<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER, 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM__________________ TO___________________
COMMISSION FILE NUMBER 0-21185
APPLIED ANALYTICAL INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2687849
- ----------------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5051 New Centre Drive
Wilmington, North Carolina 28403
(Address of Principal Executive Offices)
(Zip Code)
(910) 392-1606
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-------- --------
As of October 31, 1996, there were 16,286,069 shares of Applied Analytical
Industries, Inc. common stock outstanding.
<PAGE> 2
APPLIED ANALYTICAL INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Income 2
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
Any item which is not applicable or to which the answer is
negative has been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 9
</TABLE>
1
<PAGE> 3
APPLIED ANALYTICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales (includes related party net sales
of $2,608, $2,732, $7,575 and $5,802 for
the three months ended September 30, 1996 and
1995 and the nine months ended September 30,
1996 and 1995, respectively) $ 10,396 $ 8,932 $ 31,170 $ 25,533
Operating costs and expenses:
Cost of sales 4,194 3,476 13,010 10,746
Selling 1,448 1,305 4,575 3,655
General and administrative 2,016 1,959 6,672 5,951
Research and development 1,398 939 3,189 2,294
------------ ----------- ------------ ------------
9,056 7,679 27,446 22,646
------------ ----------- ------------ ------------
Income from operations: 1,340 1,253 3,724 2,887
------------ ----------- ------------ ------------
Other income (expense)
Interest (113) (266) (353) (742)
Other 73 46 292 118
------------ ----------- ------------ ------------
(40) (220) (61) (624)
------------ ----------- ------------ ------------
Income before income taxes 1,300 1,033 3,663 2,263
Provision for income taxes 501 -- 1,468 --
------------ ----------- ------------ ------------
Income after income taxes 799 1,033 2,195 2,263
Equity income (loss) -- 55 -- (359)
------------ ----------- ------------ ------------
Net income $ 799 $ 1,088 $ 2,195 $ 1,904
============ =========== ============ ============
Earnings per share $ 0.06 $ 0.18
============ ============
Weighted average shares outstanding 13,484 12,444
============ ============
Pro forma data (unaudited):
Net income, as reported $ 1,088 $ 1,904
Pro forma income taxes 433 937
=========== ============
Pro forma net income $ 655 $ 967
=========== ============
Pro forma earnings per share $ 0.05 $ 0.08
=========== ============
Weighted average shares outstanding 11,918 11,918
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
APPLIED ANALYTICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 47,838 $ 13,081
Accounts receivable:
Trade and other 8,922 7,302
Related parties 1,550 73
Work-in-progress 2,960 4,134
Prepaid and other current assets 3,334 1,238
------------- -------------
Total current assets 64,604 25,828
------------- -------------
Property and equipment 25,206 20,139
Less: accumulated depreciation (10,682) (9,235)
------------- -------------
14,524 10,904
Other assets 2,374 2,424
------------- -------------
Total assets $ 81,502 $ 39,156
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving and other current loan obligations $ 1,525 $ 4,081
Current maturities of long-term debt 645 645
Accounts payable and other accrued liabilities 5,955 5,751
Customer advances 795 1,677
Dividends payable --- 1,300
------------- -------------
Total current liabilities 8,920 13,454
Long-term debt and other liabilities 3,266 3,712
------------- -------------
Total liabilities 12,186 17,166
------------- -------------
Stockholders' equity:
Preferred stock --- ---
Common stock 16 321
Additional paid-in-capital 67,383 21,510
Retained earnings 2,747 552
------------- -------------
70,146 22,383
Treasury stock and other reductions (830) (393)
------------- -------------
Total stockholders' equity 69,316 21,990
------------- -------------
Total liabilities and stockholders' equity $ 81,502 $ 39,156
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
APPLIED ANALYTICAL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,195 $ 1,904
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,475 1,168
Equity (income) loss --- 359
Other, net 39 5
Changes in assets and liabilities:
Trade and other receivables (3,097) (1,257)
Other, net (1,616) (1,072)
--------------- ---------------
Net cash provided (used) by operating activities (1,004) 1,107
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (5,070) (1,061)
Other, net 55 (1,707)
--------------- ---------------
Net cash used by investing activities (5,015) (2,768)
--------------- ---------------
Cash flows from financing activities:
Net (payments) proceeds on line of credit (2,556) 1,961
Net (payments) proceeds from long-term borrowings (446) 1,071
Net proceeds from sale of common stock 44,829 ---
Dividends (1,051) (1,761)
--------------- ---------------
Net cash provided (used) by financing activities 40,776 1,271
--------------- ---------------
Net increase (decrease) in cash 34,757 (390)
Cash and cash equivalents, beginning of period 13,081 473
--------------- ---------------
Cash and cash equivalents, end of period $ 47,838 $ 83
=============== ===============
Supplemental information - cash paid for:
Interest $ 359 $ 213
Income taxes $ 1,393 $ ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
APPLIED ANALYTICAL INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is presumed that users of this interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the full year.
Pro forma financial information is presented on the condensed consolidated
statement of income to reflect a pro forma income tax provision for 1995. Prior
to November 17, 1995, the Company was treated as an S Corporation for income tax
purposes and was not subject to federal and state income taxes. The pro forma
income tax provision applies federal and state income tax rates that would have
resulted if the Company had been subject to corporate income taxes from the
beginning of the year.
2. Stockholders' Equity
On September 19, 1996, the Company completed an initial public offering ("IPO")
of 3,105,000 shares of Common Stock at $16.00 per share. The net proceeds of the
IPO, after underwriting discount and costs in connection with the sale and
distribution of the securities, were approximately $45 million. Concurrent with
the closing of the IPO, all outstanding shares of the Company's Series A
convertible preferred stock and Class B non-voting common stock were converted
into shares of the Company's voting common stock, $.001 par value per share.
The Company recorded unearned compensation of approximately $490 thousand as a
reduction to stockholder's equity for a March 1996 award under the Company's
1995 Restricted Stock Award Plan. As of September 30, 1996, approximately $53
thousand of such amount has been expensed. The remaining amount will be
recognized over the two-year vesting period following the IPO.
