notice of
such default by certified or registered mail, postage prepaid, to the holder of
any mortgage or deed of trust covering the Premises, the Property or any portion
thereof of whose address Tenant has been notified in writing, and shall afford
such holder a reasonable opportunity to cure any default on Landlord's behalf.
In no event will Landlord be responsible to Tenant for any damages for loss of
profits or interruption of business as a result of any default by Landlord
hereunder.
Tenant shall have the right to obtain injunctive relief against
Landlord or Landlord's successors in interest, and to maintain any suit or
action in connection with enforcement or collection of amounts which may become
owing or payable under or on account of insurance maintained by Landlord.
Tenant's remedy shall include an action or proceeding to enforce any such
provisions, or for specific performance, injunction or declaratory judgment, as
well as any other remedy available at law or in equity, including interest on
any uncured default by Landlord to pay money to Tenant and the right to cure
Landlord's defaults.
X. SURRENDER AND HOLDING OVER
10.1 SURRENDER UPON LEASE EXPIRATION. Upon the expiration or earlier
termination of this Lease, or on the date specified in any demand for possession
by Landlord after any Default by Tenant, Tenant covenants and agrees to
surrender possession of the Premises to Landlord in the same condition as when
Tenant first occupied the Premises, ordinary wear and tear and damage by insured
casualty excepted.
10.2 HOLDING OVER. If Tenant shall hold over after the expiration of
the Lease Term or other termination of this Lease, such holding over shall not
be deemed to be a renewal of this Lease but shall be deemed to create a
tenancy-at-sufferance and by such holding over Tenant shall continue to be bound
by all of the terms and conditions of this Lease except that during such
tenancy-at-sufferance, Tenant shall pay to Landlord (a) Base Rent at the rate
equal to one hundred and twenty-five percent (125%) of that provided for in the
foregoing Article 4 (the "Holdover Rate"), and (b) any and all operating
expenses and other forms of Additional Rent payable under the terms of this
Lease. Tenant shall provide to Landlord written notice of its intent to hold
over, and the estimated period of such holdover, at least two hundred seventy
(270) days in advance of such holdover. Notwithstanding the foregoing, in the
event Tenant fails to provide such notice or fails to vacate the Premises within
such estimated period of holdover, the Holdover Rate shall be two hundred
percent (200%). The increased Base Rent during such holding over is intended to
partially compensate Landlord for losses, damages and expenses, including
frustrating and delaying Landlord's ability to secure a replacement tenant. If
Landlord loses a prospective tenant because Tenant fails to vacate the Premises
on expiration of this Lease after notice to do
20
<PAGE> 21
so and such holdover by Tenant has not been consented to by Landlord, Tenant
will be liable for such damages as Landlord can prove because of Tenant's
wrongful failure to vacate.
XI. MISCELLANEOUS.
11.1 NO IMPLIED WAIVER. No failure by Tenant or Landlord to insist upon
the strict performance of any term, covenant or agreement contained in this
Lease, and no failure by Tenant or Landlord to exercise any right or remedy
under this Lease, and no acceptance of full or partial payment during the
continuance of any Default by Tenant, shall constitute a waiver of any such
term, covenant or agreement or a waiver of any such right or remedy or a waiver
of any subsequent Default by Tenant or Landlord.
11.2 SURVIVAL OF PROVISIONS. Notwithstanding any termination of this
Lease, any provisions hereof which require observance or performance by Landlord
or Tenant subsequent to termination shall continue in force and effect.
11.3 COVENANTS INDEPENDENT. This Lease shall be construed as if the
covenants herein between Landlord and Tenant are independent and not dependent.
11.4 COVENANTS AS CONDITIONS. Each provision of this Lease performable
by Tenant or Landlord shall be deemed both a covenant and a condition.
11.5 BINDING EFFECT. This Lease shall extend to and be binding upon the
heirs, executors, legal representative, successors and assigns of the respective
parties hereto. The terms, covenants, agreements and conditions in this Lease
shall be construed as covenants running with the Land.
11.6 NOTICES AND DEMANDS. All notices, demands or billings under this
Lease shall be in writing, signed by the party giving the same and shall be
deemed properly given and received when actually given and received or three (3)
business days after mailing, if sent by registered or certified United States
mail, postage prepaid, addressed to the party to receive the notice at the
address set forth for such party in the first paragraph of this Lease or at such
other address as either party may notify the other in writing. Notices on behalf
of either party may be given by such party's respective counsel. Addresses for
notices may be changed in the same manner provided for giving notices but shall
not be effective until ten (10) days elapse after their receipt.
11.7 TIME OF THE ESSENCE. Time is of the essence under this Lease, and
all provisions herein relating thereto shall be strictly construed.
11.8 CAPTIONS FOR CONVENIENCE. The headings and captions hereof are
for convenience only and shall not be considered in interpreting the provisions
hereof.
11.9 SEVERABILITY. If any provision of this Lease shall be held invalid
or unenforceable, the remainder of this Lease shall not be affected thereby, and
there shall be deemed substituted for the affected provision a valid and
enforceable provision as similar as possible to the affected provision.
11.10 GOVERNING LAW. This Lease shall be interpreted and enforced
according to the laws of the State of North Carolina.
11.11 ENTIRE AGREEMENT. This Lease and any exhibits addenda referred to
herein constitute the final and complete expression of the parties' agreements
with respect to the Premises and Tenant's occupancy thereof. Each party agrees
that it has not relied upon or regarded as binding any prior agreements,
negotiations, representations, or understandings, whether oral or written,
except as expressly set forth herein. Because both parties and their counsel
have participated in the preparation of this Lease and in resolving any
ambiguities, there shall be no presumption that the Lease shall be construed
against either party as the drafting party.
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<PAGE> 22
11.12 NO ORAL AMENDMENT OR MODIFICATIONS. No amendment or modification
of this Lease, and no approvals, consents or waivers by Landlord under this
Lease, shall be valid or binding unless in writing and executed by the party to
be bound.
11.13 REAL ESTATE BROKERS. Each party covenants to the other that no
real estate broker or other agent was used in this transaction except the John
A. Brewer Company which shall be paid by Landlord pursuant to a separate
agreement and that no costs, expenses or liabilities for any compensation,
commissions, charges or claims by any broker or other agent with respect to this
Lease or the negotiation thereof is owed. Each party covenants to pay, hold
harmless and indemnify the other from and against any and all cost, expense or
liability for any compensation, commissions, charges or claims by any broker or
other agent, claiming through the other with respect to this Lease or the
negotiation thereof.
11.14 RELATIONSHIP OF LANDLORD AND TENANT. Nothing contained herein
shall be deemed or construed as creating the relationship of principal and agent
or of partnership, or of joint venture by the parties hereof, it being
understood and agreed that no provision contained in this Lease nor any acts of
the parties hereto shall be deemed to create any relationship other than the
relationship of landlord and tenant.
11.15 AUTHORITY OF TENANT. Each individual executing this Lease on
behalf of Tenant and Landlord represents and warrants that such individual is
duly authorized to deliver this Lease on behalf of Tenant or Landlord, as the
case may be, and that this Lease is binding upon Tenant and Landlord in
accordance with its terms, and agrees to document such authorization to the
other's reasonable satisfaction if requested to do so.
