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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1998
REGISTRATION NO. 333-5535
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
ON
FORM S-3
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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APPLIED ANALYTICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 8731 04-2687849
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
5051 NEW CENTRE DRIVE
WILMINGTON, NORTH CAROLINA 28403
TEL: (910) 392-1606
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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R. FORREST WALDON
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
APPLIED ANALYTICAL INDUSTRIES, INC.
5051 NEW CENTRE DRIVE
WILMINGTON, NORTH CAROLINA 28403
TEL: (910) 392-1606
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
COPIES TO:
STEPHEN M. LYNCH JEAN E. HANSON
JOHN M. HERRING FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ROBINSON, BRADSHAW & HINSON, P.A. ONE NEW YORK PLAZA
1900 INDEPENDENCE CENTER NEW YORK, NEW YORK 10004
CHARLOTTE, NORTH CAROLINA 28246 TEL: (212) 859-8000
TEL: (704) 377-2536
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities offered
only in connection with dividend or interest reinvestment plans, check the
following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
---------------
THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(c) OF THE SECURITIES ACT OF 1933, AS AMENDED, MAY
DETERMINE.
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EXPLANATORY NOTE
This Registration Statement includes a prospectus relating to an
indeterminate number of shares of Applied Analytical Industries, Inc. (the
"Company") Common Stock that may be sold by Goldman, Sachs & Co., in connection
with market-making transactions. See "Plan of Distribution."
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[LOGO]
APPLIED ANALYTICAL INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
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The common stock (the "Common Stock"), $0.001 par value per share, of
Applied Analytical Industries, Inc. (the "Company" or "AAI") is quoted on the
Nasdaq National Market under the symbol "AAII".
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
This Prospectus has been prepared for and is to be used by Goldman,
Sachs & Co. in connection with offers and sales of the shares of Common Stock
related to market-making transactions, at prevailing market prices, related
prices or negotiated prices. The Company will not receive any of the proceeds of
such sales. Goldman, Sachs & Co. may act as a principal or agent in such
transactions. See "Plan of Distribution".
GOLDMAN, SACHS & CO.
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The date of this Prospectus is June 26, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov). Such information
may also be inspected at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, DC 20006.
This Prospectus constitutes a part of a registration statement on Form
S-3 (herein, together with all exhibits thereto, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act, with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Company and the
securities offered hereby. Copies of the Registration Statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described above. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission. The Registration
Statement has been filed with the Commission by EDGAR and is also publicly
available through the Commission's home page on the Internet, as described
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K for
the fiscal year ended December 31, 1997; Amendment No. 1 on Form 10-K/A to
Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (ii)
Quarterly Report on Form 10-Q for the period ended March 31, 1998; (iii) Current
Report on Form 8-K dated May 7, 1998; and (iv) the description of the Company's
Common Stock contained in its Form 8-A filed on September 18, 1996, File No.
0-21185.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of Common Stock hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective date of filing of such documents with the Commission.
Any statement contained in this Prospectus, or in a document, all or a
portion of which is incorporated or deemed to be incorporated by reference in
this Prospectus, shall be deemed to be modified or superseded for purposes of
the Registration Statement and this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus. All information appearing in this
Prospectus is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference.
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This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents (not including exhibits
to the documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus incorporates)
are available without charge to each person to whom a Prospectus is delivered
upon written or oral request. Requests should be directed to AAI at its
principal executive offices: Investor Relations, Applied Analytical Industries,
Inc., 5051 New Centre Drive, Wilmington, North Carolina 28403; telephone (910)
392-1606.
THE COMPANY
The Company is a leading provider of product development and support
services to the worldwide pharmaceutical and biotechnology industries, offering
a broad range of integrated, value-added services that span the drug life cycle,
from new compound characterization and synthesis to marketed-product compliance
and quality control testing. In addition, through its internal development
program, AAI leverages its expertise to generate additional revenue by licensing
internally developed drugs and drug technologies to third parties. AAI has
contributed to the submission, approval or continued marketing of client
products worldwide. As part of its internal development program, AAI has
licensed products to clients, including several products approved by the United
States Food and Drug Administration (the "FDA"), and has patented certain drug
technologies.
AAI competes in the contract research and development industry
(commonly referred to as the contract research organization, or CRO, industry)
which provides independent product development and marketed-product support
services to the drug industry. These research and development services include
compound synthesis/extraction, screening and pharmacological testing,
toxicology/safety testing, formulation development, laboratory testing, clinical
trial management, regulatory and compliance and quality control testing. AAI
provides a broad range of integrated, value-added services, including chemical
analysis, synthesis and other laboratory services; drug formulation development;
clinical trial services; clinical supply and niche manufacturing; and regulatory
and compliance consulting.
In addition to its core fee-for-service business, AAI leverages its
expertise by allocating a significant proportion of its technical resources and
operating capacity to internal drug and drug technology development, in which
AAI shares in the expense of development and participates in the benefits of any
potential commercial success through licensing and royalty arrangements.
Internal drug development is focused on generic products, line extensions and
patented technologies. Certain of these products have been licensed or sold.
Licensing arrangements for these products vary as to amounts of initial and
milestone payments, as well as methods and extent of revenue participation.
