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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Year Ended December 31, 2002
OR
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 000-23019
KENDLE INTERNATIONAL INC.
Ohio IRS Employer ID
(State or other jurisdiction No. 31-1274091
of incorporation or organization)
441 Vine Street, 1200 Carew Tower
Cincinnati, Ohio 45202
513-381-5550
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 2003 the aggregate market value of the voting stock held by
non-affiliates was $61,328,330 (based on the closing price of the Company's
Common Stock on The Nasdaq National Market on February 28, 2003 of $5.72).
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
--- ---
The aggregate market value of the Registrant's Common Stock at June 28, 2002
held by non-affiliates was $143,082,826 (based on the closing price of the
Company's Common Stock on The Nasdaq National Market on June 28, 2002 of
$13.60).
As of February 28, 2003, 12,951,453 shares of no par value Common Stock were
issued and 12,931,556 shares of no par value Common Stock were outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 2002 furnished to the Commission pursuant to Rule 14a-3(c) are
incorporated by reference into Parts I, II and IV. Portions of the Registrant's
Proxy Statement to be filed with the Commission for its 2003 Annual Meeting of
Shareholders to be held May 9, 2003 are incorporated by reference into Part III.
See Exhibit Index on page 17.
19 Total Pages
2
KENDLE INTERNATIONAL INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Part I Page
Item 1 - Business.............................................................................4
Item 2 - Properties...........................................................................6
Item 3 - Legal Proceedings....................................................................6
Item 4 - Submission of Matters to a Vote of Security Holders..................................6
Part II
Item 5 - Market for Registrant's Common Equity and Related
Shareholder Matters.............................................................6
Item 6 - Selected Financial Data..............................................................7
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................7
Item 7A - Quantitative and Qualitative Information about Market Risk..........................7
Item 8 - Financial Statements and Supplementary Data..........................................7
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................8
Part III
Item 10 - Directors and Executive Officers of the Registrant..................................8
Item 11 - Executive Compensation..............................................................9
Item 12 - Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters...............................................9
Item 13 - Certain Relationships and Related Transactions.....................................10
Item 14 - Controls and Procedures............................................................10
Part IV
Item 15 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K..................................................................10
3
PART I
ITEM 1.
BUSINESS
Kendle International Inc., an Ohio corporation established in 1989 (the
"Company"), is a contract research organization (CRO) that provides a broad
range of Phase I through IV clinical research and drug development services to
the pharmaceutical and biotechnology industries. The Company augments the
research and development activities of pharmaceutical and biotechnology
companies by offering high quality, value added clinical research services and
proprietary information technology designed to reduce drug development time and
expense. Prior to January 1, 2002 the Company had been managed through two
reportable segments, the Phase I through IV contract services group, which,
among other services, includes investigator meetings, pharmacoeconomics,
post-marketing surveillance, and labeling studies, and the medical
communications group. Effective January 1, 2002 the Company launched a new
strategic initiative, Medical Affairs, Marketing and Communications (MAM&C). The
MAM&C service offering is intended to provide a more comprehensive Phase IV
product to the Company's customers, including post-marketing activities such as
publications and symposia in support of new product launches. As a result, the
former medical communications group is now being managed as part of MAM&C and
its service capabilities have been incorporated into the Company's overall Phase
IV array of products. As such, the medical communications group, which had
principally focused on organizational, meeting management and publication
services for professional organizations and pharmaceutical companies has been
restructured and integrated with the contract research services group.
The Company believes that the outsourcing of drug development
activities by pharmaceutical and biotechnology companies has been increasing and
will continue to increase as these companies strive to increase revenues through
faster drug development while also dealing with cost containment pressures. The
CRO industry, by specializing in clinical trial management, is often able to
perform the needed services with a higher level of expertise or specialization,
more quickly and at a lower cost than a customer could perform the services
internally.
The Company's strategy is to continue to enhance its reputation as a
high-quality provider of a full range of CRO services. The Company's strategy
consists of the following key elements: (i) continue to expand its broad range
of therapeutic expertise; (ii) offer its customers a full range of services that
encompass the clinical research process and complement the research and
development departments of its customers; (iii) expedite the drug development
process through a variety of innovative information technology platforms such as
the Company's proprietary TrialWare(R) software including TrialWebTM, its
clinical trial information web service; (iv) continue to build a brand presence
that portrays high-quality work; and (v) supplement internal growth through
strategic acquisitions that expand the Company's geographic presence and add to
the Company's clinical development capabilities in existing or new therapeutic
areas or service offerings.
