1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
CLINTRIALS RESEARCH INC.
(NAME OF SUBJECT COMPANY)
CLINTRIALS RESEARCH INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON SHARES, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
188767107
((CUSIP) NUMBER OF CLASS OF SECURITIES)
CLINTRIALS RESEARCH INC.
PAUL OTTAVIANO
CHIEF EXECUTIVE OFFICER
11000 WESTON PARKWAY
CARY, NORTH CAROLINA 27513
(919) 460-9005
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
MARK MANNER
HARWELL HOWARD HYNE GABBERT & MANNER, P.C.
1800 AMSOUTH CENTER
NASHVILLE, TENNESSEE 37238
(615) 256-0500
[ ] Check the box if filing relates solely to preliminary communications made
before the commencement of a tender offer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is ClinTrials Research Inc., a Delaware
corporation (the "Company"). The address of the Company's principal executive
offices is 11000 Weston Parkway, Cary, North Carolina 27513. The Company's
telephone number at its principal executive offices is (919) 460-9005.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (together with any
Exhibits or Annexes hereto, this "Statement") relates is the common stock, par
value $.01 per share, of the Company (the "Shares"). As of February 22, 2001,
there were 18,402,852 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The filing person is the subject company. The Company's name, business
address and business telephone number are set forth in Item 1 above.
This Statement relates to the tender offer by Indigo Acquisition Corp., a
Delaware corporation ("Purchaser"), which is a wholly owned subsidiary of
Inveresk Research (Canada) Inc., a corporation organized under the laws of
Canada ("Inveresk Canada"), which, in turn, is a wholly owned subsidiary of
Inveresk Research Group Limited, a corporation organized under the laws of
Scotland ("Parent"), to purchase all of the outstanding Shares at a purchase
price of $6.00 per Share, net to the seller in cash (the "Common Stock Price"),
upon the terms and subject to the conditions set forth in Purchaser's Offer to
Purchase, dated March 5, 2001 (as amended or supplemented from time to time, the
"Offer to Purchase"), and in the related Letters of Transmittal (which, together
with any amendments or supplements thereto, collectively constitute the
"Offer"). The Offer is described in a Tender Offer Statement on Schedule TO (as
amended or supplemented from time to time, the "Schedule TO"), filed by
Purchaser with the Securities and Exchange Commission on March 5, 2001.
The Offer is being made in accordance with the Agreement and Plan of
Merger, dated as of February 22, 2001, among Parent, Purchaser and the Company
(the "Merger Agreement"). The Merger Agreement provides that, subject to the
satisfaction or waiver of certain conditions, following completion of the Offer,
and in accordance with the Delaware General Corporation Law (the "DGCL"),
Purchaser will be merged with and into the Company (the "Merger"). On
consummation of the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and will become a subsidiary of
Inveresk Canada. At the effective time of the Merger (the "Effective Time"),
each issued and outstanding Share (other than Shares owned by Parent, Purchaser,
the Company or any of their respective subsidiaries, and Shares held by
stockholders who have perfected their dissenters' rights of appraisal under
Section 262 of the DGCL) will be converted into the right to receive the Common
Stock Price.
The Schedule TO states that the principal offices of Parent and Purchaser
are located at Elphinstone Research Center, Tranent, East Lothian EH33 ZNE,
Scotland, United Kingdom.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are described in the Information Statement pursuant to Rule 14f-1 under the
Securities Exchange Act of 1934 (the "Information Statement") that is attached
as Annex B to this Statement and is incorporated herein by reference. Except as
set out in this Statement (including in the Exhibits hereto and in Annex B
hereto) or incorporated herein by reference, to the knowledge of the Company, as
of the date of this Statement there exists no material agreement, arrangement or
understanding or any actual or potential conflict of interest between the
Company or its affiliates and (1) the Company's executive officers, directors or
affiliates or (2) Purchaser or Purchaser's executive officers, directors or
affiliates.
The summary of the Merger Agreement and the statement of the conditions of
the Offer contained in Sections 11 and 13, respectively, of the Offer to
Purchase are incorporated herein by reference. The summary
2
3
and description of the Merger Agreement is qualified in its entirety by
reference to the Merger Agreement, which has been filed as Exhibit (d)(1) to the
Schedule TO and is incorporated herein by reference.
The Company's executive officers are parties to employment agreements,
which may provide them with certain severance benefits as a result of the
consummation of the Merger. Each of these agreements is described in more detail
in the Information Statement.
The Merger Agreement provides that, as of the Effective Time, each
outstanding option and warrant to purchase Shares granted under any stock option
agreement, compensation plan or arrangement of the Company (each, an "Option")
will automatically be cancelled, whether or not then vested or exercisable, and
the holder of such Option will thereafter be entitled to receive an amount in
cash equal to the product obtained by multiplying (1) the difference between the
Common Stock Price and the per share exercise price of such Option, by (2) the
number of Shares covered by such Option. The Surviving Corporation will deliver
such payment to the holder of such Option at the Effective Time. Pursuant to the
conversion of Options, based upon the Options outstanding at March 1, 2001 and
net of the Option exercise prices, a total of approximately $3.6 million would
be paid to optionees, including approximately $780,000 to executive officers and
approximately $197,000 to non-employee directors of the Company.
Parent agreed in the Merger Agreement that all rights to indemnification
existing on the date of the Merger Agreement in favor of any current or former
director or officer of the Company as provided in the Company's Certificate of
Incorporation or Bylaws or in a written agreement between any such person and
the Company in effect on February 22, 2001 shall survive the Merger and shall
continue in full force and effect until the expiration of all applicable
statutes of limitation. Parent also agreed in the Merger Agreement to (or to
cause the Surviving Corporation to) indemnify all current and former directors
and officers of the Company to the fullest extent the Company would be permitted
by Delaware law with respect to all acts and omissions arising out of such
individuals' service as officers or directors of the Company or any of its
subsidiaries or as trustees, fiduciaries or administrators of any plan for the
benefit of employees occurring prior to the Effective Time. Without limitation
of the foregoing, in the event any such person is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter, including, without limitation, the transactions contemplated by the
Merger Agreement, occurring prior to, and including, the Effective Time, Parent
agreed in the Merger Agreement to (or to cause the Surviving Corporation to) pay
such person's reasonable legal and other expenses of counsel selected by such
person and reasonably acceptable to Parent (including the cost of any
investigation, preparation and settlement) incurred in connection therewith
promptly after statements therefor are received by Parent; provided, however,
that neither Parent nor the Surviving Corporation shall, in connection with any
one such action or proceeding or separate but substantially similar actions or
proceedings arising out of the same general allegations, be liable for
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all indemnified persons. Parent
is entitled to participate in the defense of any such action or proceeding, and
counsel selected by the indemnified person shall, to the extent consistent with
their professional responsibilities, cooperate with Parent and any counsel
designated by Parent. Parent has agreed in the Merger Agreement to pay all
reasonable fees and expenses, including attorneys' fees, that may be incurred by
any indemnified person in enforcing the indemnity and other obligations provided
for in the Merger Agreement.
In addition, Parent agreed in the Merger Agreement that the Company shall
maintain and, from and after the Effective Time, the Surviving Corporation shall
cause to be maintained in effect for not less than six years from the Effective
Time the current policies of directors' and officers' liability insurance
maintained by the Company by purchasing a policy providing "tail" coverage for a
period of not less than six years from the Effective Time; provided, however,
that the Surviving Corporation will not be required to pay an amount in excess
of $400,000 for such policy providing such "tail" coverage; and if the Surviving
Corporation is unable to obtain the insurance required by the Merger Agreement,
it shall obtain as much comparable insurance as possible for such maximum
amount.
3
4
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company's Board.
At a meeting held on February 22, 2001, the Company's Board of Directors
(the "Board" or the "Company's Board") determined that the terms of the Offer
and the Merger are advisable and fair to, and in the best interests of, common
stockholders. At this meeting, the Company's Board unanimously approved the
Merger Agreement, the Offer, the Merger, and the other transactions contemplated
by the Merger Agreement, and unanimously approved the Merger Agreement for
purposes of Section 203 of the DGCL.
The Company's Board unanimously recommends that common stockholders accept
the Offer and tender their Shares in the Offer.
A letter to the Company's stockholders communicating the Board's
recommendation is filed herewith as Exhibit (a)(3), and is incorporated herein
by reference.
(b)(i) Background of the Offer; Contact with Parent and Purchaser.
In July 2000, a number of matters led the Company's Board to consider
hiring an investment banking firm to assist the Company, among them the
impending departure of the Company's CEO, concerns over the Company's European
operations, declining revenues and profitability, the need for substantial
capital expenditures to expand the Company's pre-clinical operations and limited
interest in the Company by investment professionals and research analysts. On
July 26, 2000, the Board determined that it would be in the Company's best
interests to hire an investment banker to assist it in considering financial and
strategic alternatives. On each of August 7, August 8, August 11 and August 14,
2000, the Board discussed potential financial and strategic alternatives and
explored the retention of ING Barings LLC ("ING Barings") as the Company's
investment banker.
On August 16, 2000, the Company announced that it had retained ING Barings
as its investment banking firm in connection with the review of financial and
strategic alternatives for the Company.
On August 21, 2000, ING Barings made its initial presentation to the
Company's Board regarding potential strategic alternatives. Subsequent to this
meeting, the Board authorized ING Barings to begin contacting third parties
regarding potential strategic transactions with the Company. Between August 21
and early November, 2000, the Company's representatives discussed a potential
strategic transaction with sixteen companies. The majority of these companies
subsequently agreed to enter into confidentiality agreements with the Company on
customary terms in order to obtain certain confidential information about the
Company required to evaluate a potential transaction with the Company.
On September 8, representatives of ING Barings spoke by telephone to
representatives of Bear Stearns & Co. Inc. ("Bear Stearns"), which was retained
to advise Parent on a potential strategic transaction with the Company. Bear
Stearns advised ING Barings of the potential interest of Parent in a transaction
with the Company.
On September 26, 2000, the Company and Parent entered into a
confidentiality agreement on customary terms that would permit Parent to obtain
confidential information required to evaluate a potential transaction with the
Company. Also on September 26, 2000, in New York City, Paul Ottaviano, Chief
Executive Officer of the Company and Colin Neill, Senior Vice President and
Chief Financial Officer of the Company, along with representatives of ING
Barings, met with Dr. Walter Nimmo, Chief Executive Officer of Parent, Alastair
McEwan, Head of Corporate Development of Parent and representatives of Bear,
Stearns to discuss the operations and financial performance of the Company, the
strategic advantages of combining the operations of the Company and Parent, the
complementary nature of their respective businesses and the potential advantages
of a business combination.