AAI's proprietary technology includes patents and pending patent applications on
formulations and methods, including liquid formulations for improved delivery of
nonsteroidal anti-inflammatory drugs or NSAIDs, such as diclofenac, to reduce
gastric irritation and speed the onset of therapeutic activity. In addition, the
Company has patented an oral delivery system for certain biotechnology compounds
that previously could be administered only by injection. AAI licenses certain of
its proprietary technologies.
In recent years, AAI has allocated a higher proportion of its technical
resources and operating capacity to its internal drug and technology development
program and because of the significant time required for development and
approval of pharmaceutical products, AAI has only recently begun to recognize
license revenue from its internal development efforts. In 1994, as part of its
internal development program, AAI organized Endeavor Pharmaceuticals Inc.
("Endeavor") to develop certain generic hormone pharmaceutical products,
focusing initially on several such products then under development by AAI. As of
the date of this Prospectus, the Company owns approximately 40% of the fully
diluted common equity of Endeavor.
On December 31, 1996, the Company acquired L.A.B. Gesellschaft fur
pharmakologische Untersuchungen mbH & Co. ("L.A.B."), a European contract
research and development organization headquartered in Neu-Ulm, Germany. L.A.B.
focuses on both clinical and non-clinical pharmaceutical
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product development and provides services that include drug formulation
development; chemical analysis; Phase I clinical trial studies; bioanalytical
testing; and European regulatory consulting. L.A.B. also provides Phase II-IV
multi-center clinical trial studies focused in niche therapeutic areas including
hepatic disease, chemotherapeutics, and hormone replacement therapy.
The Company's principal executive offices are located in Wilmington,
North Carolina at 5051 New Centre Drive, Wilmington, North Carolina 28403.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing the Common Stock offered hereby. This
Prospectus, including information incorporated by reference herein, may contain
certain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), which represent the
Company's expectations or beliefs, including but not limited to statements
concerning industry performance, the Company's operations, performance,
financial condition, growth and acquisition strategies, margins and growth in
net sales. For this purpose, any statements contained in this Prospectus that
are not statements of historical fact may be deemed to be forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors,
including those described in this "Risk Factors" section.
DEPENDENCE ON AND EFFECT OF GOVERNMENT REGULATION
The design, development, testing, manufacturing and marketing of
pharmaceutical compounds, biotechnology products, medical nutrition and
diagnostic products and medical devices are subject to regulation by
governmental authorities, including the FDA and comparable regulatory
authorities in other countries. The Company's business depends in part on strict
government regulation of the drug development process, especially in the United
States. Any change in the scope of regulatory requirements or the introduction
of simplified drug approval procedures could adversely affect the Company's
business.
The drug approval process is generally lengthy, expensive and subject
to unanticipated delays. The Company participates in the development of a number
of products subject to regulatory approval for which it has the right to receive
license fees or otherwise participate in sales revenues, including through its
investment in Endeavor. Continued growth in AAI's revenues and profits will
depend, in part, on the successful introduction of some or all of such products.
There can be no assurance as to when or whether such approvals from regulatory
authorities will be received. In addition, the continued development and
manufacture of generic drug products is dependent upon the availability of
specific FDA-approved bulk drug ingredients, and accordingly the Company's
license revenue from such products depends upon the continued availability of
such ingredients. There can be no assurance that such FDA-approved ingredients
will be available in sufficient quantities.
All facilities and manufacturing techniques used in the manufacture of
products for clinical use or for sale in the United States must be operated in
conformity with current Good Manufacturing Practices ("GMP") regulations, FDA
regulations and guidelines governing the development and production of
pharmaceutical products. The Company's facilities are subject to scheduled
periodic regulatory inspections to ensure compliance with GMP requirements.
Failure on the part of the Company to comply with applicable requirements could
result in the termination of ongoing research or the disqualification of data
for submission to regulatory authorities. A finding that the Company had
materially violated GMP requirements could result in additional regulatory
sanctions and, in severe cases, could result in a mandated closing of the
Company's facilities which would materially and adversely affect the Company.
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MANAGEMENT OF GROWTH AND ACQUISITION RISKS
The Company has experienced rapid growth over recent years. The Company
believes that this growth may strain operational, human and financial resources.
In order to manage internal growth, AAI must continue to improve its operating
and administrative systems and to attract and retain qualified management and
professional, scientific and technical operating personnel. Failure to manage
growth effectively could have a material adverse effect on the Company's
business.
The Company has acquired L.A.B. and reviews acquisition opportunities
in the ordinary course of its business, although there can be no assurance that
the Company will complete any future acquisitions. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations and services
of the acquired companies, the expenses incurred in connection with the
acquisition and subsequent assimilation of operations and services, the
diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. Acquisitions of
non-U.S. companies also may involve the additional risks of, among others,
assimilating differences in local business practices and regulations, overcoming
language barriers and managing currency exchange risk. There can be no assurance
that the Company's acquisitions will be successfully integrated into the
Company's operations. There can be no assurance that acquisitions, including
L.A.B., will contribute favorably to the Company's operations and financial
condition.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
The Company's revenues are highly dependent on research and development
expenditures and production-related compliance testing expenditures by the
pharmaceutical and biotechnology industries. AAI has benefited from the growing
tendency of pharmaceutical and biotechnology companies to engage independent
organizations to conduct development and testing projects. The Company's
business could be materially and adversely affected by a general economic
decline in these industries or by any reduction in the outsourcing of research,
development and testing activities.
