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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[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, 1997
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 _______________
COMMISSION FILE NUMBER 33-69586
CLINTRIALS RESEARCH INC.
(Exact name of registrant as specified in its charter)
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)
(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
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------- ----------------------
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 $106,462,000 as of March 16, 1998. The number of Shares of Common
Stock outstanding as of March 16, 1998 was 18,184,916.
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, 1997.
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 1998 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 preclinical and clinical testing of new pharmaceutical and
biotechnology products. At December 31, 1997, the Company had contracts in
backlog to perform clinical research services in multiple 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 8.7% to $103.0 million in 1997 from $94.7 million in 1996.
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
five to seven 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 $36 billion in 1997, approximately $12 billion
of which was spent on preclinical and clinical trials, with approximately $3.5
billion being outsourced to CROs. Research and development expenditures in 1997
for the top 50 pharmaceutical companies in the world increased approximately 11%
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 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; Chicago, Illinois;
Maidenhead, U.K.; Glasgow, Scotland; Brussels, Belgium; Paris, France;
Melbourne, Australia; Jerusalem, Israel; Milan, Italy; 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 a five to seven 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 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
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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 400 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. 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 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 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:
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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. Additionally, in the five years ended 1992, the
average number of clinical trials per new drug application approximately
doubled, and the average number of patients participating in those trials
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 1997 for the top 50 pharmaceutical companies in the
world (as measured by such expenditures) increased approximately 11% 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.
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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, maintaining market share and
accelerating realization of revenue. Currently, total 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 initiated plans 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 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.
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Pursue Strategic Alliances. In these arrangements, the client agrees to
provide the Company with a minimum level of volume 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 its European management team and added a data management facility in
Glasgow, Scotland 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 has delivered 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. 1996 information systems investments
expanded the Company's capacity to process data in a standard unified format and
1997's investments provided value added software which expedited the delivery
process for data and enabled real time integrated interpretation of multiple
complex data sets. Information technology tools currently being utilized include
(i) an integrated voice response system which allows investigators to enroll
patients into a trial, control drug utilization and distribution and have access
to patient diary information through use of a touch tone telephone, (ii)
clinical integrated data review tools which enable the sponsor to have real time
access to data sets in order to create statisical data sets and graphs based
upon patient selection criteria, (iii) an automated facsimile system which
allows investigators to fax a patient Case Report Form ("CRF") directly into the
Company's system and thus expedite data collection and processing and (iv) a
clinical trial management system which integrates various levels of the trial
process to provide a real time review of the full clinical study cycle from
protocol creation to database lock. The Company intends to continue to improve
its management information systems with significant capital expenditures
anticipated in 1998.
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 and other 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).
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 to 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.
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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 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.
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- 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. Additionally, 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
technology transfer resulting in 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.
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.
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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.
Pharmacoeconomic Services. The Company now provides enhanced
pharmacoeconomic and registry services through its merger in June 1997 with
Chicago-based Ovation Healthcare. Such services are growing increasingly
important for determining economic and quality of life factors in the total cost
and outcomes of many diseases.
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, 1997, the Company recognized revenue on contracts with 194 clients.
During 1997, approximately 75% of the Company's net service revenue was derived
from pharmaceutical companies, 23% from biotechnology companies and 2% from
medical device companies. In 1996, such companies contributed 83%, 15% 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 1997, the Company generated approximately 13% of its net
service revenue from multiple contracts with a major pharmaceutical company. No
other client represented 10% or more of the Company's net revenue in 1997. 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.
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 IND, NDA or CANDA to the FDA, or perform any
combination of these services. After negotiating a letter of intent or
definitive contract for clinical studies, 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. Change orders to
existing contracts are 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. The Company may record
additional revenue or reduce backlog as a result of change orders.
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,
8
<PAGE> 10
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, 1995, 1996 and 1997, the Company's backlog was $90.2 million,
$140.7 million and $101.3 million, respectively. The decrease in backlog is
primarily attributable to the cancellations of contracts aggregating
approximately $37 million in backlog which occurred in the fourth quarter of
1996 and first quarter of 1997. None of the cancellations were related to
service or quality problems. 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 still 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. 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 databases, 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 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.
9
<PAGE> 11
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 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
10
<PAGE> 12
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, 1997, the Company had approximately 1500 employees and
contractors, of which 53 held Ph.D. or M.D. degree, 12 held D.V.M. degrees and
123 others held masters degrees. Approximately 40% of the Company's employees
are located in the United States, 42% are located in Canada and the remaining
18% 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.
RISK FACTORS
Information contained or incorporated by reference in this Form 10-K
may contain "forward-looking statements". The following matters constitute
cautionary statements identifying important factors with respect to any such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those reflected in any such
forward-looking statements.
Fluctuation in Quarterly Operating Results. The Company's quarterly
operating results have fluctuated as a result of factors such as delays
experienced in implementing or completing particular clinical trials,
termination of clinical trials and the costs associated with integrating
acquired operations. Since a high percentage of the Company's operating costs
are relatively fixed while revenue recognition is subject to fluctuation, minor
variations in the timing of contracts or the progress of trials may cause
significant variations in quarterly operating results. Results of one quarter
are not necessarily indicative of results for the next quarter.
Dependence on Certain Industries and Clients. The Company provides
services primarily to the pharmaceutical and biotechnology industries.
Accordingly, the Company's net service revenue is substantially dependent on
these industries' expenditures on research and development. Although these
expenditures are large, the number of potential CRO clients is relatively
limited and it is not uncommon for a CRO to derive over 10% of its revenue from
multiple contracts with a single client. The Company has in the past derived and
may in the future derive a significant portion of its net service revenue from a
relatively limited number of clients. The loss of any such client could
materially adversely affect the Company's results of operations. In 1997, one
client accounted for approximately 13% of the Company's net service revenue. No
other client accounted for more than 10% of the Company's net service revenue
during 1997. The Company's operations could be materially and adversely affected
by, among other factors, any economic downturn in the pharmaceutical or
biotechnology industries, any decrease in their research and development
expenditures, or a change in the governmental regulations pursuant to which
these industries operate. Furthermore, management believes that the Company has
benefitted to date from the increasing tendency of pharmaceutical and
biotechnology companies to outsource the performance and analysis of large
clinical research projects to independent parties. Should this tendency be
reduced or halted entirely, the Company's operations would be materially and
adversely affected.
11
<PAGE> 13
Loss of Clinical Research Contracts. Clients of the Company generally
have the right to terminate a contract at any time during a clinical trial,
potentially causing periods of excess capacity and reductions in net service
revenue and net income. Trials may be terminated for various reasons, including
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. The termination of any one trial would typically not have a
material adverse impact on the Company. The loss of a large trial or the
simultaneous loss of multiple trials, however, could result in unplanned periods
of excess capacity and adversely affect the Company's backlog, future revenue
and profitability. In most instances, if a contract is terminated, the Company
is entitled to receive revenue earned to date as well as, at times, a
termination fee. However, because the Company's contracts are predominately
fixed price contracts, the Company bears the risk of cost overruns.
Health Care Industry Reform. The health care industry is subject to
changing political, economic and regulatory influences that may affect the
pharmaceutical and biotechnology industries. In recent years, several
comprehensive health care reform proposals were introduced in the United States
Congress. The intent of the proposals was, generally, to expand health care
coverage for the uninsured and reduce the growth of total health care
expenditures. While none of the proposals were adopted, health care reform may
again be addressed by the United States Congress. In addition, foreign
governments may also undertake health care reforms in their respective
countries. Implementation of government health care reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies, which could decrease the business opportunities available to the
Company. The Company is unable to predict the likelihood of such or similar
legislation being enacted into law or the effect such legislation would have on
the Company.
Exchange Rate Fluctuations. The Company conducts business in several
foreign countries and as a result exposure exists to potentially adverse
movement in foreign currency rates. 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 objective of these
contracts is to reduce the effect of foreign exchange rate fluctuations on the
Company's operating results.
No Assurance of Successful Integration of Acquisitions. A significant
component of the Company's historical growth has come through acquisitions of
other CROs, and the Company's growth strategy includes possible additional
acquisitions. Any acquisitions which the Company may pursue will involve risks,
including the possible inability to integrate the operations and services of the
acquired business, the expenses incurred in connection with the acquisition, the
diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired business. Acquisitions of
foreign companies also may involve the additional risks of, among others,
integration of foreign business practices and overcoming language barriers.
There can be no assurance that any such acquisitions will not have a material
adverse effect upon the Company's results of operations, financial condition or
business prospects.
12
<PAGE> 14
Volatility of Stock Market Price. From time to time, there may be
significant volatility in the market price for the Company's Common Stock. If
revenues, earnings or new contract orders fail to meet expectations of the
investment community, then there could be an immediate and significant impact on
the trading price for the Company's Common Stock. Additionally, changes in
earnings estimated by analysts, general conditions in the economy, the financial
markets or the health care, pharmaceutical, biotechnology or CRO industries,
implementation of proposed healthcare reforms or other developments affecting
the Company could cause the market price of the Common Stock to fluctuate
substantially. In recent years the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant effect on the
market prices of securities issued by many companies for reasons unrelated to
their operating performance.
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; Chicago,
Illinois; Maidenhead, U.K.; Glasgow, Scotland; Brussels, Belgium; Melbourne,
Australia; Milan, Italy; 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 2013.
In 1997, the Company moved its Nashville operations and corporate
headquarters into a new building. The Company leases approximately 53,000 square
feet of this 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
mid-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 amount of approximately $560,000 plus interest to accrue from September
1991. The Company's preclinical subsidiary, now responsible for this action, has
reserves adequate to cover the current judgment amount. The Company's
preclinical subsidiary has appealed 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 the insurance claim related to this
litigation. The Company believes it is entitled, subject to certain limitations,
to indemnification from a former owner of the predecessor for a portion of this
claim. In the opinion of management, the ultimate resolution of such pending
legal proceedings will not have a material effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 15
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 16, 1998, the last reported sale price for the
Common Stock on Nasdaq was $7.56. As of December 31, 1997, the Company had
approximately 229 holders of record of the Common Stock and the Company
estimates an additional 5,450 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>
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......................................................................... 32.00 7.75
Second Quarter........................................................................ 12.63 6.50
Third Quarter......................................................................... 12.69 8.25
Fourth Quarter........................................................................ 9.38 6.25
1998
First Quarter (Through March 16).................................................... 8.50 6.25
</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 5
of the Company's Annual Report to its stockholders for the fiscal year ended
December 31, 1997.
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 6
through 9 of the Company's Annual Report to its stockholders for the fiscal year
ended December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item is incorporated herein by reference to pages 10
through 20 of the Company's Annual Report to its stockholders for the fiscal
year ended December 31, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 16
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 1998 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 1998 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 1998 Annual Meeting of
stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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, 1997.
(a)(2) and (d) Schedule II -- Valuation and Qualifying Accounts (filed as
Exhibit 99 hereto).
15
<PAGE> 17
(a)(3) and (c) Exhibits.
<TABLE>
<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 Company and certain of its
officers
(b) Employment Agreement between the Company and Michael F. Ankcorn
(incorporated by reference to Exhibit 10.1(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
(c) Form of Employment Agreement between the Company and its Executive
Chairman and President and Chief Executive Officer
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 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)
10.6.1 -- 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)
10.7 -- 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)
10.8 -- 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)
10.9 -- 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)
10.10 -- 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' Annual Report on Form 10-K for the year ended December 31, 1993)
10.11 -- Lease Agreement dated December 19, 1995 for the Company's 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)
10.12 -- 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)
10.13 -- Lease dated September 30, 1996 for new offices (commencing in 1998) in
Cary, North Carolina (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1996)
10.14 -- Option Agreement to purchase MPI Research, LLC dated January 30, 1998
between the Company and Jerry R. Mitchell, M.D., Ph.D. and William U.
Parfet
11 -- Statement re: computation of per share earnings
13 -- Pages 5 through 20 of Annual Report to Stockholders for fiscal year
ended December 31, 1997
21 -- List of Subsidiaries of the Registrant
23 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule for the year ended December 31, 1997 (for SEC use only)
27.2 -- Financial Data Schedule Restated for the year ended December 31,
1996 (for SEC use only)
99 -- Schedule II -- Valuation and Qualifying Accounts.
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1997.
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/ JERRY R. MITCHELL
--------------------------------
Jerry R. Mitchell, M.D., Ph.D.
President and Chief Executive Officer, Director
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.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JERRY R. MITCHELL
- ------------------------------ President and Chief Executive March 27, 1998
Jerry R. Mitchell, M.D., Ph.D. Officer, Director
/s/ WILLIAM C. O'NEIL, JR.