3. Earnings Per Share
The weighted average shares outstanding used in the calculation of earnings per
share and pro forma earnings per share include the effect of the conversion of
convertible preferred stock and Class B common stock described above as if they
were converted as of January 1, 1995. Additionally, common stock or equivalent
shares from stock options and awards sold or issued at prices below the IPO
price per share in the twelve months preceding the initial filing have been
included in the calculation as if outstanding as of January 1, 1995.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended September 30,1996 compared to quarter ended September 30, 1995
Net sales for the third quarter of 1996 increased to $10.4 million compared to
$8.9 million in the third quarter of 1995. Revenues from fee-for-service
business increased 23% to $10.1 million from $8.2 million in the corresponding
quarter of 1995. License revenues for the third quarter of 1996 were $312
thousand as compared to $738 thousand for the third quarter of 1995. All of the
Company's license revenues for the first nine months of 1995 occurred in the
third quarter of 1995.
Costs of sales for the third quarter of 1996 increased as a percent of net sales
to 40.3% from 38.9% during the comparable period of 1995. This increase is
primarily attributable to the impact of the fluctuation in license revenues. The
Company has experienced no significant increases in the components of costs of
sales as a percentage of net sales. Excluding license revenues from net sales,
the cost of sales percentage declined slightly in 1996 compared to 1995.
Selling expense for the third quarter of 1996 increased by 11% to $1.4 million
from $1.3 million in the third quarter of 1995; however, it decreased as a
percent of net sales to 13.9% compared to 14.6% in 1995. The increase in selling
expense is primarily attributable to marketing expansions to the West Coast of
the United States and Europe.
General and administrative expense for the third quarter of 1996 increased by 3%
but decreased as a percent of net sales to 19.4% compared to 21.9% in 1995.
General and administrative expenses have been in-line with expectations and the
Company has continued its effort to control these costs.
Research and development costs for the third quarter of 1996 increased by 49% to
$1.4 million from $0.9 million in the third quarter of 1995. This increased
spending as a percentage of net sales to 13.4% compared to 10.5% in 1995. The
increase in research and development costs reflects an increase in the number of
active projects in 1996 compared to those under development in 1995.
Interest expense declined in 1996 compared to 1995 as a result of reduced
borrowings.
Net income for the third quarter of 1996 increased 22% compared to pro forma net
income for the third quarter of 1995. The increase in net income is primarily
attributable to the increase in net sales.
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
Net sales for the nine months ended September 30, 1996 increased to $31.2
million compared to $25.5 million in the corresponding period of 1995. Revenues
from fee-for-service business increased 21% to $29.9 million compared to $24.8
million in 1995. License revenues increased 69% to $1.2 million compared to $0.7
million in 1995.
6
<PAGE> 8
Costs of sales for the first nine months of 1996 declined slightly as a percent
of net sales to 41.7% from 42.1% in the comparable period of 1995. The Company
has experienced no significant increases in the components of costs of sales as
a percentage of net sales.
Selling expense for the first nine months of 1996 increased by 25% to $4.6
million from $3.7 million in the corresponding period of 1995 and increased as a
percent of net sales to 14.7% compared to 14.3% in 1995. The increase in
selling expense is primarily attributable to marketing expansions to the
West Coast of the United States and Europe.
General and administrative expense for the first nine months of 1996 increased
by 12% to $6.7 million from $6.0 million in the corresponding period of 1995;
however, it decreased as a percent of net sales to 21.4% compared to 23.3% in
1995. The decrease as a percent of net sales is a reflection of the
Company's continued effort to control general and administrative costs.
Research and development costs for the first nine months of 1996 increased by
39% to $3.2 million from $2.3 million in the corresponding period of 1995. This
increased spending to 10.2% of net sales compared to 9.0% of net sales in 1995.
The increase in research and development costs reflects an increase in the
number of active projects in 1996 compared to those under development in 1995.
Interest expense declined in 1996 compared to 1995 as a result of reduced
borrowings.
Net income for the first nine months of 1996 increased 127% compared to pro
forma net income for the corresponding period of 1995. The increase in net
income is primarily attributable to the increase in net sales in 1996 and not
recognizing any loss on its equity investment in Endeavor. During the nine
months ended September 30,1995, the Company recognized a net loss of $359
thousand from its equity investment in Endeavor.
Quarterly Results
The Company's quarterly results have been, and are expected to continue to be,
subject to fluctuations. Quarterly results can fluctuate as a result of a number
of factors, including the commencement, completion or cancellation of large
contracts, progress of ongoing contracts, recognition of licensing revenue,
potential acquisitions, the timing of start-up expenses for new facilities and
changes in the mix of services. Since a large percentage of the Company's
operating costs are relatively fixed, variations in the timing and progress of
large contracts or the recognition of licensing revenue (on projects for which
associated expense may have been recognized in prior periods) can materially
affect quarterly results. The Company believes that comparisons of its quarterly
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
7
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its business through operating cash flows, proceeds from
borrowings and the issuance of equity. On September 19, 1996, the Company
completed an IPO of common stock with net proceeds to the Company of
approximately $45 million. Working capital at September 30, 1996 was
approximately $55.7 million compared to $12.4 million at December 31, 1995. The
increase is primarily attributable to the IPO proceeds.
Capital expenditures for the first nine months of 1996 were $5.1 million
compared to $1.1 million for the corresponding period of 1995. The increase in
1996 is primarily attributable to the expansion of clinical supply manufacturing
facilities and formulation development facilities, and additional scientific
instrumentation acquired to expand the capacity of laboratory operations.
In May 1996, the Company acquired an option to purchase the outstanding stock of
a European contract research and development organization. The Company paid
approximately $1.0 million to acquire such option, which amount is held in
escrow and will be applied to the purchase price if the Company elects to
exercise such option or returned to the Company if, prior to the expiration of
the option, certain substantial conditions are not satisfied. The Company is
currently conducting its due diligence review and, at this time, does not have
sufficient information to determine if this option will be exercised. The
option terminates on November 28, 1996.
The Company expects to continue expanding its operations through internal growth
and strategic acquisitions. The Company expects such activities will be funded
from existing cash and cash equivalents, cash flow from operations and
borrowings under its credit line. The Company believes that such sources of cash
will be sufficient to fund operations for the foreseeable future and to pay
existing debt and other capital obligations as they become due. Although the
Company has no present acquisition agreements or arrangements other than
described above, there may be acquisition or other growth opportunities that
require additional external financing, and the Company may from time to time
seek to obtain funds from public or private issuances of equity or debt
securities. There can be no assurances that such financings will be available on
terms acceptable to the Company.
8
<PAGE> 10
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of the exhibits required to be filed as part of this
Report on Form 10-Q is set forth in the "Exhibit Index", which
immediately precedes such exhibits, and is incorporated herein
by reference.