11.16 EXCULPATION. Any provision of this Lease to the contrary
notwithstanding, Landlord's personal liability for payment of any damages or
performance of any term, provision or condition under this Lease or under any
other instrument in connection with this Lease shall be limited to the
Landlord's equity interest in the Land and any present and future improvements
thereon, including but not limited to the Property (the "Limitation") and the
rents, issues and profits of the Property in satisfaction of any claim, order or
judgment Tenant may at any time obtain against Landlord in connection with this
Lease. This provision is not intended to, and shall not, limit any right that
Tenant might otherwise have to obtain injunctive relief against Landlord or
Landlord's successors in interest, to maintain any other action not involving
the personal liability of Landlord or to maintain any suit or action in
connection with enforcement or collection of amounts which may become owing or
payable under or on account of insurance maintained by Landlord. Tenant's remedy
shall include an action or proceeding to enforce any such provisions, or for
specific performance, injunction or declaratory judgment, as well as any other
remedy available at law or in equity, including interest on any uncured default
by Landlord to pay money to Tenant and the right to cure Landlord's defaults;
provided, however, the Limitation set forth in this Section 11.16 shall not
apply in the event Landlord's equity in the Property is less than $4,000,000 at
the time of entry of and/or Tenant's collection of any judgment against
Landlord.
11.17 RECORDATION. Landlord and Tenant agree not to record this Lease.
The parties shall prepare, execute and record a memorandum hereof substantially
similar to the statutory form.
11.18 CONSENT. Unless expressly provided otherwise in this Lease, in
all cases where the consent or approval shall be required of either Tenant or
Landlord pursuant to this Lease, the giving of such consent or approval shall
not be arbitrarily or unreasonably withheld, conditioned or delayed by the party
from which consent or approval is required.
11.19 NO SECURITY DEPOSIT. Landlord shall not require any deposit as
security for performance by Tenant of its obligations under this Lease.
11.20 RESERVATION OF PHASE II AND PHASE III. Landlord shall reserve the
Phase II and Phase III sites for Tenant's expansion needs on such terms and
conditions as Landlord and Tenant may agree provided that if Landlord and Tenant
have not executed
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a written lease for Phase II by December 31, 2001, Landlord may develop that
site for others and that if Landlord and Tenant have not executed a written
lease for Phase III by December 31, 2006, Landlord may develop that site for
others.
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<PAGE> 24
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
duplicate originals, all as of the day and year first above written.
Tenant: CLINTRIALS RESEARCH, INC.
a Tennessee Corporation
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
Attest:
---------------------------
Secretary
Corporate Seal
Landlord: HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
By: Highwoods Properties, Inc., a Maryland Corporation
By:
-------------------------------
Title: Senior Vice President
Date:
-----------------------------
Attest:
-----------------------------
Assistant Secretary
Corporate Seal
24
<PAGE> 1
EXHIBIT 11
ClinTrials Research Inc.
Computation of Earnings per Share
(000's, except for earnings per share)
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income/(loss) before extraordinary item &
cumulative effect of accounting change (1,134) 798 2,153 3,601 6,807
Extraordinary item 50 0 0 0 0
Cumulative effect of accounting change 0 243 0 0 0
------ ------ ------ ------ ------
Net income (1,084) 1,041 2,153 3,601 6,807
====== ====== ====== ====== ======
Common shares issued at beginning of period 3,830 3,830 3,830 3,830 3,830
Common shares issued October 1, 1990 20 20 20 20 20
Common shares issued December 1, 1990
in connection with acquisition 4,436 4,436 4,436 4,436 4,436
Common shares issued in March 1, 1991
in connection with acquisition 542 542 542 542 542
Common shares issued December 31, 1991 722 722 722 722 722
Common shares issued October 1, 1992 50 50 50 50 50
Common shares issued November 23, 1993 0 342 3,450 3,450 3,450
Common shares issued July 31, 1996 0 0 0 0 1,641
Common shares issued July 31, 1996 0 0 0 0 231
Common shares issued through exercise
of stock options 15 47 59 197 275
Weighted common shares of unexercised
stock options 68 390 391 385 480
------ ------ ------ ------ ------
Weighted average shares 9,683 10,379 13,500 13,632 15,677
====== ====== ====== ====== ======
Earnings per share before extraordinary item
& cumulative effect of accounting change (0.12) 0.08 0.16 0.26 0.43
Extraordinary item 0.01 0.00 0.00 0.00 0.00
Accounting change 0.00 0.02 0.00 0.00 0.00
------ ------ ------ ------ ------
Earnings per share before extraordinary item
& cumulative effect of accounting change (0.11) 0.10 0.16 0.26 0.43
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 13
ClinTrials Research Inc.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenue:
Service Revenue $ 31,382 $49,939 $67,763 $86,217 $122,438
Less subcontractor costs 4,951 14,655 24,889 28,371 28,984
------ ------ ------ ------ -------
Net service revenue 26,431 35,284 42,874 57,846 93,454
Operating costs and expenses:
Direct costs 16,723 21,121 25,324 34,850 55,336
Selling, general and administrative
expenses 8,452 10,239 12,111 15,209 25,387
Depreciation and amortization 1,488 1,691 1,937 2,287 3,905
------ ------ ------ ------ -------
Income (loss) from operations (232) 2,233 3,502 5,500 8,826
Other income (expense) (570) (255) 497 665 969
------ ------ ------ ------ -------
Income (loss) before income taxes,
extraordinary item and cumulative effect
of accounting change (802) 1,978 3,999 6,165 9,795
Provision for income taxes (332) (1,180) (1,846) (2,564) (2,988)
------ ------ ------ ------ -------
Income (loss) before extraordinary item
and cumulative effect of accounting
change $ (1,134) $ 798 $2,153 $3,601 $6,807
======= ====== ====== ====== ======
Net income (loss) $ (1,084) $1,041 $2,153 $3,601 $6,807
======= ====== ====== ====== ======
Income (loss) per share before extraordinary
item and cumulative effect of
accounting change $ (0.12) $0.08 $0.16 $0.26 $ 0.43
======= ====== ====== ====== ======
Net income (loss) per share $ (0.11) $0.10 $0.16 $0.26 $ 0.43
======= ====== ====== ====== ======
Number of shares and common stock equivalents
used in computing earnings per common and
common equivalent share 9,683 10,379 13,500 13,632 15,677
Balance sheet data (end of period)
Cash, cash equivalents, and held-to-maturity
securities $8,966 $22,130 $21,045 $17,031 $38,087
Working capital (deficit) (2,405) 12,088 14,044 16,867 52,346
Total assets 28,175 47,318 49,680 58,626 156,953
Long-term debt, less current
portion 5,481 -- -- -- --
Stockholders' equity 4,859 24,409 26,717 30,951 125,402
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a full-service contract research organization ("CRO") serving the
pharmaceutical, biotechnology and medical device industries. The Company
designs, monitors and manages preclinical and clinical trials, provides clinical
data management and biostatistical services and offers product registration
services throughout the United States, Canada and Europe. The Company generates
substantially all of its revenue from the preclinical and clinical testing of
new pharmaceutical and biotechnology products.