- ------------------------------ Executive Chairman of the March 27, 1998
William C. O'Neil, Jr. Board
/s/ MARY A. CHAPUT
- ------------------------------ Chief Financial Officer and March 27, 1998
Mary A. Chaput Secretary (Principal
Financial and Accounting
Officer)
/s/ EDWARD G. NELSON
- ------------------------------ Director March 27, 1998
Edward G. Nelson
/s/ THOMAS G. CIGARRAN
- ------------------------------ Director March 27, 1998
Thomas G. Cigarran
/s/ RICHARD J. ESKIND
- ------------------------------ Director March 27, 1998
Richard J. Eskind
/s/ IRWIN B. ESKIND
- ------------------------------ Director March 27, 1998
Irwin B. Eskind, M.D.
/s/ ROSCOE R. ROBINSON
- ------------------------------ Director March 27, 1998
Roscoe R. Robinson, M.D.
17
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ --------
<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 Company and certain of
its officers
(b) Employment Agreement between the Company and Michael F. Ankcorn
(incorporated by reference to Exhibit 10.1(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
(c) Form of Employment Agreement between the Company and its Executive
Chairman and President and Chief Executive Officer
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 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)
10.6.1 -- 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)
10.7 -- 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)
10.8 -- 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)
10.9 -- 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)
10.10 -- 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)
10.11 -- Lease Agreement dated December 19, 1995 for the Company's 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)
10.12 -- 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)
10.13 -- Lease dated September 30, 1996 for new offices (commencing in 1998) in Cary,
North Carolina (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996)
10.14 -- Option Agreement to purchase MPI Research, LLC dated January 30, 1998
between the Company and Jerry R. Mitchell, M.D., Ph.D. and William U. Parfet
11 -- Statement re: computation of per share earnings
13 -- Pages 5 through 20 of Annual Report to Stockholders for fiscal year
ended December 31, 1997
21 -- List of Subsidiaries of the Registrant
23 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule for the year ended December 31, 1997 (for SEC use only)
27.2 -- Financial Data Schedule Restated for the year ended December 31,
1996 (for SEC use only)
99 -- Schedule II -- Valuation and Qualifying Accounts.
</TABLE>
<PAGE> 1
EXHIBIT 10.1(a)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made and entered into as of
___________________, 199____, 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, and agrees that the employment agreement dated ______________, 199__
is replaced by this Agreement;
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
_______________, 199___ and ending _________________, 199___, 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"). Employee will continue to be paid full pay and benefits during
this ninety (90) day period. 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. However, if this Agreement is not automatically
renewed at ________________, 199____, then the severance payment at that date
only shall be twelve (12) months in a lump sum.
3. DUTIES OF EMPLOYEE. Employee's principal duties and responsibilities
shall be as follows: to serve as _______________________________________.
Employee shall also perform such other executive duties and responsibilities
assigned to Employee
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from time to time in accordance with the policies and objectives established by
the Board of Directors and 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
$___________ 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
(4) 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.
(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 the amount of any unpaid salary
earned by the
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<PAGE> 3
Employee up to and including the date of such Termination by Employer, an amount
equal to Employee's then current monthly base salary multiplied by twelve (12),
payable in a lump sum and any unpaid vacation pay earned by him up to and
including the date of such Termination by Employer. Also for a __________ (____)
month period from effective date of Termination by Employer, Employer shall
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 Termination by Employer, and Employer shall deduct
from any payments payable to the Employee pursuant to this Section the amount of
any employee contributions necessary to maintain such coverage, and Employee
shall continue to be bound by the provisions of Sections 8 and 9 hereof and all
unvested stock options shall become fully vested and Employee shall have twelve
(12) months after the effective termination date to exercises such options.
(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 any unpaid salary earned by the Employee up to
and including the date of such Termination by Employee, an amount equal to
Employee's then current monthly base salary multiplied by three (3), payable in
a lump sum and any unpaid vacation pay earned by him up to and including the
date of such Termination by Employee. Also, for a three (3) month period from
the effective date of Termination by Employee, Employer shall 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 Termination by Employee, and Employer shall deduct
from any payments payable to the Employee pursuant to this Section the amount of
any employee contributions necessary to maintain such coverage 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". 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 the amount of any unpaid salary earned by the Employee up to and
including the date of such Failure to Renew by Employer, an amount equal to
Employee's then current monthly base salary multiplied by six (6) in a lump sum
and any unpaid vacation pay earned by him up to and including the date of such
Termination by Employer. Also, for a six (6) month period from the effective
date of termination by Employer, Employer shall 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
Failure to Renew by Employer, and Employer shall deduct from any payments
payable to the Employee pursuant to this Section the amount of any employee
contributions necessary
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<PAGE> 4
to maintain such coverage, 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, incentive compensation
and any unpaid vacation pay earned by him up to and including the date of such
termination as a result of Change in Control will be paid. Also, for the twelve
(12) month period following the termination date, Employee will continue to
receive 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 termination as a result of Change in Control. Employer
shall deduct from any payments payable to the Employee pursuant to this Section
the amount of any employee contributions necessary to maintain such coverage.
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 (i) if such termination occurs within twelve (12) months following the
Change in Control; or (ii) any change in the Employee's title, reporting
relationship, responsibilities or authority as in effect immediately prior to
any Change of Control is made within twelve (12) months of such Change of
Control and which adversely affects to a material degree his role in the
management of the Employer; or (iii) if 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; or (iv) if any termination
of the Employee's employee benefit programs, including, but not limited to, any
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; or (v) if there is 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 principal office of the Employee immediately prior
to the Change in Control; or (vi) if any failure or refusal of the Employer to
renew this Employment Agreement under Section 2. after any Change of control
shall have occurred.
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 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
4
<PAGE> 5
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.
(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.
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<PAGE> 6
(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" or "Business Opportunity" data to which
Employee obtained access by virtue of his relationship with Employer or its
affiliates for a period of one (1) year following any termination of the
Employee except when (i) it is in the public domain without any fault or
responsibility on the Employee's part; or (ii) it 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, it
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 (iv) it is
independently developed by the Employee through Persons who have not had access
to, or knowledge of, the Confidential Information; or (v) it is approved by the
Employer for disclosure prior to its actual disclosure.
(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 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 (2) years of the term of his employment with
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<PAGE> 7
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 _________ (____) 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 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.
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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.
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:
20 Burton Hills Blvd., Suite 500
Nashville, Tennessee 37215-6104
Attention: William C. O'Neil, Jr.
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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"
--------------------------------
10
<PAGE> 1
EXHIBIT 10.1(c)
EMPLOYMENT AGREEMENT
This AGREEMENT, dated as of _______________, 1998, by and between
CLINTRIALS RESEARCH INC., a Delaware corporation (the "COMPANY"), and
______________________ (hereinafter called the "EXECUTIVE").
WHEREAS, the Company desires to employ the Executive and the Executive
is willing to serve as an employee of the Company, subject to the terms and
conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree as
follows:
SECTION 1. EMPLOYMENT.
During the Term of Employment, as defined in Section 3 hereof, the
Company shall employ the Executive, and the Executive shall perform services for
the Company, as the _______________________________ of the Company on the terms
and conditions set forth in this Agreement.
SECTION 2. DUTIES.
During the Term of Employment, the Executive shall _______________
[DESCRIPTION OF DUTIES].
The Executive shall devote his full business time, attention and
efforts to the performance of services for the Company, its affiliates and
subsidiaries; provided, however, that nothing in this Agreement shall preclude
the Executive from engaging in charitable and community affairs, managing his
personal investments, serving as a member of boards of directors of other
business companies as the Board may from time to time agree, to the extent that
such activities do not inhibit or impair the performance of the Executive's
duties under this Agreement, or conflict or compete (as provided in Section 10
hereof) with the business of the Company, its subsidiaries and affiliates.
SECTION 3. TERM OF EMPLOYMENT.
The Term of Employment of this Agreement shall be the period of one
year commencing on _________________, 1998 (the "EFFECTIVE DATE"); provided,
that commencing on the first anniversary of the Effective Date and on each
subsequent anniversary, the Term of this Agreement shall automatically be
extended for an additional year, unless, no later than ninety (90) days before
each such anniversary, either party provides notice to the other party of an
intention not to extend, and provided further, that this Agreement may be sooner
terminated pursuant to Section 7 hereof.
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SECTION 4. CASH COMPENSATION.
(a) BASE SALARY. The Executive shall receive, as compensation
for his duties and obligations to the Company, a salary at the annual rate of
$_____________. Executive's annual salary shall be payable in substantially
equal installments in accordance with the Company's payroll practice. The Board
shall review the annual salary annually and in light of such review may, in its
discretion, increase such base annual salary taking into account any change in
Executive's then responsibilities, performance by the Executive, and other
pertinent factors. (Such base annual salary as it may be increased from time to
time is referred to as the "BASE SALARY".)
(b) ANNUAL BONUS. The Executive shall be eligible for an
annual bonus for each fiscal year of the Company during the Term of Employment
in the discretion of the Board.
(c) COMPANY STOCK OPTION. Upon execution of this Agreement,
the Company shall grant to Executive a non-qualified stock option (the "Company
Stock Option") to acquire _______ shares of the common shares of beneficial
interest of the Company), pursuant to the Company's 1989 Stock Option Plan at an
exercise price of $_______ per share. The Company Stock Option shall become
exercisable in four equal annual installments commencing on ______________,
199__. If the Company should terminate the Executive's employment for any reason
(including the expiration of the Term of Employment by notice given pursuant to
Section 3 hereof), other than for Cause (as such term is defined in Section 7
hereof), or in the event the Executive terminates his employment for Good Reason
(as such term is defined in Section 7 hereof), then (i) 50% of the number of
shares under the Company Stock Option which are not then exercisable shall
become exercisable and (ii) all shares under the Company Stock Option which are
exercisable (including pursuant to clause (i) of this sentence) shall remain
exercisable for at least twelve months following such termination.
SECTION 5. OTHER BENEFIT AND COMPENSATION PROGRAMS AND PLANS.
(a) EMPLOYEE BENEFIT PROGRAMS. During the Term of Employment,
the Executive shall be entitled to participate in all employee benefit programs
of the Company in effect from time to time for senior executive officers,
including without limitation, pension and other retirement plans, profit sharing
plans, group life insurance, hospitalization, medical and dental coverage and
long-term disability insurance.
(b) EXECUTIVE COMPENSATION PLANS. In addition to the
compensation and the Company Stock Option provided for in Section 4 hereof and
the employee benefit programs provided for in paragraph (a) of this Section, the
Executive, subject to meeting the eligibility provisions thereunder, shall be
entitled to participate in the Company's executive compensation plans, as
presently in effect or as they may be modified or added to by the Company from
time to time, including, without limitation, long-term incentive plans, deferred
compensation plans, supplemental retirement plans and stock option and other
stock based plans.
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(c) VACATIONS AND SICK LEAVE. The Executive shall be entitled
to vacation and sick leave each year, in accordance with the Company's policies
in effect from time to time, provided, however, that the Executive shall be
entitled to a minimum of 4 weeks vacation per year.
(d) EXPENSES. The Executive is authorized to incur reasonable
expense in carrying out his duties and responsibilities under this Agreement,
including expenses for travel and similar items related to such duties and
responsibilities, in accordance with the Company's established policies. The
Company will reimburse Executive for all such expenses upon presentation by
Executive from time to time of an appropriate itemized account of such
expenditures.
(e) RELOCATION EXPENDITURES. Company shall reimburse Executive
in amounts which, after provision for the net amount of all income taxes payable
by Executive with respect to the receipt of such amounts (taking into account
any moving expense or other deductions available to Executive), shall be equal
to all reasonable expenses of moving Executive and Executive's family and their
personal effects from Kalamazoo, Michigan to the Nashville, Tennessee area,
including, without limitation, (i) reasonable travel expenses and (ii) up to
four months of reasonable temporary living expenses.
(f) PURCHASE AND SALE OF RESIDENCES. Company shall, at the
request of Executive, make a bridge loan to Executive in connection with
Executive's purchase of a residence in the Nashville, Tennessee area, in an
amount requested by Executive, but in no event more than $500,000. The loan
shall be secured by a second mortgage on such residence, shall bear interest at
the lowest rate necessary to avoid imputed interest as a "below-market loan"
within the meaning of Section 7872 of the Internal Revenue Code, and shall
provide for repayment of the principal thereof to be made on the earlier of two
years from the date of such loan or the sale by the Executive of his residence
in Kalamazoo, Michigan.
SECTION 6. DIRECTORS' AND OFFICERS' LIABILITY.
The Company shall indemnify Executive and provide Executive with
directors' and officers' liability coverage and shall maintain the
indemnification and directors' and officers' liability insurance coverage, in
each case, at levels of coverage and protection no less favorable than that
provided by the Company for any director or officer of the Company, as
applicable. The directors' and officers' coverage and indemnification provided
herein shall continue, as to Executive, throughout the period of any applicable
statute of limitations subject, with respect to insurance coverage, to
availability of such insurance at commercially reasonable rates.
SECTION 7. TERMINATION.