(b) Reports on Form 8-K (Not Applicable)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED ANALYTICAL INDUSTRIES, INC.
Date: November 14, 1996 By: /s/ R. Forrest Waldon
--------------------------------------------
R. Forrest Waldon
Vice President and Secretary
(Duly Authorized Officer)
Date: November 14, 1996 By: /s/ Mark P. Colonnese
--------------------------------------------
Mark P. Colonnese
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
9
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ---------------------------------------------------------------------
<C> <C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- Restated By-laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1
(Registration Statement No. 333-05535))
4.1 -- Articles Fourth, Seventh, Eleventh and Twelfth of the Amended
and Restated Certificate of Incorporation of the Company (included in
Exhibit 3.1)
4.2 -- Article II of the Restated By-laws of the Company (included
in Exhibit 3.2)
4.3 -- Specimen Certificate for shares of Common Stock, $.001 par value, of
the Company (incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-1 (Registration
No. 333-05535))
10.1 -- Employment Agreement dated November 17, 1995 between the Company and
Frederick D. Sancilio (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-1 (Registration
No. 333-05535))
10.2 -- Applied Analytical Industries, Inc. 1995 Restricted Stock Award Plan
(incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-05535))
10.3 -- Applied Analytical Industries, Inc. 1995 Stock Option Plan (incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (Registration No. 333-05535))
10.4 -- Applied Analytical Industries, Inc. 1996 Stock Option Plan (incorporated
by reference to Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (Registration No. 333-05535))
10.5 -- Stockholder Agreement dated as of November 17, 1995 among the
Company, GS Capital Partners II, L.P., GS Capital Partners II
Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street
Fund 1995, L.P., Bridge Street Fund 1995, L.P., Noro-Moseley Partners
III, L.P., Wakefield Group Limited Partnership, James L. Waters,
Frederick D. Sancilio and the parties listed on Schedule 1 thereto
(incorporated by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-05535))
10.6 -- Preferred Stock Purchase Agreement dated as of November 17, 1995
among the Company, GS Capital Partners II, L.P., GS Capital Partners
II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone
Street Fund 1995, L.P., Bridge Street Fund 1995, L.P., Noro-Moseley
Partners III, L.P., Wakefield Group Limited Partnership and James L.
Waters (incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (Registration No. 333-05535))
10.7 -- Loan Agreement dated as of December 21, 1992 between NationsBank, N.A.
and the Company, together with the First Amendment and Second Amendment
thereto and agreement extending the term thereof (incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement on
Form S-1 (Registration No. 333-05535))
10.8 -- Loan Agreement dated as of November 1, 1988 between the Company and
The New Hanover County Industrial Facilities and Pollution Control
Financing Authority (incorporated by reference to Exhibit 10.8
to the Company's Registration Statement on Form S-1 (Registration
No. 333-05535))
10.9 -- Letter of Credit Reimbursement Agreement dated November 1, 1988
between NationsBank, N.A. and the Company (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement on
Form S-1 (Registration No. 333-05535))
10.10 -- Lease Agreement dated as of March 7, 1994 between 5051 New Centre
Drive, L.L.C., as landlord, and the Company, as tenant (incorporated
by reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-1 (Registration No. 333-05535))
10.11 -- Lease Agreement dated as of December 23, 1993 between I-40
Properties, as landlord, and the Company, as tenant (incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement on
Form S-1 (Registration No. 333-05535))
10.12 -- Development Agreement dated as of April 25, 1994 between the Company
and Endeavor Pharmaceuticals, Inc. (f/n/a GenerEst, Inc.)
(incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Registration No. 333-05535))
10.13 -- Development Agreement dated as of April 4, 1995 between the Company
and Aesgen, Inc. (incorporated by reference to Exhibit 10.13
to the Company's Registration Statement on Form S-1 (Registration
No. 333-05535))
10.14* -- Option Agreement dated May 28, 1996 with respect to an option granted
to the Company to acquire a certain European contract research and
development organization (incorporated by reference to Exhibit 10.14
to the Company's Registration Statement on Form S-1 (Registration
No. 333-05535))
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ---------------------------------------------------------------------
<C> <C> <S>
10.15 -- Letter dated August 22, 1996 from NationsBank, N.A. to the Company
extending the maturity of certain indebtedness (incorporated by
reference to Exhibit 10.15 to the Company's Registration Statement
on Form S-1 (Registration No. 333-05535))
10.16 -- Registration Rights Agreement dated as of November 17, 1996 among the
Company, GS Capital Partners II, L.P., GS Capital Partners II
Offshore, L.P., Goldman, Sachs & Co. Verwaltungs GmbH, Stone Street
Fund 1995, L.P., Bridge Street Fund 1995, L.P., Noro-Moseley
Partners III, L.P., Wakefield Group Limited Partnership, James L. Waters,
Frederick D. Sancilio and the parties listed on Schedule 1 thereto
(incorporated by reference to Exhibit 10.16 to Post-effective
Amendment No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 333-05535))
10.17 -- Underwriting Agreement dated September 19, 1996 between the Company and
Goldman, Sachs & Co., Cowen & Company and Lehman Brothers, Inc., as
representatives of the underwriters listed on Schedule 1 thereto
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Certain information has been omitted from this exhibit pursuant to a request
for confidential treatment granted by the Securities and Exchange
Commission on September 18, 1996.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
APPLIED ANALYTICAL INDUSTRIES, INC.
PURSUANT TO SECTIONS 242 AND 245
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
APPLIED ANALYTICAL INDUSTRIES, INC., (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "General Corporation Law"),
hereby certifies as follows:
1. The name of the Corporation is Applied Analytical Industries,
Inc. The original Certificate of Incorporation was filed with the Secretary of
State of Delaware on September 29, 1986.
2. Pursuant to Section 103(d) of the General Corporation Law,
this Restated Certificate of Incorporation shall become effective at 10:00 a.m.,
Wilmington, Delaware time, on September 25, 1996.
3. This Restated Certificate of Incorporation: (a) restates and
integrates and further amends the Restated Certificate of Incorporation of the
Corporation that was adopted on November 17, 1995, (b) was duly adopted in
accordance with the provisions of Section 242 and 245 of the General
Corporation Law and (c) was approved by written consent of the stockholders of
the Corporation given in accordance with the provisions of Section 228 of the
General Corporation Law (prompt notice of such action having been given to
those stockholders who did not consent in writing). The text of the
Corporation's Certificate of Incorporation as previously amended, supplemented
or restated is hereby further restated and further amended to read in its
entirety as follows:
FIRST. The name of the Corporation is:
Applied Analytical Industries, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 105,000,000 shares, consisting of
(i) 100,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per
share ("Preferred Stock").
