<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1997.
Registration No. 333-17001
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
AMENDMENT NO. 2 TO
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PREMIER RESEARCH WORLDWIDE, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8734 22-3264604
(State or jurisdiction of Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number Identification No.)
</TABLE>
124 SOUTH 15TH STREET
PHILADELPHIA, PA 19102
(215) 972-0420
(Address, including zip code,
and telephone number, including
area code, of registrant's
principal executive offices)
JOEL MORGANROTH, M.D. President
124 SOUTH 15TH STREET
PHILADELPHIA, PA 19102
(215) 972-0420
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JAMES H. CARLL, ESQUIRE MORRIS CHESTON, JR. , ESQUIRE
ARCHER & GREINER, P.C. BALLARD SPAHR ANDREWS & INGERSOLL
ONE CENTENNIAL SQUARE 1735 MARKET STREET, 51st FLOOR
HADDONFIELD, NJ 08033 PHILADELPHIA, PA 19103
(609) 795-2121 (215) 864-8609
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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
1922, check the following box.|_|
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. |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD.
CROSS REFERENCE SHEET
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<CAPTION>
Item Location or
Form S-1 Caption Heading in Prospectus
- -------- ------- ----------------------
<S> <C> <C>
1 Forepart of Registration Facing Page; Front Cover Page;
Statement and Outside Front
Cover Page of Prospectus...
2 Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus... Cover Pages; Additional
Information;
3 Summary Information, Risk Prospectus Summary; Risk
Factors and Ratio of Earnings to Factors;
Fixed Charges
4 Use of Proceeds... Use of Proceeds;
5 Determination of Offering Risk Factors; Underwriting
Price...
6 Dilution... Dilution;
7 Selling Security Holders... Principal and Selling
Stockholders;
8 Plan of Distribution... Front Cover Page;
Underwriting;
9 Description of Securities to be Description of Capital Stock;
Registered...
10 Interests of Named Experts and Legal Matters; Experts
Counsel...
11 Information with Respect to
Registrant...
(a) Description of Business... Business;
(b) Description of Property... Business;
(c) Legal Proceedings Not applicable;
</TABLE>
i
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Location or
Form S-1 Caption Heading in Prospectus
- -------- ------- ----------------------
<S> <C> <C>
(d) Market Price of and Risk Factors; Management;
Dividends on the Shares Eligible for Future
Registrant's Common Equity Sale; Dividend Policy;
and Related Stockholder Principal and Selling
Matters... Stockholders; Underwriting;
(e) Financial Statements... Financial Statements;
(f) Selected Financial Data... Selected Financial Data;
(g) Supplemental Financial Management's Discussion and
Information... Analysis of Financial Condition
and Results of Operations;
(h) Management's Discussion Management's Discussion and
and Analysis of Financial Analysis of Financial Condition
Condition and Results of and Results of Operations;
Operations...
(i) Disagreements with Not Applicable;
Accountants...
(j) Directors and Executive Management;
Officers...
(k) Executive Compensation... Management;
(l) Security Ownership of Principal and Selling
Certain Beneficial Owners... Stockholders;
(m) Certain Relationships and Certain Relationships
Related Transactions... and Related Transactions;
12 Disclosure of Commission Not Applicable;
Position on Indemnification for
Securities Act Liabilities...
</TABLE>
ii
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
LOGO
2,750,000 SHARES
PREMIER RESEARCH WORLDWIDE
COMMON STOCK
Of the 2,750,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Premier Research Worldwide, Ltd. (the "Company") and
750,000 shares are being sold by the Selling Stockholder. The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Stockholder. See "Principal and Selling Stockholders." Prior to this
offering, there has been no public market for the Common Stock of the
Company. It currently is estimated that the initial public offering price
will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol "PRWW."
The shares of Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 7 of this Prospectus for a discussion of
certain factors that should be considered by prospective investors in
purchasing the shares of Common Stock offered hereby.
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.
<TABLE>
<CAPTION>
===============================================================================================
Price to Underwriting Proceeds to Proceeds to Selling
Public Discount (1) Company (2) Stockholder
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share .... $ $ $ $
- -----------------------------------------------------------------------------------------------
Total (3) .... $ $ $ $
===============================================================================================
</TABLE>
(1) The Company, the Selling Stockholder and UM Holdings, Ltd. have agreed to
indemnify the Underwriters against certain liabilities. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company and the Selling Stockholder have granted the Underwriters a
30-day option to purchase up to 412,500 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discount,
Proceeds to Company and Proceeds to Selling Stockholder will be $ ,
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
the Underwriters, and subject to their right to reject orders in whole or in
part. It is expected that delivery of the certificates representing such
shares will be made against payment therefor at the offices of Montgomery
Securities on or about , 1997.