The Company believes that concentration of business in its industry is
not uncommon. AAI has experienced such concentration in the past and may
experience such concentration in the future. There can be no assurance that the
Company's business will not continue to be dependent on certain clients or that
annual results would not be dependent upon performance of a few large projects
for specific clients. In addition, due to the project nature of the Company's
business, there can be no assurance that significant clients in any one period
will continue to be significant clients in other periods. Generally, the
Company's fee-for-service contracts are terminable by the client upon notice of
30 days or less. Contracts may be terminated for a variety of reasons, including
the client's decision to forego a particular study, failure of products to
satisfy safety requirements and unexpected or undesired product results. The
loss of business from a significant client could have a material adverse effect
on the Company.
VARIATION IN QUARTERLY OPERATING RESULTS
The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
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,
acquisitions, the timing of start-up expenses for new facilities and changes in
the mix of services. The Company believes that quarterly comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. In addition, fluctuations in quarterly
results could affect the market price of the Common Stock in a manner unrelated
to the longer term operating performance of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company relies on a number of key executives, including Frederick
D. Sancilio, Ph.D., its President and Chairman of the Board. In addition to his
duties at AAI, Dr. Sancilio serves as a senior
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management employee of Endeavor, a company in which AAI owns, as of March 31,
1998, approximately 40% of the common equity on a fully diluted basis. Dr.
Sancilio does not maintain an office or have day-to-day responsibilities at
Endeavor and devotes a substantial majority of his time to the management of
AAI. The Company maintains key man life insurance on Dr. Sancilio. The Company's
performance depends on its ability to attract and retain qualified management
and professional, scientific and technical operating staff. The loss of the
services of any of AAI's key executives could have a material and adverse effect
on the Company. There also can be no assurance that AAI will be able to continue
to attract and retain qualified staff.
POTENTIAL LIABILITY AND RISKS OF OPERATIONS
AAI develops, formulates, tests and, to a limited extent, manufactures
pharmaceutical products intended for use by the public. Such activities could
expose the Company to risk of liability for personal injury or death to persons
using such products, although the Company does not commercially market or sell
the products. The Company may, from time to time, be involved in the commercial
manufacture of pharmaceutical products and may manufacture pharmaceutical
products for third-party commercial distribution on a limited basis or as a
service to its clients transitioning to internal production. Such activities
could increase the Company's risk of personal injury liability.
The Company seeks to reduce its potential liability through measures
such as contractual indemnification provisions with clients (the scope of which
may vary from client to client and the performances of which are not secured)
and insurance maintained by clients. The Company could be materially and
adversely affected if it were required to pay damages or incur defense costs in
connection with a claim that is outside the scope of the indemnification
agreements, if the indemnity, although applicable, is not performed in
accordance with its terms or if the Company's liability exceeds the amount of
applicable insurance or indemnity.
In addition, the Company could be held liable for errors and omissions
in connection with the services it performs. The Company maintains product
liability and errors and omissions insurance with respect to these risks. In
addition, the Company's expansion of services to include clinical trials of
products in humans and introduction of proprietary products in clinical trials
may expose it to additional risk of liability. In connection with providing
clinical trial services, the Company contracts with physicians to serve as
investigators in conducting clinical trials to test new drugs on human
volunteers. Such testing creates risk of liability for personal injury to or
death of volunteers, particularly to volunteers with life-threatening illnesses,
resulting from adverse reactions to the drugs administered. Although the Company
does not believe it is legally accountable for the medical care rendered by
third party investigators, it is possible that the Company could be held liable
for the claims and expenses arising from any professional malpractice of the
investigators with whom it contracts or in the event of personal injury to or
death of persons participating in clinical trials. The Company also could be
held liable for errors or omissions in connection with the services it performs.
In addition, as a result of its clinical trial facilities, the Company could be
liable for the general risks associated with a clinical trial facility
including, but not limited to, adverse events resulting from the administration
of drugs to clinical trial participants or the professional malpractice of
clinical trial medical care providers.
The Company believes that its risks are reduced by contractual
indemnification provisions with clients and investigators, insurance maintained
by clients and investigators and by the Company, various regulatory
requirements, including the use of institutional or ethical review boards and
the procurement of each volunteer's informed consent to participate in the
study. Contractual indemnification generally does not protect the Company
against certain of its own actions such as negligence, and contractual
arrangements are subject to negotiation with clients and the terms and scope of
such indemnification vary from client to client and from trial to trial.
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COMPETITION
The Company competes primarily with the in-house research, development,
quality control and other support service departments of pharmaceutical and
biotechnology companies and with university research laboratories, many of which
have substantially greater resources than the Company. In addition, the CRO
industry is highly fragmented, consisting of several hundred small, limited
service providers and a few large, global firms. The Company competes against
these companies, some of which may have substantially greater resources than the
Company. As a result of competitive pressures, the CRO industry is
consolidating. This trend is likely to produce increased competition for both
clients and acquisition candidates. Increased competition may lead to increased
price and other forms of competition that may adversely affect the Company.