In late September and early October 2000, various members of senior
management of Parent and the Company had a series of telephone calls to further
discuss the operations of the Company and the merits of a combination of the
Company and Parent. On October 9, 2000, Bear Stearns confirmed to ING Barings by
telephone that Parent was interested in pursuing a potential strategic
transaction with the Company and
4
5
wished to conduct further due diligence on the Company's operations. Bear
Stearns indicated that Parent would be willing to purchase all of the
outstanding shares of the Company for between $5.25 and $5.50 per Share in cash,
subject to the Company agreeing to a period of exclusivity during which it would
deal only with the Parent while the Parent completed its due diligence review of
the Company and obtained the necessary financing commitments to enable Parent to
consummate a transaction. Upon consultation with the Board, ING Barings informed
Bear Stearns that its indicated price range was insufficient to grant
exclusivity to Parent.
On October 24, October 25, and November 1, 2000, certain representatives of
Parent and Bear Stearns visited the Company's facilities in Montreal, Canada,
Cary, North Carolina, and Maidenhead, England and held additional discussions
with management of the Company and ING Barings regarding the Company's
operations and financial performance.
During October and November 2000 the Company and its representatives
negotiated with Parent and two other interested parties (the "Other Parties")
that expressed interest in a strategic transaction with the Company.
One of the Other Parties ("Party A") proposed acquiring the Company
pursuant to an exchange offer that would provide for the exchange of the Shares
for securities of Party A (as amended thereafter, the "Party A Offer"). The
second of the Other Parties ("Party B"), which had expressed an interest in a
strategic transaction with the Company prior to its retention of ING Barings,
proposed acquiring the Company pursuant to an offer of either all securities or
a combination of mostly securities of Party B and some cash (as amended
thereafter, the "Party B Offer").
Party A submitted a non-binding letter of intent on November 13, 2000
indicating that it would be prepared to enter into a transaction to exchange the
Shares of the Company for securities of Party A with a value of approximately
$5.60 per Share. Upon consultation with the Board, ING Barings informed Party A
that its indicated price was insufficient to grant exclusivity.
Party B submitted a written expression of interest on November 14, 2000,
confirming its prior verbal expressions of interest, in which it offered to
purchase the Shares for a combination of Party B stock and up to $20 million,
with a combined value of between $5 and $6 per Share.
On November 15, 2000, ING Barings made an informal presentation to the
Company's Board regarding the various expressions of interest by Parent and the
Other Parties. The Board expressed concerns regarding the lack of liquidity of
the securities of Party B but instructed ING Barings to continue negotiations
with Parent and the Other Parties. Between November 15 and November 22, 2000,
the Company's Board conducted negotiations with Parent and the Other Parties.
During this same period, Parent indicated that it would be willing to purchase
the Shares at a price of $5.50 per Share. The Company's representatives told
Parent that $5.50 per Share was insufficient to grant exclusivity to Parent.
On November 21, 2000, representatives of the Board met with the Chief
Executive Officer of Party A to discuss a potential business combination.
On November 22, 2000, Parent delivered a letter to the Company indicating
Parent's interest in pursuing a possible business combination with the Company
in which the Parent would pay $6.00 per Share, subject to the Company agreeing
to a period during which it would deal exclusively with Parent while Parent
completed its due diligence review of the Company and its business operations
and developed a definitive proposal for a business combination. In subsequent
discussions, Parent told the Company that Parent was not willing to dedicate the
requisite resources to this process unless the Company would deal with it on the
exclusive basis it had proposed. Prior to November 27, Parent delivered a
non-binding letter from its senior financing sources and had its principal
equity investor contact ING Barings, both indicating support for the proposed
transaction.
The Company's Board continued negotiations with Parent and the Other
Parties from November 22 to November 27, 2000.
5
6
On November 27, Party A submitted a letter indicating that it would offer a
number of its own securities likely to result in a higher price than its
previous proposal, but included a provision that would allow Party A to
terminate the transaction if Party A's stock price traded above a fixed price
that was only a small premium above Party A's stock price at that time. Based on
discussions between ING Barings and Party A, the Company believes this provision
was included due to Party A's belief that its stock price would increase
materially in the near future.
On November 27, 2000, Party B submitted a non-binding letter of intent
indicating that it would be prepared to purchase the Company for either (i) a
combination of mostly securities of Party B and some cash, or (ii) a somewhat
higher price, consisting entirely of securities of Party B. On November 27,
2000, in response to questions from the Company, Party B also informed the
Company that its offer combining cash and stock, which was below $6.00 per share
in value, could not be increased.
On November 27, 2000, the Company's Board conducted two separate meetings
to discuss in detail the preliminary proposals that had been made by Parent and
the Other Parties. All three proposals were subject to a number of conditions,
including negotiation of a definitive agreement and completion of further due
diligence. At the first November 27 meeting, the Company's Board rejected the
Party B Offer on the grounds that the (i) cash and stock offer was inadequate
and (ii) the offer with a purchase price consisting entirely of Party B stock
was not as favorable to the Company's shareholders as the other offers from a
financial point of view, in part because of the illiquidity of Party B stock.
The Board also determined that Parent's proposal was superior to the proposal
made by Party A. The Company's Board then decided to make a counter-proposal to
Party A. In particular, the Company's Board wanted to increase the purchase
price eliminate a "cap" that would allow Party A to terminate the transaction if
Party A's stock price traded above a fixed price that was only a small premium
above Party A's stock price at the time. The counter proposal would eliminate
the cap and increase the number of securities of Party A that would be exchanged
for the Shares. Party A rejected the Board's counter proposal as to the cap but
slightly increased the purchase price.
At the second November 27 meeting, at the request of the Company, ING
Barings discussed the risks related to Party A having the right to terminate the
transaction if Party A's stock traded above the proposed cap. The Board remained
concerned that Party A likely would be able to terminate the transaction at some
point when its stock price increased, which likely would cause substantial harm
to the Company's shareholders. The Company's Board decided to make a final
counter proposal to Party A on substantially the same terms as those contained
in the previous counter-proposal. The Board agreed that if its counter proposal
was not accepted then the Board would authorize the Company's management to
pursue the transaction that had been proposed by Parent.
On November 28, 2000, ING Barings informed the Company's Board that Party A
had not accepted the Board's final counter proposal. Later that same day, Parent
and the Company entered into a letter agreement that provided for a period of
exclusive dealing as requested by Parent, subject to a right on the part of the
Company to terminate the exclusive dealing arrangement if, after receipt of an
unsolicited competing proposal, the Company's Board determined that its
fiduciary obligations required it to do so. The agreement provided that if the
Company's Board exercised this "fiduciary out," or in certain other instances
refused to complete the transaction, the Company would reimburse Parent's
expenses, up to a maximum of $1,000,000. The letter agreement provided that the
exclusivity period would expire on January 15, 2001.
Between November 29, 2000 and February 21, 2001, Parent and its legal
counsel, financial advisors and accountants conducted additional due diligence
on the Company and representatives of Parent and Bear Stearns held various
meetings and had various discussions with representatives of the Company and ING
Barings regarding the status of the proposed transaction. On December 29, 2000,
Clifford Chance Rogers & Wells LLP, Parent's legal counsel, circulated an
initial draft of the Merger Agreement to the Company and the Company's legal and
financial advisors. On January 6, 2001, representatives of ING Barings informed
representatives of Bear Stearns that the draft Merger Agreement delivered
December 29, 2000 was incomplete, because, among other things, the terms of the
agreement were subject to the completion of due diligence, and the amount of the
proposed termination payment and expense reimbursement were not included, and
could not be used by the Company and Parent as a basis for negotiation at that
time.
6
7
On January 8, 2001, the Company's Board met and discussed the status of
Parent's offer. The Company's Board expressed concern related to delays in
moving towards a definitive agreement and questioned whether Parent was willing
or able to complete a transaction on a time frame that the Board believed was
appropriate for the Company's shareholders. On January 17, 2001 the Company's
Board agreed to amend the November 28, 2000 letter agreement to provide that the
exclusivity period would be reinstated and extended until February 5, 2001 in
exchange for which the $1 million penalty to the Company for not agreeing to
complete a transaction under the terms proposed in the November 28, 2000 letter
was eliminated. On January 24, 2001, Parent's legal counsel circulated a new
draft of the Merger Agreement.
On January 26, 2001, the Company's Board held a meeting in which it decided
to propose to Parent that the price paid per Share in the transaction should be
increased or the nature of the transaction should change to further benefit the
Company's stockholders. On January 27 and January 28, 2001, ING Barings and Bear
Stearns discussed the status of the proposed transaction in light of the Board's
request. On January 29, 2001, ING Barings reported to the Company's Board that
Parent had rejected the proposal and that Parent had requested a face-to-face
meeting with the Company.
On February 1, 2001, the Company, Parent, ING Barings and Bear Stearns met
in Nashville, Tennessee and agreed to work towards a rapid negotiation of an
agreement for a transaction at a price of $6.00 per Share without further
extending the exclusivity period beyond its scheduled expiration on February 5,
2001. On February 5, 2001, the extended exclusivity period expired.
Subsequently, members of the Company and Parent's management and their
respective legal and financial advisors held telephone conversations and
exchanged electronic mail to discuss the principal terms of the proposed
transaction. The principal issues discussed among the parties during these
discussions included the nature and extent of the parties' representations and
warranties, the conditions to the Offer, Parent's right to extend the Offer, the
Company's right to solicit alternative acquisition proposals, Parent's right to
match any competing proposals to purchase the Company, the commitment of certain
of the Company's stockholders to sell their shares to Parent, the parties'
respective rights to terminate the Merger Agreement, the amount of the
termination payment that would be required of the Company and the circumstances
under which the termination payment would become payable. Concerned with the
slow progress of the transaction, representatives of the Company repeatedly
pressed Parent from February 12 to February 20, 2001, to complete the
negotiation process and threatened to terminate negotiations if rapid progress
was not achieved.
On February 21, 2001, certain members of the Company's Board reviewed the
principal terms of the proposed transaction as then provided in the draft Merger
Agreement. On February 22, 2001, the Company's Board held a special meeting to
review the status of final negotiations with Parent. At the meeting, the
Company's legal counsel and financial advisors updated the Board on the changes
negotiated to the definitive Merger Agreement since the previous day's special
meeting of the Board. Also at this meeting, ING Barings rendered to the Board
its oral opinion (confirmed by delivery of a written opinion dated February 22,
2001) to the effect that, as of February 22, 2001 and based on and subject to
the assumptions, conditions, and limitations stated in its opinion, the Common
Stock Price to be received in the Offer and the Merger by the holders of Shares
was fair, from a financial point of view, to such holders. Parent was advised
that after full discussion of the matters considered by the Company's Board at
that meeting, the Company's Board unanimously approved the proposed transaction
and the Merger Agreement, declared the Merger Agreement advisable, authorized
the executive officers of the Company to negotiate on behalf of the Company any
changes necessary to finalize the Merger Agreement and the related ancillary
documents and determined to recommend to the Company's stockholders that they
accept the Offer, tender their Shares in the Offer and, if required under the
DGCL or the Company's Certificate of Incorporation or Bylaws, vote to adopt the
Merger Agreement.