In January 2002, the Company acquired substantially all of the assets
of Clinical and Pharmacologic Research, Inc., a specialist in Phase I studies
for the generic drug industry located in Morgantown, West Virginia. Total
acquisition costs consisted of approximately $8.1 million in cash, 314,243
shares of the Company's Common Stock valued at $4.1 million and a $6 million
convertible subordinated note.
In February 2001, the Company acquired AAC Consulting Group, Inc., a
regulatory consulting firm located in Rockville, Maryland. Total acquisition
costs consisted of approximately $10.9 million in cash and 374,665 shares of the
Company's Common Stock valued at $3.9 million.
4
In April 2000, the Company acquired SYNERmedica Pty Ltd., a contract
research organization with offices in Melbourne and Sydney, Australia. Total
acquisition costs consisted of approximately $2.2 million in cash and 78,500
shares of the Company's Common Stock valued at approximately $740,000.
In January 1999, the Company acquired a minority interest in Digineer,
Inc., formerly Component Software International, Inc. ("Digineer"), an internet
healthcare consulting and software development company for approximately $1.6
million in cash and 19,995 shares of the Company's Common Stock. During the
second quarter of 2002, Digineer adopted a plan to cease operations. As a result
of this action, the Company recorded a $1.9 million non-cash charge in Other
Income (Expense) to reflect the write-off of this investment.
Revenues from the top five customers accounted for approximately 46% of
the Company's total net service revenues for the year ended December 31, 2002.
The Company's net service revenues from Pharmacia Corporation accounted for
approximately 21%, of the Company's net service revenues for the year ended
December 31, 2002.
Segment and geographic information of the Company is contained in Note
16 to the Consolidated Financial Statements on page 50 of the Company's Annual
Report to Shareholders for 2002, and is incorporated herein by reference.
Backlog
Backlog is based on signed contracts and letters of intent. Backlog at
December 31, 2002 was approximately $156 million compared to approximately $159
million at December 31, 2001. Total backlog plus verbally awarded business at
December 31, 2002 was approximately $192 million compared to approximately $191
million at December 31, 2001. No assurance can be given that the Company will be
able to realize the net revenues that are included in the backlog and verbal
awards. Backlog and verbal awards are not necessarily meaningful indicators of
future results for a variety of reasons, including, but not limited to, the
following: (i) contracts vary in size and duration, with revenue from some
studies realized over a number of years; (ii) the scope of contracts may change,
either increasing or decreasing the value of the contract; and (iii) studies may
be terminated or delayed by the sponsor or by regulatory authorities.
Competition
The Company competes primarily against in-house research and
development departments of pharmaceutical and biotechnology companies,
universities, teaching hospitals and other full-service CROs, some of which
possess substantially greater capital, technical and other resources than the
Company. CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of services
provided, the ability to manage large-scale trials on a global basis, medical
database management capabilities, the ability to provide statistical and
regulatory services, the ability to recruit investigators, the ability to
recruit patients into studies, the ability to integrate information technology
with systems to improve the efficiency of contract research, an international
presence with strategically located facilities, financial viability and price.
The CRO industry is highly fragmented with several hundred CROs ranging
from small, limited-service providers to full-service, global drug development
corporations. Some of the full-service CROs competing with the Company include
Covance, Inc., PAREXEL International Corporation, Pharmaceutical Product
Development, Inc., ICON plc and Quintiles Transnational Corporation.
5
Employees
As of February 28, 2003, the Company had approximately 1,650 employees.
None of the Company's employees are covered by a collective bargaining
agreement.
Available Information
The Company maintains a website at the address www.kendle.com. The
Company is not including the information contained on its website as a part of,
or incorporating it by reference into, this Annual Report on Form 10-K. The
Company makes available free of charge through its website its Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and
amendments to these reports, as soon as reasonably practicable after it
electronically files such material with, or furnishes such material to, the
Securities and Exchange Commission.
ITEM 2.