MONTGOMERY SECURITIES
FURMAN SELZ
GENESIS MERCHANT GROUP
SECURITIES
, 1997
<PAGE>
-------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
certain statements of a forward-looking nature relating to future events or
the future financial performance of the Company. Such statements are only
predictions and actual events or results may differ materially from those
indicated by such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed under "Risk
Factors." All references to the "Company" in this Prospectus refer to Premier
Research Worldwide, Ltd., a Delaware corporation, and its subsidiaries and
predecessors. Except as otherwise noted, all information in this Prospectus
(i) reflects a 2,201-for-one stock split effected on November 26, 1996, (ii)
reflects the mandatory conversion of PREMIER, Inc.'s minority interest in
Premier Research, LLC into 330,150 shares of Common Stock of the Company upon
closing of this offering, and (iii) assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Premier Research Worldwide, Ltd. (the "Company") is a clinical research
organization ("CRO") providing a broad range of integrated product
development services to its clients in the pharmaceutical, biotechnology and
medical device industries. The Company complements the research and
development departments of its clients by offering high quality clinical
research services on an as-needed basis, thereby providing a variable cost
alternative to certain fixed costs typically associated with internal product
development. Over the last three years, the Company has built a base of over
85 clients, including 22 of the 25 largest pharmaceutical companies in the
world (on the basis of 1995 research and development expeditures as reported
by Med Ad News). During 1996, the Company performed services under 199
contracts for 60 clients. The Company's services include centralized
diagnostic testing, clinical trial management, clinical data management,
biostatistical analysis, Phase I clinical research, health care economics and
outcomes research and regulatory affairs services.
The Company and its predecessors have operated since 1977 as direct or
indirect subsidiaries or as divisions of UM Holdings, Ltd., a private holding
company that owns several companies in different industries.
Throughout its history, the Company has been an innovator in the use of
new technologies that speed product development and regulatory review. For
example, the Company created and filed the first computer-assisted new drug
application ("CANDA") with the United States Food & Drug Administration
("FDA"). The Company's technology is designed to simplify and make more
efficient the collection, transfer, analysis and preparation of clinical
trial data. The Company believes that its proprietary technology links all
facets of clinical development, produces cost advantages, facilitates
superior levels of service, improves the quality of clinical research, and
enhances the Company's global capabilities.
All of the Company's services are designed to help clients reduce their
product development time in a cost-effective manner. In 1977, the Company's
predecessor, Cardio Data Systems, began providing diagnostic testing services
used to evaluate the safety and efficacy of new drugs. Today, the Company
provides these services, which include electrocardiograms ("ECGs"), Holter
monitoring, pulmonary function testing, blood and urine sampling, and other
tests, on a centralized basis. To take advantage of the potential synergies
and cross-selling opportunities with its centralized diagnostic testing
services, the Company added clinical trial management capabilities in
September 1995 by forming with PREMIER, Inc. a limited liability company,
which is owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing
of this offering, PREMIER, Inc.'s minority interest will convert into 330,150
shares of Common Stock of the Company in accordance with an agreement entered
into by the parties in 1995. Upon such conversion, the limited liability
company will be wholly-owned by the Company. Although a substantial majority
of the Company's net revenues is still derived from centralized diagnostic
testing services, the Company today has the capacity to provide the full
range of CRO services on a global basis.
3
<PAGE>
The Company believes that its affiliation with PREMIER, Inc. will improve
its ability to market and enhance its clinical research services to its
clients. PREMIER, Inc. is the largest voluntary healthcare alliance in the
United States, with 1,800 affiliated hospitals and institutions throughout
the United States, representing over 300,000 hospital beds. PREMIER, Inc.
negotiated, on behalf of the alliance, group purchases of approximately $6
billion and $10 billion of medical devices, supplies and pharmaceuticals in
1995 and 1996, respectively. The Company seeks to leverage its strategic
relationship with PREMIER, Inc. in the following ways: (i) PREMIER, Inc. has
agreed to introduce the Company to all pharmaceutical and device companies
that sell or propose to sell products to the alliance; (ii) PREMIER, Inc. has
agreed to include as a standard provision in all of its future drug and
device group purchasing agreements that the pharmaceutical or device company
consider using the Company's services in its clinical trials; (iii) the
Company is the exclusive CRO for the trial management organization being
developed by PREMIER, Inc. with the assistance of the Company; and (iv) the
Company has access to PREMIER, Inc.'s databases, which should facilitate the
Company's ability to identify specific patient populations, investigators and
sites and to offer pharmacoeconomic and outcomes data to its clients.
The global pharmaceutical and biotechnology industries spent an estimated
$35 billion in 1995 on research and development, of which the Company
estimates $20 billion was spent on the types of services offered by the
Company. Of this amount, approximately $2.5 billion was outsourced to CROs.