The Company's contracts are typically fixed-price, multi-year contracts that
usually require a portion of the contract amount to be paid at or near the time
the trial is initiated. The Company generally bills its clients upon the
completion of negotiated performance requirements and, to a lesser extent, on a
date certain basis. The Company's contracts generally may be terminated with or
without cause. In the event of termination, the Company is typically entitled to
all sums owed for work performed through the notice of termination and all costs
associated with termination of the study. In addition, some of the Company's
contracts provide for an early termination fee, the amount of which usually
declines as the trial progresses. Termination or delay in the performance of a
contract may occur for various reasons, including, but not limited to,
unexpected or undesired results, inadequate patient enrollment or investigator
recruitment, production problems resulting in shortages of the drug, adverse
patient reactions to the drug, or the client's decision to de-emphasize a
particular trial.
Revenue for contracts is recognized on a percentage of completion basis as work
is performed. Revenue is affected by the mix of trials conducted and the degree
to which labor and facilities are utilized. The Company routinely subcontracts
with third party investigators in connection with multi-site clinical trials and
with other third party service providers for laboratory analysis and other
specialized services. These costs are passed through to clients and, in
accordance with industry practice, are included in service revenue.
Subcontractor services may vary significantly from contract to contract;
therefore, changes in service revenue may not be indicative of trends in revenue
growth. Accordingly, the Company views net service revenue, which consists of
service revenue less subcontractor costs, as its primary measure of revenue
growth. The Company has had, and will continue to have, certain clients from
which at least 10 percent of the Company's overall revenue is generated over
multiple contracts. Such concentrations of business are not uncommon within the
CRO industry.
Since it is common for clients to authorize projects and the Company to commence
providing services before a contract is signed, the Company believes reported
backlog should consist of anticipated net revenue from uncompleted projects
which have been authorized by a client, through a written contract or otherwise.
At December 31, 1996, backlog was approximately $140.7 million, as compared to
approximately $90.2 million at December 31, 1995. The Company believes that
backlog is not a consistent indicator of future results because backlog can be
affected by a number of factors, including the variable size and duration of
projects, many of which are performed over several years. Additionally, projects
may be terminated by the client or delayed by regulatory authorities for many
reasons, including unexpected test results. Moreover, the scope of a project can
change during the course of a study.
The Company's core business in the United States has experienced significant
growth, reflecting both an expansion of the Company's client base and an
increase in the number of projects under management. Prior to 1992, the
Company's European operation primarily performed services required by contracts
generated by United States operations. In late 1992, the Company began expanding
its core European operation, which consists of offices in Maidenhead, UK and
Brussels, Belgium, which contributed significantly to operating losses incurred
in 1993 and 1994 in Europe. The core European operation eliminated its operating
loss in 1995 and became profitable in 1996. During 1996, the Company expanded
its ability to perform international clinical trials by opening offices in
Australia, Chile, France, and Israel. This was done partially in response to
client requests for the Company to provide services in these areas. The Company
plans to continue to develop these and other operations abroad. This will
require additional investments in marketing and infrastructure and may include
the establishment of other new offices. Currently, the Company anticipates each
new office will incur losses through its first twelve months of operations.
Contracts between the Company's subsidiaries (primarily in Canada and to a
lesser extent in the United Kingdom) and their clients may be denominated in a
currency other than the local currency of the subsidiary. Because substantially
all of the subsidiaries' expenses are paid in the local currency of the
subsidiary, such subsidiaries' earnings related to these contracts could be
affected by fluctuations in exchange rates. Generally, the Company attempts to
<PAGE> 3
contractually limit its future foreign exchange risks with its clients. In
addition, the Company may use future foreign exchange contracts to hedge the
risk of changes in foreign currency exchange rates associated with contracts in
which the expenses for providing services are incurred in one currency and paid
for by the client in another currency. The Company expects its subsidiaries
located outside the United States to generate approximately 40% of its net
revenue in 1997, at least half of which will be generated by the Company's
Canadian subsidiary. Therefore, fluctuations in exchange rates may have a
material affect on the earnings of the Company.
The Company's consolidated financial statements are denominated in U.S. dollars
and, accordingly, changes in the exchange rates between the Company's
subsidiaries' local currency and the U.S. dollar will affect the translation of
such subsidiaries' financial results into U.S. dollars for purposes of reporting
the Company's consolidated financial results. Translation adjustments are
reported as a separate section of stockholders' equity. Such adjustments may in
the future be material to the Company's financial statements.
ACQUISITION OF
BIO-RESEARCH LABORATORIES LTD.
On July 31, 1996, the Company purchased for $65 million in cash all of the
assets and assumed certain liabilities of Bio-Research Laboratories Ltd. of
Montreal, Quebec. Bio-Research is a leading contract research organization which
provides services to clients in the pharmaceutical, biotechnology, chemical and
medical device industries. Bio-Research designs and conducts preclinical trials,
based primarily upon animal models, that produce the data required to assess and
evaluate efficacy in and potential risks to humans. The acquisition was financed
with the proceeds of a public offering of 4,485,000 shares of the Company's
common stock at $20 per share on July 24, 1996 (as adjusted for the Company's
three-for-two stock split). Net proceeds to the Company from the offering were
approximately $84.9 million, $65 million of which was used to fund the
acquisition. The operations of Bio-Research are included in the Company's
results of operations from the date of acquisition.
RESULTS OF OPERATIONS
Year ended December 31, 1996 compared with year ended December 31, 1995
Net service revenue increased 61.6% to $93.5 million in 1996 from $57.8 million
in 1995. Excluding $13.8 million of revenue recognized in 1996 related to
Bio-Research, net service revenue increased 37.7%. This increase resulted
primarily from an increase in the number of contracts under management and in
the number of clients served. The backlog at December 31, 1996 was $140.7
million, representing 402 contracts from 114 clients, as compared to $90.2
million at December 31, 1995, representing 152 contracts from 43 clients.
Direct costs increased 58.8% to $55.3 million in 1996 from $34.9 million in
1995, and declined as a percentage of net service revenue to 59.2% from 60.2%.
Direct costs, as a percentage of net revenue, may fluctuate from one period to
the next based on the mix of contracts in the backlog as of any given date. In
addition, direct costs may fluctuate due to changes in labor and facility
utilization resulting from the growth the Company has experienced.
Selling, general and administrative costs increased 66.9% to $25.4 million in
1996 from $15.2 million in 1995, and increased as a percentage of net service
revenue to 27.2% from 26.3%. The increase as a percentage of net revenue is
primarily attributable to the inclusion of Bio-Research. Selling, general and
administrative costs, which primarily includes compensation for administrative
employees, facilities costs, and marketing costs, are relatively fixed in the
near term and generally will increase at a lower rate than revenue. In addition,
the Company has incurred and will continue to incur costs related to expanded
infrastructure required to open new offices as described previously.
Depreciation and amortization expense increased 70.8% to $3.9 million in 1996
from $2.3 million in 1995, primarily due to the Company's preclinical
operations.