Competitive factors include reliability, turn-around time, reputation for
innovative and quality science, capacity to perform numerous required services,
financial viability and price.
DEPENDENCE ON THIRD-PARTY MARKETING AND DISTRIBUTION
The Company has developed, and intends to continue internal development
of, drugs to be licensed to third parties for marketing and distribution. The
Company does not intend to market or commercially distribute such products.
Accordingly, the success of internal development activities depends upon the
Company's ability to enter into marketing arrangements with third parties. There
can be no assurance that such arrangements can be successfully negotiated or
that any such arrangements will be available on commercially reasonable terms.
Even if acceptable and timely marketing arrangements are available, there can be
no assurance that products developed by the Company will be accepted in the
marketplace. In addition, because the Company's marketing licensee will in many
cases make all or many material marketing and other commercialization decisions
regarding such products, a significant number of the variables that may affect
the Company's license fees and royalties, and therefore net income, will not be
within the Company's control.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT; PRICING PRESSURE
The Company's license fees, royalties and other revenue may depend, in
part, on the availability of reimbursement from third-party payors, such as
government health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price and
cost-effectiveness of medical products and services. There can be no assurance
that adequate third-party reimbursement will be available to achieve or maintain
price levels sufficient to realize an appropriate return on the Company's
investment in product development.
In addition, global efforts to contain healthcare costs, particularly
among managed care organizations, continue to exert downward pressure on product
pricing. Further, a number of regulatory and legislative proposals aimed at
changing the healthcare industry in the United States and other countries have
been proposed. There can be no assurance that private sector reform or
governmental healthcare reform measures, if adopted, will not have a negative
impact upon the Company and its operations.
INTERNATIONAL OPERATIONS AND EXCHANGE RATE FLUCTUATIONS
As a result of the acquisition of L.A.B., a significant portion of the
Company's revenues are derived from operations outside the United States. The
Company's operations and financial results could be significantly affected by
factors associated with international operations such as changes in currency
exchange rates and uncertainties relative to regional economic circumstances, as
well as by other risks sometimes associated with international operations. Since
the revenue and expenses of the Company's non-U.S. operations are generally
denominated in local currencies, exchange rate fluctuations between such local
currencies and the U.S. dollar will subject the Company to currency translation
risks with respect to the reported results of its non-U.S. operations. Also, the
Company may be subject to currency
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transaction risks when the Company's service contracts are denominated in a
currency other than the currency in which the Company incurs expenses related to
such contracts.
PROPRIETARY TECHNOLOGY; UNPREDICTABILITY OF PATENT PROTECTION
The Company's success will depend, in part, on its ability to obtain
patents in various jurisdictions on its current and future technologies and
products, to defend its patents and protect its trade secrets and to operate
without infringing on the proprietary rights of others. There can be no
assurance that the Company's patents will not be challenged by third parties
and, if challenged, will be held valid. In addition, there can be no assurance
that any technologies or products developed by AAI will not be challenged by
third parties owning patent rights and, if challenged, will be held to not
infringe such patent rights. The expense involved in any patent litigation can
be significant and cannot be estimated by the Company. Finally, if the Company
relies on unpatented, proprietary technology, there can be no assurance that
others will not independently develop or obtain similar products or
technologies.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company has developed a substantial scientific and technical
infrastructure to provide a broad array of services to the pharmaceutical and
biotechnology industries. The Company expects capital and operating expenditures
to increase over the next several years as it continues to pursue its growth
strategy. Although the Company believes that existing cash and investment
securities and anticipated cash flow from operations will be sufficient to
support the Company's operations for the foreseeable future, the Company's
actual future capital requirements will depend on many factors, including
acquisitions made by the Company, the rate of internal growth and the amount and
timing of revenue from proprietary products and technology. The Company may
require significant additional financing in the future, which it may seek to
raise through public or private equity offerings or debt financings. No
assurance can be given that additional financing will be available when needed,
or that, if available, such financing will be obtained on terms favorable to the
Company or its stockholders. To the extent the Company raises additional capital
by issuing equity securities, ownership dilution to stockholders will result.
TRANSACTIONS WITH AFFILIATES; CONFLICTS OF INTEREST
The Company provides product development and other services to Aesgen,
which develops generic pharmaceutical products, and in June 1996 the Company
licensed to Aesgen marketing rights to a product being developed by the Company.
At March 31, 1998, approximately 30% of Aesgen's outstanding common stock is
held by certain holders of the Company's outstanding shares of capital stock and
the Company holds a $1.6 million non-convertible, non-voting preferred stock
investment in Aesgen. In addition, at March 31, 1998, Frederick D. Sancilio, a
director of the Company and its President, and James L. Waters, a non-employee
director of the Company, serve as two of the ten directors of Aesgen. In
addition, under the development agreement between Aesgen and the Company, the
Company has agreed in certain circumstances not to develop a formulation for its
own account or for any other person of any generic pharmaceutical product that
the Company has agreed and agrees to develop for Aesgen. The Company also
provides development services to Endeavor. At March 31, 1998, approximately 44%
of Endeavor's fully diluted common equity is beneficially owned by certain
holders of the Company's Common Stock and approximately 40% of the fully diluted
common equity of Endeavor is beneficially owned by the Company. At March 31,
1998, Dr. Sancilio and William H. Underwood, executive officers and directors of
the Company, served on the six-membeR board of directors of Endeavor. The
Company leases its headquarters facility from a company in which each of Dr.