PROPERTIES
The Company leases all of its facilities with the exception of the
Company-owned facility in Ely, United Kingdom. The Company's principal executive
offices are located in Cincinnati, Ohio, where it leases approximately 115,000
square feet under a lease expiring in 2009. The Company also maintains offices
in various other U.S. locations and in Europe and the Pacific Rim.
Management believes that such offices are sufficient to meet its
present needs and does not anticipate any difficulty in securing additional
space, as needed, on terms acceptable to the Company.
ITEM 3.
LEGAL PROCEEDINGS
The Company currently is not a party to any pending material
litigation, nor, to the Company's knowledge, is any material litigation
currently threatened against the Company.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2002.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
"Quarterly Financial Data" on page 19 of the Company's Annual Report to
Shareholders for 2002 is incorporated herein by reference. Shares of the
Company's Common Stock are listed on the Nasdaq Stock Market(R). As of March 17,
2003, there were approximately 2,600 beneficial shareholders. The Company has
6
not paid dividends on its Common Stock since its initial public offering in
August 1997. The Company does not currently intend to pay dividends in the
foreseeable future, but instead intends to reinvest earnings in its business.
Recent Sales of Unregistered Securities
In January 2002, the Shareholders of Clinical and Pharmacologic
Research, Inc. received a total of 314,243 shares of the Company's Common Stock.
ITEM 6.
SELECTED FINANCIAL DATA
"Selected Financial Data" on page 18 of the Company's Annual Report to
Shareholders for 2002 is incorporated herein by reference.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" begins on page 20 of the Company's Annual Report to
Shareholders for 2002 and is incorporated herein by reference.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
"Market Risk" begins on page 27 of the Company's Annual Report to
Shareholders for 2002 and is incorporated herein by reference.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Registrant beginning on page
30 of its Annual Report to Shareholders for 2002, are incorporated herein by
reference:
1. Consolidated Statements of Operations for the years ended December 31,
2002, 2001 and 2000.
2. Consolidated Balance Sheets as of December 31, 2002 and 2001.
7
3. Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2002, 2001, and 2000.
4. Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001, and 2000.
5. Notes to Consolidated Financial Statements.
6. Report of Independent Accountants.
All supplemental schedules are omitted because of the absence of
conditions under which they are required or because the information is otherwise
presented in the Consolidated Financial Statements or Notes thereto.
Unaudited Supplementary Data
"Selected Quarterly Financial Data" on page 19 of the Company's Annual
Report to Shareholders for 2002 is incorporated herein by reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The name, age and background information for each of the Company's
Directors is set forth in the section entitled "Election of Directors" contained
in the Company's Proxy Statement for its 2003 Annual Meeting of Shareholders and
is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers of the Company at March 1, 2003, were as
follows:
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
Candace Kendle 56 Chief Executive Officer and Chairman 1981
of the Board of Directors
8
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
Christopher C. Bergen 52 President, Chief Operating 1981
Officer and Director
Thomas E. Stilgenbauer 55 Executive Vice President and Chief 1999
Marketing Officer
Anthony L. Forcellini 45 Senior Vice President, Operations 2000
Karl Brenkert III 55 Senior Vice President, Chief Financial 2002
Officer and Treasurer
Background information regarding the Executive Officers set forth in
the section entitled "Election of Directors" is contained in the Company's Proxy
Statement for its 2003 Annual Meeting of Shareholders and is incorporated herein
by reference.
Information on compliance with Section 16(a) of the Exchange Act set
forth in the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" is contained in the Company's Proxy Statement for its 2003 Annual
Meeting of Shareholders and is incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
Information on executive compensation set forth in the section entitled
"Executive Compensation" and the tables therein is contained in the Company's
Proxy Statement for its 2003 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information on the number of shares beneficially owned by each Director
and by all Directors and by all Directors and Executive Officers as a group set
forth in the section entitled "Securities Ownership of Management" and the table
therein is contained in the Company's Proxy Statement for its 2003 Annual
Meeting of Shareholders and is incorporated herein by reference.
The following table presents summary information with respect to all
the Company's equity compensation plans as of December 31, 2002.