On the evening of February 22, 2001, the Company, Parent and Purchaser
executed the Merger Agreement and the Company issued a press release announcing
the transaction.
On March 5, 2001, Purchaser commenced the Offer.
7
8
(ii) Reasons for the Recommendation of the Board.
In reaching its recommendations described above in paragraph (a) of this
Item 4, the Board considered a number of factors, including the following:
1. Company Operating and Financial Condition. The Company's Board
considered the current and historical financial condition and results of
operations of the Company, as well as the prospects and strategic
objectives of the Company, including the risks involved in achieving those
prospects and objectives, and the current and expected conditions in the
industries in which the Company's businesses operate. In particular, the
Board was concerned that the trend of increasing consolidation among the
larger Clinical Research Organizations ("CRO's") may place the Company at a
competitive disadvantage. Larger CRO's generally have substantial capital
and offer comprehensive, "turnkey" pre-clinical and clinical testing
services on a global basis. The Board also was concerned about
consolidation trends in the pharmaceutical industry that eliminated
customers, as well as the trend of large pharmaceutical companies toward
consolidating business with a smaller number of CRO's. As pharmaceutical
and biotechnology companies continue to outsource the pre-clinical and
clinical testing component in the development of new products, the Board
believes that such companies increasingly will prefer to work with larger
CRO's that can organize and manage large scale trials on a global basis as
well the ability to organize and manage large and complex medical
databases.
2. Transaction Financial Terms/Premium to Market Price. The Common
Stock Price represents a 14% premium over the closing price of the Shares
on the Nasdaq National Market on February 22, 2001 (the last trading day
prior to the Board meeting at which the Board approved the Merger
Agreement), a 4% premium over the closing price on November 21, 2000 (the
date prior to the execution of the letter agreement) and a 69% premium over
the average price of the Shares over the 30 trading days prior to the
announcement by the Company of the appointment of ING Barings as the
Company's financial advisor.
3. Strategic Alternatives. The Board considered strategic
alternatives available to the Company in addition to those described above
in Item 4(b)(i), including (i) selling either the Company's clinical
research or pre-clinical research business, and (ii) recapitalizing the
Company and focusing on growing the Company by continuing to actively
pursue new business.
4. ING Barings Valuation Analysis. The Board considered presentations
from ING Barings at a series of meetings. ING Baring's presentations
included detailed analyses, including the historical stock price trading
ranges and volume for the Company, comparable valuations for publicly
traded companies and comparable valuations for recent similar transactions.
The presentations also included valuations for the Company based on various
methodologies, including comparable trading and transaction valuations,
present values of strategic plan cash flows and projected stock prices, and
pre-tax and after-tax sum-of-the-parts valuations.
5. ING Barings' Fairness Opinion. The Board considered the opinion of
ING Barings delivered to the Board on February 22, 2001, that as of that
date, based upon and subject to certain considerations and assumptions, the
consideration to be received by holders of Shares pursuant to the Merger
Agreement was fair from a financial point of view to such holders. A copy
of the written opinion rendered by ING Barings to the Board, setting forth
the procedures followed, the matters considered, the assumptions made and
limitations on the review undertaken by ING Barings in arriving at its
opinion, is attached hereto as Annex A and incorporated herein by
reference. Stockholders are urged to read this opinion in its entirety. The
opinion of ING Barings was presented for the benefit of the Board in
connection with its consideration of the Merger Agreement and is directed
only to the fairness of the consideration to be received by the holders of
Shares pursuant to the Offer and the Merger. The opinion does not
constitute a recommendation to any stockholder as to whether such
stockholder should tender any Shares pursuant to the Offer and how such
stockholder should vote on the proposed Merger or any matter related
thereto. The Board was aware that ING Barings became entitled to certain
fees upon delivery of its fairness opinion and certain fees contingent upon
consummation of the Offer. See Item 5 -- Persons/Assets Retained, Employed,
Compensated or Used.
8
9
6. Timing of Completion. The Board considered the anticipated timing
for the completion of the transactions contemplated by the Merger
Agreement, including the structure of the transactions as a tender offer
for all of the Shares followed by the Merger. The Board considered that the
tender offer could allow stockholders to receive the transaction
consideration earlier than in an alternative form of transaction. The Board
also considered that the terms of the subsequent Merger provide that common
stockholders will receive the same consideration for their Shares as
received by common stockholders who tender their Shares in the Offer.
7. Limited Conditions to Consummation. The Board considered that
Parent's obligation to consummate the Offer and the Merger is subject to a
limited number of conditions (as set forth in Section 13 of the Offer to
Purchase), with no financing condition. The Board also considered the
relative likelihood of obtaining required regulatory approvals for this
transaction, and the terms of the Merger Agreement regarding the
obligations of both companies to pursue such approvals.
8. Alternative Transactions. The Board considered that under the
terms of the Merger Agreement, while the Company is prohibited from
soliciting acquisition proposals from third parties, the Company may engage
in discussions or negotiations with, and may furnish non-public information
to, a third party that makes an unsolicited bona fide written acquisition
proposal if, among other things, the Board by a majority vote determines in
its good faith judgment, after receiving advice from its financial advisors
and after consulting with outside legal counsel, that such acquisition
proposal is a Superior Proposal (as defined in the Merger Agreement),
meaning that, after taking a number of considerations into account, it is
reasonably likely to provide greater value to the Company's stockholders
from a financial point of view than the Offer and the Merger. The Board
considered that the terms of the Merger Agreement permit the Company to
terminate the Merger Agreement to enter into such a superior transaction
involving the Company if the Company pays Parent a $4 million termination
fee plus up to $1 million of actual expenses incurred by Parent in
connection with the Offer and/or the Merger. Although the Board considered
that these provisions of the Merger Agreement could have the effect of
deterring third parties who might be interested in exploring an acquisition
of the Company, the Board concluded that the effect of these provisions
would not preclude a superior proposal to acquire the Company. In this
regard, the Board recognized that the provisions of the Merger Agreement
relating to termination fees and non-solicitation of acquisition proposals
were insisted upon by Parent as a condition to entering into the Merger
Agreement. The Board also considered that a number of provisions requested
by Parent were changed or eliminated at the insistence of the Board to
enable a superior proposal to be considered and consummated. The Board also
considered that the Minimum Condition for the Offer was set at a majority
of the fully-diluted Shares outstanding, a relatively low threshold.
9. Potential Conflicts of Interest. The Board considered the
interests of certain Company executives in the Offer and the Merger (Item
3 -- Past Contacts, Transactions, Negotiations and Agreements).
The foregoing includes the material factors considered by the Board. In
view of its many considerations, the Board did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered. In addition, individual members of the Board may have given
different weights to the various factors considered. After weighing all of these
considerations, the Board was unanimous in determining to approve the Merger
Agreement and to recommend that holders of Shares tender their Shares in the
Offer.
(c) Intent to Tender.
Each executive officer and director of the Company has signed a
stockholders agreement ("Stockholders Agreement") obligating such person to
tender all Shares held of record or beneficially owned by such person to
Purchaser in the Offer, subject to the terms of the Stockholders Agreement. The
summary of the Stockholders Agreement contained in Section 11 of the Offer to
Purchase is incorporated herein by reference. The summary and description of the
Stockholders Agreement is qualified in its entirety by reference to the
Stockholders Agreement, which has been filed as Exhibit (d)(2) to the Schedule
TO and is incorporated herein by reference.
9
10
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to an engagement letter dated August 16, 2000, the Company
retained ING Barings to act as its financial advisor to assist it in exploring
financial and strategic alternatives and, if necessary, provide a fairness
opinion, including, among other things, a sale, merger, consolidation,
reorganization or similar transaction involving all or a substantial portion of
the stock or assets of the Company (each a "Transaction"). ING Barings is an
internationally recognized investment banking and advisory firm. As part of its
investment banking and financial advisory business, ING Barings is continuously
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In addition, ING Barings is a
full-service securities firm engaged in securities trading, brokerage and
financing activities. In the ordinary course of its trading and brokerage
activities, ING Barings or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for its own account
or the accounts of customers, in debt or equity securities or senior loans of
the Company.
Pursuant to the August 16, 2000 engagement letter, the Company agreed to
pay ING Barings a customary fee, in cash, for its financial advisory services.
Such fee was calculated as the aggregate of 2.0% of the first $50 million of
Aggregate Consideration, 1.5% of the next $50 million of Aggregate Consideration
and 1.25% of any excess of the Aggregate Consideration. In addition the Company
agreed to pay ING Barings $500,000 in respect of its delivery of a fairness
opinion to the Board of which $250,000 was credited toward the ING Barings
advisory fee. The engagement letter defined Aggregate Consideration to include,
among other things, the sum of the cash paid to the Company's security holders
and the amount of all indebtedness of the Company or any of its subsidiaries
assumed in connection with a Transaction. Pursuant to the engagement letter, the
Company was to pay ING Barings the advisory fee on the closing date(s) of each
Transaction involving the Company. Based on the estimated Aggregate
Consideration to be paid under the terms of the Merger Agreement, ING Baring's
fee for services in connection with the Offer and Merger is estimated to be
approximately $2.2 million. The Company has also agreed to reimburse ING Barings
for reasonable expenses as incurred. In addition, the Company has agreed to
indemnify ING Barings and its affiliates and their respective directors,
officers, employees, agents and controlling persons against any and all costs
and liabilities, including reasonable attorney fees and expenses, related to or
arising out of any Transaction contemplated by the engagement letter, except to
the extent that such liabilities are found in a final court judgment to have
resulted from ING Baring's bad faith or gross negligence.
Except as described above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations in connection with any Transaction.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in Shares have been effected during the past 60 days by the
Company or, to the knowledge of the Company, by any executive officer, director,
affiliate or subsidiary of the Company, except that, on February 9, 2001,
director Irwin B. Eskind, M.D. transferred beneficial ownership of 71,452 Shares
to his sons, Steven J. Eskind and Jeffrey B. Eskind.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (1) a tender offer for or other acquisition of the Company's securities by
the Company, any subsidiary of the Company or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (3) a purchase, sale or
transfer of a material amount of assets of the Company or any subsidiary of the
Company; or (4) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company.
10
11
Except as set forth in this Statement, there are no transactions,
resolutions of the Board, agreements in principle, or signed contracts in
response to the Offer that relate to one or more of the events referred to in
the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
(a) Purchaser's Designation of Persons to be Elected to the Board.
The Information Statement attached as Annex B to this Statement is being
furnished in connection with the possible designation by Parent, pursuant to the
terms of the Merger Agreement, of certain persons to be elected to the Board
other than at a meeting of the Company's stockholders.
(b) Delaware General Corporation Law.
The Company is incorporated under the laws of the State of Delaware.