Interest income, net of interest expense, increased to $969,000 in 1996 from
$665,000 in 1995.
Consolidated income before income taxes increased to $9.8 million in 1996 from
$6.2 million in 1995. The provision for income taxes was $3.0 million in 1996 as
compared to $2.6 million in 1995 resulting in effective tax rates of 31% and
42%, respectively. The significant items that create the difference between the
Company's federal statutory and effective tax rates are state and local taxes,
research and development tax credits generated by the Company's Canadian
subsidiary, tax-exempt interest income, nondeductible amortization of goodwill,
and foreign net operating losses not previously recognized. The Company, in
general, will not record a tax asset for losses incurred in its foreign
operations until such time, if any, that it has three years of profits in the
applicable jurisdiction. However, the Company will recognize a tax benefit for
losses incurred in its foreign operations as the subsidiary generates taxable
income to the extent of the cumulative losses.
Year ended December 31, 1995 compared with year ended December 31, 1994.
Net service revenue increased 34.9% to $57.8 million in 1995 from $42.9 million
in 1994. This increase resulted primarily from an increase in the number of
contracts
<PAGE> 4
under management and in the size of such contracts. The backlog at
December 31, 1995, was $90.2 million, representing 152 contracts from 43
clients, as compared to $71.1 million at December 31, 1994, representing 137
contracts from 45 clients.
Direct costs increased 37.6% to $34.9 million in 1995 from $25.3 million in
1994, and increased as a percentage of net service revenue to 60.2% from
59.1%. Direct costs as a percentage of net revenue may fluctuate from one
period to the next based on the mix of contracts in the backlog as of any given
date. In addition, direct costs may fluctuate due to changes in labor
utilization resulting from the growth the Company has experienced.
Selling, general and administrative expenses increased 25.6% to $15.2 million
in 1995 from $12.1 million in 1994, but declined as a percentage of net service
revenue to 26.3% from 28.2%. Selling, general and administrative costs are
relatively fixed in the near term and generally will increase at a lower rate
than net revenue. The two largest components of selling, general and
administrative costs are labor (executive, business development, finance and
administration) and rent. Labor costs increased 15.3% to $5.3 million in 1995
from $4.6 million in 1994, but decreased as a percentage of net service revenue
to 9.2% from 10.8%. Rent expense increased 22.7% to $2.7 million in 1995 from
$2.2 million in 1994, and decreased as a percentage of net service revenue to
4.6% from 5.0%. Additional office space was leased during the year for new
employees hired to support the increase in level of operations.
Depreciation and amortization expense increased 18.1% to $2.3 million in
1995 compared to $1.9 million in 1994.
Interest income, net of interest expense, increased 33.8% to $665,000 in
1995 from $497,000 in 1994.
Consolidated income before income taxes increased $2.2 million to $6.2 million
in 1995 which included $59,000 income from foreign operations compared to
consolidated income before income taxes of $4.0 million in 1994 which
included a $443,000 loss from foreign operations. The provision for income
taxes was $2.6 million in 1995 as compared to $1.8 million in 1994 resulting in
effective tax rates of 42% and 46%, respectively. The decrease in the effective
tax rate in 1995 is due primarily to the decreased operating losses in Europe.
The significant items which create the difference between the Company's federal
statutory and effective tax rates are foreign net operating losses unrecognized
for U.S. tax purposes, non-deductible amortization of goodwill, timing
differences created by depreciation, state and local income taxes, tax-exempt
interest income and certain other accrued expenses. The Company will not be
able to record a tax asset for losses incurred in its foreign operations until
such time, if any, that it has three years of profits in the applicable
jurisdiction. However, the Company will be able to recognize a tax benefit for
losses incurred in its foreign operations as the subsidiary generates taxable
income to the extent of the cumulative losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary operating cash needs on both a short-term and long-term
basis are the payment of salaries, office rent and travel expenses, as well as
capital expenditures. Capital expenditures have primarily been made for
computer system additions and upgrades and computer equipment for new
employees. Capital expenditures were $2.0 million in 1994, $3.8 million in
1995, $7.3 million in 1996, and are estimated to be $11.0 million in 1997. The
Company has historically financed these expenditures, as well as acquisitions,
with cash flow from operations, issuances of equity securities and borrowings
under its Credit Facility as defined below. The Company utilizes its working
capital to finance these expenditures pending receipt of its receivables.
Contract payments by the Company's clients vary according to the terms of each
contract.
The Company's contracts usually require a portion of the contract amount to be
paid at or near the time the trial is initiated. Payments are generally made
upon the completion of negotiated performance requirements and, to a lesser
extent, on a date certain basis throughout the life of the contract. Cash
receipts do not correspond to costs incurred and revenue recognition (which is
based on cost-to-cost type of percentage of completion accounting). Therefore,
the Company's cash flow is influenced by the interaction of changes in
receivables and advanced billings. The Company typically receives a low volume
of large-dollar cash receipts, and historically has received significant cash
receipts from its clients in the fourth quarter.
The Company has experienced a trend, which it expects will continue, in which
clients place less emphasis on prepayments and greater emphasis on negotiated
performance requirements. This has increased, and may continue to
increase, days sales outstanding in accounts receivable. However, the Company
does not expect this trend to have a significant impact on its ability to
maintain its overall working capital. The number of days sales outstanding in
accounts receivable remain unchanged at 90 days at December 31, 1996 and 1995,
respectively. The number of days sales outstanding in accounts receivable net
of advanced billings was 52 days at December 31, 1996 and 26 days at December
31, 1995. The Company believes its days sales outstanding in accounts
receivable to be comparable to the average for the CRO industry.
During 1996, net cash provided by operating activities totalled $10,000,
primarily due to net income, net of non-
<PAGE> 5
cash expenses, of $11.0 million, an increase in accounts payable and accrued
expenses of $2.0 million, and a decrease in net advanced payments to
investigators of $1.2 million, which were partially offset by an increase in
accounts receivable of $6.4 million, and a decrease in advanced billings of $7.0
million.
Cash used in investing activities of $64.8 million during 1996 consisted
principally of the acquisition of Bio-Research Laboratories Ltd., as previously
described, for $65.0 million less approximately $6.2 million cash acquired, and
capital expenditures of $7.3 million. Cash provided by financing activities of
$86.8 million for the same period resulted principally from issuance of common
stock.
The Company had cash and cash equivalents of $38.1 million at December 31,
1996 as compared to $17.0 million at December 31, 1995.
The Company has domestic and foreign lines of credit ("Credit Facility") with
banks totalling approximately $13.7 million. The lines are collateralized
by the Company's assets and bear interest at the respective banks' prime
interest rates. There were no borrowings outstanding under the lines of credit
at December 31, 1996. Borrowings available under the lines of credit are
subject to certain financial and operating covenants.
The Company expects to continue expanding its operations through internal
growth and strategic acquisitions. The Company expects such activities will be
funded from existing cash, cash equivalents, held-to-maturity securities,
cash flow from operations, and available borrowings under its Credit Facility.