Equity Compensation Plan Information
(a) (b) (c)
- -------------------------------- --------------------------------- -------------------------------- -------------------------------
Plan Category Number of Securities to be Weighted-average exercise Number of securities remaining
issued upon exercise of price of outstanding options, available for future issuance
outstanding options, warrants warrants and rights under equity compensation plans
and rights (excluding securities reflected
in column (a))
- -------------------------------- --------------------------------- -------------------------------- -------------------------------
Equity compensation plans 2,378,867 $11.84 867,926
approved by security holders
- -------------------------------- --------------------------------- -------------------------------- -------------------------------
Equity compensation plans not
approved by security holders
- -------------------------------- --------------------------------- -------------------------------- -------------------------------
Total 2,378,867 $11.84 867,926
- -------------------------------- --------------------------------- -------------------------------- -------------------------------
9
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" is contained in the
Company's Proxy Statement for its 2003 Annual Meeting of Shareholders and is
incorporated herein by reference.
Notwithstanding anything to the contrary set forth herein or in any of
the Company's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Form 10-K, the sections entitled "Management Development
and Compensation Committee Report on Executive Compensation" and the Performance
Graph, which are set forth in the Company's Proxy Statement for its 2003 Annual
Meeting of Shareholders, are not deemed to be incorporated by reference in this
Form 10-K.
ITEM 14.
CONTROLS AND PROCEDURES
Based on the Company's most recent evaluation, which was completed
within 90 days of the filing of this Form 10-K, our Chairman (principal
executive officer) and Chief Financial Officer believe its disclosure controls
and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange
Act of 1934, as amended) are effective. There have been no significant changes
in internal controls or in other factors that could significantly affect these
controls subsequent to the date of the most recent evaluation of our internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - All financial statements and schedules required to be
filed by Item 8 of this Form and included in this report have been
listed previously beginning on page 7. No additional financial
statements or schedules are being filed because the requirements of
paragraph (d) under Item 14 are not applicable to the Company.
(3) Exhibits - Exhibits set forth below that are on file with the
Securities and Exchange Commission are incorporated by reference as
exhibits hereto.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------- ---------------------- -------------
2.1 Stock Purchase Agreement dated July 1, 1997 by and among the Company and Shareholders
of U-Gene Research B.V. A
2.2 Escrow Agreement dated June 27, 1997 among the Company, Keating, Muething & Klekamp,
P.L.L., Bio-Medical Research Holdings, B.V., Utrechtse Particatiemaatschappij B.V., P.J. Morrison,
T.S. Schwarz, I.M. Hoepelman , Ph.K. Peterson, J. Remington, M. Rozenberg-Arska and
L.G.W. Sterkman A
2.3 Share Purchase Agreement dated July 2, 1997 by and among the Company and the Shareholders of
GMI Gescellschaft fur Angewandte Mathematick und Informatik mbH A
10
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------- ---------------------- -------------
2.4 Stock Purchase Agreement dated February 11, 1998 by and among the Company
and the Shareholders of ACER/EXCEL Inc. B
2.5 Escrow Agreement dated February 11, 1998 among the Company, Tzuo-Yan Lee,
Jean C. Lee, Michael Minor, Conway Lee, Steven Lee, Jean C. Lee, as Trustee under
a Trust dated March 8, 1991 fbo Jennifer Lee, Citicorp Trust-South Dakota and The
Fifth Third Bank C
2.6 Registration Rights Agreement dated February 11, 1998 among the Company and
Tzuo-Yan Lee, Jean C. Lee, Michael Minor, Conway Lee, Steven Lee, Jean C. Lee, as Trustee under
a Trust dated March 8, 1991 fbo Jennifer Lee, Citicorp Trust-South Dakota C