(a) TERMINATION FOR CAUSE. In order to terminate the
employment of Executive for Cause, the Company must deliver to Executive a
Notice of Termination given within ninety (90) days after the Board both (i) has
actual knowledge of conduct or an event allegedly constituting Cause, and (ii)
has reason to believe that such conduct or event could be grounds for Cause. For
purposes of this Agreement a "Notice of Termination"
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shall mean a copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the membership of the Board, excluding Executive, at a
meeting called for the purpose of determining that Executive has engaged in
conduct which constitutes Cause (and at which Executive had a reasonable
opportunity, in consultation with his counsel, to be heard before the Board
prior to such vote).
For purposes of this Agreement "Cause" shall mean (A) the
Executive is convicted of, or has plead guilty or nolo contendere to, a felony;
(B) the willful and continued failure by the Executive to perform substantially
his duties with the Company (other than any such failure resulting from
incapacity due to physical or mental illness) after a demand for substantial
performance is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes the Executive has not
substantially performed his duties; (C) the Executive engages in conduct that
constitutes neglect or willful misconduct in carrying out his duties under this
Agreement involving material economic harm to the Company or any of its
subsidiaries; (D) material breach of this Agreement by the Executive; or (E) the
Executive's breach of fiduciary duty to the Company. The Executive shall have
ten (10) days following receipt of the Notice of Termination to cure his
conduct, to the extent such cure is possible.
In the event of termination of the Executive's employment by
the Company for Cause, the Executive shall only be entitled to:
(w) any accrued but unpaid salary through his date of
termination;
(x) any earned but unpaid bonus from a prior fiscal year;
(y) reimbursement of reasonable business expenses
incurred prior to the date of termination; and
(z) other or additional benefits, if any, in accordance
with the applicable employee benefit programs of the Company referred
to in Section 5(a).
(b) DEATH, RETIREMENT OR DISABILITY. In the event of the
death, Retirement or Disability of the Executive, the Executive's employment
shall be terminated as of the date of such death, Retirement or Disability and
the Executive, or the Executive's estate or legal representative, as
appropriate, shall be entitled to the amounts referred to in paragraph (a) of
this Section, together with any applicable amounts under the Company's executive
compensation plans referred to in Section 5(b).
For purposes of this Agreement:
(i) "Disability" shall mean "total and permanent
disability", as defined in the Company's long-term disability
plan for senior executives (or such other Company-provided
long-term disability benefit plan sponsored by the Company in
which Executive participates at the time the determination of
Disability is made) (the "Disability Plan"); provided,
however, that no termination of the employment of Executive
for Disability shall become
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effective (x) prior to the expiration of six (6) months after
the date the Executive first incurs the condition giving rise
to the Disability or (y) while the Executive is substantially
performing the regular duties associated with his employment
hereunder.
(ii) "Retirement" shall mean a voluntary decision by
the Executive to retire at any time after attaining age 60.
(c) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the
Company should terminate the Executive's employment for any reason (including
the expiration of the Term of Employment by notice given pursuant to Section 3
hereof), other than for Cause, or in the event the Executive terminates
employment for Good Reason, the Company shall pay the Executive, in a lump sum
within ten (10) days following his termination of employment, an amount equal to
the sum of (i) the Executive's highest Base Salary during the 12-month period
prior to his termination of employment and (ii) the average of the annual bonus
payable to the Executive for each of the two fiscal years of the Company during
the Term of Employment preceding the fiscal year in which his termination of
employment occurs. The Executive shall also be entitled to:
(A) the amounts referred to in paragraph (a) of this Section;
(B) any applicable amounts under the Company's executive
compensation plans referred to in Section 5(b);
(C) continued participation in the medical, dental,
hospitalization and group life insurance coverage in which he was participating
on the date of the termination of his employment until the earlier of:
(x) the end of the 12-month period following his
termination of employment; and
(y) the date, or dates, he receives equivalent
coverage and benefits under the plans and programs of a
subsequent employer (such coverage and benefits to be
determined on a coverage-by-coverage, or benefit-by-benefit,
basis);
provided, however, nothing herein shall be deemed to limit any amounts or
benefits to which the Executive is otherwise entitled under the terms of any
benefit plans of the Company as in effect from time to time; and
(D) reimbursement for outplacement counseling in accordance
with the Company's established policies.
In addition, if the termination of employment referred to in the first sentence
of this paragraph (c) occurs during the first twelve (12) months of the Term of
Employment, the Company shall pay the Executive, in a lump sum within ten (10)
days following his termination of employment, an amount equal to the Executive's
highest Base Salary during
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the Term of Employment.
Executive must, within ninety (90) days after the Executive
has actual knowledge of the occurrence of an event or circumstances which would
give him reason to believe constitutes Good Reason, give thirty (30) days prior
written notice of his intent to terminate employment for Good Reason which
notice sets forth the event or circumstances believed to constitute Good Reason.
Upon receipt of such notice, the Company shall have ten (10) days to cure its
conduct, to the extent such cure is possible.
For purposes of this Agreement, "Good Reason" shall mean any
of the following (without Executive's express written consent):
(i) a reduction in the amount of the Executive's then
current Base Salary (other than as part of a reduction
affecting all of the 5 most senior management employees of the
Company and its subsidiaries);
(ii) the removal of or failure to elect or reelect
the Executive as President or Chief Executive Officer of the
Company, the failure of the Board to nominate the Executive
for a position as a member of the Board or the removal by the
Board of the Executive as a member of the Board (other than
for cause);
(iii) a material diminution in the Executive's duties
or responsibilities or the assignment to the Executive of
duties or responsibilities which are materially inconsistent
with his then current duties and responsibilities;
(iv) any material breach by the Company of any
provision of this Agreement; and
(v) requiring Executive to be based at any office or
location more than twenty-five (25) miles from Nashville,
Tennessee, except for travel reasonably required in the
performance of Executive responsibilities and consistent with
past practices.
(d) TERMINATION WITHOUT GOOD REASON. In the event of a
termination of employment by the Executive without Good Reason (other than a
termination due to death, Retirement or Disability), the Executive shall have
the same entitlements as provided in paragraph (a) of this Section for
termination for Cause.
SECTION 8. CHANGE OF CONTROL.
(a) If the Executive resigns from employment for any reason,
other than Retirement or Disability, during the 90-day period following a Change
of Control, such resignation shall be deemed to be a termination by the
Executive for Good Reason for purposes of Section 7.
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(b) In the event of the termination of employment of the
Executive by the Company without Cause or by the Executive for Good Reason
following a Change of Control, if the Executive is required, pursuant to Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to pay
(through withholding or otherwise) an excise tax on "excess parachute payments"
(as defined in Section 280G of the Code), the Company shall pay the Executive
the amount necessary to place the Executive in the same after-tax financial
position that he would have been in if he had not incurred any excise tax
liability under Section 4999 of the Code.
(c) For purposes of this Agreement, "Change of Control" shall
mean (i) the acquisition of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act")) of greater than 50% of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors (the
"Voting Securities") by any individual, entity or group (within the meaning of
Section 13(d)(3) of the Exchange Act and the rules and regulations thereunder),
other than by the Company, an employee benefit plan (or related trust) sponsored
or maintained by the Company; (ii) a sale of all or substantially all of the
assets of the Company; (iii) a sale or other transfer of assets of the Company,
in one or a series of transactions, representing more than 50% of the total fair
market value of the Company's assets immediately prior to the transaction (or
the first transaction, if there are a series of transactions); (iv) any merger,
consolidation, reorganization, recapitalization or other corporate transaction
with respect to the Company, unless the holders of the Voting Securities
immediately prior to such transaction own more than 50% of the voting securities
of the entity resulting from such transaction or the entity which controls such
resulting entity (in substantially the same percentages as they held prior to
such transaction); or (v) the date, following the expiration of any period of
twelve consecutive months that individuals, who at the beginning of such period
constituted the Board (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board then in office.
SECTION 9. MITIGATION.
The Executive shall not be required to mitigate the amount of
any payments or benefits provided for in Section 7(c) hereof by seeking other
employment or otherwise and no amounts earned by the Executive shall be used to
reduce or offset the amounts payable hereunder, except as otherwise provided in
Section 7(c).
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SECTION 10. AGREEMENT NOT TO COMPETE.
(a) The Executive hereby covenants and agrees that at no time
during the period of his employment nor for a period of one year following the
termination thereof for any reason will he for himself or on behalf of any other
person, partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States or in any foreign country in which any of them are engaged in business at
the time of such termination of employment for as long as they carry on a
business therein. Notwithstanding the preceding sentence, the Executive shall
not be prohibited from owning less than five (5%) percent of any publicly traded
corporation, whether or not such corporation is in competition with the Company.
(b) The Executive hereby covenants and agrees that, at all
times during the period of his employment and for a period of one year
immediately following the termination thereof for any reason, the Executive
shall not employ or seek to employ any person employed at that time by the
Company or any of its subsidiaries, or otherwise encourage or entice such person
or entity to leave such employment.
(c) It is the intention of the parties hereto that the
restrictions contained in this Section be enforceable to the fullest extent
permitted by applicable law. Therefore, to the extent any court of competent
jurisdiction shall determine that any portion of the foregoing restrictions is
excessive, such provision shall not be entirely void, but rather shall be
limited or revised only to the extent necessary to make it enforceable.
Specifically, if any court of competent jurisdiction should hold that any
portion of the foregoing description is overly broad as to one or more states of
the United States or one or more foreign jurisdictions, then that state or
states or foreign jurisdiction or jurisdictions shall be eliminated from the
territory to which the restrictions of paragraph (a) of this Section applies and
the restrictions shall remain applicable in all other states of the United
States and foreign jurisdictions.
SECTION 11. CONFIDENTIAL INFORMATION.
The Executive agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to the Company, its
subsidiaries and affiliates, including, without limitation, customer lists,
client lists, trade secrets, pricing policies and other business affairs of the
Company, its subsidiaries and affiliates learned by him from the Company or any
such subsidiary or affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone outside
the Company or any of its subsidiaries or affiliates, whether during or after
his period of service with the Company, except (i) as such disclosure may be
required or appropriate in connection with his work as an employee of the
Company or (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
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information. The Executive agrees to give the Company advance written notice of
any disclosure pursuant to clause (ii) of the preceding sentence and to
cooperate with any efforts by the Company to limit the extent of such
disclosure. Upon request by the Company, the Executive agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company, subsidiary or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer files in any media and other documents (and all copies thereof)
relating to the Company's or any subsidiary's or affiliate's business and all
property of the Company or any subsidiary or affiliate associated therewith,
which he may then possess or have under his direct control, other than personal
notes, diaries, rolodexes and correspondence.
SECTION 12. REMEDY.
Should the Executive engage in or perform, either directly or
indirectly, any of the acts prohibited by Sections 10 or 11 hereof, it is agreed
that the Company shall be entitled to full injunctive relief, to be issued by
any competent court of equity, enjoining and restraining the Executive and each
and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The foregoing
remedy available to the Company shall not be deemed to limit or prevent the
exercise by the Company of any or all further rights and remedies which may be
available to the Company hereunder or at law or in equity.
SECTION 13. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the assigns and successors of the
Company, but neither this Agreement nor any rights hereunder shall be assignable
or otherwise subject to hypothecation by the Executive (except by will or by
operation of the laws of intestate succession) or by the Company except that the
Company shall be required to assign this Agreement to any successor (whether by
purchase or otherwise) to all or substantially all of the assets or businesses
of the Company, unless otherwise requested by the Executive.
SECTION 14. REPRESENTATIONS.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any material agreement to
which it is a party or by which it is bound. The Executive represents that he is
not a party or bound by any agreement that would be violated by the performance
of his obligations under this Agreement.
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SECTION 15. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without reference to rules
relating to conflicts of law.
SECTION 16. ENTIRE AGREEMENT.
This Agreement constitutes the full and complete understanding and
agreement of the parties with respect to the subject matter hereof and
supersedes all prior understandings and agreements as to employment of the
Executive by the Company. This Agreement cannot be amended, changed, modified or
terminated without the written consent of the parties hereto.
SECTION 17. WAIVER OF BREACH.
The waiver by either party of a breach of any term of this Agreement
shall not operate nor be construed as a waiver of any subsequent breach thereof.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be.
SECTION 18. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
SECTION 19. NOTICES.
Any notice, report, request or other communication given under this
Agreement shall be written and shall be effective upon delivery personally or
when sent by certified or registered mail, postage prepaid, return receipt
requested.
Unless otherwise notified by any of the parties, notices shall be sent
to the parties as follows:
TO THE COMPANY:
ClinTrials Research Inc.
20 Burton Hills Road
Suite 500
Nashville, Tennessee 37215
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WITH A COPY TO:
Mark Manner
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238
TO THE EXECUTIVE:
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WITH A COPY TO:
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SECTION 20. 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.
SECTION 21. SEVERABILITY.
If any one or more of the provisions contained in this Agreement shall
be invalid, illegal or unenforceable in any respect under any applicable law,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 22. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
SECTION 23. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CLINTRIALS RESEARCH INC.