Sancilio and Mr. Waters owns a one-third interest (as of March 31, 1998). Rental
fees under the lease are subject to adjustment for increases in certain expenses
in operating and insuring the facility. Various conflicts of interest could
arise between such related parties and the Company. The Company's Restated
Certificate of Incorporation includes certain provisions addressing potential
conflicts of interest between the Company and entities in which a director or
executive officer has a financial interest.
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CONCENTRATION OF OWNERSHIP
At March 31 1998; certain of the Company's executive officers
beneficially owned in the aggregate approximately 30.1% of the outstanding
shares of Common Stock, and the Company's non-employee directors beneficially
own in the aggregate approximately 14.8% of the outstanding shares of Common
Stock. Accordingly, such persons may be in a position to influence the election
of the Company's directors and the outcome of corporate actions requiring
stockholder approval. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company.
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the Nasdaq National Market under the
symbol "AAII". There can be no assurance that an active public market for the
Common Stock can be sustained. The market price of the Company's Common Stock
could be subject to wide fluctuations in response to variations in operating
results from quarter to quarter, changes in earnings estimates by analysts,
market conditions in the industry and general economic conditions. Furthermore,
the stock market has experienced significant price and volume fluctuations
unrelated to the operating performance of particular companies. These market
fluctuations may have an adverse effect on the market price of the Company's
Common Stock. The three managing underwriters (the "Underwriters") of the
initial public offering of the Common Stock (completed in September 1996) made a
market in the Common Stock at March 31, 1998. None of the Underwriters is
obligated to do so, and any such market making may be discontinued at any time
without notice. Moreover Goldman, Sachs & Co. intends to deliver a current
prospectus and otherwise comply with the requirements of the Securities Act in
connection with any secondary market sale of the Common Stock, which may affect
their ability to continue market-making activities. See "Plan of Distribution".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock
in the public market could adversely affect the market price of the shares of
Common Stock. Of the 16,295,271 shares of Common Stock outstanding at December
31, 1997, 3,105,000 shares sold in the initial public offering of Common Stock
on September 25, 1996 are freely tradable without restriction unless held by
affiliates of the Company and approximately 13,031,000 additional shares became
eligible for sale, subject to the provisions of Rule 144 under the Securities
Act or Rule 701 under the Securities Act. Approximately 52,000 additional shares
of Common Stock will become eligible for sale under Rule 144 at various dates
thereafter as restrictions lapse. At December 31, 1997, the Company had
outstanding options to purchase a total of 682,352 shares of Common Stock, which
vest over time. Certain holders of the Company's capital stock are entitled to
rights with respect to the registration under the Securities Act of
approximately 10 million shares of Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company's Restated Certificate of Incorporation and By-laws contain
certain provisions that may have the effect of deterring a future takeover of
the Company, including the classification of the Board of Directors into three
classes. These provisions could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. In addition, 5,000,000
shares of the Company's preferred stock may be issued in the future without
further stockholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors of the Company may
determine. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the market price of shares of Common Stock and
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, a majority of the outstanding
voting stock of the Company. In addition, Section 203 of the Delaware General
Corporation Law, to which the Company is subject, restricts certain business
combinations with any "interested stockholder" as defined by such statute. The
statute may delay, defer or prevent a change in control of the Company.
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<PAGE> 12
USE OF PROCEEDS
This Prospectus relates to the offer and sale of an indeterminate
number of shares of Common Stock by Goldman, Sachs & Co. in market-making
transactions. The Company will not receive any of the proceeds of such sales.
PLAN OF DISTRIBUTION
This Prospectus may be used by Goldman, Sachs & Co. in connection with
offers and sales related to market-making transactions in shares of Common Stock
effected from time to time after the initial public offering of the Common Stock
on September 25, 1996. Goldman, Sachs & Co. may act as principal or agent in
such transactions, including as agent for the counterparty when acting as
principal or as agent for both counterparties, and may receive compensation in
the form of discounts and commissions, including from both counterparties when
it acts as agent for both. Such sales will be made at prevailing market prices
at the time of sale, at prices related thereto or at negotiated prices.
The Company has agreed to indemnify Goldman, Sachs & Co. with respect
to certain liabilities in connection with this Prospectus, including liabilities
under the Securities Act.
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make a
market in the Common Stock. However, they are not obligated to do so and any
market-making may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will develop or be sustained. See "Risk Factors -- Possible Volatility of
Stock Price".