2.7 Share Purchase Agreement dated December 23, 1998 by and among the Company and the Shareholders
of Research Consultants (International) Holdings Limited D
2.8 Escrow Agreement dated January 5, 1999 among the Company, John Glasby, Gillian
Gregory, Michael Roy Broomby and Peter Nightingale D
2.9 Option Agreement dated September 9, 1998 by and between the Company and Component
Software International, Inc. D
2.10 Notice of Option Exercise dated January 11, 1999 of the Option Agreement dated September 9, 1998 D
2.11 Multi-Year Strategic Services Agreement dated January 20,1999 by and between the
Company and Component Software International, Inc. D
2.12 Asset Purchase Agreement dated June 27, 1999 by and among the Company and the Shareholders of
Health Care Communications, Inc. F
2.13 Stock Purchase Agreement dated June 4, 1999 by and among the Company and the Shareholders of
ESCLI S.A. G
2.14 Asset Purchase Agreement dated July 13, 1999 by and among the Company and the Shareholders of
HCC Health Care Communications (1991), Ltd. G
2.15 Share Purchase Agreement dated August 31, 1999 by and among the Company and the Shareholder
of Specialist Monitoring Services Limited G
2.16 Escrow Agreement dated July 13, 1999 by and among the Company, Geoffrey H. Kalish, M.D.,
Bradley D. Kalish, Jill Kalish, and The Fifth Third Bank, as Escrow Agent I
2.17 Escrow Agreement dated August 31, 1999 by and among the Company, Paul Martin, and The
Fifth Third Bank, as Escrow Agent I
2.18 Units Purchase Agreement dated April 7, 2000 by and among the Company and the Shareholders of
SYNERmedica PTY Limited and SYNERmedica Unit Trust J
2.19 Stock Purchase Agreement dated February 27, 2001 by and among the Company and the Shareholders
of AAC Consulting Group, Inc. M
2(a) Asset Purchase Agreement dated January 29, 2002 among Kendle International Inc., Clinical and
Pharmacologic Research, Inc., Thomas S. Clark, M.D., Charles T. Clark, and E. Stuart Clark N
2(b) Convertible Subordinated Note, dated January 29, 2002 issued by Kendle International Inc. to Clinical
and Pharmacologic Research, Inc. N
3.1 Restated and Amended Articles of Incorporation A
3.2 Amended and Restated Code of Regulations A
3.3 Amendment of the Restated and Amended Articles of Incorporation to Increase the Authorized Shares E
4 Specimen Common Stock Certificate A
4.1 Shareholder Rights Agreement dated August 13, 1999 between the Company and The Fifth Third
Bank, as Rights Agent H
10.1 Amended and Restated Shareholders' Agreement dated June 26, 1997 A
10.2 Master Lease Agreement dated November 27, 1996 by and between the Company
and Bank One Leasing Corporation, as amended on April 18, 1997 A
10.6 Master Equipment Lease dated August 16, 1996 by and between the Company and
The Fifth Third Leasing Company A
10.7 Lease Agreement dated December 9, 1991 by and between the Company and Carew
Realty, Inc., as amended on December 30, 1991, March 18, 1996, October 8, 1996,
January 29, 1997, and February 16, 1999 D
10.8 Indemnity Agreement dated June 21, 1996 by and between the Company and Candace
Kendle Bryan A
10.9 Indemnity Agreement dated June 21, 1996 by and between the Company and Christopher
C. Bergen A
11
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------- ---------------------- -------------
10.10 Indemnity Agreement dated June 21, 1996 by and between the Company and Timothy M.
Mooney A
10.11 Indemnity Agreement dated May 14, 1997 by and between the Company and Charles A. Sanders C
10.12 Indemnity Agreement dated May 14, 1997 by and between the Company and Philip E. Beekman C
10.13 Indemnity Agreement dated December 10, 1998 by and between the Company and Robert Buck D
10.14 Indemnity Agreement dated December 10, 1998 by and between the Company and Mary Beth Price D
10.17 Clinical Trial Service Agreement between the Company and G.D. Searle & Company
dated September 23, 1997 C
10.19 Amended and Restated Credit Agreement dated as of February 26, 1998 by and between
the Company and NationsBank, N.A. C
10.21 First Amendment to the Amended and Restated Credit Agreement dated as of
November 25, 1998 by and between the Company and NationsBank, N.A. D
10.22 Credit Agreement dated as of October 13, 2000 among the Company, the Several Lenders from Time
to Time Party Hereto, and Bank One, NA, as Agent K
10.23 Amended and Restated Credit Agreement dated as of June 3, 2002 among Kendle International Inc.,