The Company estimates that such sources of cash will be sufficient to fund the
Company's current operations, including expansions of its foreign operations,
at least through 1997. Although the Company has no present acquisition
agreements or arrangements, there may be acquisition or other growth
opportunities which require additional external financing, and the Company may
from time to time seek to obtain additional funds from public or private
issuances of equity or debt securities. There can be no assurances that such
financings will be available on terms acceptable to the Company.
QUARTERLY RESULTS
The Company's quarterly operating results may fluctuate as a result of factors
such as delays experienced in implementing or completing particular
clinical trials and termination of clinical trials, the costs associated with
integrating acquired operations, foreign exchange fluctuations, as well as the
costs associated with opening new offices. Since a high percentage of the
Company's operating costs are relatively fixed while revenue is subject to
fluctuation, minor variations in the timing of contracts or the progress of
clinical trials (both delays and accelerations) may cause significant
variations in quarterly operating results. Results of one quarter are not
necessarily indicative of results for the next quarter.
On February 25, 1997, the Company released a statement which estimated revenue
for the first quarter of 1997 to be in the $27-28 million range compared
with $17.7 million in the first quarter of 1996 and earnings per share to be
approximately $0.04 compared with $0.08 in the year earlier period. The Company
attributed the expected earnings decline to the February 1997 cancellation of
three projects from backlog totalling approximately $27 million, combined with
similar project cancellations of $10 million experienced in the fourth quarter
of 1996. None of the cancellations were related to service or quality problems.
The project cancellations left the Company with unbillable resources related to
those projects as well as a higher level of G&A expenses incurred to cover the
previously expected higher revenue levels. Additionally, the Company disclosed
that it was discussing with a client the status of work on a significant
project which, if the resolution turned out to be negative, could result in a
charge to its earnings in the first quarter of 1997 of up to $1.5 million or an
additional $0.05 per share. Subsequent to the February 25 release, the Company
has determined that the resolution of this matter will not have a material
impact on its earnings.
STOCK SPLIT
On October 25, 1996, the Board of Directors declared a 3-for-2 stock split to
be effected in the form of a stock dividend of one-half share for each share
of Company common stock outstanding as of the record date, November 11, 1996.
The dividend was distributed to shareholders on November 25, 1996. Earnings per
common and common equivalent share, stock option and market price data referred
to in the financial statements and notes hereto have been adjusted
retroactively to give effect to the stock split.
IMPACT OF ACCOUNTING STANDARDS
In October, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The Statement provides for an alternate method of recording the
issuance of stock options and other stock based compensation from that
promulgated by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Pursuant to the provisions of
Statement No. 123, the Company has elected to continue to record the issuance
of stock options in accordance with APB 25.
<PAGE> 6
ClinTrials Research Inc.
CONSOLIDATED BALANCE SHEETS
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
--------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $15,507 $38,087
Held-to-maturity securities 1,524 --
Accounts receivable 22,248 37,270
Advance payments to investigators 3,932 549
Deferred income taxes 644 2,361
Other current assets 499 3,028
------ -------
Total current assets 44,354 81,295
Property, Plant and Equipment:
Land, buildings and leasehold improvements -- 17,448
Equipment 9,042 20,493
Furniture and fixtures 3,022 4,415
------ -------
12,064 42,356
Less accumulated depreciation and amortization 4,947 8,265
------ -------
7,117 34,091
Other assets:
Excess of purchase price over net assets acquired 7,088 41,493
Other assets 67 74
------ -------
7,155 41,567
------ -------
$58,626 $156,953
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,579 $ 6,133
Advance billings 19,976 14,797
Payables to investigators 3,490 1,336
Accrued expenses 2,352 4,397
Income taxes payable 90 2,286
------ -------
Total current liabilities 27,487 28,949
Deferred income taxes 188 2,602
Commitments and contingencies -- --
Stockholders' equity:
Preferred Stock, $.01 par value--1,000,000
shares authorized, no shares
issued or outstanding -- --
Common Stock, $.01 par value--30,000,000
shares authorized; issued and
outstanding 13,244,177 and 17,864,258
shares in 1995 and 1996, respectively 132 179
Additional paid-in capital 40,056 126,775
Retained-earnings (deficit) (9,342) (2,535)
Cumulative foreign currency translation
adjustments 105 983
------ -------
Total stockholders' equity 30,951 125,402
------ -------
$58,626 $156,953
====== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 7
ClinTrials Research Inc.
CONSOLIDATED STATEMENTS OF INCOME
(All dollar amounts are expressed in thousands, except for earnings per share)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenue:
Service revenue $67,763 $86,217 $122,438
Less subcontractor costs 24,889 28,371 28,984
------- ------- --------
Net service revenue 42,874 57,846 93,454
Operating costs and expenses:
Direct costs 25,324 34,850 55,336
Selling, general and administrative
expenses 12,111 15,209 25,387
Depreciation and amortization 1,937 2,287 3,905
------- ------- --------
Income from operations 3,502 5,500 8,826
Other income (expense):
Interest income 597 744 1,025
Interest expense (100) (79) (56)
------- ------- --------
497 665 969
------- ------- --------
Income before income taxes 3,999 6,165 9,795
Provision for income taxes 1,846 2,564 2,988
------- ------- --------
Net income $ 2,153 $ 3,601 $ 6,807
======= ======= ========
Net income per common and
common equivalent share $ 0.16 $ 0.26 $ 0.43
Number of shares and common stock equivalents
used in computing earnings per common and
common equivalent share 13,500,000 13,632,000 15,677,000
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 8
ClinTrials Research Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,153 $ 3,601 $ 6,807
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 1,273 1,660 3,267
Amortization of other assets 739 627 900
Amortization of premium on held-to-
maturity securities 192 69 --
Deferred income taxes (31) (141) (1,636)
Changes in operating assets and liabilities:
Accounts receivable (2,687) (7,790) (6,350)
Advance billings (3,613) 7,814 (6,985)
Payables to investigators 2,563 (2,697) (2,154)
Accounts payable and accrued
expenses 551 (241) 2,038
Advance payments to investigators (306) (3,579) 3,383
Other current assets (74) 98 (946)
Income taxes payable 215 (212) 1,686
Net cash provided(used) by operating ----- ----- -----
activities 975 (791) 10
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net (2,023) (3,787) (7,275)
Acquisition of business, net of cash
acquired -- -- (59,047)
Purchases of held-to-maturity securities (6,410) (4,006) --
Maturities of held-to-maturity securities 2,077 6,554 1,524
------ ------ -------
Net cash used in investing activities (6,356) (1,239) (64,798)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of Common Stock 87 658 86,766
------ ------ -------
Net cash provided by financing activities 87 658 86,766
Effect of exchange rate changes on cash 68 (25) 602
------ ------ -------
Increase (decrease) in cash and cash
equivalents (5,226) (1,397) 22,580
Cash and cash equivalents at beginning of
year 22,130 16,904 15,507
------ ------ -------
Cash and cash equivalents at end of year $ 16,904 $ 15,507 $ 38,087
====== ====== =======
Supplemental cash flow information:
Interest paid $ 37 $ 39 $ 24
====== ====== =======
Income tax payments $ 1,662 $ 2,589 $ 1,543
====== ====== =======
Equipment purchased included in
accounts payable $ 443 $ 66 $ 507
====== ====== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 9
ClinTrials Research Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON STOCK PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 13,084,613 $131 $39,312 $(15,096) $62 $24,409
Exercise of stock options 34,377 -- 87 -- -- 87
Foreign currency translation
adjustments -- -- -- -- 68 68
Net income -- -- -- 2,153 -- 2,153
---------- ---- -------- ------- ---- --------
Balance at December 31, 1994 13,118,990 131 39,399 (12,943) 130 26,717
Exercise of stock options 125,187 1 347 -- -- 348
Tax benefit from exercise
of stock options -- -- 310 -- -- 310
Foreign currency
translation adjustments -- -- -- -- (25) (25)
Net income -- -- -- 3,601 -- 3,601
---------- ---- -------- ------- ---- --------
Balance at December 31, 1995 13,244,177 132 40,056 (9,342) 105 30,951
Secondary offering, net of
cash offering costs 4,485,000 45 84,856 -- -- 84,901
Exercise of stock options 135,081 2 356 -- -- 358
Tax benefit from exercise
of stock options -- -- 1,507 -- -- 1,507
Foreign currency
translation adjustments -- -- -- -- 878 878
Net income -- -- -- 6,807 -- 6,807
---------- ---- -------- ------- ---- --------
Balance at December 31, 1996 17,864,258 $179 $126,775 $(2,535) $983 $125,402
========== ==== ======== ======= ==== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 10
ClinTrials Research Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Years Ended December 31, 1994, 1995 and 1996)
1. ORGANIZATION
ClinTrials Research Inc. (the "Company") is a full service contract research
organization serving the pharmaceutical, biotechnology and medical device
industries. The Company designs, monitors and manages preclinical and clinical
trials, provides data management and biostatistical services, and offers
product registration services throughout the United States, Canada and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the accounts of ClinTrials
Research Inc. and its subsidiaries. All material intercompany balances and
transactions have been eliminated.