<PAGE> 2
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders (and written actions
in lieu of meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law.
3. Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the
Board of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock that may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law or this Certificate of
Incorporation. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be stated and expressed in such resolutions,
all to the full extent now or hereafter permitted by the General Corporation
Law. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock of
any other series to the extent permitted
-2-
<PAGE> 3
by law and this Certificate of Incorporation. Except as otherwise provided in
this Certificate of Incorporation, no vote of the holders of the Preferred
Stock or Common Stock shall be a prerequisite to the designation or issuance of
any shares of any series of the Preferred Stock authorized by and complying
with the conditions of this Certificate of Incorporation, the right to have
such vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, the board of directors is expressly authorized to adopt, amend or
repeal the by-laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. Except to the extent that the General Corporation Law
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any other provision of law
imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute and this Restated
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation.
TENTH: This Article is inserted for the management of the business
and for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the
Corporation shall not be less than three (3) nor more than seven (7). The
exact number of directors within the limitations specified in the preceding
sentence shall be fixed from time to time by, or in the manner provided in, the
Corporation's By-Laws.
-3-
<PAGE> 4
2. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
3. Election of Directors. Elections of directors must be by written
ballot.
4. Terms of Office. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 1997; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 1998; and each initial director in Class III shall serve for
a term ending on the date of the annual meeting in 1999; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or
removal.
5. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any
increase or decrease in the authorized number of directors, (i) each director
then serving as such shall nevertheless continue as a director of the class of
which he is a member and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one
class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any
time in office shall constitute a quorum for the transaction of business. In
the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the
Board of Directors unless a greater number is required by law, by the By-Laws
of the Corporation or by this Restated Certificate of Incorporation.
7. Resignation; Removal. Any director may resign at any time
upon written notice to the attention of the secretary of the corporation.
Directors of the Corporation may be removed only for cause by the affirmative
vote of the holders of at least two-thirds of the shares of the capital stock
of the Corporation issued and outstanding and entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the board,
shall be filled only by a vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A director
elected
-4-
<PAGE> 5
to fill a vacancy shall be elected to hold office until the next election of
the class for which such director shall have been chosen, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
9. Amendments to Article. Notwithstanding any other provisions
of law, this Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time
by (and only by) the Board of Directors. Business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting. Notwithstanding any other provision
of law, this Restated Certificate of Incorporation or the By-Laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provisions inconsistent with, this Article
TWELFTH.
THIRTEENTH. In anticipation that the Corporation may enter into
contracts or otherwise transact business with entities in which any directors
of the Corporation own a financial interest ("Related Entities"), the
provisions of this Article THIRTEENTH are set forth to regulate and guide such
contracts or other business. These provisions are in addition to, and not in
limitation of, the provisions of the General Corporation Law and the other
provisions of this Restated Certificate of Incorporation. Any contract or
other business that does not comply with the procedures set forth in this
Article THIRTEENTH shall not by reason thereof be deemed void or voidable or
result in any breach of any duty or the derivation of any improper personal
benefit by any person but shall be governed by the provisions of this Restated
Certificate of Incorporation, the By-laws of the Corporation, the General
Corporation Law and other applicable law.
No contract, agreement, arrangement or transaction between the
Corporation and a Related Entity (a "Related Transaction") shall be void or
voidable solely for the reason that such persons or entities are parties
thereto, if:
(i) the material facts of the Related Transaction are disclosed or
are known to the Board of Directors of the Corporation (or a
committee thereof) and such board (or committee) in good faith
authorizes, approves or ratifies the Related Transaction by
the affirmative vote of a majority of the disinterested
directors on the Board of Directors (or such committee), even
though the disinterested directors may be less than a quorum;
-5-
<PAGE> 6
(ii) the material facts of the Related Transaction are disclosed or
are known to the holders of the then outstanding voting shares
of the Corporation entitled to vote thereon, and the Related
Transaction is specifically approved or ratified in good faith
by the affirmative vote of the holders of a majority of the
then outstanding voting shares not owned by the interested
directors or Related Entity, as the case may be, even though
such holders may be less than a quorum;
(iii) such Related Transaction is effected pursuant to and
consistent with terms and conditions specified in any
arrangements, standards or guidelines that are in good faith
authorized, approved or ratified, after disclosure or
knowledge of the material facts related thereto, by the
affirmative vote of a majority of the disinterested directors
on the Board of Directors (or committee thereof), or by the
affirmative vote of the holders of a majority of the then
outstanding voting shares of the Corporation not owned by the
interested directors or Related Entity, as the case may be,
even though the disinterested directors or such holders may be
less than a quorum; or
(iv) The Related Transaction was fair to the Company.
In addition, each Related Transaction authorized, approved or
effected, and each of such arrangements, standards or guidelines so authorized
or approved, as described in (i), (ii) or (iii) above, shall be conclusively
deemed to be fair to the Corporation and its stockholders; provided, however,
that if such authorization or approval is not obtained, or such Related
Transaction is not so effected, no presumption shall arise that such Related
Transaction, or such arrangements, standards or guidelines, are not fair to the
Corporation and its stockholders.
Any person or entity purchasing or otherwise acquiring any interest in
any shares of the Corporation shall be deemed to have notice of and to have
consented to the provisions of this Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Restated Certificate of Incorporation to be signed
by its President this 20th day of September, 1996.
APPLIED ANALYTICAL INDUSTRIES, INC.