The Several Lenders from Time to Time Party Hereto and Bank One, NA as Agent O
10.20 MANAGEMENT CONTRACTS AND COMPENSATION PLANS
(a) 1995 Stock Option and Stock Incentive Plan A
(b) 1995 Stock Option and Stock Incentive Plan--Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.20(a)) A
(c) 1997 Stock Option and Stock Incentive Plan A
(d) Amendment No. 2 to 1997 Stock Option and Stock Incentive Plan L
(d) Form of Protective Compensation and Benefit Agreement A
(e) 1998 Employee Stock Purchase Plan D
(f) 1997 Directors' Compensation Plan D
(g) Amendment No. 1 to 1997 Stock Option and Stock Incentive Plan P
(h) Amendment No. 3 to 1997 Stock Option and Stock Incentive Plan P
(i) Amendment No. 1 to 1997 Directors Compensation Plan P
(j) Amendment No. 2 to 1997 Directors Compensation Plan P
(k) Amendment No. 1 to 1998 Employee Stock Purchase Plan P
(l) Amendment No. 2 to 1998 Employee Stock Purchase Plan P
(m) Amendment No. 3 to 1998 Employee Stock Purchase Plan P
13 Annual Report to Shareholders for 2002 P
21 List of Subsidiaries P
23.1 Consent of PricewaterhouseCoopers LLP P
24 Powers of Attorney P
Filing
Status Description of Filing Status
- ------ ----------------------------
A Incorporated by reference to the Company's Registration Statement No. 333-30581 filed under the
Securities Act of 1933
B Filed as an exhibit to the Company's Current Report on Form 8-K dated November 13, 1997
C Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997
12
Filing
Status Description of Filing Status
- ------ ----------------------------
D Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998
E Incorporated by reference to the Company's Proxy Statement for its 1999 Annual Shareholders' Meeting
F Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999
G Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1999
H Incorporated by reference to the Company's filing on Form 8-A dated September 7, 1999
I Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999
J Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000
K Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000
L Incorporated by reference to the Company's Proxy Statement for its 2000 Annual Shareholders' Meeting
M Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000
N Filed as an exhibit to the Company's Current Report on Form 8-K dated January 29, 2002
O Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002
P Filed herewith
The Company will furnish, without charge, to a security holder upon request a
copy of the documents, portions of which are incorporated by reference (Annual
Report to Shareholders and Proxy Statement), and will furnish any other Exhibit
upon payment of reproduction charges.
(b) Reports on Form 8-K:
During the fiscal quarter ended December 31, 2002, the Company
filed no reports on Form 8-K.
(c) Exhibits required by this Form 10-K:
See (a)(3) above.
(d) Financial Statements and Schedules
See (a)(2) above.
13
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KENDLE INTERNATIONAL INC.
DATE SIGNED: March 31, 2003 /s/ Candace Kendle
-------------------------------------
Candace Kendle
Chairman, CEO and Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Candace Kendle Chairman of the Board of March 31, 2003
- ----------------------------------------- Directors, Chief Executive
Candace Kendle Officer and Principal Executive
Officer
/s/ Christopher C. Bergen President, Chief Operating March 31, 2003
- ----------------------------------------- Officer and Director
Christopher C. Bergen
/s/ Karl Brenkert III Senior Vice President, March 31, 2003
- ----------------------------------------- Chief Financial Officer,
Karl Brenkert III Treasurer and Principal Financial
and Accounting Officer
/s/ Phillip E. Beekman* Director March 31, 2003
- -----------------------------------------
Philip E. Beekman
/s/ G. Steven Geis, Ph.D., M.D.* Director March 31, 2003
- -----------------------------------------
G. Steven Geis, Ph.D., M.D.
/s/ Donald C. Harrison, M.D.* Director March 31, 2003
- -----------------------------------------
Donald C. Harrison, M.D.
/s/ Timothy E. Johnson, Ph.D* Director March 31, 2003
- -----------------------------------------
Timothy E. Johnson, Ph.D.
/s/ Frederick A. Russ, Ph.D* Director March 31, 2003
- -----------------------------------------
Frederick A. Russ, Ph.D.