At March 31, 1998, the Goldman Sachs Group, L.P. may have been deemed
to be the owner of 2,276,832 shares of the Common Stock, which such shares
consist of (i) 1,428,549 shares held of record on that date by GS Capital
Partners II, L.P. ("GS Capital II"), (ii) 567,908 shares held of record on that
date by G.S. Capital Partners II Offshore, L.P. ("GS Capital II Offshore"),
(iii) 120,552 shares held of record on that date by Bridge Street Fund 1995,
L.P. ("Bridge Street"), (iv) 107,132 shares held of record on that date by Stone
Street Fund 1995, L.P. ("Stone Street") and (v) 52,691 shares held of record on
that date by Goldman, Sachs, & Co. Verwaltungs GmbH, as nominee for GS Capital
Partners II Germany Civil Law Partnership ("GS Capital II Germany") ("GS Group",
and, with GS Capital II, GS Capital II Offshore, Bridge Street, Stone Street, GS
Capital II Germany, the "Goldman Sachs Investors"). Each of GS Capital II, GS
Capital II Offshore, Bridge Street, Stone Street and GS Capital II Germany is an
investment partnership, the general partner, the managing general partner or the
general manager of which is an affiliate of GS Group. GS Group disclaims
beneficial ownership of the shares owned by such investment partnerships to the
extent attributable to partnership interests therein held by persons other than
GS Group and its affiliates. Each of such investment partnership shares voting
and investment power with certain of its respective affiliates. The shares above
do not include (i) shares of Common Stock owned by Goldman, Sachs & Co. which
were acquired in the ordinary course of market-making transactions, or (ii)
shares of Common Stock held in client accounts for which Goldman, Sachs & Co.
exercised voting or investment authority, or both. GS Group disclaims beneficial
ownership of the shares held in such client accounts.
In November 1995, in connection with the purchase by the Goldman Sachs
Investors and certain other investors of shares of stock of the Company, the
Company entered into an agreement pursuant to which the Goldman Sachs Investors
have the right to designate one member of the Company's Board of Directors for
so long as the Goldman Sachs Investors and their affiliates (which include
Goldman, Sachs & Co.) beneficially own 10% or more of the outstanding shares of
Common Stock.. At March 31, 1998, the Goldman Sachs Investors and their
affiliates beneficially owned more than 10% of the outstanding
10
<PAGE> 13
shares of Common Stock. Pursuant to such agreement, Joseph H. Gleberman, a
managing director of Goldman, Sachs & Co., serves as one of the Company's
directors.
Goldman, Sachs & Co. served as lead underwriter in the Company's
initial public offering of its Common Stock in September 1996. In addition, the
Company has agreed that, for so long as the Goldman Sachs Investors beneficially
own 5% or more of the outstanding shares of Common Stock, the Company will
retain Goldman, Sachs & Co. or an affiliate to perform all investment banking
services for the Company for which an investment banking firm is retained and to
serve as managing underwriter of any offering of the Company's capital stock on
customary terms, consistent with an arm's-length transaction. In the event that
the Company and Goldman, Sachs & Co. or their affiliates cannot agree to the
terms of such engagement after good faith discussions, the agreement permits the
Company to engage any other investment banking firm, although Goldman, Sachs &
Co. are entitled to serve as co-managing underwriter in any underwritten
offering of the Company's capital stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100 million
shares of Common Stock, $0.001 par value per share, and 5 million shares of
preferred stock, $0.001 par value per share. As of December 31, 1997, there were
outstanding 16,295,271 shares of Common Stock and 970,805 shares of Common Stock
reserved for issuance under the Company's option plans. As of December 31, 1997,
options to purchase an aggregate of 682,352 shares of Common Stock awarded under
the Company's option plans were outstanding.
The following summary of certain provisions of the Common Stock and
preferred stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation and by the provisions of applicable law.
COMMON STOCK
The Company's Restated Certificate of Incorporation authorizes the
issuance of up to 100 million shares of Common Stock, $0.001 par value per
share. Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Company's Board of Directors
out of funds legally available therefor and subject to any preferential dividend
rights of any then outstanding preferred stock. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to any preferential
dividend rights of any then outstanding preferred stock. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of additional shares of
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the powers, designations,
preferences and rights of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding) without any further vote or action by the
stockholders. The Board of Directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of Common Stock. Such issuance could have
the effect of decreasing the market price of the Common Stock. Thus, the
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in
11
<PAGE> 14
control of the Company. As of December 31, 1997, no series of preferred stock
had been designated and no shares of preferred stock were outstanding.
REGISTRATION RIGHTS
The holders (which include Dr. Sancilio, Mr. Waters and the Goldman
Sachs Investors) of approximately 10 million shares of Common Stock (the
"Registrable Securities") have certain rights with respect to the registration
of those shares under the Securities Act. If requested by any of such
stockholders, including Dr. Sancilio, Mr. Waters or the Goldman Investors, the
Company must file a registration statement under the Securities Act covering all
Registrable Securities requested to be included by such holders of Registrable
Securities. The Company may be required to effect up to three such registrations
at its expense (other than underwriting discounts and commissions) and
thereafter may be required to effect additional registrations upon reimbursement
for expenses by participating stockholders. The Company has the right to delay
any such registration for up to 180 days under certain circumstances. Such
stockholders' demand registration rights will expire when such stockholder,
together with its affiliates, cease to beneficially own Registrable Securities
(i) equal to 10% of the then outstanding shares of Common Stock or (ii) having
an aggregate market value of at least $30 million.