By:
-----------------------------------
Title:
--------------------------------
EXECUTIVE:
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EXHIBIT 10.14
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") dated as of January 30, 1998,
by and between CLINTRIALS RESEARCH, INC., a Delaware corporation ("ClinTrials"),
MPI RESEARCH, LLC, a Michigan limited liability company ("MPI"), MPI RESEARCH
ACQUISITION CO., INC., a Michigan corporation ("MPIC"), JERRY R. MITCHELL, M.D.,
Ph.D. and WILLIAM U. PARFET (collectively, Dr. Mitchell and Mr. Parfet are
referred to herein as the "Shareholders").
RECITALS:
WHEREAS, the Shareholders own beneficially and of record in equal
amounts all of the shares of capital stock of MPIC ("Stock"), which owns all of
the units and equity interests of every kind of MPI, now issued or outstanding
(the "Equity Interests"); and
WHEREAS, MPI and the Shareholders desire to grant to ClinTrials, and
ClinTrials desires to purchase, an option to acquire the Stock; and
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
SECTION 1 OPTION.
1.1 General. In consideration of payment of $1,500,000 in cash (the
"Option Price"), the Shareholders hereby grant ClinTrials an irrevocable option
(the "Option"), during the Term (as defined in Section 3 hereof), to acquire all
but not less than all of the Stock at a price equal to the Option Purchase Price
as determined in accordance with Section 1.3 hereof by issuing shares of common
stock of ClinTrials in a private placement. The value of each share of
ClinTrials' common stock for purposes of satisfying the Option Purchase Price at
the closing of the transactions contemplated hereby (the "Closing") shall be the
average closing price of such shares for the twenty trading days ending five
days immediately preceding the Closing.
1.2 Mechanics of Exercise. ClinTrials may exercise the Option at any
time during the Term by providing written notice to MPIC and the Shareholders of
its intent to exercise the Option (the "Option Exercise Notice"), which notice
shall refer to this Agreement. The parties shall then proceed to determine the
Option Purchase Price as set forth in Section 1.3. The Closing shall take place
in accordance with Section 4 hereof. No Shareholders or affiliates of MPIC or
MPI serving on the board of directors of ClinTrials shall participate in any
decisions or deliberations by the board of directors of ClinTrials involving
this Agreement or any other matter relating to the relationship among MPIC, MPI,
the Shareholders and ClinTrials.
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1.3 Option Purchase Price. The purchase price payable by ClinTrials to
exercise the Option shall be equal to the valuation of MPIC for acquisition
purposes as determined in this Section 1.3 (the "Valuation"), less the Option
Price (the "Option Purchase Price").
ClinTrials and MPIC shall each select an investment banking firm within
ten (10) days of the date of the Option Exercise Notice and MPIC and the
Shareholders shall make available to such investment banking firms all necessary
information for such firms to prepare the Valuation of MPIC for acquisition
purposes. In the event such firms' valuations are within 10% of each other, the
Valuation shall be the average of the two valuations. If such valuations are
more than 10% apart, ClinTrials and MPIC shall select a third independent
investment banking firm of national reputation to provide an additional
valuation within the range determined by the firms originally retained by
ClinTrials and MPIC and to deliver a fairness opinion to ClinTrials. The
Valuation shall then be the valuation of the third firm; provided, however, that
in the event the Valuation is less than $25,000,000 or more than $70,000,000,
the Option Exercise Notice shall immediately terminate, with neither party
having any further rights or obligations with respect to this Agreement; further
provided, however, that ClinTrials may waive this condition (i) if it is willing
to pay $25,000,000 in the event the Valuation is less than $25,000,000 or (ii)
if it is willing to pay the full Option Purchase Price in the event the
Valuation is greater than $70,000,000. In determining the amount of the
Valuation, the parties hereby and the investment banking firms retained shall
assume that all of the Stock is being purchased by a willing buyer.
SECTION 2 EXCLUSIVITY. MPIC agrees that during the Term, it will not issue any
additional equity interests or rights to acquire equity interests in MPIC or MPI
to anyone other than a Shareholder nor will it sell any substantial portion of
its assets or business other than in the ordinary course of business, without
prior written approval from ClinTrials. The Shareholders shall not transfer,
sell, pledge, hypothecate or otherwise encumber the Stock; provided that the
Shareholders may transfer Stock to members of their immediate families, a family
trust or a limited partnership controlled by one or more of the Shareholders so
long as such transferee agrees to be bound by the terms hereof, and may pledge,
or grant security interests in, the Stock to a brokerage firm or financial
institution to secure indebtedness; provided such transfer, pledge or security
interest does not impair upon exercise of and payment of the Option Purchase
Price the ability of the Shareholders or permitted transferee to transfer such
interest to ClinTrials upon exercise of the Option. In the event of any transfer
of the Stock pursuant to the immediately preceding sentence, any Stock held by
such transferees shall be purchased on the same terms as the Stock held by the
Shareholders in the event this Option is exercised. The Shareholders covenant
and agree that during the Term they will not take or allow MPIC or MPI to take
any actions that would prevent or hinder the exercise of the Option or
materially prevent or hinder the Closing, or prevent or hinder MPIC or the
Shareholders from making the representations and warranties provided for herein
to be made at Closing.
SECTION 3 TERM AND NONCOMPETE. The term of this Agreement (the "Term") shall
commence on the date of this Agreement and end twenty-six (26) months from the
date of this Agreement. At any time following fourteen (14) months from the date
of this
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Agreement, the Shareholders may elect to cancel the Option by returning to
ClinTrials the Option Price without interest. To exercise this right of
cancellation, the Shareholders shall give ClinTrials written notice of their
intent to cancel the Option, and ClinTrials shall have twenty (20) business days
after receipt of such notice to exercise the Option. In the event the
Shareholders cancel the Option and within the twenty-six (26) month initial term
MPIC, MPI, its assets or business is sold or transferred to, or combined or
merged with any entity other than ClinTrials (an "Acquisition"), or if any
agreement regarding an Acquisition is entered into by MPI or the Shareholders,
ClinTrials shall receive 10% of the gross consideration as and when received by
MPIC, MPI and/or the Shareholders or their permitted transferees above
$25,000,000 at the closing of the transaction or thereafter. Payments on amounts
paid into escrow will be payable upon the release of such amounts from escrow to
the Shareholders. If any portion of the consideration is returned to the
purchaser in connection with indemnification arrangements or otherwise,
ClinTrials shall reimburse the Shareholders ten percent (10%) of the
consideration so returned (in the form received by ClinTrials up to, but not
exceeding the amount received by ClinTrials). If any portion of the
consideration is paid in the form of securities, the Shareholders shall have the
option of paying ClinTrials its share of the securities received and requiring
that ClinTrials agree to the restrictions on sale of such securities to which
the Shareholders are subject or paying ClinTrials its share of the fair market
value of the securities received. If such securities do not have an existing
public trading market, the value of such securities shall be based upon the good
faith reasonable determination of the Shareholders after consultation with their
financial advisors. In the event of such a purchase during the Term, the
Shareholders agree that until the date twenty-six (26) months from the date of
this Agreement, they will not either directly or indirectly through any
partnership, corporation or business entity in which they have an ownership
interest or serve as an officer, director, employee or independent contractor of
or as a consultant for, (a) solicit, divert or take away the business of, or
attempt to solicit, divert or take away the business of, any of the customers of
ClinTrials in the pre-clinical area; (b) solicit, entice or persuade any other
employees or agents of ClinTrials to leave the services of ClinTrials for any
reason; provided, however, that a general solicitation not specifically directed
at such employees by a disinterested third party shall not be considered a
violation hereof; or (c) 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 of MPIC, MPI or ClinTrials in the pre-clinical
area in the same geographic area where ClinTrials, MPIC, or MPI conducts
business or solicits customers. 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
Shareholders acknowledge that the covenants contained in this Section 3 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. It
is acknowledged and agreed that the covenants contained in this Section 3 shall
survive any termination of this Agreement. The Shareholders further acknowledge
and agree that the ascertainment of damages in the event of their breach of any
covenant contained in
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<PAGE> 4
this Section 3 would be difficult, if at all possible. The Shareholders
therefore acknowledge and agree that ClinTrials (in addition to and without
limiting any other remedy or right which it might have) shall have the right to
have a court of competent jurisdiction enjoin the Shareholders from committing
any such breach. During the term of the Option, and if terminated prior to its
stated Term, continuing through the date that is twenty-six (26) months from the
date of execution of this Agreement, the Shareholders, MPIC and MPI agree not to
directly or indirectly solicit, encourage, or seek any offer or offers to
acquire MPIC, MPI, the Stock or MPIC's or MPI's assets or business from anyone
other than ClinTrials, it being the intention of the parties that the
Shareholders, MPIC and MPI may entertain offers to sell MPIC, MPI, the Stock or
its business only in response to an unsolicited offer, but that if such
unsolicited offer is made, the Shareholders and MPI shall be free to negotiate
and consummate an acquisition with such offeror, subject to compliance with this
Section 3.
SECTION 4 CLOSING.
4.1 Time of Closing. Closing shall be as soon as practicable after
delivery of the Option Exercise Notice and satisfaction of the conditions
contained herein and in the definitive acquisition documents.
4.2 Location. The Closing shall take place at the corporate
headquarters of ClinTrials or such other location as the parties may mutually
agree.
4.3 Closing Obligations. At Closing, MPIC, MPI and the Shareholders
shall execute and deliver to ClinTrials documents evidencing the transfer and
conveyance of the Stock to ClinTrials free and clear of all liens, claims or
encumbrances as well as the closing deliveries required by this Agreement.
ClinTrials shall pay the Shareholders the Option Purchase Price at Closing.
4.4 Shareholder Approval. In the event that the issuance of the stock
of ClinTrials in payment of the Option Purchase Price requires shareholder
approval, the receipt of such approval shall be a condition of Closing. In the
event shareholder approval is not obtained within ninety (90) days following
exercise of the Option by ClinTrials and determination of the Option Purchase
Price, MPIC may elect to withdraw from the transactions contemplated by this
Agreement and ClinTrials shall make a cash payment to MPIC equal to three
percent (3%) of the Option Purchase Price within five (5) days of MPIC's
election to withdraw.
4.5 Fairness Opinion. As a further condition of Closing, ClinTrials
shall have received a fairness opinion from an investment banker of national
reputation as to the Valuation.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF MPI AND THE SHAREHOLDERS. The
Shareholders, MPIC and MPI make the following representations and warranties as
of the date hereof:
4
<PAGE> 5
5.1 Organization, Qualification and Authority. MPIC is a corporation,
and MPI is a limited liability company, in each case duly organized and validly
existing in the state of Michigan, and each is in good standing and qualified to
do business as a foreign company under the laws of each state in which it is
required to be qualified in all material respects. Each of MPIC and MPI has in
all material respects consistently observed and complied with the general
corporate and limited liability company law of its state of organization and has
the full power and authority to own, lease and operate its facilities and assets
as presently owned, leased and operated, and to carry on its business as it is
now being conducted in all material respects. Except for the Shareholders and
for security interests on the assets of MPI held by Old Kent Bank, Kalamazoo,
Michigan, no other person or entity has a valid claim to, owns or holds, has any
interest in, whether legal, equitable or beneficial, or has the right to
purchase, any portion of the equity interests or stock of MPIC or MPI or its or
their business.
5.2 Authority Regarding This Agreement. MPIC, MPI and the Shareholders
have the full right, power and authority to execute and deliver this Agreement.
The execution and delivery of this Agreement by MPIC, MPI and the Shareholders,
have been duly authorized by all necessary action on the part of MPIC, MPI and
the Shareholders. No other action, consent or approval on the part of MPIC, MPI,
the Shareholders or any other person or entity, is necessary to authorize
MPIC's, MPI's and the Shareholders' due and valid execution and delivery of this
Agreement. This Agreement constitutes the valid and binding obligations of each
of MPIC, MPI and the Shareholders, where applicable, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights.
5.3 Absence of Default; No Litigation. Other than a requirement that
there be no change in the management of MPI without the consent of Old Kent
Bank, the execution and delivery of this Agreement by MPIC, MPI and/or the
Shareholders will not constitute a violation of, or be in conflict with, and
will not, with or without the giving of notice or the passage of time, or both,
result in a breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or liability
affecting the Stock or the business of MPIC or MPI, or result in the creation or
imposition of any security interest, lien, charge or other encumbrance upon any
of the Stock, or the assets of MPIC or MPI under: (a) any term or provision of
the organizational documents of MPI or MPIC; (b) any contract, lease, purchase
order, agreement, document, instrument, indenture, mortgage, pledge, assignment,
permit, license, approval or other commitment to which MPIC, MPI and/or the
Shareholders are a party or by which MPIC, MPI and/or the Shareholders are
bound; (c) any judgment, decree, order, regulation or rule of any court or
regulatory authority; or (d) any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which MPIC, MPI and/or the Shareholders are subject or
that would have a material adverse effect on the Stock, Equity Interests, or the
business or the assets of MPIC or MPI. There are no lawsuits, proceedings,
actions, arbitrations, governmental investigations, claims, inquiries or
proceedings pending or, to the knowledge of the Shareholders, threatened
involving the Stock, the Equity Interests, MPIC, MPI, the Shareholders or any of
the
5
<PAGE> 6
business or properties of MPIC or MPI, which are reasonably likely to have a
material adverse effect on the financial condition of MPIC, MPI or the ability
of Shareholders, MPIC and MPI to enter into this Agreement and to proceed to the
Closing contemplated hereby in the event of exercise of the Option.