/s/ Robert C. Simpson* Director March 31, 2003
- -----------------------------------------
Robert C. Simpson
*/s/ Karl Brenkert III as Attorney In-Fact and March 31, 2003
- ----------------------------------------- Chief Financial Officer
Karl Brenkert III
14
CERTIFICATIONS
I, Candace Kendle, certify that:
1. I have reviewed this annual report on Form 10-K of Kendle
International Inc.;
2. Based on my knowledge, this annual report, does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE SIGNED: March 31, 2003 /s/ Candace Kendle
-----------------------------------
Candace Kendle
Chairman and CEO
15
CERTIFICATIONS
I, Karl Brenkert III, certify that:
1. I have reviewed this annual report on Form 10-K of Kendle
International Inc.;
2. Based on my knowledge this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE SIGNED: March 31, 2003 /s/ Karl Brenkert III
-----------------------------------
Karl Brenkert III
Chief Financial Officer
16
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Filing Status
- ------- ---------------------- -------------
2.1 Stock Purchase Agreement dated July 1, 1997 by and among the Company and Shareholders
of U-Gene Research B.V. *
2.2 Escrow Agreement dated June 27, 1997 among the Company, Keating, Muething & Klekamp,
P.L.L., Bio-Medical Research Holdings, B.V., Utrechtse Particatiemaatschappij B.V., P.J. Morrison,
T.S. Schwarz, I.M. Hoepelman , Ph.K. Peterson, J. Remington, M. Rozenberg-Arska and
L.G.W. Sterkman *
2.3 Share Purchase Agreement dated July 2, 1997 by and among the Company and the Shareholders of
GMI Gescellschaft fur Angewandte Mathematick und Informatik mbH *
2.4 Stock Purchase Agreement dated February 11, 1998 by and among the Company
and the Shareholders of ACER/EXCEL Inc. *
2.5 Escrow Agreement dated February 11, 1998 among the Company, Tzuo-Yan Lee,
Jean C. Lee, Michael Minor, Conway Lee, Steven Lee, Jean C. Lee, as Trustee under
a Trust dated March 8, 1991 fbo Jennifer Lee, Citicorp Trust-South Dakota and The
Fifth Third Bank *
2.6 Registration Rights Agreement dated February 11, 1998 among the Company and
Tzuo-Yan Lee, Jean C. Lee, Michael Minor, Conway Lee, Steven Lee, Jean C. Lee, as Trustee under
a Trust dated March 8, 1991 fbo Jennifer Lee, Citicorp Trust-South Dakota *
2.7 Share Purchase Agreement dated December 23, 1998 by and among the Company and the Shareholders
of Research Consultants (International) Holdings Limited *
2.8 Escrow Agreement dated January 5, 1999 among the Company, John Glasby, Gillian
Gregory, Michael Roy Broomby and Peter Nightingale *
2.9 Option Agreement dated September 9, 1998 by and between the Company and Component
Software International, Inc. *
2.10 Notice of Option Exercise dated January 11, 1999 of the Option Agreement dated September 9, 1998 *
2.11 Multi-Year Strategic Services Agreement dated January 20,1999 by and between the
Company and Component Software International, Inc. *
2.12 Asset Purchase Agreement dated June 27, 1999 by and among the Company and the Shareholders of
Health Care Communications, Inc. *
2.13 Stock Purchase Agreement dated June 4, 1999 by and among the Company and the Shareholders of
ESCLI S.A. *
2.14 Asset Purchase Agreement dated July 13, 1999 by and among the Company and the Shareholders of
HCC Health Care Communications (1991), Ltd. *
2.15 Share Purchase Agreement dated August 31, 1999 by and among the Company and the Shareholder
of Specialist Monitoring Services Limited *
2.16 Escrow Agreement dated July 13, 1999 by and among the Company, Geoffrey H. Kalish, M.D.,
Bradley D. Kalish, Jill Kalish, and The Fifth Third Bank, as Escrow Agent *
2.17 Escrow Agreement dated August 31, 1999 by and among the Company, Paul Martin, and The
Fifth Third Bank, as Escrow Agent *
2.18 Units Purchase Agreement dated April 7, 2000 by and among the Company and the Shareholders of
SYNERmedica PTY Limited and SYNERmedica Unit Trust *
2.19 Stock Purchase Agreement dated February 27, 2001 by and among the Company and the Shareholders