By: /s/ Frederick D. Sancilio
--------------------------------
Frederick D. Sancilio, President
ATTEST:
/s/ R. Forrest Waldon
- ---------------------------------
R. Forrest Waldon, Secretary
-6-
<PAGE> 1
EXHIBIT 10.17
APPLIED ANALYTICAL INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-------------
UNDERWRITING AGREEMENT
----------------------
September 19, 1996
Goldman, Sachs & Co.,
Cowen & Company,
Lehman Brothers Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Applied Analytical Industries, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 2,700,000 shares (the "Firm Shares") and, at the
election of the Underwriters, up to 405,000 additional shares (the "Optional
Shares") of Common Stock, par value $.001 per share ("Stock"), of the Company
(the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-05535) (the
"Initial Registration Statement") in respect of the Shares, and as part
thereof the respective forms of prospectus relating to the initial
distribution of the Shares by the Underwriters in an underwritten public
offering and to offers and sales of Stock by Goldman, Sachs & Co. in
secondary transactions, has been filed with the Securities and Exchange
Commission (the "Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form;
other than a registration statement, if any, increasing the size of the
offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the
<PAGE> 2
"Act") which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of the
Initial Registration Statement, any post-effective amendment thereto or
the Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the Act, is
hereinafter called a "Preliminary Prospectus"; the various parts of the
September 16, 1996 Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act
to be part of the Initial Registration Statement at the time it was
declared effective or such part of the Rule 462(b) Registration Statement,
if any, which became or hereafter becomes effective, each as amended at
the time such part of the registration statement became effective, is
hereinafter collectively called the "Registration Statement"; and such
forms of final prospectus relating to the initial distribution of the
Shares by the Underwriters in an underwritten public offering in the form
first filed pursuant to Rule 424(b) under the Act and to offers and sales
of Stock by Goldman, Sachs & Co. in secondary transactions in the most
recent form filed pursuant to Rule 424(b) under the Act, are hereinafter
called the "Public Offering Prospectus" and the "Secondary Transactions
Prospectus", respectively, and collectively, the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto, and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any entity 50% or more of the outstanding
voting securities of which are owned directly or indirectly by the Company
(each, a "subsidiary"), has sustained since the date of the latest audited
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity,
2
<PAGE> 3
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or any
increase in excess of $250,000 in the long-term debt of the Company or any
of its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction or is
subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and (except for directors'
qualifying shares) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
3
<PAGE> 4
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Shares, registration of Stock under the Securities Exchange
Act of 1934 (the "1934 Act") and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party
or by which it or any of its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings (other than pending review by the U.S. Food and
Drug Administration (the "FDA") of any abbreviated new drug application
and related filings submitted by the Company and routine FDA audits of the
Company, its facilities and data supporting filings made by clients of the
Company) pending to which the Company or any of its subsidiaries is a
party or of which any property of the Company or any of its subsidiaries
is the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(n) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes; and
(o) Price Waterhouse, LLP, who have certified certain financial
statements of the Company and its subsidiaries, and McGladrey & Pullen,
who have certified certain financial statements of the Company and its
subsidiaries, are each independent public accountants as required by the
Act and the rules and regulations of the Commission thereunder.
4
<PAGE> 5
(p) The Company and its subsidiaries are in material compliance with
all current applicable statutes, rules, regulations, standards, guides or
orders administered or issued by the FDA and any agency of any foreign
government, to the extent applicable; neither the Company nor any of its
subsidiaries has received any communication (including, any warning
letter) or is otherwise aware of any action, proceeding or investigation
pending or, to the best knowledge of the Company, threatened, including,
without limitation, any warning letter, prosecution, injunction, seizure,
civil fine or recall, alleging that the Company is not in compliance in
all material respects with any and all applicable laws, regulations or
orders implemented by the FDA, or implemented by the relevant state, local
or international agency responsible for regulating the pharmaceutical
industry, including but not limited to, allegations related to drug
development establishments operated by the Company or its subsidiaries and
drug applications submitted directly by the Company or its subsidiaries,
other than non-material correspondence received from the FDA in connection
with the filing and review of applications; with regard to all abbreviated
new drug applications and related filings by the Company or any of its
subsidiaries in its own name or, to its knowledge, all abbreviated new
drug applications and related filings by third parties in connection with
which the Company expects to receive revenue pending before the FDA, there
is no correspondence or other communications from the FDA questioning the
approvability of such applications other than as would not have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(q) (A) The Company and its subsidiaries own or have valid, binding,
enforceable licenses or other rights to use any patents, trademarks,
trade names, service marks, service names, copyrights, and other
proprietary intellectual property rights ("Intellectual Property")
necessary to conduct the business of the Company and its subsidiaries in
the manner presently conducted and, to the best knowledge of the Company,
proposed to be conducted, in the United States and to conduct the business
of the Company and its subsidiaries in the manner presently conducted and,
to the best knowledge of the Company proposed to be conducted, outside the
United States other than as would not have a material adverse effect on
the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, in
each case without any conflict with the rights of others; and (B) the
information contained in the Registration Statement and Prospectus
concerning patents issued or licensed to, or patent applications filed on
behalf of, the Company and its subsidiaries is accurate in all material
respects; and (C) neither the Company nor its subsidiaries has received
any notice from any other person of infringment of or conflict with (and
knows of no such infringement of or conflict with) asserted rights of
others with respect to any Intellectual Property or any trade secrets,
proprietary information, inventions, know-how, processes and procedures
owned or used by or licensed to the Company or its subsidiaries;
(r) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against losses and risks and in
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries has any
reason to believe that they will not be able to renew their existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue their
businesses at a cost that would not have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of
5
<PAGE> 6
operations of the Company and its subsidiaries except as described or
contemplated in the Prospectus;
(s) The Company and its subsidiaries are in compliance with all
applicable existing Federal, state, local, and foreign laws and
regulations relating to protection of human health or the environment or
imposing liability or standards of conduct concerning any Hazardous
Material (as hereinafter defined) ("Environmental Laws"), except where
such noncompliance with Environmental Laws would not, individually or in
the aggregate, have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries. The term "Hazardous
Material" means (1) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (2) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (3) any petroleum or petroleum
product, (4) any polychlorinated biphenyl, and (5) any pollutant or
contaminant or hazardous, dangerous, or toxic chemical, material, waste or
substance regulated under or within the meaning of any other Environmental
Law; and
(t) There are no debt securities or preferred stock of the Company
which are rated by any "nationally recognized statistical rating
organization", as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Act.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $14.88, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 405,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Public Offering Prospectus.