Short-form Merger. Under Section 253 of the DGCL, if Purchaser acquires,
pursuant to the Offer or otherwise, at least 90% of the outstanding Shares,
Purchaser will be able to effect the Merger after consummation of the Offer
without a vote of the Company's stockholders. However, if Purchaser does not
acquire at least 90% of the Shares pursuant to the Offer or otherwise, under
Section 251 of the DGCL, a vote of the Company's stockholders will be required
to adopt and approve the Merger Agreement. As a result, the Company will also
have to comply with the Federal securities laws and regulations governing the
solicitation of proxies. Among other things, the Company will be required to
prepare and distribute a proxy statement and as a consequence a longer period of
time will be required to effect the Merger.
Delaware Anti-takeover Statute. In general, Section 203 of the DGCL
("Section 203") prevents an "interested party" (defined to include a person who
owns or has the right to acquire 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (defined to include
mergers and certain other transactions) with a Delaware corporation for three
years following the date such person became an interested stockholder unless,
among other things, the "business combination" is approved by the board of
directors of such company prior to that date. On February 22, 2001, the
Company's Board approved the Offer and the Merger. Accordingly, Section 203 is
inapplicable to the Offer and the Merger.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, persons who are holders of Shares
at the effective time of the Merger will have certain rights under Section 262
of the DGCL to demand appraisal of their shares. Such rights, if the statutory
procedures are complied with, could entitle the holder to a judicial
determination of the "fair value" of the Shares at the effective time (excluding
any element of value arising from the accomplishment or the expectation of the
Merger), to be paid in cash, in lieu of the Common Stock Price. The value so
determined could be more or less than the Common Stock Price.
Appraisal rights cannot be exercised at this time. Stockholders who will be
entitled to appraisal rights in connection with the Merger will receive
additional information concerning those rights and the procedures to be followed
in order to perfect them before such stockholders have to take any action in
connection with such rights.
(c) Regulatory Approvals.
United States Antitrust Compliance. Under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the rules that have
been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC, and certain waiting period requirements have
been satisfied. The purchase of Shares pursuant to the Offer is subject to such
requirements.
Pursuant to the requirements of the HSR Act, Purchaser has advised the
Company that it filed a Notification and Report Form with respect to the Offer
and Merger with the Antitrust Division and the FTC on March 2, 2001. As a
result, the waiting period applicable to the purchase of Shares pursuant to the
Offer
11
12
would be scheduled to expire at 11:59 p.m., Eastern Standard Time, 15 days after
such filing. However, prior to such time, the Antitrust Division or the FTC may
extend the waiting period by requesting from Purchaser additional information or
documentary material relevant to the Offer. If a second request is made, the
waiting period will be extended until 11:59 p.m., Eastern Standard Time, on the
tenth day after substantial compliance by Purchaser with such request.
Thereafter, such waiting period can be extended only by court order or by
agreement of the parties.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Shares by Purchaser
pursuant to the Offer. At any time before or after the consummation of any such
transactions, the Antitrust Division or the FTC could take such action under the
antitrust laws of the United States as it deems necessary or desirable in the
public interest, including seeking to enjoin the purchase of Shares pursuant to
the Offer or seeking divestiture of the Shares so acquired. Private parties
(including individual States) may also bring legal actions under the antitrust
laws of the United States. The Company does not, and Purchaser has advised the
Company that it does not, believe that the consummation of the Offer will result
in a violation of any applicable antitrust laws. However, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made,
or if such a challenge is made, what the result will be.
Under the Merger Agreement the Company and Parent have agreed to use their
best efforts to resolve any objections that the antitrust regulators may raise
with respect to the contemplated transactions. The Company and Parent have
agreed to use their best efforts to avoid or vacate any injunction restraining
the Merger, including litigating any claim raised by any party through all
available appeals. Further, Parent and the Company have agreed to avoid any
impediment asserted by the antitrust regulators, including making such
divestitures as may be required or accepting any restriction on any of their
businesses, provided that Parent is not required to take any action that would
have a material adverse effect on the business, assets, long-term earning
capacity or financial condition of Parent, the Company and their subsidiaries,
taken as a whole.
(d) Forward-Looking Statements. This Schedule 14D-9 may contain or
incorporate by reference certain "forward-looking statements." All statements
other than statements of historical fact included or incorporated by reference
in this Schedule 14D-9, including without limitation statements regarding the
Company's financial position, business strategy and growth prospects are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. A number of
risks and uncertainties could cause actual results to differ materially from
these statements.
(e) Other Material Information. The information contained in all of the
Exhibits referred to in Item 9 below is incorporated herein by reference.
ITEM 9. EXHIBITS. The following Exhibits are filed herewith:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(1) -- Offer to Purchase (incorporated by reference to Exhibit
(a)(1) of Purchaser's Schedule TO, filed with the Commission
on March 5, 2001).
(a)(2) -- Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) of Purchaser's Schedule TO, filed with the Commission
on March 5, 2001).
(a)(3) -- Recommendation Letter to the Stockholders of the Company,
dated March 5, 2001.
(a)(4) -- Press Release issued by the Company on February 22, 2001
announcing the Merger and the Offer (incorporated by
reference to the Company's Schedule 14D-9, filed by the
Company with the Commission on February 23, 2001).
(a)(5) -- Opinion of ING Barings LLC, dated February 22, 2001
(included as Annex A to this Schedule 14D-9).
12
13
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(6) -- Information Statement of the Company (included as Annex B to
this Schedule 14D-9).
(a)(7) -- Summary newspaper advertisement, dated March 5, 2001, and
printed in the Wall Street Journal (incorporated by
reference to Exhibit (a)(7) of Purchaser's Schedule TO,
filed with the Commission on March 5, 2001).
(e)(1) -- Agreement and Plan of Merger, dated as of February 22, 2001,
by and among Purchaser, Parent and the Company (incorporated
by reference to Exhibit (d)(1) of Purchaser's Schedule TO,
filed with the Commission on March 5, 2001).
(e)(2) -- Amendment No. 2 to Employment Agreement dated August 15,
2000, between the Company and Paul J. Ottaviano
(incorporated by reference to Exhibit 10.20 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
(e)(3) -- Amendment No. 2 to Employment Agreement dated August 15,
2000, between the Company S. Colin Neill (incorporated by
reference to Exhibit 10.21 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000).
(e)(4) -- Amendment to the Employment Agreement dated June 28, 2000,
between ClinTrials Research Inc. and William Shaw.
(e)(5) -- Employment Agreement dated June 28, 2000, between the
Company and Graham S. May, M.D. (incorporated by reference
to Exhibit 10.19 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000).
(e)(6) -- Executive Employment Agreement dated July 31, 1996, between
ClinTrials Research Inc. 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).
(e)(7) -- Stockholders Agreement, dated as of February 22, 2001, among
Parent, Purchaser and certain Company stockholders
(incorporated by reference to Exhibit(d)(2) of Purchaser's
Schedule TO, filed with the Commission on March 5, 2001).
13
14
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CLINTRIALS RESEARCH INC.
By: /s/ PAUL J. OTTAVIANO
------------------------------------
Paul J. Ottaviano
President and Chief Executive
Officer
Dated: March 5, 2001
14
15
ANNEX A
February 22, 2001
Board of Directors
ClinTrials Research Inc.
11000 Weston Parkway
Cary, NC 27513
Gentlemen:
We understand that Inveresk Research Group Limited ("Inveresk") has
proposed to acquire all of the issued and outstanding common shares of
ClinTrials Research Inc. ("ClinTrials") at a price of $6.00 pursuant to a cash
tender offer and a second-step merger of a wholly-owned subsidiary of Inveresk
with and into ClinTrials (the "Proposed Transaction"). All outstanding options
to acquire common shares of ClinTrials (including options not currently
exercisable) will be cancelled and the holders will receive a payment in cash
equal to the excess, if any, of $6.00 over the option exercise price for each
share underlying the option. The terms and conditions of the Proposed
Transaction are set forth in more detail in the draft Agreement and Plan of
Merger (the "Agreement").
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, of the consideration to be offered to the
shareholders of ClinTrials in the Proposed Transaction.
We have acted as financial advisor to ClinTrials in connection with the
Proposed Transaction and will receive a customary fee for our services. As you
are aware, our firm is a full service securities firm that engages in securities
trading and brokerage activities, in addition to providing investment banking
services. In the ordinary course of our business, we may trade or otherwise
effect transactions in the securities of ClinTrials and, accordingly, may at any
time hold a long or short position in such securities.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) a draft of the Agreement dated February 20, 2001 and certain
related documents and the financial terms of the Proposed Transaction set
forth therein;
(ii) the Annual Report of ClinTrials on Form 10-K for each of the
fiscal years ended December 31, 1999, 1998, 1997, and 1996, and the
Quarterly Reports of ClinTrials on Form 10-Q for the periods ended
September 30, 2000 and September 30, 1999;
(iii) an internal draft of the preliminary earnings release of
ClinTrials for the three months and fiscal year ended December 31, 2000;
(iv) certain other publicly-available information concerning
ClinTrials and the trading market for its common stock;
(v) certain internal information and other data relating to ClinTrials
and its business and prospects, including forecasts and projections,
provided to us by the management of ClinTrials;
(vi) certain publicly-available information concerning certain other
companies engaged in businesses which we believe to be generally comparable
to ClinTrials and the trading markets for certain of such other companies'
securities;
(vii) the financial terms of certain recent tender offers and business
combinations which we believe to be relevant;
(viii) certain discussions and negotiations among representatives of
Inveresk, its financial advisers, legal advisers and controlling
shareholder and representatives of ClinTrials and its financial and legal
advisers; and
(ix) certain other proposals and indications of interest received by
ClinTrials relating to the acquisition of ClinTrials.
1
16
We have also met with certain officers and employees of ClinTrials
concerning the businesses and operations, assets, present conditions and
prospects of ClinTrials, and we undertook such other studies, analyses and
investigations, as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us and have not
attempted independently to verify such information, nor do we assume any
responsibility to do so. We have assumed that the forecasts and projections
provided to or reviewed by us have been reasonably prepared based on the best
current estimates and judgment of the management of ClinTrials as to the future
financial condition and results of operations of ClinTrials. We have visited but
have not conducted a physical inspection of the properties and facilities of
ClinTrials, nor have we made or obtained any independent evaluation or appraisal
of such properties and facilities. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in similar transactions, as well as our experience in securities
valuation in general. Our opinion necessarily is based upon economic, market,
financial and other conditions as they exist and can be evaluated on the date
hereof and we assume no responsibility to update or revise our opinion based
upon events or circumstances occurring after the date hereof.