of AAC Consulting Group, Inc. *
2(a) Asset Purchase Agreement dated January 29, 2002 among Kendle International Inc., Clinical and
Pharmacologic Research, Inc., Thomas S. Clark, M.D., Charles T. Clark, and E. Stuart Clark *
2(b) Convertible Subordinated Note, dated January 29, 2002 issued by Kendle International Inc. to Clinical
and Pharmacologic Research, Inc. *
3.1 Restated and Amended Articles of Incorporation *
3.2 Amended and Restated Code of Regulations *
3.3 Amendment of the Restated and Amended Articles of Incorporation to Increase the Authorized Shares *
4 Specimen Common Stock Certificate *
17
Exhibit
Number Description of Exhibit Filing Status
- ------- ---------------------- -------------
4.1 Shareholder Rights Agreement dated August 13, 1999 between the Company and The Fifth Third
Bank, as Rights Agent *
10.1 Amended and Restated Shareholders' Agreement dated June 26, 1997 *
10.2 Master Lease Agreement dated November 27, 1996 by and between the Company
and Bank One Leasing Corporation, as amended on April 18, 1997 *
10.6 Master Equipment Lease dated August 16, 1996 by and between the Company and
The Fifth Third Leasing Company *
10.7 Lease Agreement dated December 9, 1991 by and between the Company and Carew
Realty, Inc., as amended on December 30, 1991, March 18, 1996, October 8, 1996,
January 29, 1997, and February 16, 1999 *
10.8 Indemnity Agreement dated June 21, 1996 by and between the Company and Candace
Kendle Bryan *
10.9 Indemnity Agreement dated June 21, 1996 by and between the Company and Christopher
C. Bergen *
10.10 Indemnity Agreement dated June 21, 1996 by and between the Company and Timothy M.
Mooney *
10.11 Indemnity Agreement dated May 14, 1997 by and between the Company and Charles A. Sanders *
10.12 Indemnity Agreement dated May 14, 1997 by and between the Company and Philip E. Beekman C
10.13 Indemnity Agreement dated December 10, 1998 by and between the Company and Robert Buck *
10.14 Indemnity Agreement dated December 10, 1998 by and between the Company and Mary Beth Price *
10.17 Clinical Trial Service Agreement between the Company and G.D. Searle & Company
dated September 23, 1997 *
10.19 Amended and Restated Credit Agreement dated as of February 26, 1998 by and between
the Company and NationsBank, N.A. *
10.21 First Amendment to the Amended and Restated Credit Agreement dated as of
November 25, 1998 by and between the Company and NationsBank, N.A. *
10.22 Credit Agreement dated as of October 13, 2000 among the Company, the Several Lenders from Time
to Time Party Hereto, and Bank One, NA, as Agent *
10.23 Amended and Restated Credit Agreement dated as of June 3, 2002 among Kendle International Inc.,
The Several Lenders from Time to Time Party Hereto and Bank One, NA as Agent *
10.20 MANAGEMENT CONTRACTS AND COMPENSATION PLANS
(a) 1995 Stock Option and Stock Incentive Plan *
(b) 1995 Stock Option and Stock Incentive Plan--Individual Stock Option Agreement
for Incentive Stock Option (contained in Exhibit 10.20(a)) *
(c) 1997 Stock Option and Stock Incentive Plan *
(c-1) Amendment No. 1 to 1997 Stock Option and Stock Incentive Plan P
(c-2) Amendment No. 2 to 1997 Stock Option and Stock Incentive Plan *
(c-3) Amendment No. 3 to 1997 Stock Option and Stock Incentive Plan P
(d) Form of Protective Compensation and Benefit Agreement *
(e) 1998 Employee Stock Purchase Plan *
(e-1) Amendment No. 1 to 1998 Employee Stock Purchase Plan P
(e-2) Amendment No. 2 to 1998 Employee Stock Purchase Plan P
(e-3) Amendment No. 3 to 1998 Employee Stock Purchase Plan P
(f) 1997 Directors' Compensation Plan *
(f-1) Amendment No. 1 to 1997 Directors Compensation Plan P
(f-2) Amendment No. 2 to 1997 Directors Compensation Plan P
13 Annual Report to Shareholders for 2002 P
21 List of Subsidiaries P
23.1 Consent of PricewaterhouseCoopers LLP P
24 Power of Attorney P
18
Filing
Status Description of Exhibit
- ------- ----------------------
* Incorporated by reference - See Item 15
P Filed herewith
19