6
<PAGE> 7
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least forty-eight
hours' prior notice to the Company, shall be delivered by or on behalf of
the Company to Goldman, Sachs & Co., for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer, payable to the order of the Company in Federal
(same day) funds. The Company will cause the certificates representing
the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with
respect thereto at the office of Goldman, Sachs & Co., 85 Broad Street,
New York, New York 10004 (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 9:30
a.m., New York City time, on September 25, 1996 or such other time and
date as Goldman, Sachs & Co. and the Company may agree upon in writing,
and, with respect to the Optional Shares, 9:30 a.m., New York City time,
on the date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase such
Optional Shares in accordance with Section 2 hereof, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called
the "Second Time of Delivery", and each such time and date for delivery is
herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 8 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 8(l) hereof, will be delivered at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza,
New York, New York 10004 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at 2:00 p.m., New York City
time, on the New York Business Day next preceding such Time of Delivery,
at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business
Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Public Offering Prospectus in a form approved by
you and to file the Public Offering Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the
second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Act; to make no further amendment or any supplement
to the Registration Statement or the Public Offering Prospectus during the
Public Offering Period (as defined below) which shall be disapproved by
you promptly after reasonable notice thereof; to advise you, promptly
after it receives notice thereof during the Public Offering Period, of the
time when any amendment to the Registration Statement has been filed or
becomes effective during such period or any supplement to the Public
Offering Prospectus or any amended Public Offering Prospectus has been
filed during such period and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof during the Public Offering
7
<PAGE> 8
Period, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Public Offering Prospectus
or for additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus or suspending any such qualification during the Public
Offering Period, promptly to use its best efforts to obtain the withdrawal of
such order (the period beginning on the date hereof and continuing for as long
as the delivery of a prospectus is required in connection with the initial
offering and sale of the Shares by the Underwriters as contemplated by the
Public Offering Prospectus, or in connection with any subsequent offer or sale
of Stock by a dealer other than Goldman, Sachs & Co. during the period
specified in Rule 174 under the Act is herein called the "Public Offering
Period");
(b) Promptly during the Public Offering Period from time to time to
take such action as you may reasonably request to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you
may request and to comply with such laws so as to permit the continuance
of sales and dealings therein in such jurisdictions during such period,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service
of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time
during the Public Offering Period, to furnish the Underwriters with copies
of the Public Offering Prospectus in New York City in such quantities as
you may reasonably request, and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after the time
of issue of the Public Offering Prospectus in connection with any offering
or sale of the Shares by the Underwriters and if at such time any event
shall have occurred as a result of which the Public Offering Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made when such Public Offering Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary during such
period to amend or supplement the Public Offering Prospectus in order to
comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may reasonably request of an amended Public Offering
Prospectus or a supplement to the Public Offering Prospectus which will
correct such statement or omission or effect such compliance, and in case
any Underwriter is required to deliver a prospectus in connection with any
offering or sale of any of the Shares by the Underwriters at any time nine
months or more after the time of issue of the Public Offering Prospectus,
upon your request but at the expense of such Underwriter, to prepare and
deliver to such Underwriter as many copies as you may request of an
amended or supplemented Public Offering Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its
8
<PAGE> 9
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations thereunder (including, at the option
of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, (i) not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into
or exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent and (ii) during such 180-day period, not to
accelerate the vesting of any shares of Common Stock awarded under the 1995
Restricted Stock Award Plan and not to deliver certificates representing any
shares of Common Stock under the 1995 Restricted Stock Award Plan;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver
to you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any inter-dealer
quotation system or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional information
concerning the business and financial condition of the Company as you may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), to file a Rule
462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
at the time of filing to either pay to the Commission the filing fee for the
462(b) Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
9
<PAGE> 10
6. The Company agrees with Goldman, Sachs & Co.:
(a) To prepare the Secondary Transactions Prospectus in a form approved
by Goldman, Sachs & Co. and to file such Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under the
Act; to make no further amendment or any supplement to the Registration
Statement or the Secondary Transactions Prospectus during the Secondary
Transactions Period (as defined below) which shall be disapproved by Goldman,
Sachs & Co. promptly after reasonable notice thereof (it being understood that,
when Form S-2 or S-3 under the Act is available to the Company, the Company may
amend the Registration Statement so as to be on such form, or may file a new
registration statement on such form (in which case any reference herein to the
Registration Statement or the Prospectus shall include such new registration
and the prospectus contained therein in the form first filed pursuant to Rule
424(b) under the Act, respectively), and thereafter any information required to
be included in the Registration Statement or the Secondary Transactions
Prospectus may be incorporated therein by reference as permitted by such form);
to advise Goldman, Sachs & Co., promptly after the Company receives notice
thereof, of the time when the Registration Statement, or any amendment thereto,
has been filed or becomes effective during the Secondary Transactions Period,
or any supplement to the Secondary Transactions Prospectus or any amended
Secondary Transactions Prospectus has been filed during such period, and to
furnish Goldman, Sachs & Co. with copies thereof; to advise Goldman, Sachs &
Co., promptly after the Company receives notice thereof during the Secondary
Transactions Period, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
Prospectus or suspending any such qualification during the Secondary
Transactions Period, to use promptly its reasonable efforts to obtain the
withdrawal of such order (the period beginning on the date hereof and
continuing for as long as may be required under applicable law, in the
reasonable judgment of Goldman, Sachs & Co. after consultation with the
Company, in order to offer and sell Stock as contemplated by the Secondary
Transactions Prospectus, is herein called the "Secondary Transactions Period");
(b) Promptly from time to time to take such action as Goldman, Sachs &
Co. may reasonably request to qualify the Shares for offering and sale during
the Secondary Transactions Period under the securities laws of such
jurisdictions as Goldman, Sachs & Co. may request and to comply with such laws
so as to permit the continuance of sales and dealings therein in such
jurisdictions during such period, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time during the
Secondary Transactions Period, to furnish Goldman, Sachs & Co. with copies of
the Secondary
10
<PAGE> 11
Transactions Prospectus in such quantities as Goldman, Sachs &
Co. may reasonably request, and, if at any time during such period any
event shall have occurred as a result of which the Secondary
Transactions Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus
is to be delivered during such period, not misleading, or, if for any
other reason it shall be necessary during such period to amend or
supplement the Secondary Transactions Prospectus or to amend the
Registration Statement in order to comply with the Act or to file
under the 1934 Act any document incorporated by reference in such
Prospectus in order to comply with the Act or the 1934 Act, to notify
Goldman, Sachs & Co. and upon its request to file such document and to
prepare and furnish without charge to Goldman, Sachs & Co. as many
copies as it may from time to time during such period reasonably
request of an amended Secondary Transactions Prospectus or a
supplement to the Secondary Transactions Prospectus which will correct
such statement or omission or effect such compliance;
(d) During the Secondary Transactions Period, to furnish to
Goldman, Sachs & Co. copies of all reports or other communications
(financial or other) furnished to stockholders generally, and to
deliver to Goldman, Sachs & Co. (i) as soon as they are available,
copies of any reports and financial statements furnished to or filed
with the Commission or any inter-dealer quotation system or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as Goldman, Sachs &
Co. may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission); and
(e) To use its reasonable efforts to furnish or cause to be
furnished to Goldman, Sachs & Co. upon its request at reasonable
intervals, when the Registration Statement or the Secondary
Transactions Prospectus shall be amended or supplemented during the
Secondary Transactions Period, written opinions of counsel for the
Company, a letter from the independent accountants who have certified
the financial statements included in the Registration Statement as
then amended and certificates of officers of the Company, in each case
in form and substance reasonably satisfactory to you, all to the
effect specified in subsections (c), (d), (e), (f), (g) and (l),
respectively, of Section 8 hereof (as modified to relate to the
Registration Statement and the Secondary Transactions Prospectus as
then amended or supplemented).