5.4 Broker's or Finder's Fee. Each party shall be responsible for the
payment of any fee to any finder, broker, consultant or similar person in
connection with the transactions contemplated by this Agreement.
SECTION 6 REPRESENTATIONS AND WARRANTIES OF CLINTRIALS.
6.1 Organization, Qualification and Authority. ClinTrials is a
corporation duly organized and validly existing in the state of Delaware, and is
in good standing and qualified to do business as a foreign limited liability
company under the laws of each state in which it is required to be qualified in
all material respects. ClinTrials has in all material respects consistently
observed and complied with the general corporate law of its state of
incorporation and has the full power and authority to own, lease and operate its
facilities and assets as presently owned, leased and operated, and to carry on
its business as it is now being conducted in all material respects.
6.2 Authority Regarding This Agreement. ClinTrials has the full right,
power and authority to execute and deliver this Agreement. The execution and
delivery of this Agreement by ClinTrials, has been duly authorized by all
necessary action on the part of ClinTrials. No other action, consent or approval
on the part of ClinTrials or any other person or entity, is necessary to
authorize ClinTrials' due and valid execution, delivery and consummation of this
Agreement. This Agreement constitutes the valid and binding obligation of
ClinTrials enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights.
6.3 Absence of Default; No Litigation. The execution and delivery of
this Agreement by ClinTrials will not constitute a violation of, or be in
conflict with, and will not, with or without the giving of notice or the passage
of time, or both, result in a breach of, constitute a default under, or create
(or cause the acceleration of the maturity of) any debt, indenture, obligation
or liability affecting the business of ClinTrials, or result in the creation or
imposition of any security interest, lien, charge or other encumbrance upon any
of the assets of ClinTrials under: (a) any term or provision of the
organizational documents of ClinTrials; (b) any contract, lease, purchase order,
agreement, document, instrument, indenture, mortgage, pledge, assignment,
permit, license, approval or other commitment to which ClinTrials is a party or
by which ClinTrials is bound; (c) any judgment, decree, order, regulation or
rule of any court or regulatory authority; or (d) any law, statute, rule,
regulation, order, writ, injunction, judgment or decree of any court or
governmental authority or arbitration tribunal to which ClinTrials is subject or
that would have an adverse effect on MPI or the business or the assets of
ClinTrials. There are no lawsuits, proceedings, actions, arbitrations,
governmental investigations, claims, inquiries or proceedings pending or, to the
knowledge of ClinTrials, threatened involving ClinTrials or
6
<PAGE> 7
any of the business or properties of ClinTrials, which are reasonably likely to
have a material adverse effect on the financial condition of ClinTrials or the
ability of ClinTrials to enter into this Agreement and to proceed to the Closing
contemplated hereby in the event of exercise of the Option.
SECTION 7 COVENANTS OF CLINTRIALS, MPIC, MPI AND THE SHAREHOLDERS.
7.1 Financial Statements. During the Term, MPIC, MPI and the
Shareholders shall submit quarterly financial information, audited if such
financial information is normally audited and such audit is available,
concerning MPIC and MPI, and such other business information as may be
reasonably requested by ClinTrials, to ClinTrials' board of directors.
7.2 Employee and Business Retention. MPIC, MPI and Shareholders shall
use their reasonable commercial efforts to retain MPIC's and MPI's employees in
their current positions until the Closing, and to maintain MPIC's and MPI's
business and customers.
7.3 Merger Agreement. In the event the Option is exercised, ClinTrials,
MPIC, MPI and the Shareholders shall execute and deliver an acquisition
agreement and plan of merger ("Merger Agreement") with customary
representations, warranties, covenants, closing conditions and indemnification
arrangements as more fully set forth on Exhibit A attached hereto. The parties
hereto shall use their best efforts to cause the acquisition of the Stock to
qualify as a tax free reorganization under the Internal Revenue Code.
7.4 Securities Law Representations; Registration Rights. In the event
the Option is exercised, MPIC, MPI and the Shareholders agree to deliver to
ClinTrials securities representation letters to permit compliance with the
private placement exemption of applicable federal and state securities laws.
ClinTrials agrees to enter into a Registration Rights Agreement with the
Shareholders upon Closing, wherein subject to customary and reasonable
restrictions and limitations, ClinTrials will grant the Shareholders demand
registration rights and incidental registration rights, with respect to shares
of common stock of ClinTrials owned by the Shareholders pursuant to payment of
the Option Purchase Price. The form of registration rights agreement shall be
agreed upon and attached as an exhibit to the Merger Agreement.
SECTION 8 INDEMNIFICATION. MPIC, MPI and the Shareholders shall, jointly and
severally, indemnify, defend, and hold harmless ClinTrials and the directors,
officers, stockholders, employees and agents of each against any and all losses,
costs, and expenses (including reasonable cost of investigation, court costs and
legal fees actually incurred) and other damages resulting from any breach by
MPIC, MPI or the Shareholders of any of the covenants, obligations,
representations or warranties or breach or untruth of any representation,
warranty, fact or conclusion contained in this Agreement. ClinTrials shall
indemnify, defend and hold harmless MPIC, MPI, the Shareholders and their
employees and agents against any and all losses, costs and expenses (including
reasonable cost of investigation, court costs and legal fees actually incurred)
and other damages resulting from any breach by ClinTrials of any of the
covenants, obligations,
7
<PAGE> 8
representations or warranties or breach or untruth of any representation,
warranty, fact or conclusion contained in this Agreement.
SECTION 9 MISCELLANEOUS.
9.1 Binding Nature; Amendment. This Agreement may not be assigned by
either party without the other parties' consent, except that ClinTrials may
assign this Agreement to an Affiliate; provided that no such assignment shall
release ClinTrials from its obligations hereunder, and any prohibited assignment
shall be null and void. This Agreement shall be binding upon and enforceable by
a party's permitted transferees, successors, heirs and assigns. Any invalidity
or unenforceability of any provision or application of this Agreement shall not
affect other lawful provisions and application hereof, and to this end the
provisions of this Agreement are declared to be severable. This Agreement may
not be modified or amended except by a writing signed by MPIC, MPI, the
Shareholders and ClinTrials.
9.2 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be given by confirmed facsimile or
certified or registered mail addressed:
If to ClinTrials:
ClinTrials Research, Inc.
20 Burton Hill Boulevard
Suite 500
Nashville, Tennessee 37215
Attention: William C. O'Neil, Jr.
Phone: 615/665-9665
Facsimile: 615/665-9676
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
Attention: Mark Manner
Phone: 615/256-0500
Facsimile: 615/251-1059
If to MPIC or MPI:
William U. Parfet and Dr. Jerry R. Mitchell
MPI Research
54943 North Main Street
Mattawan, Michigan 49071-9399
8
<PAGE> 9
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Neil Anderson
Phone: 212/558-4000
Facsimile: 212/558-3588
If to the Shareholders:
William U. Parfet and Dr. Jerry R. Mitchell
MPI Research
54943 North Main Street
Mattawan, Michigan 49071-9399
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Neil Anderson
Phone: 212/558-4000
Facsimile: 212/558-3588
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this section will (i) if delivered personally,
be deemed given upon delivery, (ii) if delivered by facsimile transmission, be
deemed given when sent and confirmation of receipt is received, and (iii) if
delivered by certified or registered mail in the manner described above, be
deemed given on the date of receipt as evidenced by the return receipt. Any
party from time to time may change its address for the purpose of notices to
that party by giving notice to the other party hereto specifying a new address,
but no such notice will be deemed to have been given until it is actually
received by the party sought to be charged with the contents thereof.
9.3 Expenses. Except as otherwise provided herein, each party hereto
shall pay its own expenses, including without limitation, legal and accounting
fees and expenses, incident to its negotiation and preparation of this Agreement
and to its performance and compliance with the provisions contained herein. All
expenses of the Valuation determination set forth in Section 1.3 shall be borne
by the party incurring such expenses. The expenses of the third investment
banking firm if required under Section 1.3, shall be borne equally by ClinTrials
and MPI.
9
<PAGE> 10
9.4 Titles and Headings. Title and headings to sections herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
9.5 No Third Party Beneficiaries. Nothing in this Agreement or in any
attachment hereto is intended or shall be construed to give any person or
entity, other than the parties hereto and their heirs and permitted transferees,
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any attachment hereto.
9.6 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement and the Management Agreement, including documents,
certificates and contracts executed and delivered pursuant in connection
therewith, contains the sole and entire agreement between the parties hereto
with respect to the subject matter hereof.
9.7 Construction. All pronouns and any variation thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identify of the person or entity, or the context, may require.
9.8 Execution in Counterparts. This Agreement may be executed in
multiple counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each of the parties and delivered to each of the other
parties.
9.9 Applicable Law. This Agreement shall be governed by and in
accordance with the laws of the State of Delaware. Any action or claim relating
to or arising out of this Agreement may be brought in any appropriate state or
federal court in Delaware, and each party hereto irrevocably consents to
personal jurisdiction in any such court for such action or claim.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed effective the date written above.
CLINTRIALS RESEARCH, INC.
By:
--------------------------------
Title:
-----------------------------
MPI RESEARCH ACQUISITION CO., INC.
By:
--------------------------------
Title:
-----------------------------
MPI RESEARCH, LLC
By:
--------------------------------
Title:
-----------------------------
SHAREHOLDERS
-----------------------------------
Jerry R. Mitchell, M.D., Ph.D.
-----------------------------------
William U. Parfet
11
<PAGE> 12
EXHIBIT A
Representations and Warranties; Indemnification
Upon exercise of the Option, the parties agree to enter into an
acquisition agreement and plan of merger (the "Merger Agreement"), in form and
substance customary for transactions of similar size and complexity, containing
customary representations, warranties and covenants. The representations and
warranties of the Shareholders, MPIC, MPI and ClinTrials will be subject to
exceptions as necessary to cause such representations and warranties to be true
and correct in all material respects when given, and will include
representations as to the absence of any material undisclosed liabilities or
contingencies. The Merger Agreement shall provide that the Shareholders will
severally but not jointly indemnify, defend and hold harmless ClinTrials, and
ClinTrials shall indemnify, defend and hold harmless the Shareholders, against
any and all losses, costs and expenses arising out of any material breach of any
representation and warranty, provided that in the case of the Shareholders, such
indemnity shall be in proportion to such Shareholders' ownership of Stock as of
the date hereof, and without giving effect to transfer of any shares of Stock to
a permitted transferee. Indemnification under the Merger Agreement shall, in the
aggregate, be subject to a $2,000,000 threshold or $1,000,000 deductible at the
election of each party made upon execution of the Merger Agreement and a cap
equal to the Option Purchase Price. The indemnification provisions shall expire
two years from the date of the Closing of the Merger Agreement, except for
indemnification for material breaches of the representations and warranties on
environmental and tax matters, which shall survive for the applicable statute of
limitations.
Closing Conditions
The Merger Agreement shall also contain usual and customary closing
conditions, including (a) the requirement that the Shareholders and ClinTrials
provide a bring-down certificate to Closing regarding the accuracy in all
material respects of the representations and warranties made in the Merger
Agreement, and representing and warranting that there has been no material
adverse change in the operations of the business of MPIC or ClinTrials, as
applicable, since the date of the Valuation; and (b) compliance in all material
respects with applicable law, including the expiration or early termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
Covenant Not to Compete
The Merger Agreement shall contain customary sale of business
non-compete provisions for the Shareholders providing that a non-compete period
shall commence at the Closing and terminate on the third anniversary thereof.
These provisions shall be subject to specific performance.
12
<PAGE> 1
EXHIBIT 11
ClinTrials Research Inc.
Computation of Earnings per Share
(in thousands, except for earnings per share)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) before
cumulative effect of accounting change $ 798 $ 2,153 $ 3,601 $ 6,425 $ (6,396)
Cumulative effect of accounting change 243 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 1,041 $ 2,153 $ 3,601 $ 6,425 $ (6,396)
========== ========== ========== ========== ==========
Weighted average shares outstanding for 9,989 13,109 13,497 15,447 18,156
Basic Earnings per Share
Dilutive effect of stock options 390 391 385 480 --
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding and
dilutive effect of stock options for Diluted
Earnings per Share 10,379 13,500 13,882 15,927 18,156
========== ========== ========== ========== ==========
Basic Earnings per Share:
Income (loss) before cumulative effect of
accounting change $ 0.08 $ 0.16 $ 0.27 $ 0.42 $ (0.35)
Cumulative effect of accounting change 0.02 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.10 $ 0.16 $ 0.27 $ 0.42 $ (0.35)
========== ========== ========== ========== ==========
Diluted Earnings per Share:
Income (loss) before cumulative effect
of accounting change $ 0.08 $ 0.16 $ 0.26 $ 0.40 $ (0.35)
Cumulative effect of accounting change 0.02 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 0.10 $ 0.16 $ 0.26 $ 0.40 $ (0.35)
========== ========== ========== ========== ==========
</TABLE>
Note: Prior period amounts have been restated to give retroactive effect to
the 1997 merger with Ovation, which was accounted for as a pooling of
interests.