The Company believes that the following trends will lead to increased
outsourcing of product development activities by pharmaceutical,
biotechnology and medical device companies: (i) clients in these industries
are increasingly seeking faster product development times in order to
maximize the period of patent protection and marketing exclusivity; (ii) as
these companies respond to cost containment pressures, they are looking to
develop their products as inexpensively as possible and therefore are taking
advantage of the variable cost structure of outsourcing to CROs versus the
fixed cost structure of internal development; (iii) as increasingly complex
and stringent regulatory requirements have added to the volume of data
required for regulatory filings, the demand for comprehensive capabilities to
collect, analyze and prepare clinical data for regulatory submission is
growing; (iv) as pharmaceutical and biotechnology companies are developing
more advanced therapeutics for complex chronic diseases, these companies are
looking to outsource to CROs with product development expertise in
specialized therapeutic areas; (v) biotechnology companies are developing an
increasing number of new drugs submitted for regulatory review and continue
to depend largely on outside sources for clinical research services; (vi) the
shift by pharmaceutical, biotechnology and medical device companies from
making sequential filings of registration packages to simultaneous filings in
several countries is creating growing demand for CROs with an international
presence and experience in preparing such filings; and (vii) the need for
sophisticated data management is increasing.
The Company's objective is to accelerate its clients' product development
timelines. The Company's strategies for meeting this objective include: (i)
using innovative technology to accelerate and improve product development;
(ii) providing comprehensive product development services, including
centralized diagnostic testing services; (iii) expanding its capacity for
global product development services; (iv) developing its strategic
relationship with PREMIER, Inc.; and (v) pursuing strategic acquisitions.
4
<PAGE>
THE OFFERING
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<CAPTION>
<S> <C>
Common Stock offered by the Company ................. 2,000,000 shares
Common Stock offered by the Selling Stockholder ..... 750,000 shares
Common Stock to be outstanding after the offering ... 6,732,150 shares(1)(2)
Use of proceeds ..................................... To fund capital expenditures, geographic
expansion, possible future acquisitions,
working capital and other general corporate
purposes
Nasdaq National Market symbol ....................... PRWW
</TABLE>
- ------
(1) Excludes (i) 521,637 shares of Common Stock reserved for issuance upon
the exercise of outstanding options at an average exercise price of
$2.26, (ii) 23,206 shares of Common Stock reserved for issuance upon
exercise of outstanding options at an assumed initial public offering
price of $15.00, and (iii) 490,000 shares reserved for future grant under
the Company's 1996 Stock Option Plan. See "Management -- Stock Option
Plans" and Note 8 of Notes to Consolidated Financial Statements.
(2) Following this offering, the Company's current stockholders will
beneficially own approximately 61.7% of the outstanding shares of Common
Stock.
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
The representatives of the Underwriters are Montgomery Securities, Furman
Selz LLC and Genesis Merchant Group Securities.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1992(1) 1993(1) 1994(1) 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .............................................. $8,083 $10,245 $12,910 $12,218 $15,396
Less: Reimbursed costs ................................ -- -- -- (154) (113)
-------- --------- --------- --------- ---------
Net revenues .......................................... 8,083 10,245 12,910 12,064 15,283
-------- --------- --------- --------- ---------
Costs and expenses:
Direct costs ........................................ 1,971 2,428 3,473 4,124 6,285
Selling, general and administrative ................. 4,017 7,278 7,245 6,375 6,783
Depreciation and amortization ....................... 688 785 1,197 1,013 704
-------- --------- --------- --------- ---------
Total costs and expenses .............................. 6,676 10,491 11,915 11,512 13,772
-------- --------- --------- --------- ---------
Income (loss) before income taxes and minority interest. 1,407 (246) 995 552 1,511
Minority interest in limited liability company's loss... -- -- -- 48 332
-------- --------- --------- --------- ---------
Income (loss) before income taxes ..................... 1,407 (246) 995 600 1,843
Income tax provision (benefit) (2) .................... 562 (69) 415 259 773
-------- --------- --------- --------- ---------
Net income (loss) (3) ................................. $ 845 $ (177) $ 580 $ 341 $ 1,070
======== ========= ========= ========= =========
Pro forma net income (4) .............................. $ 878
=========
Pro forma net income per share (4) .................... .18
=========
Shares used in computing pro forma net income per
share (4) 4,997
=========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------
As
Actual Adjusted(5)
-------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................................................................... $1,498 $28,798
Working capital ............................................................................. 1,595 28,895
Total assets ................................................................................ 5,748 33,048
Total stockholders' equity.................................................................... 2,516 29,816
</TABLE>
- ------
(1) For periods prior to June 1, 1994, the Company operated as direct or
indirect subsidiaries or as divisions of UM Holdings, Ltd. ("UM").
Effective June 1, 1994, the Company was capitalized through the transfer
of the net assets and operations of the division by UM.