Notwithstanding the foregoing provisions, if at any time the Company
determines in the exercise of its reasonable judgment that it is in possession
of material, non-public information that it would not be required to disclose
publicly in the absence of a registration of Stock under the Act, the Company
may, upon notice to Goldman, Sachs & Co., cease to comply with any of its
obligations under this Section 6, but only for a period or periods that the
Company reasonably determines are necessary in order to avoid such premature
disclosure and in any event not to exceed 90 days in the aggregate during any
period of 12 consecutive calendar months. Upon receipt of any such notice,
Goldman, Sachs & Co. shall cease using the Secondary Transactions Prospectus or
any amendment or supplement thereto until it receives notice from the Company
that it may resume using such document.
11
<PAGE> 12
7. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum and
closing documents (including any compilations thereof) for the sale of the
Shares by the Underwriters pursuant to the Public Offering Prospectus and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters, and counsel for Goldman, Sachs & Co. during the Secondary
Transactions Period, in connection with such qualification and in connection
with the Blue Sky survey; (iv) all fees and expenses in connection with listing
the Shares on the NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares by the Underwriters pursuant to the Public
Offering Prospectus; (vi) the cost of preparing stock certificates; (vii) the
cost and charges of any transfer agent or registrar; (viii) all reasonable
fees, disbursements and expenses incurred pursuant to Section 6(e) hereof; and
(ix) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. It is understood, however, that, except as provided in this Section,
and Sections 9 and 12 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with
Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b),
the Rule 462(b) Registration Statement shall have become effective by
10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop
order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Underwriters, shall have furnished to you such opinion or opinions (a
draft of such opinion is attached as Annex II(a) hereto) dated such Time
of Delivery, with respect to the incorporation of the Company, the
validity of the Shares being delivered at such Time of Delivery, the
Registration Statement, the Prospectus and such other related matters as
you may reasonably request, and such counsel
12
<PAGE> 13
shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c) Robinson, Bradshaw & Hinson, P.A., counsel for the Company, shall
have furnished to you their written opinion (a draft of such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable, and all of the
Shares have been duly and validly authorized and, when issued and
delivered against payment therefor as provided in this Agreement,
will be duly and validly issued and fully paid and non-assessable;
and the Shares conform to the description of the Stock contained
in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification or is subject to no material liability or disability
by reason of failure to be so qualified in any such jurisdiction
(such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and
certificates);
(iv) Each subsidiary of the Company is listed on Annex A to
such opinion (such counsel being entitled to rely in respect of
the opinion in the foregoing clause upon certificates of officers
of the Company or its subsidiaries provided that such counsel
shall state that they believe that both you and they are justified
in relying upon such certificates) and each United States
subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation; and all of the issued shares of capital stock of
each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for
directors' qualifying shares) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities
or claims (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in
respect to matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall
state that they believe that both you and they are justified in
relying upon such opinions and certificates);
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined
13
<PAGE> 14
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will not
(1) conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease,
judgment or other agreement or instrument listed on Annex B to
such opinion or of the provisions of the Certificate of
Incorporation or By-laws of the Company or (2) violate any federal
law of the United States, any law of the State of North Carolina
or the Delaware General Corporation Law applicable to the Company
or any order known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; provided, however, that,
for the purpose of this clause (2), such counsel need not express
an opinion with respect to state securities laws and federal
securities laws, to the extent such federal securities laws are
covered in the opinion in subsection (xi) hereof;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the
Act of the Shares, registration of the Stock under the 1934 Act
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(ix) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the
caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate, complete and fair;
(x) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined
in the Investment Company Act; and
(xi) The Registration Statement, as of its effective date,
and the Prospectus and any further amendments and supplements
thereto made by the Company prior to such Time of Delivery, as of
the date thereof, (other than the financial statements and related
schedules or other financial information therein, as to which such
counsel need express no opinion) appear on their face to be
appropriately
14
<PAGE> 15
responsive in all material respects to the requirements of the
Act and the rules and regulations thereunder; although they do
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in the
opinion in subsection (ix) of this section 8(c), nothing has come
to their attention that has caused them to believe that, as of
its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related
schedules or other financial information therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules or other financial information therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the
financial statements and related schedules or other financial
information therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and they do not know of any amendment the
Registration Statement required to be filed or of any contracts
or other documents of a character required to be filed as an
exhibit to the Registration Statement or required to be described
in the Registration Statement or the Prospectus which are not
filed or described as required;
(d) R. Forrest Waldon, Vice President and General Counsel of the
Company, shall have furnished to you his written opinion (a draft of such
opinion is attached as Annex II(c) hereto), dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement, lease, judgment or other agreement or
instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties;
15
<PAGE> 16
(ii) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by them,
in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings
held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company and its subsidiaries (in giving the opinion in this
clause, such counsel may state that he is relying upon a general
review of the titles of the Company and its subsidiaries, upon
opinions of local counsel and abstracts, reports and policies of
title companies rendered or issued at or subsequent to the time of
acquisition of such property by the Company or its subsidiaries,
upon opinions of counsel to the lessors of such property and, in
respect to matters of fact, upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall
state that he believes that both you and he are justified in
relying upon such opinions, abstracts, reports, policies and
certificates);
(iii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or, to his knowledge
after due inquiry, By-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan
agreement, lease, judgment or other agreement or instrument to
which it is a party or by which it or any of its properties may be
bound, except where such a default would not, individually or in
the aggregate, have a material adverse effect on the current or
future consolidated financial position, business prospects,
stockholders' equity or results of operations of the Company and
its subsidiaries; and
(iv) Although he does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus, nothing has come to
his attention that has caused him to believe that, as of its
effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related
schedules or other financial information therein, as to which
such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that, as of its date, the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules or other financial information
therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related
schedules or other financial information therein, as to which
16
<PAGE> 17
such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and he
does not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as
required;
(e) On the date of the Public Offering Prospectus at a time prior to
the execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and during the
Public Offering Period and also at each Time of Delivery, Price
Waterhouse, LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory
to you, to the effect set forth in Annex I hereto (the executed copy of
the letter delivered prior to the execution of this Agreement is attached
as Annex I(a) hereto and a draft of the form of letter to be delivered on
the effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(f) On the date of the Public Offering Prospectus at a time prior to
the execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and during the
Public Offering Period and also at each Time of Delivery, McGladrey &
Pullen, LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory
to you, to the effect set forth in Annex I(c) hereto;
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the
capital stock or any increase in excess of $250,000 in the long-term debt
of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any such
case described in Clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities
on NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or
17
<PAGE> 18
war, if the effect of any such event specified in this Clause (iv)
in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly approved for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the Stockholders named in
Schedule II hereto, substantially to the effect set forth in Section 5(e)
hereof in form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set
forth in subsections (a) and (g) of this Section and as to such other
matters as you may reasonably request.
9. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but
only to the extent,
18
<PAGE> 19
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Goldman, Sachs & Co. expressly for use
therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under
such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, in connection with any one
action or claim, or separate but substantially similar actions or claims
arising out of the same general allegations, be liable for the fees and
expenses of more than one separate firm of attorneys at any time for all
indemnified parties, except to the extent that local counsel, in addition
to regular counsel, is required in order to defend effectively against
such action or claim. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of,
or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party
is an actual or potential party to such action or claim) unless such
settlement, compromise or judgment (i) includes an unconditional release
of the indemnified party from all liability arising out of such action or
claim and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified
19
<PAGE> 20
party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities
(or actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the sale of the Shares (before
deducting expenses) received by the Company in the underwritten public
offering bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased in the
underwritten public offering, in each case as set forth in the table on
the cover page of the Public Offering Prospectus. The relative fault
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations in this subsection (d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of the Company under this Section 9 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 9 shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
10. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be
entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to
20
<PAGE> 21
purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so
arranged for the purchase of such Shares, or the Company notifies you that
it has so arranged for the purchase of such Shares, you or the Company
shall have the right to postpone such Time of Delivery for a period of not
more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees to file promptly
any amendments to the Registration Statement or the Prospectus which in
your opinion may thereby be made necessary. The term "Underwriter" as used
in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if
the Company shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Shares of a
defaulting Underwriter or Underwriters, then this Agreement (or, with
respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares)
shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 7 hereof
and the indemnity and contribution agreements in Section 9 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for
its default.
11. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
Anything herein to the contrary notwithstanding, the indemnity agreement
of the Company in subsection (a) of Section 9 hereof, the representations and
warranties in subsections (b) and (c) of Section 1 hereof and any
representation or warranty as to the accuracy of the Registration Statement or
the Prospectus contained in any certificate furnished by the Company pursuant
to Section 8
21
<PAGE> 22
hereof, insofar as they may constitute a basis for indemnification for
liabilities (other than payment by the Company of expenses incurred or paid in
the successful defense of any action, suit or proceeding) arising under the
Act, shall not extend to the extent of any interest therein of a controlling
person or partner of an Underwriter who is a director, officer or controlling
person of the Company when the Registration Statement has become effective,
except in each case to the extent that an interest of such character shall have
been determined by a court of appropriate jurisdiction as not against public
policy as expressed in the Act. Unless in the opinion of counsel for the
Company the matter has been settled by controlling precedent, the Company will,
if a claim for such indemnification is asserted, submit to a court of
appropriate jurisdiction the question of whether such interest is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
12. If this Agreement shall be terminated pursuant to Section 10 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 7 and 9 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter except as provided
in Sections 7 and 9 hereof.
13. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 9(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
14. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 9
and 11 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
22
<PAGE> 23
17. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
Applied Analytical Industries, Inc.
By: /s/ Frederick D. Sancilio
---------------------------------
Name: Frederick D. Sancilio
Title: President and Chief
Executive Officer
Accepted as of the date hereof:
Goldman, Sachs & Co.
Cowen & Company
Lehman Brothers Inc.
/s/ Goldman, Sachs & Co.
- ---------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
23
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co. 650,000 97,500
Cowen & Company 650,000 97,500
Lehman Brothers Inc. 650,000 97,500
Adams, Harkness & Hill, Inc. 70,000 10,500
William Blair & Company 70,000 10,500
Alex. Brown & Sons Incorporated 110,000 16,500
Dean Witter Reynolds Inc. 110,000 16,500
Furman Selz LLC 70,000 10,500
Hambrecht & Quist LLC 110,000 16,500
Morgan Keegan & Company, Inc. 70,000 10,500
The Robinson-Humphrey Company, Inc. 70,000 10,500
Scott & Stringfellow, Inc. 70,000 10,500
--------- -------
Total........................ 2,700,000 405,000
========= =======
</TABLE>
24
<PAGE> 25
ANNEX I
Pursuant to Section 8(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder; and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected
financial data, pro forma financial information, financial forecasts
and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been separately
furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
cause them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in
the audited consolidated financial statements for such five fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial
F-1
<PAGE> 26
statements and other information referred to below, a reading of the
latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, or (ii) any material modifications should be made to
the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause (A)
and any unaudited income statement data and balance sheet items
included in the Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the basis for
the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on the
date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in consolidated
net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the
F-2
<PAGE> 27
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (E) there were any decreases in consolidated
net revenues or operating profit or the total or per share amounts
of consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in
each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
F-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF APPLIED ANALYTICAL INDUSTRIES, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 47,838
<SECURITIES> 0
<RECEIVABLES> 10,562
<ALLOWANCES> 90
<INVENTORY> 0
<CURRENT-ASSETS> 64,604
<PP&E> 25,206
<DEPRECIATION> 10,682
<TOTAL-ASSETS> 81,502
<CURRENT-LIABILITIES> 8,920
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 69,300
<TOTAL-LIABILITY-AND-EQUITY> 81,502
<SALES> 31,170
<TOTAL-REVENUES> 31,170
<CGS> 13,010
<TOTAL-COSTS> 13,010
<OTHER-EXPENSES> 14,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353
<INCOME-PRETAX> 3,663
<INCOME-TAX> 1,468
<INCOME-CONTINUING> 2,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,195
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