This letter and the opinion expressed herein have been provided to the
Board of Directors of ClinTrials for their use in considering the Proposed
Transaction. This opinion does not address the underlying business decision of
ClinTrials to approve the Proposed Transaction or constitute a recommendation to
the shareholders of ClinTrials as to how such shareholders should vote, whether
such shareholders should tender any shares in the tender offer or as to any
other action the Board of Directors or such shareholders should take regarding
the Proposed Transaction. This opinion may not be reproduced, summarized,
excerpted from or otherwise publicly referred to or disclosed in any manner
without our prior written consent except ClinTrials may include this opinion in
its entirety in any proxy statement, information statement or Schedule 14D-9
relating to the Proposed Transaction sent to the shareholders of ClinTrials.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the consideration offered in the Proposed Transaction is fair, from
a financial point of view, to the shareholders of ClinTrials.
Very truly yours,
ING BARINGS LLC
2
17
ANNEX B
CLINTRIALS RESEARCH INC.
11000 WESTON PARKWAY
CARY, NORTH CAROLINA 27513
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about March 5, 2001 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Statement") of ClinTrials Research Inc. (the "Company"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Inveresk Research Group Limited, a corporation organized under the
laws of Scotland ("Parent"), to a majority of seats on the Board of Directors
(the "Board") of the Company. On February 22, 2001, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Parent and Indigo
Acquisition Corp., a Delaware corporation (the "Purchaser"), which is a wholly
owned subsidiary of Inveresk Research (Canada) Inc., a corporation organized
under the laws of Canada ("Inveresk Canada"), which, in turn, is a wholly owned
subsidiary of Parent, pursuant to which Purchaser is required to commence a
tender offer to purchase all outstanding shares of common stock, par value $.01
per share, of the Company (the "Shares"), at a price per Share of $6.00, net to
the seller in cash (the "Common Stock Price"), upon the terms and conditions set
forth in Purchaser's Offer to Purchase, dated March 5, 2001 (as amended or
supplemented from time to time, the "Offer to Purchase"), and in the related
Letters of Transmittal (which, together with any amendments and supplements
thereto, collectively constitute the "Offer"). Copies of the Offer to Purchase
and the Letters of Transmittal have been mailed to stockholders of the Company
and are filed as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer
Statement on Schedule TO (as amended from time to time, the "Schedule TO") filed
by Purchaser with the Securities and Exchange Commission (the "Commission") on
March 5, 2001.
The Merger Agreement provides that, subject to the satisfaction or waiver
of certain conditions, following completion of the Offer, and in accordance with
the Delaware General Corporation Law (the "DGCL"), Purchaser will be merged with
and into the Company (the "Merger"). Following consummation of the Merger, the
Company will continue as the surviving corporation and will become a wholly
owned subsidiary of Inveresk Canada. At the effective time of the Merger (the
"Effective Time"), each issued and outstanding Share (other than Shares owned by
Parent, Purchaser, the Company or any of their respective subsidiaries, and
Shares held by stockholders who have perfected their dissenters' rights of
appraisal under Section 262 of the DGCL) will be converted into the right to
receive the Common Stock Price per Share paid pursuant to the Offer.
The Offer, the Merger, and the Merger Agreement are more fully described in
the Statement, to which this Information Statement is attached as Annex B, which
was filed by the Company with the Commission on March 5, 2001 and which is being
mailed to stockholders of the Company along with this Information Statement.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule
14f-1 promulgated thereunder. The information set forth herein supplements
certain information set forth in the Statement. Information set forth herein
related to Parent, Purchaser or the Parent Designees (as defined below) has been
provided by Parent. You are urged to read this Information Statement carefully.
You are not, however, required to take any action in connection with the matters
set forth herein.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on March 5,
2001. The Offer is currently scheduled to expire at 12:00 midnight, New York
City time, on Monday, April 2, 2001, unless extended by Purchaser.
1
18
GENERAL
Each Share entitles the holder to one vote. As of February 22, 2001, there
were 18,402,852 Shares issued and outstanding.
RIGHTS TO DESIGNATE DIRECTORS AND PARENT DESIGNEES
The information contained herein concerning Parent Designees (as defined
below) has been furnished to the Company by Parent and its designees.
Accordingly, the Company assumes no responsibility for the accuracy or
completeness of this information.
The Merger Agreement provides that, effective upon the acceptance for
payment of and payment for Shares by Purchaser pursuant to the Offer, Parent
will be entitled to designate such number of directors (the "Parent Designees")
on the Board, rounded up to the next whole number, as is equal to the product
obtained by multiplying the total number of directors on the Board by the
percentage that the number of Shares beneficially owned by Parent (including
Shares so accepted for payment and purchased) bears to the total number of
Shares then outstanding.
The Merger Agreement provides that the Company will, upon request of
Purchaser, take all action necessary to cause the Parent Designees to be so
elected or appointed, including seeking and obtaining the resignations of such
number of directors as is necessary to enable the Parent Designees to be elected
to the Board and, subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, will cause the Parent Designees to be so elected.
Notwithstanding the foregoing, if Shares are purchased pursuant to the
Offer, until the Effective Time, the Company will use its best efforts to ensure
that there will be at least two members of the Board who were directors on the
date of the Merger Agreement (the "Independent Directors"). In accordance with
the terms of the Merger Agreement, the approval of the Independent Directors is
required for certain Company actions prior to the Effective Time.
The Parent Designees will be selected by Parent from among the individuals
listed below. Each of the following individuals has consented to serve as a
director of the Company if appointed or elected. None of the Parent Designees
currently is a director of, or holds any positions with, the Company. Parent has
advised the Company that, to the best of Parent's knowledge, except as set forth
below, none of the Parent Designees or any of their affiliates beneficially owns
any equity securities or rights to acquire any such securities of the Company,
nor has any such person been involved in any transaction with the Company or any
of its directors, executive officers or affiliates that is required to be
disclosed pursuant to the rules and regulations of the Commission other than
with respect to transactions between Parent and the Company that have been
described in the Schedule TO or the Statement.
2
19
The name, age, present principal occupation or employment and five-year
employment history of each of the individuals who may be selected as Parent
Designees are set forth below. Each is a citizen of the United Kingdom, unless
otherwise noted. The business address of each person listed below is c/o
Inveresk Research Group Limited, Elphinstone Research Center, Tranent, East
Lothian EH33 2NE, Scotland.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AGE POSITIONS HELD DURING THE PAST FIVE YEARS
---- --- ----------------------------------------------------
A. S. McEwan 45 Vice President and Secretary of Purchaser since February
2001. General Manager Clinical from June 1996 until
December 1999, Head of Corporate Development since
January 2000 and Director since January 1997 of Inveresk
Clinical Research Limited. Managing Director of McEwan
Associates Ltd. until June 1996.
W. S. Nimmo 53 Chief Executive Officer of Parent since September 1999.
President and Secretary of Inveresk Canada since
February 2001 and President of Purchaser since February
2001. Chief Executive Officer of Inveresk Research
International and Inveresk Clinical Research Limited.
N. Thornton(1) 39 Chief Operating Officer of Parent since February 2001.
Vice President Group Corporate Development of Societe
Generale de Surveillance Holdings S.A. from December
1997 to March 2000 and Senior Vice President Ebusiness
from April 2000 until February 2001. Managing Director
of SGS Medlab Holdings Pty from February 1997 until
November 1997. General Manager Pathology Department Unit
of SGS New Zealand Limited until January 1997.
Dr. J. Urquhart(2) 66 Non-Executive Director of Inveresk Research Group Ltd.
since January 2000. Chief Scientist of Aardex Ltd. since
January 1996. Consultant Extra-ordinary Professor at
Maastricht University.
- ---------------
(1) New Zealand Citizen
(2) U.S. Citizen
3
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is authorized to issue 50,000,000 shares of Company common
stock. As of February 22, 2001, there were 18,402,852 Shares issued and
outstanding.
The following table sets forth as of February 22, 2001, information with
respect to the beneficial ownership of Shares by (i) each director of the
Company, (ii) each Named Executive Officer of the Company (as defined below),
(iii) all directors and Named Executive Officers as a group, and (iv) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Shares. Except as otherwise indicated, the persons or entities
listed below have sole voting and investment power with respect to all Shares
owned by them, except to the extent such power may be shared with a spouse.
SHARES
BENEFICIALLY OWNED(1)
---------------------
NAME AND ADDRESS NUMBER PERCENT
- ---------------- --------- -------
Richard J. Eskind**(2)...................................... 1,709,632 9.3%
104 Lynwood Blvd
Nashville, TN
Dimensional Fund Advisors Inc.(3)........................... 1,421,450 7.3
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Herbert J. Schulman, M.D.................................... 1,330,745 7.2
109 Westhampton Place
Nashville, TN
Irwin B. Eskind, M.D.**(4).................................. 1,257,512 6.8
541 Jackson Blvd
Nashville, TN
Longwood Investment Advisors Inc.(5)........................ 1,077,350 5.9
3, Radnor Corporate Center, Suite 300
Radnor, PA 19087
Paul J. Ottaviano**(6)...................................... 140,002 *
Edward G. Nelson**(7)....................................... 139,211 *
Roscoe R. Robinson, M.D.**(8)............................... 56,668 *
S. Colin Neill(9)........................................... 62,500 *
Michael F. Ankcorn(10)...................................... 36,626 *
William L. Shaw, MB, ChB(11)................................ 27,500 *
Graham S. May, M.D.(12)..................................... 2,500 *
All directors and executive officers as a group (9
persons)(13).............................................. 3,502,703 18.6
- ---------------
* Less than 1%
** Director
(1) Based on 18,402,852 Shares outstanding at February 22, 2001. For purposes
of this table, a person or group of persons is deemed to have beneficial
ownership of any Shares as of February 22, 2001 that such person or group
has the right to acquire within 60 days after such date, or with respect to
which such person otherwise has or shares voting or investment power. For
purposes of computing beneficial ownership and the percentages of
outstanding Shares held by each person or group of persons on a given date,
Shares that such person or group has the right to acquire within sixty days
after such date are Shares for which such person has beneficial ownership
and are deemed to be outstanding for purposes of computing the percentage
of Shares beneficially owned by such person, but are not deemed to be
outstanding for the purpose of computing the percentage of Shares
beneficially owned by any other person.
4
21
(2) Includes 500,000 Shares held by the Richard J. Eskind Grantor Retained
Annuity Trust No. 2.
(3) Share ownership data obtained solely from Schedule 13G filed February 2,
2001.
(4) Includes 400,000 Shares held by the Irwin B. Eskind Grantor Retained
Annuity Trust No. 4.
(5) Share ownership data based upon confirmation with investor.
(6) Includes 140,002 Shares issuable upon the exercise of vested options.
(7) Includes 3,000 Shares owned by Mr. Nelson's wife. Mr. Nelson disclaims
beneficial ownership of such shares. Also includes 65,964 Shares held by
Nelson Capital Corp. and certain of its affiliates, beneficial ownership of
which Mr. Nelson disclaims. Mr. Nelson is the principal stockholder and
president of Nelson Capital Corp. Also includes 60,500 Shares issuable upon
the exercise of vested options.