In addition, if the Company proposes to register any of its shares of
Common Stock under the Securities Act other than in connection with a Company
employee benefit plan or a corporate reorganization, the holders of Registrable
Securities may require the Company to include all or a portion of their shares
in such registration, subject to certain priorities among them, although a
co-managing underwriter of any such offering unaffiliated with any holder of
Registrable Securities may limit the number of shares in such registration. All
expenses incurred in connection with such registrations (other than underwriting
discounts and commissions) will be borne by the Company.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware (the "Delaware General Corporation Law"). Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of
the Board of Directors into three classes as nearly equal in size as possible
with staggered three-year terms. In addition, the Restated Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the Company entitled to vote. Under the Restated Certificate of Incorporation,
any vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board of Directors, may be filled only by
vote of a majority of the directors then in office. The classification of the
Board of Directors and the limitations on the removal of directors and filling
of vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of the
Company.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless the certificate of incorporation or by-laws, as the case may be, requires
a greater percentage. The Restated Certificate of Incorporation and the By-laws
require the affirmative vote of the holders of at least 75% of the shares of
capital stock of the Company issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior paragraph.
12
<PAGE> 15
The Restated Certificate of Incorporation contains certain provisions
permitted under the Delaware General Corporation Law relating to the liability
of directors. The provisions eliminate a director's liability for monetary
damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions that involve intentional misconduct or a knowing violation of
law. The limitation of liability described above does not alter the liability of
directors and officers of the Company under federal securities laws.
Furthermore, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the Delaware General Corporation Law. These provisions do not limit or
eliminate the right of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach by a
director or an officer of a duty owed to the Company. The Company believes that
these provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
In addition, the Restated Certificate of Incorporation contains certain
provisions addressing potential conflicts of interest between the Company and
any entity in which any directors of the Company have a financial interest (a
"Related Entity"). Under these provisions, any contract, agreement, arrangement
or transaction between the Company and a Related Entity (a "Related
Transaction") shall not be void or voidable solely for the reason that the
Company and a Related Entity are parties thereto, if: (i) the material facts of
the Related Transaction are disclosed or are known to the Board of Directors (or
a committee thereof) and the 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;
(ii) the material facts of the Related Transaction are disclosed or are known to
the holders of the then outstanding voting shares of the Company 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 Company 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 then a quorum; or (iv) such Related Transaction was fair to the Company.
The Restated Certificate of Incorporation also provides that any such
contract, agreement, arrangement or 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 Company and its stockholders. If, however, such
authorization or approval is not obtained, or such contract, agreement,
arrangement or transaction is not so effected, no presumption shall arise that
such contract, agreement, arrangement or transaction, or such arrangements,
standards or guidelines, are not fair to the Company and its stockholders.
The By-laws of the Company establish an advance notice procedure for
stockholder proposals to be brought before a meeting of stockholders of the
Company and for nominations by stockholders of candidates for election as
directors at an annual meeting at which directors are to be elected. Subject to
any other applicable requirements, only such business may be conducted at a
meeting of stockholders as has been brought before the meeting by, or at the
direction of, the Board of Directors or by a stockholder who has given to the
Secretary of the Company timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The presiding
officer at such meeting has the authority to make such determinations. Only
persons who are selected and recommended by the Board of Directors or by a
committee of the Board of Directors designated to make nominations, or who are
nominated by a stockholder who has given timely written notice, in proper form,
to the Secretary prior to a meeting at which directors are to be elected, will
be eligible for election as directors of the Company.
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<PAGE> 16
To be timely, notice of nominations or other business to be brought
before any meeting must be received by the Secretary of the Company not later
than 120 days in advance of the anniversary date of the Company's proxy
statement for the previous year's annual meeting or, in the case of special
meetings, at the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders.
The notice of any stockholder proposal or nomination for election as a
director must set forth the various information required under the By-laws. The
person submitting the notice of nomination and any person acting in concert with
such person must provide, among other things, the name and address under which
they appear on the Company's books (if they so appear) and the class and number
of shares of the Company's capital stock that are beneficially owned by them.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been
passed upon for the Company by Robinson, Bradshaw & Hinson, P.A., Charlotte,
North Carolina and for the underwriters of the Company's initial public offering
of Common Stock by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations).
EXPERTS
The financial statements of Applied Analytical Industries, Inc. (the
"Company") as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 incorporated in this Prospectus by reference
to the Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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<PAGE> 17
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION.........................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................2
THE COMPANY...................................................................3
RISK FACTORS..................................................................4
USE OF PROCEEDS..............................................................10
PLAN OF DISTRIBUTION.........................................................10
DESCRIPTION OF CAPITAL STOCK.................................................11
LEGAL MATTERS................................................................14
EXPERTS......................................................................14
</TABLE>
================================================================================
================================================================================
APPLIED ANALYTICAL
INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
--------------
[AAI LOGO]
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GOLDMAN, SACHS & CO.