<PAGE> 1
EXHIBIT 13
ClinTrials Research Inc.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenue:
Service revenue $ 49,939 $67,763 $86,217 $123,703 $ 125,687
Less subcontractor costs 14,655 24,889 28,371 28,984 22,697
-------- ------- ------- -------- ---------
Net service revenue 35,284 42,874 57,846 94,719 102,990
Operating costs and expenses:
Direct costs 21,121 25,324 34,850 56,510 69,279
Selling, general and administrative
expenses 10,239 12,111 15,209 25,852 37,982
Depreciation and amortization 1,691 1,937 2,287 3,916 5,485
Restructuring charge -- -- -- -- 1,650
-------- ------- ------- -------- ---------
Income (loss) from operations 2,233 3,502 5,500 8,441 (11,406)
Other income (expense) (255) 497 665 972 1,204
-------- ------- ------- -------- ---------
Income (loss) before income taxes and
cumulative effect of accounting change 1,978 3,999 6,165 9,413 (10,202)
Provision (benefit) for income taxes 1,180 1,846 2,564 2,988 (3,806)
-------- ------- ------- -------- ---------
Income (loss) before cumulative
effect of accounting change $ 798 $ 2,153 $ 3,601 $ 6,425 $ (6,396)
======== ======= ======= ======== =========
Net income (loss) $ 1,041 $ 2,153 $ 3,601 $ 6,425 $ (6,396)
======== ======= ======= ======== =========
Basic Earnings per Share:
Income (loss) before cumulative effect
of accounting change $ 0.08 $ 0.16 $ 0.27 $ 0.42 $ (0.35)
======== ======= ======= ======== =========
Net income (loss) $ 0.10 $ 0.16 $ 0.27 $ 0.42 $ (0.35)
======== ======= ======= ======== =========
Weighted average common shares
outstanding for computation 9,989 13,109 13,497 15,447 18,156
Diluted Earnings per Share:
Income (loss) before cumulative effect
of accounting change $ 0.08 $ 0.16 $ 0.26 $ 0.40 $ (0.35)
======== ======= ======= ======== =========
Net income (loss) $ 0.10 $ 0.16 $ 0.26 $ 0.40 $ (0.35)
======== ======= ======= ======== =========
Weighted average common and dilutive
common equivalent shares outstanding 10,379 13,500 13,882 15,927 18,156
BALANCE SHEET DATA (END OF
PERIOD)
Cash, cash equivalents, and held-to-
maturity securities $ 22,130 $21,045 $17,031 $ 38,134 $ 28,275
Working capital 12,088 14,044 16,867 51,925 44,641
Total assets 47,318 49,680 58,626 157,223 144,979
Stockholders' equity 24,409 26,717 30,951 125,020 115,778
</TABLE>
Note: Prior period amounts have been restated to give retroactive effect to
the 1997 merger with Ovation, which was accounted for as a pooling of
interests.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's Annual Report includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including,
without limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import. Such statements include
statements concerning the Company's ability to obtain new business and to
accurately estimate the timing of recognition of revenue in the backlog due to
variability in size, scope and duration of projects, regulatory delays, study
results which lead to reductions or cancellations of projects, other decisions
totally within the control of its clients and its ability to immediately affect
the level of operating expenses, as well as statements concerning the Company's
business strategy, acquisition strategy, operations, cost savings initiatives,
industry, economic performance, financial condition, liquidity and capital
resources, existing government regulations and changes in, or the failure to
comply with, governmental regulations. Such statements are subject to various
risks and uncertainties. The Company's actual results may differ materially
from the results discussed in such forward-looking statements because of a
number of factors, including those identified in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere in
this Annual Report and the Risk Factors section included in Part I, Item 1 of
the Company's Form 10-K for the year ended December 31, 1997. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that such statements included in this
Annual Report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. The forward-looking statements are made as of the date of this Annual
Report and the Company assumes no obligation to update such statements or to
update the reasons that actual results could differ from those projected in the
forward-looking statements.
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 and
pharmacoeconomic 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, at times 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 gross 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% 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, 1997, backlog was approximately $101.3 million, as compared to
approximately $140.7 million at December 31, 1996. 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 European operation consists of offices in Maidenhead, United
Kingdom and Brussels, Belgium. The Company expanded its ability to perform
international clinical trials by opening offices in Australia, Chile, France,
and Israel in 1996 and Italy and Scotland in 1997. The Company has made
significant investments in the marketing
<PAGE> 3
and infrastructure of its core European operations; however, net revenue has not
sufficiently grown to cover the increased expense levels and in the fourth
quarter of 1997 the Company decided to reduce its general and administrative
workforce (see restructuring charge discussion below). The Company is focused on
generating new business while controlling its cost structure.
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
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's subsidiaries located
outside the United States generated approximately 50% of its net revenue for the
year ended December 31, 1997. More than half of the non U.S. revenue was
generated by the Company's Canadian subsidiary. Therefore, fluctuations in
exchange rates may have a material effect 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. AND MERGER WITH OVATION
On July 31, 1996, the Company purchased, for $65.0 million in cash, all of the
assets and assumed certain liabilities of Bio-Research Laboratories Ltd. of
Montreal, Quebec ("Bio-Research"). 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 $20.00 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, $65.0 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 the
acquisition.
On June 1, 1997, the Company completed a merger with Ovation Healthcare
Research, Incorporated ("Ovation"), a privately held pharmacoeconomic and
consulting firm based in Highland Park, Illinois. The Company issued 250,000
shares of its Common Stock in the merger transaction, which was accounted for as
a pooling of interests and, accordingly, the accompanying consolidated financial
statements give retroactive effect to the merger and include the combined
operations of the Company and Ovation.
RESTRUCTURING CHARGE
In the fourth quarter of 1997, the Company determined that its current revenue
levels would not support its general and administrative cost structure. As a
result, the Company recorded a $1.6 million restructuring charge for costs to be
incurred in reducing its administrative workforce, primarily in Europe. At
December 31, 1997, the entire $1.6 million restructuring charge is included in
accrued expenses as no termination benefits were paid as of year end. The
restructuring charge primarily represents the termination benefits and costs for
the reduction of approximately 35 administrative employees to be completed in
1998.
<PAGE> 4
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net loss for the year ended December 31, 1997 was $6.4 million, or $0.35 diluted
loss per share, compared to net income in the same period of 1996 of $6.4
million or $0.40 diluted earnings per share. Excluding the restructuring charge,
the net loss for fiscal 1997 was $5.2 million or $0.29 diluted loss per share.
This decrease is primarily attributable to the cancellations of contracts,
aggregating approximately $37 million in backlog, which occurred in the fourth
quarter of 1996 and first quarter of 1997 and the underperformance of the
European operations. The decrease in backlog left the Company with unbillable
resources related to those projects as well as a higher level of direct costs
and selling, general and administrative expenses incurred to cover the expected
higher revenue levels. None of the cancellations were related to service or
quality problems. Backlog of future net revenue was $101.3 million (391
contracts from 108 clients) at December 31, 1997, compared to $102.1 million
(407 contracts from 113 clients) at March 31, 1997 (following the contract
cancellations). Due to the mix of contracts in backlog and the underperformance
of the European operations, revenue recognized in 1997 was not sufficient to
cover expenses and the Company incurred a loss for fiscal 1997. The Company is
focusing its business development strategy on growing its core clinical
business.
The Canadian dollar was weaker in fiscal 1997 than in fiscal 1996 in relation to
the U.S. dollar, while the British pound was stronger in relation to the U.S.
dollar. Excluding the effect of the changes in the average exchange rates from
1996 to 1997, the Company's diluted loss per share would have been $0.26
(excluding the restructuring charge) as compared to the $0.29 reported.
Net service revenue increased 8.7% to $103.0 million in fiscal 1997 from $94.7
million in fiscal 1996. Excluding revenue recognized related to Bio-Research
(acquired July 31, 1996), net service revenue decreased 18.4%. This decrease
resulted primarily from the cancellations of contracts previously discussed.
Direct costs increased 22.6% to $69.3 million in fiscal 1997 from $56.5 million
in fiscal 1996. Costs in 1997 include a full year of Bio-Research's operations.
Direct costs increased as a percentage of net service revenue to 67.3% from
59.7% due to unbillable resources resulting from the previously discussed
project cancellations and underperformance of the European operations. Direct
costs are based on the mix of contracts in progress and as a percentage of net
revenue may fluctuate from period to period dependent upon the mix of contracts
in the backlog. In addition, direct costs will fluctuate due to changes in labor
and facility utilization.
Selling, general and administrative costs increased 46.9% to $38.0 million in
fiscal 1997 from $25.9 million in fiscal 1996. Costs in 1997 include a full year
of Bio-Research's operations. Selling, general and administrative costs
increased as a percentage of net service revenue to 36.9% from 27.3%. The
increase as a percentage of net revenue is primarily attributable to lower
levels of revenue resulting from project cancellations and underperformance of
the European operations. Selling, general and administrative costs, which
primarily includes compensation for administrative employees and costs related
to facilities, information technology and marketing, are relatively fixed in the
near term while revenue is subject to fluctuation, therefore, 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.
In addition, the Company has incurred and will continue to incur costs related
to expanded infrastructure required to open new offices or expand existing
offices as described previously.
Depreciation and amortization expense increased 40.1% to $5.5 million in 1997
compared to $3.9 million in 1996. This increase is primarily attributable to
amortization of goodwill and depreciation of property, plant and equipment
incurred in the acquisition of Bio-Research.
Interest income, net of interest expense, increased to $1,204,000 in 1997 from
$972,000 in 1996.
The Company's benefit for income taxes was $3.8 million in fiscal 1997 as
compared to a provision of $3.0 million in fiscal 1996. The effective tax
benefit rate in 1997 was 37.3% compared to an effective tax rate of 31.7% in
1996.
<PAGE> 5
This increase in the effective rate is primarily the result of research and
development tax credits generated by the Company's Canadian subsidiary partially
offset by the unrecognized tax benefit associated with foreign net operating
losses. Other significant items that create the difference between the Company's
federal statutory and effective tax rates are state and local taxes, tax-exempt
interest income and nondeductible amortization of goodwill. The Company, in
general, will not record a tax asset related to a foreign jurisdiction 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, 1996 compared with year ended December 31, 1995
Net service revenue increased 63.7% to $94.7 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 40.0%. 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 62.2% to $56.5 million in 1996 from $34.9 million in
1995, and declined as a percentage of net service revenue to 59.7% 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 70.0% to $25.9 million in
1996 from $15.2 million in 1995, and increased as a percentage of net service
revenue to 27.3% 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 71.2% 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 $972,000 in 1996 from
$665,000 in 1995.
Consolidated income before income taxes increased to $9.4 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 31.7% and
41.6%, 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.
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. 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 Facilities as defined below. The
Company utilizes its working capital to finance these expenditures pending
receipt of its receivables. Contract receipts from the Company's clients vary
according to the terms of each contract.
<PAGE> 6
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 received
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 advance billings. The Company typically receives a low volume of
large-dollar cash receipts.
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 trend has increased, and may continue to
increase, days sales outstanding in accounts receivable. This trend could have
an impact on the Company's ability to maintain its current level of working
capital. The number of days sales outstanding in accounts receivable was 117
days at December 31, 1997, compared to 90 days at December 31, 1996. The number
of days sales outstanding in accounts receivable net of advance billings was 82
days at December 31, 1997 compared to 52 days at December 31, 1996. The increase
is primarily due to the change in payment methodology discussed above as well as
a reduction in revenue resulting from the previously discussed contract
cancellations.
The Company had cash and cash equivalents of $28.3 million at December 31, 1997
as compared to $38.1 million at December 31, 1996.
During the year ended December 31, 1997, net cash used by operating activities
totaled $2.5 million, primarily due to a decrease in advance billings of $4.3
million, an increase in net tax receivables of $2.7 million, and a decrease in
net payables to investigators of $0.4 million, which was partially offset by a
decrease in accounts receivable of $1.2 million and an increase in accounts
payable and accrued expenses of $3.5 million.