(8) Includes 2,168 Shares owned by Dr. Robinson's wife. Dr. Robinson disclaims
beneficial ownership of these Shares. Also includes 54,500 Shares issuable
upon the exercise of vested options.
(9) Includes 62,500 Shares issuable upon the exercise of vested options.
(10) Includes 36,626 Shares issuable upon the exercise of vested options.
(11) Includes 27,500 Shares issuable upon the exercise of vested options.
(12) Includes 2,500 Shares issuable upon the exercise of vested options.
(13) Includes 384,125 Shares issuable upon the exercise of vested options.
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Company's Board currently is composed of five directors, elected at the
annual meeting of the Company's stockholders to hold office for one year and
until their successors are duly elected and qualified. The Company's executive
officers are appointed annually by the Board and serve at the discretion of the
Board. The following paragraphs set forth the names, ages, principal occupations
and other affiliations of the current Board. Each is a citizen of the United
States. Except for Directors Irwin B. Eskind and Richard J. Eskind, who are
brothers, there are no family relationships between members of the Board. There
are no material proceedings to which any director or executive officer is a
party adverse to the Company.
During 2000, the Board held eleven meetings. Each incumbent director
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board and (ii) the total number of meetings held by all committees on which
the individual director served. There are two committees of the Board that
assist the Board in discharging its responsibilities. These committees, their
members and functions are discussed below.
THE COMPANY'S BOARD OF DIRECTORS
Irwin B. Eskind, M.D., 76 years of age, has been a director of the Company
since February 1992. Dr. Eskind engaged in the private practice of internal
medicine from 1954 until his retirement in January 1996. Dr. Eskind is the
brother of Richard J. Eskind, also a director of the Company.
Richard J. Eskind, 70 years of age, has served as a director of the Company
since February 1992. Mr. Eskind has served since October 1986 as Vice
President -- Investments of A.G. Edwards & Sons, Inc., a broker-dealer firm. Mr.
Eskind is the brother of Irwin B. Eskind, M.D., also a director of the Company.
Edward G. Nelson, 69 years of age, has been a director of the Company since
November 1990. Mr. Nelson formed Nelson Capital Corp., a merchant banking firm,
in 1984, and has served as the President and Chairman of the Board since its
organization. Mr. Nelson serves as a director of Berlitz International, Inc., a
language services company; Central Parking Corporation, a parking services
company; and Advocat Inc., a long-term care company.
Paul J. Ottaviano, 54 years of age, has served as a director, President and
Chief Executive Officer of the Company since August 2000. Mr. Ottaviano served
the Company as Executive Vice President -- Worldwide Operations since December
1995 after serving as Executive Vice President -- U.S. Operations since July
1992.
Roscoe R. Robinson, M.D., 70 years of age, has served as a director of the
Company since December 1997. Dr. Robinson served as Vice Chancellor for Health
Affairs for Vanderbilt University from 1981 until 1997 and has served as a
professor of medicine at Vanderbilt University since 1981. Dr. Robinson is a
former
5
22
member of the Board of Directors of First American Corporation and a Trustee of
Duke University since 1994. He is the 2000 Recipient of Research America's
National Advocacy Award for Sustained Leadership at the National Level.
COMMITTEES OF THE BOARD OF DIRECTORS
There are two committees of the Company's Board: the Compensation and Stock
Option Committee and the Audit Committee. The Company does not have a nominating
committee.
The Compensation and Stock Option Committee, which met once during 2000, is
composed of Dr. Eskind, Mr. Nelson and Dr. Robinson and is responsible for the
approval of remuneration arrangements for executive officers of the Company, the
review of the Company's compensation plans and the general review of the
Company's employee compensation policies.
The Audit Committee, which met twice during 2000, was composed of Mr.
Nelson, Mr. Eskind and Dr. Robinson, all of whom are Independent Directors as
defined in rule 4200(a)(15) of the National Association of Securities Dealers'
Listing Standards. The Audit Committee is responsible for the engagement of
independent auditors, the review of audit fees, the supervision of matters
relating to audit functions, the review of audit results and the Company's
annual consolidated financial statements, the review and setting of internal
policies and procedures regarding audit, accounting and other financial controls
and the review of related party transactions. On October 4, 1999, the Audit
Committee adopted its Audit Committee Charter, a copy of which is attached to
this Annex as Appendix I.
The Audit Committee has reviewed and discussed the audited financial
statements with management and recommended to the Board that those financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. In addition, the Audit Committee has discussed with the
independent accountants the matters required by Statement on Auditing Standards
No. 61, and it has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000, no executive officer of the Company served as (1) a member of
the Compensation and Stock Option Committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers served on the
Board, or (2) a director of another entity, one of whose executive officers
served on the Board or its subsidiaries.
During 2000, no member of the Compensation and Stock Option Committee (or
other board committee performing equivalent functions) (1) was an officer or
employee of the Company or (2) was formerly an officer of the Company.
COMPENSATION OF DIRECTORS
Non-employee directors owning less than 5% of the outstanding Shares (Mr.
Nelson and Dr. Robinson) are compensated $15,000 annually. Non-employee
directors owning 5% or more of the outstanding Shares (Dr. Eskind and Mr.
Eskind) receive no compensation.
On February 6, 1998, the Board approved the adoption of the Company's 1998
Non Qualified Stock Option Plan for Directors (the "1998 Director Option Plan").
The 1998 Director Option Plan was approved by the Company's shareholders on May
11, 1998. The 1998 Director Option Plan is a formula plan under which options to
acquire 10,000 Shares are initially granted to each director of the Company who
is not an employee and does not beneficially own more than 2.5% of the
outstanding Shares upon the date of initial election to the Board. These
directors are automatically eligible to receive annual grants of options to
acquire 1,000 Shares. Furthermore, additional grants were made to directors
owning less than 5% of the Shares in conjunction with the resignation of Jerry
R. Mitchell, M.D., Ph.D. as the Company's Chief Executive Officer and the
Company's consideration of financial and strategic alternatives. At December 31,
2000, there were 114,000 Shares available for grant.
6
23
Information with respect to the 1998 Director Option Plan is as follows:
WEIGHTED-AVERAGE
EXERCISE PRICE
---------------------
2000 1999 1998 2000 1999 1998
--------- --------- --------- ----- ----- -----
Options outstanding at January 1...... 19,000 18,000 0 $3.84 $2.95 $0.00
Granted............................. 67,000 7,000 18,000 $3.67 $5.38 $2.95
Exercised........................... 0 0 0 $0.00 $0.00 $0.00
Cancelled........................... 0 (6,000) 0 $0.00 $2.95 $2.95
--------- --------- ---------
Outstanding and exercisable at
December 31(1)...................... 86,000 19,000 18,000 $3.71 $3.84 $2.95
========= ========= =========
- ---------------
(1) The option price ranges at December 31, 2000, 1999 and 1998, respectively,
were: $2.81 to $5.88; $2.81 to $5.88; and $2.81 to $3.63.
EXECUTIVE OFFICERS
The following paragraphs set forth certain information concerning the
executive officers of the Company, other than Mr. Ottaviano, whose information
is set forth above.
S. Colin Neill, 54 years of age, has served as Senior Vice President, Chief
Financial Officer, Secretary and Treasurer of the Company since October 1998.
Prior to joining the Company, Mr. Neill served as a financial consultant to a
variety of companies from October 1997 to October 1998. Mr. Neill served from
July 1996 to October 1997 as Vice President, Chief Financial Officer of
Continental Health Affiliates, Inc. and its majority owned subsidiary Infu-Tech,
Inc., a network of health care companies focused on home care, long term care,
assisted living and managed care. Mr. Neill previously served as Acting Vice
President -- Finance, Chief Financial Officer of Pharmos Corporation, a
biopharmaceutical company in the business of developing novel drug technologies
from January 1995 to July 1996.
William L. Shaw, MB, ChB, 54 years of age, joined the Company in January
1998 as President -- Europe/Asia Pacific. Prior to joining the Company, Dr. Shaw
served as Chief Executive Officer -- Europe, Asia and Pacific Rim for Pharmaco
International Ltd. and as a Director for APBI Holdings Ltd., a life and
environmental sciences research and consulting company, from 1996 through 1997;
and as Chief Operating Officer for HLS Ltd., a pre-clinical contract research
organization, from 1995 through 1996.
Michael F. Ankcorn, 58 years of age, has served as President of ClinTrials
BioResearch Ltd. since its acquisition by the Company in August 1996. From 1979
to July 1996, Mr. Ankcorn served as President and Chief Executive Officer of
Bio-Research Laboratories Ltd.
Graham S. May, M.D., 52 years of age, has served as President -- North
America of the Company since May 2000. From February 2000 to May 2000, Dr. May
served as Vice President, Corporate Development for the Company. Prior to
joining the Company, Dr. May served as Vice President, Medical Affairs and
Business Development for Cytogen Corporation, from 1997 to 1999; and as an
independent consultant for Questec Biomanagement in 1996.
7
24
EXECUTIVE COMPENSATION
The following table provides information as to annual, long-term or other
compensation during fiscal years ended December 31, 2000, 1999 and 1998 for the
Company's Chief Executive Officer and the persons who, at December 31, 2000,
were the four other executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
---------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (#)(1) COMPENSATION(2)
--------------------------- ---- -------- -------- ------------ ------------ ---------------
Jerry R. Mitchell, M.D.,
Ph.D.(3)(4)...................... 2000 $172,933 $ 0 $0 100,000 $419,274
1999 275,000 0 0 325,000 31,059
1998 252,083 0 0 600,000 114,257
Paul J. Ottaviano.................. 2000 $252,500 $ 0 $0 30,000 $ 6,747
President and Chief Executive 1999 240,000 0 0 125,000 13,802
Officer 1998 240,000 0 0 15,000 12,375
William S. Shaw, MB, ChB(5)........ 2000 $249,633 $ 0 $0 0 $121,438
President -- Europe/Asia Pacific 1999 242,135 60,000 0 40,000 87,273
1998 240,336 0 0 20,000 25,202
Michael F. Ankcorn(6).............. 2000 $195,000 $100,000 $0 25,000 $433,189
Chairman, President and 1999 193,641 100,000 0 0 199,895
Chief Executive Officer 1998 166,140 85,020 0 20,250 57,952
ClinTrials BioResearch Ltd.
S. Colin Neill..................... 2000 $231,250 $ 0 $0 15,000 $ 6,705
Senior Vice President, Chief 1999 225,000 0 0 100,000 40,147
Financial Officer, Secretary, and 1998 43,557 0 0 50,000 0
Treasurer
Graham S. May, M.D.(7)............. 2000 $196,227 $ 0 $0 25,000 $ 11,084
President -- North America
- ---------------
(1) Although the Company's existing stock option plan permits the grant of stock
appreciation rights, no such rights have been granted to date.