FOREIGN CURRENCIES
For subsidiaries outside of the United States that operate in a local currency
environment, assets and liabilities are translated to United States dollars at
year-end exchange rates. Income and expense items are translated at the average
rates of exchange prevailing during the year. Translation adjustments are
accumulated in a separate component of stockholder's equity. Transaction gains
and losses are included in the determination of net income.
CASH, CASH EQUIVALENTS, AND HELD-TO-MATURITY SECURITIES
For the purpose of the statement of cash flows, cash and cash equivalents
include demand deposits and money market accounts held with a financial
institution. The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at cost, adjusted for amortization of premium and
accretion of discount to maturity. Such amortization is included in interest
income. Interest on securities classified as held-to-maturity is included in
interest income.
REVENUE RECOGNITION
Revenue from contracts is recorded as costs are incurred and includes estimated
earned fees or profits calculated on the basis of the relationship between costs
incurred and total estimated costs (cost-to-cost type of
percentage-of-completion method of accounting). Certain contracts contain
provisions for price redetermination for cost overruns. Such redetermined
amounts are included in service revenue when realization is assured and the
amounts can reasonably be determined. Estimated amounts representing contract
change orders, claims or funding limitations are included in service revenue
only when realization is probable. In the period in which it is determined that
a loss will result from the performance of a contract, the entire amount of the
estimated ultimate loss is provided for.
Subcontractor costs comprise investigator fees and certain other contract costs
which are reimbursed by clients. Accordingly, such subcontractor costs are
deducted in determining net service revenue.
UNBILLED RECEIVABLES AND ADVANCE BILLINGS
Unbilled receivables arise from those contracts under which billings can only be
rendered upon the achievement of certain negotiated performance requirements or
on a date-certain basis. Advance billings represent contractual billings for
services not yet rendered.
INVESTIGATOR PAYMENTS
Investigator fees (subcontractor costs) are accrued on a straight-line basis
over the life of the contract. Investigator payments are made based on
predetermined contractual arrangements, which may differ from the accrual of the
expense. Such differences in payments to investigators in excess of the accrued
expense represent advance payments to investigators and accrued expenses in
excess of payments made represent payables to investigators.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the respective properties, which approximate five to 40 years.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
Costs in excess of the net asset value are being amortized over periods of 20 to
40 years using the straight-line method. The
<PAGE> 11
carrying value of the excess of purchase price over net assets acquired is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that excess of purchase price over net assets acquired will not
be recoverable, as determined based on the undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's carrying
value of the excess of purchase price over net assets acquired is reduced by the
estimated shortfall of cash flows. Accumulated amortization of the excess of
purchase price over fair value of assets acquired was approximately $2,359,000,
and $3,228,000 at December 31, 1995 and 1996, respectively.
FOREIGN CURRENCY HEDGING
Foreign exchange forward contracts are legal agreements between two parties to
purchase and sell foreign currency for a specified price, with delivery and
settlement in the future. The Company uses foreign exchange contracts to hedge
the risk of changes in foreign currency exchange rates associated with contracts
in which the expenses for providing services are incurred in one currency and
paid for by the client in another currency. The Company recognizes changes in
value in income only when contracts are settled. At December 31, 1996, the
Company's Canadian subsidiary had outstanding contracts to purchase $750,000
United States dollars per month through March 1997 at an average rate of 1.375
Canadian dollars per United States dollar.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share were computed using the weighted
average number of shares of common stock and common stock equivalents (dilutive
stock options) outstanding during the year.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified in order to conform to
current period presentation. Such reclassifications had no material effect on
the financial position and results of operations as previously reported.
3. STOCK SPLIT
On October 25, 1996, the Board of Directors declared a 3-for-2 stock split to
be effected in the form of a stock dividend of one-half share for each share of
Company common stock outstanding as of the record date, November 11, 1996. The
dividend was distributed to shareholders on November 25, 1996. The stated par
value was not changed from $0.01. A total of $60,000 was reclassified from the
Company's additional paid-in capital to the Company's common stock account.
Earnings per common and common equivalent share, stock option and market price
data referred to in the financial statements and notes hereto have been
adjusted retroactively to give effect to the stock split.
4. ACQUISITION
On July 31, 1996, the Company purchased for $65 million in cash all of the
assets and assumed certain liabilities (the "Acquisition") of Bio-Research
Laboratories Ltd. of Montreal, Quebec ("Bio-Research"). The Acquisition was
financed with the proceeds of a public offering of 4,485,000 shares of the
Company's common stock at $20 per share on July 24, 1996. Net proceeds to the
Company from the offering were approximately $84.9 million, $65 million of which
was used to fund the Acquisition.
The Acquisition was accounted for under the purchase method of accounting. The
purchase price was allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their fair values. The purchase price allocation
was as follows (in thousands):
<TABLE>
<S> <C>
Current assets $16,468
Current liabilities assumed (9,635)
Property, Plant and Equipment 23,141
Excess purchase price over net assets acquired 35,026
------
$65,000
======
</TABLE>
Operations of the acquired business are included in the Company's results of
operations from the date of the Acquisition.