Cash used in investing activities of $7.0 million during fiscal 1997 consisted
principally of capital expenditures. Capital expenditures have primarily been
made for computer system additions and upgrades, personal computer equipment and
expenditures on facility improvements. Annual capital expenditures were $3.8
million in 1995, $7.3 million in 1996 and $7.0 million in 1997. Capital
expenditures are estimated to be approximately $12.0 million in 1998, of which
approximately $2.1 million relates to leasehold improvements to be paid when the
Company moves into its new leased space in Cary, North Carolina.
Subsequent to December 31, 1997, the Company replaced its $10.0 million domestic
credit facility with a $15.0 million domestic credit facility which has
expansion capabilities to $40.0 million. Credit availability under the Company's
new domestic line of credit and its foreign line of credit (the "Credit
Facilities") totals approximately $18.5 million. There were no borrowings
outstanding under the lines of credit at December 31, 1997. Commitment
availability at December 31, 1997 has been reduced by issued letters of credit
of approximately $0.75 million. The lines are collateralized by certain of the
Company's assets and amounts outstanding would bear interest at a fluctuating
rate based either on the respective banks' prime interest rate or the London
Interbank Offered Rate ("LIBOR"), as elected by the Company. 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 and cash equivalents, cash flow from operations, and
available borrowings under its Credit Facilities. The Company estimates that
such sources of cash will be sufficient to fund the Company's current
operations, including expansions of its foreign operations, although some
pressure on cash reserves is expected over the course of the next several
months. 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.
<PAGE> 7
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.
IMPACT OF ACCOUNTING STANDARDS
The Company adopted Financial Accounting Standards Board Statement No. 128,
Earnings per Share ("SFAS No. 128") on December 31, 1997. SFAS No. 128 requires
presentation of both Basic Earnings per Share ("Basic EPS") and Diluted Earnings
per Share ("Diluted EPS"). Basic EPS is based on the weighted average number of
shares of common stock outstanding during the year, while Diluted EPS also
includes the dilutive effect of the Company's stock options. Prior period
earnings per share amounts have been restated to present Basic EPS and Diluted
EPS.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of certain computer programs being written
using two digits rather than four digits to define the applicable year. This
software recognizes a date using "00" as the year 1900 rather than 2000 which
could result in system failures, miscalculations, etc. Based upon a recent
assessment, the Company has determined certain software programs and computer
hardware will be modified or replaced as part of its on-going capital
expenditure program so that such programs are Year 2000 compliant. The cost
associated with these modifications and/or replacement is not expected to be
material to the Company. However, there can be no guarantee that the software of
outside vendors on which the Company's systems rely will be timely converted.
EXCHANGE RATE FLUCTUATIONS
The Company conducts business in several foreign countries and as a result
exposure exists to potentially adverse movement in foreign currency rates. 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 objective of these contracts is to reduce the effect of
foreign exchange rate fluctuations on the Company's operating results.
INCOME TAXES
The Company's financial statements do not reflect U.S. or additional foreign
taxes on the possible distribution of undistributed earnings of foreign
subsidiaries as those earnings have been permanently reinvested. Should the
Company determine the need to distribute these undistributed earnings of
foreign subsidiaries, it would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to various
countries.
<PAGE> 8
ClinTrials Research Inc.
CONSOLIDATED BALANCE SHEETS
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,134 $ 28,275
Accounts receivable 34,908 33,725
Advance payments to investigators 549 939
Income taxes receivable 2,546 3,167
Deferred income taxes 2,361 2,511
Other current assets 3,028 2,531
--------- ---------
Total current assets 81,526 71,148
Property, plant and equipment:
Land, buildings and leasehold improvements 17,448 16,825
Equipment 20,567 25,625
Furniture and fixtures 4,429 5,347
--------- ---------
42,444 47,797
Less accumulated depreciation and amortization 8,321 13,025
--------- ---------
34,123 34,772
Other assets:
Excess of purchase price over net assets acquired 41,493 38,687
Other assets 81 372
--------- ---------
41,574 39,059
--------- ---------
$ 157,223 $ 144,979
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,470 $ 6,839
Advance billings 14,797 10,468
Payables to investigators 1,336 1,278
Accrued expenses 4,712 7,739
Income taxes payable 2,286 183
--------- ---------
Total current liabilities 29,601 26,507
Deferred income taxes 2,602 2,694
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--50,000,000
shares authorized; issued and
outstanding 18,114,258 and 18,181,765
shares in 1996 and 1997, respectively 181 182
Additional paid-in capital 126,773 127,160
Retained earnings (deficit) (2,917) (9,313)
Cumulative foreign currency translation
adjustments 983 (2,251)
--------- ---------
Total stockholders' equity 125,020 115,778
--------- ---------
$ 157,223 $ 144,979
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
ClinTrials Research Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts are expressed in thousands, except for earnings per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Revenue:
Service revenue $ 86,217 $ 123,703 $ 125,687
Less subcontractor costs 28,371 28,984 22,697
-------- --------- ---------
Net service revenue 57,846 94,719 102,990
Operating costs and expenses:
Direct costs 34,850 56,510 69,279
Selling, general and administrative
expenses 15,209 25,852 37,982
Depreciation and amortization 2,287 3,916 5,485
Restructuring charge -- -- 1,650
-------- --------- ---------
Income (loss) from operations 5,500 8,441 (11,406)
Other income (expense):
Interest income 744 1,032 1,232
Interest expense (79) (60) (28)
-------- --------- ---------
665 972 1,204
-------- --------- ---------
Income (loss) before income taxes 6,165 9,413 (10,202)
Provision (benefit) for income taxes 2,564 2,988 (3,806)
-------- --------- ---------
Net income (loss) $ 3,601 $ 6,425 $ (6,396)
======== ========= =========
Earnings (loss) per share:
Basic $ 0.27 $ 0.42 $ (0.35)
Diluted $ 0.26 $ 0.40 $ (0.35)
Number of shares and common stock equivalents
used in computing earnings (loss) per share:
Basic 13,497 15,447 18,156
Diluted 13,882 15,927 18,156
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
ClinTrials Research Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,601 $ 6,425 $ (6,396)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization of property,
plant and equipment 1,660 3,278 4,999
Amortization of other assets 627 900 1,326
Deferred income taxes (141) (1,636) (58)
Loss on disposal/write-down of fixed assets -- -- 322
Other 69 -- 7
Changes in operating assets and liabilities:
Accounts receivable (7,790) (3,988) 1,183
Advance billings 7,814 (6,985) (4,329)
Payables to investigators (2,697) (2,154) (58)
Accounts payable and accrued expenses (241) 2,690 3,470
Advance payments to investigators (3,579) 3,383 (390)
Income taxes (212) (860) (2,724)
Other assets and liabilities 98 (953) 141
-------- -------- --------
Net cash provided by (used in) operating activities (791) 100 (2,507)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (3,787) (7,318) (6,962)
Acquisition of business, net of cash acquired -- (59,047) --
Purchases of held-to-maturity securities (4,006) -- --
Maturities of held-to-maturity securities 6,554 1,524 --
-------- -------- --------
Net cash used in investing activities (1,239) (64,841) (6,962)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of Common Stock 658 86,766 381
-------- -------- --------
Net cash provided by financing activities 658 86,766 381
Effect of exchange rate changes on cash (25) 602 (771)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,397) 22,627 (9,859)
Cash and cash equivalents at beginning of year 16,904 15,507 38,134
-------- -------- --------
Cash and cash equivalents at end of year $ 15,507 $ 38,134 $ 28,275
======== ======== ========
Supplemental cash flow information:
Interest paid $ 39 $ 28 $ 16
======== ======== ========
Income tax payments (receipts) $ 2,589 $ 1,543 $ (1,024)
======== ======== ========
Equipment purchased included in accounts payable $ 66 $ 507 $ 611
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
ClinTrials Research Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL RETAINED CURRENCY
--------------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
---------- ------ -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 13,368,990 $133 $ 39,397 $(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 13,494,177 134 40,054 (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 -- -- -- 6,425 -- 6,425
---------- ---- -------- -------- ------- ---------
Balance at December 31, 1996 18,114,258 181 126,773 (2,917) 983 125,020
Exercise of stock options 67,507 1 380 -- -- 381
Foreign currency translation
adjustments -- -- -- -- (3,234) (3,234)
Net loss -- -- -- (6,396) -- (6,396)
Other -- -- 7 -- -- 7
---------- ---- -------- -------- ------- ---------
Balance at December 31, 1997 18,181,765 $182 $127,160 $ (9,313) $(2,251) $ 115,778
========== ==== ======== ======== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 12
ClinTrials Research Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years Ended December 31, 1995, 1996 and 1997)
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.
On June 1, 1997, the Company completed a merger with Ovation Healthcare
Research, Incorporated ("Ovation"), a privately held pharmacoeconomic and
consulting firm based in Highland Park, Illinois. The Company issued 250,000
shares of its common stock in the merger transaction, which was accounted for as
a pooling of interests and, accordingly, the accompanying consolidated financial
statements give retroactive effect to the merger and include the combined
operations of the Company and Ovation.
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.
ESTIMATES
Judgment and estimation is exercised by management in certain areas of the
preparation of the financial statements including revenue recognition, reserves
for self-insurance risks and the allowance for uncollectible accounts.
Management believes that such estimates are fairly stated.
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 stockholders' 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.
<PAGE> 13
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 5 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 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 the
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 $3,228,000, and $4,530,000 at
December 31, 1996 and 1997, 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, 1997, the
Company's Canadian subsidiary had outstanding contracts to purchase $800,000
United States dollars per month through April 1998 at an average rate of 1.3667
Canadian dollars per United States dollar.
EARNINGS PER SHARE
The Company adopted Financial Accounting Standards Board Statement No. 128,
"Earnings per Share" ("SFAS No. 128") on December 31, 1997. SFAS No. 128
requires presentation of both Basic Earnings per Share ("Basic EPS") and Diluted
Earnings per Share ("Diluted EPS"). Basic EPS is based on the weighted average
number of shares of common stock outstanding during the year. Diluted EPS also
includes the dilutive effect of common stock equivalents, which consists of
stock options representing 385,000 and 480,000 equivalent shares for the years
ended December 31, 1995 and 1996, respectively. Diluted loss per share for the
year ended December 31, 1997 does not include common stock equivalents of
391,000 as their effect would be anti-dilutive. Prior period earnings per share
amounts have been restated to present Basic EPS and Diluted EPS.
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. RESTRUCTURING OF OPERATIONS
In the fourth quarter of 1997, the Company determined that its current revenue
levels would not support its general and administrative cost structure. As a
result, the Company recorded a $1,650,000 restructuring charge for costs to be
incurred in reducing its administrative workforce. At December 31, 1997, the
entire $1,650,000 restructuring charge is included in accrued expenses as no
termination benefits were paid as of year end. The restructuring charge
primarily represents the termination of benefits and costs for the reduction of
approximately 35 administrative employees to be completed in 1998.
4. 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 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.
<PAGE> 14
5. ACQUISITION
On July 31, 1996, the Company purchased for $65.0 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 $20.00 per share on July 24, 1996. Net proceeds to the
Company from the offering were approximately $84.9 million, $65.0 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 for the years
ended December 31 (in thousands, except for per share data):
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Net service revenue $84,188 $110,597
Income before income taxes 7,906 9,658
Net income 6,368 7,336
Earnings per share:
Basic $ 0.38 $ 0.42
Diluted $ 0.37 $ 0.41
Weighted average shares
outstanding:
Basic 16,971 17,471
Diluted 17,356 17,951
</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.
6. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Trade:
Billed $22,290 $ 21,306
Unbilled 12,624 12,485
Allowance for doubtful
accounts (744) (883)
------- --------
34,170 32,908
Other 738 817
------- --------
$34,908 $ 33,725
======= ========
</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.
<PAGE> 15
7. CREDIT FACILITIES
Subsequent to December 31, 1997, the Company replaced its $10.0 million domestic
credit facility with a $15.0 million domestic credit facility which has
expansion capabilities to $40.0 million. Credit availability under the Company's
new domestic line of credit and foreign line of credit (the "Credit Facilities")
totals approximately $18.5 million. The lines are collateralized by certain of
the Company's assets and bear interest at a fluctuating rate based either on the
respective banks' prime interest rate or the London Interbank Offered Rate
("LIBOR"), as elected by the Company. On December 31, 1996 and 1997, there were
no borrowings outstanding under the lines of credit. Commitment availability at
December 31, 1997 has been reduced by issued letters of credit of approximately
$750,000. Borrowings available under the lines of credit are subject to certain
financial and operating covenants.
8. 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>
<S> <C>
1998 $ 8,089
1999 6,805
2000 7,016
2001 6,888
2002 6,873
Thereafter 50,506
-------
Total minimum rentals $86,177
=======
</TABLE>
The 1998 minimum rental commitments of $8,089,000 above includes $2,114,000 of
leasehold improvements to be paid when the Company moves into its new leased
space in Cary, North Carolina.