(2) Amounts represent life insurance premium payments, profit sharing
contributions at 5% of the U.S. participant's base salary (subject to
limitations), and discontinued in 1999, supplemental retirement plan
contributions for overseas employees, 401(k) plan Company matching
contributions at 33% through March 1999 and 50% thereafter, of U.S.
participant's voluntary deduction, severance, and car allowances. The
amounts represented by each of those forms of compensation for 2000 are as
follows:
PROFIT
SHARING
401(K)/
INSURANCE PENSION PLAN CAR
PREMIUM CONTRIBUTIONS RELOCATION SEVERANCE ALLOWANCE
--------- ------------- ---------- --------- ---------
Jerry R. Mitchell, M.D. Ph.D........ $1,524 $ 5,250 $0 $412,500 $ 0
Paul J. Ottaviano................... 1,497 5,250 0 0 0
William L. Shaw, MB, ChB............ 6,622 96,654 0 0 18,162
Michael F. Ankcorn(a)............... 0 423,084 0 0 10,105
S. Colin Neill...................... 1,455 5,250 0 0 0
Graham S. May, M.D.................. 1,455 2,300 0 0 7,329
- ---------------
(a) Pension Plan Contribution represents an election by Mr. Ankcorn to
accelerate payment of an accrued Pension Plan Contribution for 1999 in
fiscal year 2000, together with the Pension Plan Contribution for 2000.
8
25
(3) Dr. Mitchell resigned from his position as the Company's Chairman of the
Board, President and Chief Executive Officer effective August 16, 2000.
(4) Pursuant to the terms of the Separation Agreement between Dr. Mitchell and
the Company (the "Mitchell Separation Agreement"), 50,000 of the options
granted in 2000 remain exercisable until August 16, 2001 and 25,000 of the
options granted in 2000 could become exercisable only upon the Company's
announcement of a change of control transaction within six months of August
16, 2000.
(5) Compensation paid in British pounds.
(6) Compensation paid in Canadian dollars.
(7) Dr. May became employed by the Company in February 2000 and was not
previously employed by the Company.
The tables below provide certain information with respect to grants of
stock options to the Named Executive Officers pursuant to the Company's 1989
Stock Option Plan during the year ended December 31, 2000.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATE OF STOCK
UNDERLYING TOTAL OPTIONS/ MARKET PRICE APPRECIATION FOR
OPTIONS/ SARS GRANTED EXERCISE OF PRICE ON OPTIONS TERM(2)(3)
SARS TO EMPLOYEES IN BASE PRICE DATE OF EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($/SHARE) GRANT DATE(1) 5% 10%
- ---- ---------- --------------- ----------- -------- ---------- --------- ----------
Jerry R, Mitchell, M.D.,
Ph.D..................... 100,000 26.8% $3.31 $3.31 8/16/01 $12,412 $ 24,825
Paul J. Ottaviano.......... 30,000 8.0% 3.88 3.88 8/10/10 73,109 185,272
Michael F. Ankcorn......... 25,000 6.7% 3.31 3.31 2/10/10 52,080 131,982
S. Colin Neill............. 15,000 5.0% 3.88 3.88 8/10/10 36,555 92,636
William L. Shaw, MB, ChB... -- -- -- -- -- -- --
Graham S. May, M.D......... 10,000 1.7% 3.31 3.31 2/10/10 20,832 52,793
15,000 5.0% 3.13 3.13 5/25/10 29,479 74,707
- ---------------
(1) Except for the options granted to Dr. Mitchell, all options granted to the
Named Executive Officers are exercisable in four equal annual installments
beginning one year after the date of grant. This per share exercise price
represents the fair market value of the Common Stock on the date of grant.
Pursuant to the terms of the Mitchell Separation Agreement, 50,000 of the
options granted in 2000 remain exercisable until August 16, 2001 and 25,000
of the options granted in 2000 could become exercisable only upon the
Company's announcement of a change of control transaction within six months
of August 16, 2000.
(2) Potential realizable value is calculated from a stock price equal to the
exercise or base price of the options granted.
(3) The potential realizable values illustrate values that might be realized
upon exercise immediately prior to the expiration of the term of these
options using 5% and 10% appreciation rates, as required by the Securities
and Exchange Commission, compounded annually. These values do not, and are
not intended to, forecast possible future appreciation, if any, of the
Company's stock price. Additionally, these values do not take into
consideration the provisions of the options providing for vesting over a
period of years or termination of options following termination of
employment.
9
26
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SECURITIES OPTIONS/SARS OPTIONS/SARS
UNDERLYING VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END ($)(1)
OPTIONS/SARS REALIZED --------------------------- ---------------------------
NAME EXERCISED (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- -------- ----------- ------------- ----------- -------------
Jerry R. Mitchell, M.D., Ph.D.... 0 $ 0 481,251 121,875 $612,375 $169,531
Paul J. Ottaviano................ 0 0 117,500 235,000 37,482 94,688
William L. Shaw, MB, ChB......... 0 0 20,000 40,000 10,781 32,344
Michael F. Ankcorn............... 0 0 30,375 35,125 1,899 48,773
S. Colin Neill................... 0 0 50,000 115,000 49,206 104,831
Graham S. May, M.D............... 0 0 0 25,000 0 49,688
- ---------------
(1) This amount represents the aggregate of the number of options multiplied by
the difference between $5.19, the fair market value of the Common Stock at
December 31, 2000, and the exercise price for that option. Pursuant to the
terms of the Mitchell Separation Agreement, 481,251 options remain
exercisable until August 16, 2001 and 121,875 options could become
exercisable only upon the Company's announcement of a change of control
transaction within six months of August 16, 2000.
MITCHELL SEPARATION AGREEMENT
The Company entered into the Mitchell Separation Agreement with Dr.
Mitchell on August 16, 2000. The Mitchell Separation Agreement provided for a
lump sum severance payment of $412,500 and relocation expenses of up to $20,000.
Furthermore, the Mitchell Separation Agreement provided for 706,251 options and
warrants previously issued to Dr. Mitchell to remain exercisable until August
16, 2001. The Mitchell Separation Agreement also provided for 159,375 options
and warrants previously issued to Dr. Mitchell to become exercisable only upon
the Company's announcement of a change of control transaction within six months
of August 16, 2000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Ottaviano, Mr.
Neill, Dr. Shaw, Mr. Ankcorn and Dr. May.
The current term of the employment agreement for Mr. Ottaviano commenced on
January 1, 2001 and ends on December 31, 2001. The current term of the
employment agreement for Mr. Neill commenced on October 22, 2000 and ends on
October 21, 2001. The current term of the employment agreement for Dr. Shaw
commenced on December 29, 2000 and ends on December 28, 2001. The current term
of the employment agreement for Dr. May commenced on January 1, 2001 and ends on
December 31, 2001. Each of the agreements are automatically renewed for
additional and successive one year periods unless the Company provides 90 days
notice prior to any anniversary date to the individual employee of its intent
not to renew the employment agreement. The annual minimum base salary under the
agreement for Mr. Ottaviano is $270,000; for Dr. Shaw, approximately $235,000;
for Mr. Neill, $240,000; and for Dr. May, $230,000.
These agreements (other than Mr. Ankcorn's, which is described separately
below) provide for periodic increases in the base salaries at the discretion of
the Board. The named individuals are entitled to benefits such as medical
insurance, expense reimbursement, vacation and participation in the Company's
401(k) savings plan or supplemental retirement plan and, in some cases,
incentive bonuses. The agreements contain a non-compete clause providing that
during the term of employment, and for a period of either six months or one year
following the date of termination of employment (for any reason), the employee
may not engage in certain activities competitive with the Company. The
agreements also provide for severance compensation upon termination of
employment, with the amount and type of compensation contingent upon the context
of the termination.
10
27
In August 2000, the Company entered into Amendments to the Employment
Agreements with Mr. Ottaviano and Mr. Neill. The Amendments provide for full
vesting of all stock options held by Mr. Ottaviano and Mr. Neill upon a change
in control of the Company and that their options shall remain exercisable for
the remainder of the stated terms, regardless of whether employment continues
beyond the point of change in control. Additionally, the Amendments provide that
if Mr. Ottaviano or Mr. Neill are terminated by the Company for any reason other
than for cause, the Company shall pay an amount equal to three hundred percent
of the sum of their current annual base salary and the greater of the most
recent annual bonus or the current annual bonus in effect at the time of
termination (the "Annual Salary and Bonus"). Furthermore, if Mr. Ottaviano or
Mr. Neill are terminated following a change of control of the Company, the
Company shall pay an amount in a lump sum equal to one hundred fifty percent of
their Annual Salary and Bonus, a retention bonus equal to fifty percent of their
Annual Salary and Bonus, a non-solicitation payment equal to one hundred percent
of their Annual Salary and Bonus and, if an excise tax on "excise parachute
payments" is incurred by the employee, the Company will pay the employee an
amount necessary to place the employee in the same after-tax financial position
that he would have been in if he had not incurred any excise tax liability.
In June 2000, the Company entered into an Employment Agreement with Dr. May
and an Amendment to the Employment Agreement with Dr. Shaw. These agreements
provide that if Dr. May or Dr. Shaw are terminated by the Company for any reason
other than for cause (including for termination following a change in control),
the Company shall pay an amount equal to twelve months of base salary and the
Company will be required to continue to provide benefits for a period of twelve
months. Furthermore, these agreements provide for full vesting of all stock
options held by Dr. May and Dr. Shaw upon a change in control of the Company and
that such options shall remain exercisable for the remainder of the stated
terms, regardless of whether employment continues beyond the point of change in
control.
The employment agreement for Mr. Ankcorn commenced on July 31, 1996 and
ends on July 31, 2001. The agreement is automatically renewed for an additional
five year period unless the Company provides six months notice prior to the
fifth anniversary date to Mr. Ankcorn of its intent not to renew the employment
agreement. The annual base salary under the agreement for Mr. Ankcorn is
Canadian $220,000. The agreement provides for periodic increases in the base
salary at the discretion of the Board. Mr. Ankcorn is entitled to the standard
benefits offered at ClinTrials BioResearch. The employment agreement contains a
non-competition clause providing that during the term of employment, and for
thirty-six months following the date of the expiration or termination of
employment, he may not carry on or be engaged in any endeavor in competition, in
whole or in part, with the Company. In the event of termination by the Company
other than "for cause", Mr. Ankcorn is entitled to three years severance
compensation, including a lump sum salary payment and continued benefits
coverage. If the Company fails to renew the agreement, he is entitled to a lump
sum payment of his most recent annual base salary.
COMPENSATION COMMITTEE REPORT
Recommendations on compensation for the Company's executive officers are
made to the Company's Board of Directors by the Compensation and Stock Option
Committee (the "Committee"). Each member of the Committee is a non-employee
director. It is the responsibility of the Committee to determine whether in its
judgment the executive compensation policies are reasonable and appropriate,
meet their stated objectives and effectively serve the best interests of the
Company and its stockholders.