The following represents the unaudited pro forma results of operations as if the
Acquisition had occurred as of January 1 of the respective periods (in
thousands, except for per share data):
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-----------------
<S> <C> <C>
Net service revenue $84,188 $109,332
Income before tax 7,906 10,040
Net income 6,368 7,718
Earnings per common and
common equivalent share $ 0.37 $ 0.44
Weighted average shares
outstanding 17,106 17,701
</TABLE>
The pro forma operating results include each company's results of operations for
the indicated periods with increased amortization of intangible assets as if the
Acquisition had occurred as of January 1, 1995. The pro forma information given
above does not purport to be indicative of the results that actually would have
been obtained if the operations were combined during the periods actually
presented, and is not intended to be a projection of future results or trends.
<PAGE> 12
5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-------- --------
<S> <C> <C>
Trade:
Billed $ 17,273 $ 22,162
Unbilled 4,865 12,496
Reserve for doubtful accounts (315) (669)
------ ------
21,823 33,989
Research and development tax
credits receivable (see note 8) -- 2,546
Other 425 735
------ ------
$ 22,248 $ 37,270
====== ======
</TABLE>
The Company's exposure to credit loss in the event that payment is not received
for revenue recognized equals the outstanding accounts receivable and unbilled
services balance.
6. LONG-TERM DEBT
The Company has domestic and foreign lines of credit ("Credit Facility") with
banks totalling approximately $13.7 million. The lines are collateralized by the
Company's assets and bear interest at the respective bank's prime interest
rates. On December 31, 1995 and 1996, there were no borrowings outstanding
under the lines of credit. Borrowings available under the lines of credit are
subject to certain financial and operating covenants.
7. OPERATING LEASES
The Company leases office space and office equipment under operating leases.
Minimum rental commitments payable in future years under operating leases having
an initial or remaining noncancelable term of one year or more are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 5,367
1998 5,314
1999 5,428
2000 5,686
2001 5,566
Thereafter 55,920
-------
Total minimum rentals $83,281
=======
</TABLE>
Total rent expense for all operating leases was $2,149,000, $2,922,000, and
$3,973,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
8. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------------------
<S> <C> <C>
Deferred tax assets:
Advance billings and receivables $ 608 $ 2,252
Accrued expenses 36 109
Research and development
credit carryforward -- 523
Undeducted research and
development expenditures -- 2,484
------ ------
Total deferred tax assets 644 5,368
Valuation allowance for
deferred tax assets -- --
------ ------
Net deferred tax assets 644 5,368
Deferred tax liabilities:
Depreciation and amortization (188) (5,609)
------ ------
Net deferred tax assets (liabilities) $ 456 $ (241)
====== ======
</TABLE>
The balance sheet classification of the net deferred tax assets (liabilities)
is as follows (in thousands):
<TABLE>
1995 1996
-----------------
<S> <C> <C>
Current deferred tax assets $ 644 $ 2,361
Noncurrent deferred tax liabilities (188) (2,602)
------ ------
Net deferred tax assets (liabilities) $ 456 $ (241)
====== ======
</TABLE>
For financial reporting purposes, income (loss) before income taxes includes
the following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------
<S> <C> <C> <C>
Pretax income (loss):
United States $ 4,442 $ 6,106 $ 8,765
Foreign (443) 59 1,030
------- ------- -------
$ 3,999 $ 6,165 $ 9,795
======= ======= =======
</TABLE>
A deferred tax liability of $2,333,000 was recognized for the difference between
the assigned values and the tax bases of the assets acquired in the Acquisition.
The Canadian subsidiary qualifies for federal and Quebec Scientific Research and
Development deductions and tax credits. Expenditures on certain capital assets
are fully deductible or may be carried forward indefinitely until utilized. The
tax credits are equal to 20% of certain capital and current expenditures. Quebec
tax credits are fully refundable and unclaimed federal credits of $844,000
expire in 2003.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $1,800,000 at December 31, 1996. Provision has not been made for
U.S. or additional foreign taxes on undistributed earnings of foreign
subsidiaries as those earnings have been permanently reinvested. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to an adjustment
for foreign tax credits) and withholding taxes payable to the various
countries. It is not practicable to estimate the amount of deferred tax
<PAGE> 13
liability on foreign undistributed earnings which are intended to be
permanently reinvested. Significant components of the provision for income
taxes attributable to income before income taxes, extraordinary item and
cumulative effect of accounting change are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995 1996
--------------------------------
<S> <C> <C> <C>
Current:
Foreign $ -- $ -- $ (602)
Federal 1,591 2,170 4,191
State and local 286 535 1,035
Deferred:
Federal (10) (113) (1,317)
State (21) (28) (319)
------ ------ ------
Provision for
income taxes $ 1,846 $ 2,564 $ 2,988
====== ====== ======
</TABLE>
The Company's consolidated effective tax rate differed from the federal
statutory rate as set forth below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995 1996
-----------------------------
<S> <C> <C> <C>
Federal statutory rate $ 1,360 $ 2,096 $ 3,330
State and local income
taxes net of
federal benefit 175 335 472
Research and
development tax
credits -- -- (1,106)
Amortization of excess
of purchase price
over net assets
acquired and other
intangible assets 161 161 194
Unrecognized benefit
of foreign net
operating losses 151 -- 60
Tax-exempt investment
income (136) (200) (191)
Other 135 172 229
------ ------ ------
$ 1,846 $ 2,564 $ 2,988
====== ====== ======
</TABLE>
9. STOCK OPTION PLAN
The 1989 Stock Option Plan, as amended, provides for the grant of options to
purchase up to 1,350,000 shares of Common Stock to directors, officers and other
key persons. On May 3, 1996, the Stockholders approved an increase to the
options available to 2,025,000.
Information with respect to the 1989 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
DEC. 31,
1996
WEIGHTED-
AVERAGE
EXERCISE
1994 1995 1996 PRICE
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding
at January 1 862,538 960,984 1,014,156 $ 4.67
Granted 207,207 308,252 368,694 22.03
Exercised (34,377) (125,187) (135,081) 3.28
Canceled (74,384) (129,893) (114,479) 10.46
------- ----------- -------------- ---------
Outstanding at
December 31 960,984 1,014,156 1,133,290 $ 9.90
======= =========== ============== =========
Option price
range at
December 31 $.35 to $8.75 $.35 to $12.92 $.35 to $28.50
============= ============== ==============
Options exercisable
at December 31 614,441 584,402 559,141 $ 2.27
=========== ============== ============== =========
</TABLE>
At December 31, 1994, 1995 and 1996 there were 317,492, 139,133, and 559,887
shares, respectively, available for grant.
Under FAS 123, disclosure of exercise prices is required for the year ended 1996
only. The weighted-average fair value of options granted during 1996 was $13.33.
The weighted-average remaining contractual life of all options is 6.7 years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
FAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996, respectively; risk-free interest rates of 6.26% and 5.99%; dividend
yields of 0% and 0%; volatility factors of the expected market price of the
Company's common stock of .55 and .55; and a weighted-average expected life of
the option of three years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.
<PAGE> 14
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1995 1996
---------------
<S> <C> <C>
Net income $3,601 $6,807
Pro forma compensation expense
from stock options, net of taxes 129 814
----- -----
Pro forma net income $3,472 $5,993
===== =====
Pro forma earnings per common
and common equivalent share $ 0.25 $ 0.38
===== =====
</TABLE>
10. EMPLOYEE BENEFITS
The Company provides defined contribution plans for substantially all of its
employees. Generally, the Company contributes to the plans based on employee
contributions and may also make additional contributions based on annual
profits.