Total rent expense for all operating leases was approximately $2,922,000 and
$3,973,000 and $5,584,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
9. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Advance billings and receivables $ 2,252 $ 2,060
Accrued expenses 109 451
Research and development
credit carryforward 523 1,532
Undeducted research and
development expenditures 2,484 1,952
Other -- 388
------- -------
Total deferred tax assets 5,368 6,383
Valuation allowance for
deferred tax assets -- --
------- -------
Net deferred tax assets 5,368 6,383
Deferred tax liabilities:
Depreciation and amortization (5,609) (6,566)
------- -------
Net deferred tax assets (liabilities) $ (241) $ (183)
======= =======
</TABLE>
The balance sheet classification of the net deferred tax assets (liabilities) is
as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current deferred tax assets $ 2,361 $ 2,511
Net noncurrent deferred tax liabilities (2,602) (2,694)
------- -------
Net deferred tax assets (liabilities) $ (241) $ (183)
======= ========
</TABLE>
<PAGE> 16
For financial reporting purposes, income (loss) before income taxes for the
years ended December 31 includes the following components (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $ 6,106 $ 8,383 $(7,745)
Foreign 59 1,030 (2,457)
------- ------- -------
$ 6,165 $ 9,413 $(10,202)
======= ======= =======
</TABLE>
The Company's 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. The tax credits are accounted for using the flow through method,
in which the credits are recognized as a reduction of income taxes in the year
the credit arises.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $6,686,000 at December 31, 1997. 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 liability on foreign
undistributed earnings which are intended to be permanently reinvested.
Significant components of the provision (benefit) for income taxes for the years
ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Foreign $ -- $ (602) $(1,261)
Federal 2,170 4,191 (2,517)
State and local 535 1,035 30
Deferred:
Federal (113) (1,317) 253
State (28) (319) (311)
------- ------- -------
Provision (benefit) for
income taxes $ 2,564 $ 2,988 $(3,806)
======= ======= =======
</TABLE>
The Company's consolidated effective tax rate differed from the federal
statutory rate for the years ended December 31 as set forth below (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate $ 2,096 $ 3,200 $(3,469)
State and local income taxes
net of federal benefit 335 472 (185)
Research and development
tax credits -- (1,106) (2,532)
Amortization of excess of
purchase price over net assets
acquired and other intangible
assets 161 194 242
Unrecognized benefit of
foreign net operating losses -- 60 2,279
Tax-exempt investment income (200) (191) (156)
Other 172 359 15
------- ------- -------
$ 2,564 $ 2,988 $(3,806)
======= ======= =======
</TABLE>
<PAGE> 17
10. 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>
Weighted-Average
Exercise Price
at December 31
------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Options outstanding at January 1 960,984 1,014,156 1,133,290 $ 4.67 $ 9.90
Granted 308,252 368,694 826,377 $ 22.03 $ 8.36
Exercised (125,187) (135,081) (67,507) $ 3.28 $ 5.87
Canceled (129,893) (114,479) (555,581) $ 10.46 $ 17.83
---------- ---------- ----------
Outstanding at December 31 1,014,156 1,133,290 1,336,579 $ 9.90 $ 5.86
========== ========== ==========
Option price range at
December 31 $.35 to $12.92 $.35 to $28.50 $.35 to $12.92
Options exercisable
at December 31 584,402 559,141 634,214 $ 2.27 $ 3.04
</TABLE>
At December 31, 1995, 1996 and 1997 there were 139,133 and 559,887 and 289,091
shares, respectively, available for grant. Under SFAS No. 123, disclosure of
exercise prices is required for the year ended 1996 and 1997 only. The
weighted-average fair value of options granted during 1997 was $3.19. The
weighted-average remaining contractual life of all options outstanding at
December 31, 1997 is 6.8 years.
On April 18, 1997, the Company repriced options to purchase 403,000 shares with
exercise prices between $12.67 and $28.50 with options to purchase 362,595
shares at an exercise price of $8.38 (which exceeded the closing market price on
April 18, 1997 of $7.63). The repricing excluded options held by the Company's
top two executives (its President/Chief Executive Officer and Executive Vice
President - Worldwide Operations).
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB No. 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 (loss) and earnings (loss) per share
is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. 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, 1996 and 1997, respectively; risk-free interest rates of
6.26%, 5.99% and 6.10%; dividend yields of 0%, 0% and 0%; volatility factors of
the expected market price of the Company's common stock of .55, .55 and .59; 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.
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.
<PAGE> 18
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 for the years ended December 31 (in thousands, except
for earnings per share information):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net income (loss) $ 3,601 $ 6,425 $(6,396)
Pro forma compensation expense
from stock options, net of taxes 129 814 1,561
------- ------- -------
Pro forma net income (loss)
$ 3,472 $ 5,611 $(7,957)
======= ======= =======
Pro forma earnings (loss) per share:
Basic EPS $ 0.26 $ 0.36 $ (0.44)
======= ======= =======
Diluted EPS $ 0.25 $ 0.35 $ (0.44)
======= ======= =======
</TABLE>
11. 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 discretionary contributions.
The Company's expense for its contributions to the plans was approximately
$768,000 and $1,364,000 and $1,976,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
12. OTHER FINANCIAL 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 for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net revenue:
North America $51,135 $81,293 $88,278
International 6,711 13,426 14,712
------- ------- --------
$57,846 $94,719 $102,990
======= ======= ========
Operating profit (loss):
North America $ 5,803 $ 8,637 $(3,898)
International (303) (196) (7,508)
------- ------- --------
$ 5,500 $ 8,441 $(11,406)
======= ======= ========
Identifiable assets:
North America $54,992 $148,545 $133,709
International 3,634 8,678 11,270
------- ------- --------
$58,626 $157,223 $144,979
======= ======== ========
</TABLE>
<PAGE> 19
Net service revenue generated under multiple contracts by clients who accounted
for more than 10% of the Company's net service revenue for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Client 1995 1996 1997
------ ------- ------- -------
<S> <C> <C> <C>
A $14,606 <10% <10%
B $10,423 $21,601 $13,694
</TABLE>
13. 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. Judgment was rendered in
February 1997 by the Superior Court of Montreal against the Company's
preclinical subsidiary in the amount of approximately $560,000 plus interest to
accrue from September 1991. The Company's preclinical subsidiary, now
responsible for this action, has reserves adequate to cover the current judgment
amount. The Company's preclinical subsidiary has appealed 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 the insurance claim
related to this litigation. The Company believes it is entitled, subject to
certain limitations, to indemnification from a former owner of the predecessor
for a portion of this claim. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position or results of operations.
14. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the Company paid $1,500,000 cash for the option
to purchase MPI Research, a drug safety and pharmaceutical development company
located in Mattawan, Michigan. MPI Research is owned by Dr. Jerry R. Mitchell,
who became the Company's Chief Executive Officer and President in February 1998,
and William U. Parfet, a consultant to the Company. The Company's option to
purchase MPI Research at fair market value has a 26 month term.
<PAGE> 20
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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
January 30, 1998
<PAGE> 21
ClinTrials Research Inc.
QUARTERLY FINANCIAL INFORMATION
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1997 First Second Third Fourth*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $28,603 $ 25,995 $ 24,199 $ 24,193
Income (loss) before income taxes $ 871 $ (1,893) $ (3,964) $ (5,216)
Net income (loss) $ 748 $ (1,480) $ (2,775) $ (2,889)
Earnings (loss) per share:
Basic $ 0.04 $ (0.08) $ (0.15) $ (0.16)
Diluted $ 0.04 $ (0.08) $ (0.15) $ (0.16)
Number of shares and dilutive common stock equivalents
used in computing earnings per share:
Basic 18,117 18,146 18,180 18,181
Diluted 18,522 18,146 18,180 18,181
Market prices of common stock:
High $ 32.00 $ 12.63 $ 12.69 $ 9.38
Low $ 7.75 $ 6.50 $ 8.25 $ 6.25
</TABLE>
<TABLE>
<CAPTION>
1996** First Second Third Fourth
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $17,986 $ 19,710 $ 25,678 $ 31,345
Income before income taxes $ 1,800 $ 2,034 $ 2,554 $ 3,025
Net income $ 1,018 $ 1,181 $ 1,933 $ 2,293
Earnings per share:
Basic $ 0.08 $ 0.09 $ 0.12 $ 0.13
Diluted $ 0.07 $ 0.08 $ 0.11 $ 0.12
Number of shares and dilutive common stock equivalents
used in computing earnings per share:
Basic 13,501 13,543 16,578 18,112
Diluted 14,028 14,062 17,064 18,552
Market prices of common stock:
High $ 23.75 $ 33.67 $ 32.75 $ 29.17
Low $ 13.00 $ 22.67 $ 20.00 $ 16.88
</TABLE>
<TABLE>
<CAPTION>
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
Earnings per share:
Basic $ 0.05 $ 0.06 $ 0.07 $ 0.08
Diluted $ 0.05 $ 0.06 $ 0.07 $ 0.08
Number of shares and dilutive common stock
equivalents used in computing earnings per share:
Basic 13,369 13,405 13,464 13,492
Diluted 13,815 13,837 13,936 13,938
Market prices of common stock:
High $ 8.67 $ 9.00 $ 13.50 $ 14.08
Low $ 6.00 $ 6.92 $ 8.67 $ 11.33
</TABLE>
* The fourth quarter of 1997 includes $1,650 ($1,169 net of tax) restructuring
charge primarily related to termination costs associated with the severance
of certain general and administrative personnel.
** Quarterly results for 1996 have been restated to give retroactive effect to
the 1997 merger with Ovation, which was accounted for as a pooling of
interests.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
ClinTrials Research North Carolina Inc.
ClinTrials Research Kentucky Inc.
ClinTrials Research Ovation Inc. (located in Illinois)
ClinTrials Research Ltd. (located in UK)
ClinTrials Research SARL (located in France)
ClinTrials BioResearch Ltd. (located in Canada)
ClinTrials Research Israel Ltd.
ClinTrials Research Latin America, SA (located in Chile)
ClinTrials Research Australia Pty. Ltd.
ClinTrials Research Italy Srl
<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 30, 1998, included in
the 1997 Annual Report to Stockholders of ClinTrials 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.
We also consent to the incorporation by reference in the Registration Statements
on Form S-8 (File No. 33-82416 and 333-08365) both pertaining to the 1989 Stock
Option Plan of ClinTrials Research Inc., of our report dated January 30, 1998,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
ClinTrials Research Inc. for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
March 26, 1998
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 28,275
<SECURITIES> 0
<RECEIVABLES> 33,725
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,148
<PP&E> 47,797
<DEPRECIATION> 13,025
<TOTAL-ASSETS> 144,979
<CURRENT-LIABILITIES> 26,507
<BONDS> 0
0
0
<COMMON> 182
<OTHER-SE> 115,596
<TOTAL-LIABILITY-AND-EQUITY> 144,979
<SALES> 0
<TOTAL-REVENUES> 102,990
<CGS> 0
<TOTAL-COSTS> 69,279
<OTHER-EXPENSES> 45,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (10,202)
<INCOME-TAX> (3,806)
<INCOME-CONTINUING> (6,396)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,396)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
<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>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 38,134
<SECURITIES> 0
<RECEIVABLES> 34,908
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,526
<PP&E> 42,444
<DEPRECIATION> 8,321
<TOTAL-ASSETS> 157,223
<CURRENT-LIABILITIES> 29,601
<BONDS> 0
0
0
<COMMON> 181
<OTHER-SE> 124,839
<TOTAL-LIABILITY-AND-EQUITY> 157,223
<SALES> 0
<TOTAL-REVENUES> 94,719
<CGS> 0
<TOTAL-COSTS> 56,510
<OTHER-EXPENSES> 29,768
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 9,413
<INCOME-TAX> 2,988
<INCOME-CONTINUING> 6,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,425
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.40
</TABLE>
<PAGE> 1
EXHIBIT 99
ClinTrials Research Inc.
Schedule II - Valuation and Qualifying Accounts
FYE 12/31/97
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- -----------------------------------------------------------------------------------------------------------------
Additions
------------------------
Charged to
Balance at Other
Beginning of Charged to Accounts - Deductions - Balance at
Description Period Cost & Expense Describe Describe End of Period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deducted from asset accounts
Allowance for Doubtful Accounts 744,217 350,848 0 211,735(A) 883,330
------- ------- - ------- -------
Total 744,217 350,848 0 211,735 883,330
======= ======= = ======= =======
Year Ended December 31, 1996:
Deducted from asset accounts
Allowance for Doubtful Accounts 315,445 533,994 0 105,222(A) 744,217
------- ------- - ------- -------
Total 315,445 533,994 0 105,222 744,217
======= ======= = ======= =======
Year Ended December 31, 1995:
Deducted from asset accounts
Allowance for Doubtful Accounts 312,623 65,110 0 62,288(A) 315,445
------- ------- - ------- -------
Total 312,623 65,110 0 62,288 315,445
======= ======= = ======= =======
</TABLE>
(A) - Uncollectible accounts written off
Note: Prior period amounts have been restated to give retroactive effect to the
1997 merger with Ovation, which was accounted for as a pooling of
interests.