================================================================================
1
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's costs and expenses, other than
underwriting discounts and commissions, incurred by the Company in connection
with the initial sale and distribution of the securities registered by the
Company on September 18, 1996.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 15,240
NASD filing fee................................................... 9,847
Nasdaq National Market System entry fee............................ 50,000
Blue Sky fees and expenses......................................... 15,447
Transfer agent and registrar fees.................................. 2,405
Accounting fees and expenses....................................... 403,850
Legal fees and expenses............................................ 418,000
Printing, engraving and mailing expenses........................... 189,986
Miscellaneous...................................................... 160,205
----------
Total..................................................... $1,409,229
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable for any monetary damages for
any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits elimination or limitation of
liability of directors for breach of fiduciary duty. The Restated Certificate of
Incorporation provides that a director or officer of the Company (a) shall be
indemnified by the Company against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right of
the Company) brought against him by virtue of his position as a director or
officer of the Company if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful and (b) shall be indemnified by the Company
against all expenses (including attorneys' fees) and amounts paid in settlement
incurred in connection with any action by or in the right of the Company brought
against him by virtue of his position as a director or officer of the Company
brought against him by virtue of his position as a director or officer of the
Company if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Company, except that no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the Company, unless a court determines
that, despite such adjudication but in view of all of the circumstances, he is
entitled to indemnification of such expenses. Notwithstanding the foregoing, to
the extent that a director or officer has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, he is required to be indemnified by the Company against all expenses
(including attorneys' fees) incurred in connection therewith. Expenses shall be
advanced to a director or officer at his request, provided that he undertakes to
repay the amount advanced if it is ultimately determined that he is not entitled
to indemnification for such expenses.
Indemnification is required to be made unless the Company determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Company that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Company fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Company
notice of the action
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<PAGE> 19
for which indemnity is sought and the Company has the right to participate in
such action or assume the defense thereof.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding, if such person had
no reasonable cause to believe his conduct was unlawful; provided that, in the
case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 9 of the Underwriting Agreement for the initial public
offering of the Common Stock, which occurred on September 25, 1996, between the
Company and the Underwriters, the Underwriters will be obligated, under certain
circumstances, to indemnify directors and officers of the Company against
certain liabilities, including liabilities under the Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 -- 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 (incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
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 No. 333-5535))
4.1 -- Articles Fourth, Seventh, Eleventh and Twelfth of the form of
the Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
4.2* -- Article II of the Restated By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
4.3* -- Specimen Certificate for shares of Common Stock, $0.001 par
value, of the Company
5* -- Opinion of Robinson, Bradshaw & Hinson, P.A. with respect to
the validity of the securities being offered
23.1* -- Consent of Robinson, Bradshaw & Hinson, P.A. (included in
Exhibit 5)
23.2 -- Consent of Price Waterhouse LLP
24* -- Certain Powers of Attorney (included on signature page of
Registration Statement (on Form S-1) as initially filed)
</TABLE>
- ----------
* Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions contained in the Restated Certificate of
Incorporation and Restated By-laws of the Company and the laws of the State of
II-2
<PAGE> 20
Delaware, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) It will file, during any period in which offers or
sales are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (3)(i) and (3)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(4) For the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 21
(5) It will remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of this Offering.
(6) For the purpose of determining any liability under
the Securities Act, each filing of its annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wilmington, State of North Carolina, on this
25th day of June, 1998.
By: /s/ R. FORREST WALDON
--------------------------------------
R. Forrest Waldon
Secretary
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
FREDERICK D. SANCILIO* President and Director June 25, 1998
- ------------------------------------------- (Principal Executive Officer)
Frederick D. Sancilio, Ph.D.
/s/ EUGENE T. HALEY Vice President and June 25, 1998
- ------------------------------------------- Chief Financial Officer
Eugene T. Haley
/s/ STEPHEN F. RIZZO Controller June 25, 1998
- ------------------------------------------- (Principal Accounting Officer)
Stephen F. Rizzo
WILLIAM H. UNDERWOOD* Director June 25, 1998
- -------------------------------------------
William H. Underwood
JOSEPH H. GLEBERMAN* Director June 25, 1998
- -------------------------------------------
Joseph H. Gleberman
JOHN M. RYAN* Director June 25, 1998
- -------------------------------------------
John M. Ryan
JAMES L. WATERS* Director June 25, 1998
- -------------------------------------------
James L. Waters
*By: /s/ R. FORREST WALDON
--------------------------------------
R. Forrest Waldon, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 -- 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 (incorporated by reference to Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
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 No. 333-5535))
4.1 -- Articles Fourth, Seventh, Eleventh and Twelfth of the form of
the Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
4.2* -- Article II of the Restated By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-5535))
4.3* -- Specimen Certificate for shares of Common Stock, $0.001 par
value, of the Company
5* -- Opinion of Robinson, Bradshaw & Hinson, P.A. with respect to
the validity of the securities being offered
23.1* -- Consent of Robinson, Bradshaw & Hinson, P.A. (included in
Exhibit 5)
23.2 -- Consent of Price Waterhouse LLP
24* -- Certain Powers of Attorney (included on signature page of
Registration Statement (on Form S-1) as initially filed)
</TABLE>
- ----------
* Previously filed.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 18, 1998, appearing in the 1997 Annual Report to Shareholders of Applied
Analytical Industries, Inc., which is incorporated by reference in Applied
Analytical Industries, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997, as amended. We also consent to the incorporation by reference
of our report on the Financial Statement Schedule, which appears in such Annual
Report on Form 10-K, as amended. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
June 26, 1998