The Company's contributions to the plans were $675,000, $768,000, and $1,364,000
for the years ended December 31, 1994, 1995 and 1996, respectively.
11. GEOGRAPHIC INFORMATION
The Company's operations involve a single industry segment providing preclinical
and clinical research and development services. The principal financial
information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-----------------------------------
<S> <C> <C> <C>
Net Revenue:
North America $ 38,621 $ 51,135 $ 80,028
International 4,253 6,711 13,426
-------- -------- --------
$ 42,874 $ 57,846 $ 93,454
======== ======== ========
Operating Profit (loss):
North America $ 4,166 $ 5,803 $ 9,022
International (664) (303) (196)
-------- -------- --------
$ 3,502 $ 5,500 $ 8,826
======== ======== ========
Identifiable Assets:
North America $ 47,163 $ 54,992 $ 148,275
International 2,517 3,634 8,678
-------- -------- --------
$ 49,680 $ 58,626 $ 156,953
======== ======== ========
</TABLE>
SIGNIFICANT CUSTOMERS
The following sets forth the net service revenue generated under multiple
contracts by clients who accounted for more than 10% of the Company's net
service revenue during each of the periods presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
Client 1994 1995 1996
- ------ -------------------------
<S> <C> <C> <C>
A $ 9,158 $14,606 <10%
B <10% 10,423 $21,601
C 5,648 <10% <10%
</TABLE>
12. CONTINGENCIES
In 1991, a customer commenced legal action against the predecessor of the
Company's preclinical subsidiary claiming damages resulting from statistical
errors in carrying out two clinical research studies. Judgement was rendered in
February 1997 by the Superior Court of Montreal against the Company's
subsidiary in the amount of $586,000 plus interest to accrue from September
1991. The customer has appealed the amount of judgement and the subsidiary's
insurance company has appealed the portion of the judgement which obligates the
insurance company to pay this claim. The preclinical subsidiary, now
responsible for this action, has reserves adequate to cover the current
judgement amount. The Company believes it is entitled, under certain
circumstances and subject to certain limitations, to indemnification from a
prior transferor for a portion of this claim.
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
ClinTrials Research Inc.
We have audited the accompanying consolidated balance sheets of ClinTrials
Research Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ClinTrials Research Inc. at December 31, 1996 and 1995, and the results of
operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Nashville, Tennessee
January 31, 1997,
except for Note 12, as to which the
date is March 11, 1997
<PAGE> 16
- --------------------------------------------------------------------------------
ClinTrials Research Inc.
QUARTERLY FINANCIAL INFORMATION
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1996 First Second Third Fourth
------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $17,670 $19,394 $25,362 $31,028
Income before income taxes $ 1,895 $ 2,129 $ 2,649 $ 3,122
Net income $ 1,113 $ 1,276 $ 2,028 $ 2,390
Net income per share $ 0.08 $ 0.09 $ 0.12 $ 0.13
Number of shares and common stock equivalents used
in computing earnings per common and
common equivalent share 13,778 13,812 16,814 18,302
Market prices of common stock:
High 23.75 33.67 32.75 29.17
Low 13.00 22.67 20.00 16.88
1995 First Second Third Fourth
------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $11,783 $13,491 $15,984 $16,588
Income before income taxes $ 1,224 $ 1,409 $ 1,734 $ 1,798
Net income $ 721 $ 817 $ 979 $ 1,084
Net income per share $ 0.05 $ 0.06 $ 0.07 $ 0.08
Number of shares and common stock equivalents used
in computing earnings per common and
common equivalent share 13,565 13,587 13,686 13,688
Market prices of common stock:
High 8.67 9.00 13.50 14.08
Low 6.00 6.92 8.67 11.33
1994 First Second Third Fourth
------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 9,408 $10,651 $11,147 $11,668
Income before income taxes $ 663 $ 837 $ 1,155 $ 1,344
Net income $ 293 $ 436 $ 608 $ 816
Net income per share $ 0.02 $ 0.03 $ 0.05 $ 0.06
Number of shares and common stock equivalents used
in computing earnings per common and
common equivalent share 13,527 13,493 13,478 13,503
Market prices of common stock:
High 9.17 7.92 5.75 7.00
Low 7.50 3.67 4.33 5.08
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
ClinTrials Research North Carolina Inc.
ClinTrials Research Kentucky Inc.
ClinTrials Research Ltd. (located in UK)
ClinTrials Research SARL (located in France)
ClinTrials BioResearch Ltd. (located in Canada)
ClinTrials Research Israel Ltd. (50% Joint Venture)
ClinTrials Research Latin America, SA (located in Chile)
ClinTrials Research Australia Pty. Ltd.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of ClinTrials Research Inc. of our report dated January 31, 1997,
except for Note 12, as to which the date is March 11, 1997, included in the
1996 Annual Report to Shareholders of ClinTrial Research Inc.
Our audits also included the financial statement schedule of ClinTrials
Research Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CLINTRIALS RESEARCH INC. FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 38,087
<SECURITIES> 0
<RECEIVABLES> 37,270
<ALLOWANCES> 0
<INVENTORY> 1,818
<CURRENT-ASSETS> 81,295
<PP&E> 42,356
<DEPRECIATION> 8,265
<TOTAL-ASSETS> 156,953
<CURRENT-LIABILITIES> 28,949
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 125,223
<TOTAL-LIABILITY-AND-EQUITY> 156,953
<SALES> 0
<TOTAL-REVENUES> 93,454
<CGS> 0
<TOTAL-COSTS> 55,336
<OTHER-EXPENSES> 29,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 9,795
<INCOME-TAX> 2,988
<INCOME-CONTINUING> 6,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,807
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.43
</TABLE>
<PAGE> 1
EXHIBIT 99
ClinTrials Research Inc.
Schedule VIII - Valuation and Qualifying Accounts
FYE 12/31/96
<TABLE>
<CAPTION>
Col A. Col. B Col C. Col. D. Col. E
- --------------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------------
Balance at Charged to
Beginning Charged to Other Accounts - Deductions - Balance at
Description Balance Cost & Expense Describe Describe End of Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Deducted from asset accounts
Allowance for Doubtful Accounts 315,445 458,994 0 105,222 (1 669,217
----------------------------------------------------------------------------------------
Total 315,445 458,994 0 105,222 669,217
========================================================================================
Year Ended December 31, 1995:
Deducted from asset accounts
Allowance for Doubtful Accounts 312,623 65,110 0 62,288 (1 315,445
----------------------------------------------------------------------------------------
Total 312,623 65,110 0 62,288 315,445
========================================================================================
Year Ended December 31, 1994:
Deducted from asset accounts
Allowance for Doubtful Accounts 311,788 222,028 0 221,193 (1 312,623
----------------------------------------------------------------------------------------
Total 311,788 222,028 0 221,193 312,623
========================================================================================
</TABLE>
1) - Uncollectible accounts written off