EXECUTIVE COMPENSATION POLICY
The Committee believes that the primary objectives of the Company's
executive compensation policy should be:
- to attract and retain talented executives critical to both the short-term
and long-term success of the Company by providing compensation that is
highly competitive with compensation provided to executives of comparable
position at companies in the contract research organization ("CRO")
industry, pharmaceutical industry, and other related health services
industries, while maintaining
11
28
compensation levels that are consistent with the Company's financial
objectives and operating performance; and
- to reinforce strategic financial and operating performance objectives
through the use of appropriate annual incentive programs; and
- to create mutuality of interest between executive officers and
stockholders by providing long-term incentive compensation.
The Committee believes that the Company's executive compensation policy
should be reviewed annually in relation to the Company's financial performance,
annual budgeted financial goals and its position in the CRO industry. The
compensation of individuals should then be reviewed annually by the Committee in
light of its executive compensation policy for that year.
The Committee believes that in addition to corporate performance, it is
appropriate to consider in setting and reviewing executive compensation the
level of experience and responsibilities of each executive as well as the
personal contributions a particular individual may make to the success of the
Company. Such factors as leadership skills, analytical skills and organizational
development are deemed to be important qualitative factors to take into account
in considering levels of compensation. No relative weight is assigned to these
qualitative factors, which are applied subjectively by the Committee.
COMPENSATION OF EXECUTIVE OFFICERS
The Committee believes that the compensation of executive officers should
be comprised of base compensation, annual incentive compensation, and long-term
incentive compensation, and has applied this policy to fiscal 2000 compensation
for executive officers as described below.
Base Compensation. The Committee's approach to base compensation for
executive officers of the Company is to offer competitive salaries in comparison
to its local markets, the CRO industry, the pharmaceutical industry, and other
related health service industries. In determining base compensation for the
executive officers for fiscal 2000, the Committee reviewed salary ranges
recommended by management, consulted with the CEO, and took into account each
executive's experience in business generally and with the Company specifically
and what it viewed to be appropriate levels of base compensation after taking
into consideration the contribution of each executive. For those executive
officers with employment agreements, the base salaries were determined according
to the terms of the respective employment agreements. In addition, Mr. Ankcorn's
base salary is set in terms of Canadian dollars and is accordingly subject to
change annually as expressed in U.S. dollars based on fluctuation in currency
exchange rates.
Annual Incentive Programs. The Committee believes that incentive
compensation for the executive officers of the Company should be primarily
linked to operating performance. To achieve this goal, the Committee relies on
cash bonuses. Cash bonuses are awarded to executive officers of the Company
based primarily upon the actual earnings of the Company during the fiscal year
compared to the earnings targets approved by the Board of Directors through the
annual financial budget and subsequent financial projections.
Long-Term Incentive Compensation. The 1999 Long-Term Incentive
Compensation Plan is the only plan currently in place as a long-term
compensation incentive for the Company's executive officers. There are six types
of stock options available for grant: incentive stock options, non-qualified
options, stock appreciation rights, restricted stock, performance shares and
performance units. These stock options are generally granted with an exercise
price at not less than the fair market value of the underlying stock at the date
of grant. Stock options are granted to executive officers by the Board of
Directors based primarily upon the financial performance of the Company as
compared to budgeted and projected earnings, as well as actual or potential
contributions to the growth of the Company.
The Company has a 401(k) profit sharing plan in which all U.S. employees,
including executive officers, have equal participation eligibility. The
Committee annually establishes the Company matching portion of the 401(k)
deposits made to employees' 401(k) accounts. The matching percentage is the same
for executive officers and all employees. For 2000, the matching amount was 50%
of the amount withheld by each
12
29
participant, not to exceed the maximum contribution allowed under Section 415 of
the Internal Revenue Code of 1986, as amended (the "Code") for a qualified plan.
Mr. Ankcorn and Dr. Shaw are the sole participants in separate supplemental
retirement plans, for which contributions are actuarially determined.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for executive compensation in excess of $1 million. It is not
anticipated that the Company will pay any of its executives compensation in
excess of $1 million in 2001.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee believes that compensation of the Chief Executive Officer is
consistent with the policies concerning executive compensation and appropriately
reflects the Company's financial objectives and operating performance. Awards of
long-term incentive compensation of the Chief Executive Officer are considered
concurrently with awards to other executive officers.
In approving Mr. Ottaviano's compensation package, the Committee considered
factors such as the compensation package of its outgoing Chief Executive
Officer, compensation packages for chief executive officers of comparable
companies, and, most importantly, its judgment as to Mr. Ottaviano's anticipated
value to the Company based on his business experience and expertise in the
industry. Furthermore, in August 2000, the Board approved an amendment to Mr.
Ottaviano's employment agreement providing for certain change of control rights.
The foregoing report on executive compensation is provided by the following
directors, who constituted the Compensation and Stock Option Committee during
2000:
Edward G. Nelson, Chairman of Committee
Irwin B. Eskind, M.D.
Roscoe R. Robinson, M.D.
The above Compensation Committee Report is not deemed to be part of a
document filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is not to be deemed
incorporated by reference in any documents filed under the Securities Act or the
Exchange Act, without the express written consent of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers of the Company and persons who own more than ten percent of
the Shares to file reports of ownership and changes in ownership of Shares with
the Commission. These persons are also required to furnish to the Company copies
of all such reports.
To the Company's knowledge, based solely on its review of the copies of
such reports received by the Company, and written representations from certain
reporting persons, the directors and executive officers of the Company and all
other reporting persons complied with all applicable filing requirements.
13
30
COMPANY PERFORMANCE
The following graph sets forth the yearly percentage change in cumulative
total stockholder return during the preceding five years ended December 31, 2000
on (a) the Company, (b) the Center for Research in Security Prices ("CRSP")
Index for Nasdaq Stock Market (U.S. Companies) ("Nasdaq U.S. Stock Index") and
(c) the CRSP Index for Nasdaq Health Services Stocks ("Nasdaq Health Services
Index"), assuming the reinvestment of all dividends.
NASDAQ STOCK MARKET (US NASDAQ HEAALTH SERVICES
CLINTRIALS RESEARCH COMPANIES) STOCKS
------------------- ----------------------- -----------------------
12/30/95 100.0 100.0 100.0
12/31/96 168.5 123.0 99.9
12/31/97 58.3 150.7 102.5
12/31/98 29.1 212.5 86.9
12/31/99 30.5 394.9 69.9
12/29/00 38.4 237.6 95.8
14
31
APPENDIX I
CLINTRIALS RESEARCH INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
The audit committee of the board of directors shall be comprised of
directors who are independent of management and ClinTrials Research Inc. (the
"Company"). Members of the audit committee shall be considered independent if
they have no relationship to the Company that may interfere with the exercise of
their independence from management and the Company. All audit committee members
will be financially literate, and at least one member will have accounting or
related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the directors in fulfilling
their responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the company,
and the quality and integrity of financial reports of the company. In so doing,
it is the responsibility of the audit committee to maintain free and open
communication between the directors, the independent auditors, and the financial
management of the company.
RESPONSIBILITIES
In carrying out its responsibilities, the audit committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices of the company are in accordance
with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
- Obtain the full board of directors' approval of this Charter and review
and reassess this Charter as conditions dictate (at least annually).
- Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the company and its
divisions and subsidiaries.
- Have a clear understanding with the independent auditors that they are
ultimately accountable to the board of directors, and the audit
committee, as the shareholders' representatives, who have the ultimate
authority in deciding to engage, evaluate, and if appropriate, terminate
their services.
- Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit and timely quarterly
reviews for the current year and the procedures to be utilized. the
adequacy of the independent auditor's compensation, and at the conclusion
thereof review such audit or review, including any comments or
recommendations of the independent auditors.
- Review with the independent auditors, and the Company's financial and
accounting personnel, the adequacy and effectiveness of the accounting
and financial controls of the company, and elicit any recommendations for
the improvement of such internal controls or particular areas where new
or more detailed controls or procedures are desirable. Particular
emphasis should be given to the adequacy of internal controls to expose
any payments, transactions, or procedures that might be deemed illegal or
otherwise improper. Further, the committee, periodically should review
company policy statements to determine their adherence to the code of
conduct.
- Review repeals received from regulators and other legal and regulatory
matters that may have a material effect on the financial statements or
related company compliance policies.
A-1
32
- Review periodically the need to have an internal audit function. The
Committee has determined that at present, because of the relative size
and complexity of the Company, and the frequency and attention to
operations by the full Board, that an internal audit by function is not
deemed necessary.
- Inquire of management, the Company's financial and accounting personnel,
and the independent auditors about significant risks or exposures and
assess the steps management has taken to minimize such risks to the
Company.
- Review the quarterly financial statements with financial management and
the independent auditors prior to the filing of the Form 10-Q (or prior
to the press release of results, if possible) to determine that the
independent auditors do not take exception to the disclosure and content
of the financial statements, and discuss any other matters required to be
communicated to the committee by the auditors. The chair of the committee
may represent the entire committee for purposes of this review.
- Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Review with financial management and the independent auditors the results
of their timely analysis of significant financial reporting issues and
practices, including changes in, or adoptions of, accounting principles
and disclosure practices, and discuss any other matters required to be
communicated to the committee by the auditors. Also review with financial
management and the independent auditors their judgments about the
quality, not just acceptability, of accounting principles and the clarity
of the financial disclosure practices used or proposed to be used, and
particularly, the degree of aggressiveness or conservatism of the
organization's accounting principles and underlying estimates, and other
significant decisions made in preparing the financial statements.
- Provide sufficient opportunity for the independent auditors to meet with
the members of the audit committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors' evaluation of the company's financial, accounting, and auditing
personnel, and the cooperation that the independent auditors received
during the course of audit.
- Review accounting and financial human resources and succession planning
within the Company.
- Report the results of the annual audit to the board of directors. If
requested by the board, invite the independent auditors to attend the
full board of directors meeting to assist in reporting the results of the
annual audit or to answer other directors' questions (alternatively, the
other directors, particularly the other independent directors, may be
invited to attend the audit committee meeting during which the results of
the annual audit are reviewed).
- On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional
services as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In addition, review with
the independent auditors the nature and scope of any disclosed
relationships or professional services and take, or recommend that the
Board take, appropriate action to ensure the continuing independence of
the auditors.
- Review the report of the audit committee in the annual report to
shareholders and the Annual Report on Form 10-K disclosing whether or not
the committee had reviewed and discussed with management and the
independent auditors, as well as discussed within the committee (without
management or the independent auditors present), the financial statements
and the quality of accounting principles and significant judgments
affecting the financial statements.
- Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each committee meeting with the Board.
- Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
A-2