(2) The Company is included in the consolidated income tax returns of UM. The
historical financial statements reflect income taxes calculated on a
separate company basis. See Note 6 of Notes to Consolidated Financial
Statements.
(3) Net income (loss) for all periods presented includes various transactions
with related parties, including administrative services and a facility
lease with UM and consulting fees paid to the Company's President, who is
a stockholder. See Note 7 of Notes to Consolidated Financial Statements.
(4) Reflects the conversion of PREMIER, Inc.'s minority interest in limited
liability company into Common Stock of the Company upon the closing of
this offering. See Note 1 of Notes to Consolidated Financial Statements
for discussion of the calculation of pro forma net income, pro forma net
income per share and the shares used in computing pro forma net income
per share.
(5) As adjusted to give effect to the sale by the Company of 2,000,000 shares
of Common Stock in this offering at an assumed initial public offering
price of $15.00 per share (after deducting the estimated underwriting
discount and offering expenses payable by the Company). See "Use of
Proceeds," "Dividend Policy," "Capitalization" and "Description of
Capital Stock."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers should consider carefully the risk factors set forth below in
evaluating an investment in the shares of the Common Stock of the Company
offered hereby.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
The Company's net revenues are highly dependent on research and
development expenditures by the pharmaceutical, biotechnology and medical
device industries. The Company has benefited from the growing tendency of
pharmaceutical, medical device and biotechnology companies to outsource their
product development projects to independent CROs. Any reduction in the
outsourcing of research and development expenditures in these industries
could have a material adverse effect on the Company. The Company has in the
past derived, and may in the future derive, a significant portion of its net
revenues from a relatively limited number of major projects or clients. In
1994, two clients accounted for 17.0% and 11.5% of net revenues, in 1995
three clients accounted for 15.0%, 12.1% and 10.0% of net revenues, and in
1996, two clients accounted for 15.3% and 10.1% of net revenues. Customer
concentration in the CRO industry is not uncommon and the Company is likely
to experience such concentration in the future. The loss of any such client
could have a material adverse effect on the Company. See "Business --
Clients."
LOSS OR DELAY OF CONTRACTS
Most of the Company's contracts are terminable without cause upon 30 to 90
days notice by the client. Clients terminate or delay contracts for various
reasons including, among others, the failure of the product being tested to
satisfy safety or efficacy requirements; unexpected or undesired clinical
results of the product; the client's decision to forego a particular study;
clients' decisions to downsize their product development portfolios;
insufficient patient enrollment or investigator recruitment; and production
problems resulting in shortages of required clinical supplies. During 1996,
18 Company contracts were terminated for which the remaining contract amounts
totalled approximately $4.2 million. In addition, the Company believes that
several factors, including the potential impact of health care reform, have
caused pharmaceutical, biotechnology and medical device companies to apply
more stringent criteria to the decision to proceed with clinical trials and
may result in a greater willingness of these companies to terminate such
trials. Therefore, the Company does not believe that its backlog as of any
date is necessarily a meaningful predictor of future results. Although the
Company's contracts typically require non-refundable, up-front payments and
contain a provision for the payment of certain fees in closing a study after
early termination, the loss or delay of a large project or contract or the
loss or delay of multiple smaller contracts could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Backlog."
RISKS ASSOCIATED WITH UNPROVEN BUSINESS STRATEGIES
The Company did not offer clinical trial management services until
September 1995. While the Company's objective is to expand its CRO business,
diagnostic testing services continue to be the Company's largest product
offering, constituting 65.1% and 78.8% of the Company's net revenues for 1995
and 1996, respectively. The Company's efforts to expand its CRO business are
at an early stage, and there can be no assurance that the Company will be
able to expand this area in a profitable manner. One of the Company's
strategies is to leverage its affiliation with PREMIER, Inc. While the
Company believes that this strategic relationship provides it with various
competitive advantages, there can be no assurance that the contemplated
beneficial effects of the relationship will materialize. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies expanding into a new business area or
utilizing a new strategy, particularly companies in rapidly evolving markets,
and there can be no assurance that the Company will be successful in these
efforts. See "Business -- The Company's Strategy."
7
<PAGE>
MANAGEMENT OF GROWTH
The Company expects to grow rapidly in the next few years, especially in
its clinical trial management and data management services. The Company
believes that sustained growth places a strain on operational, human and
financial resources. To manage its growth, the Company must continue to
improve its operating and administrative systems and to attract and retain
qualified management, professional, scientific and technical operating
personnel. Foreign operations also involve the additional risks of
assimilating differences in foreign business practices, hiring and retaining
qualified personnel and overcoming language barriers. Failure to manage
growth effectively could have a material adverse effect on the Company.
SIGNIFICANT UNALLOCATED NET PROCEEDS
The Company intends to use $6 million to $8 million of the net proceeds of
this offering for capital expenditures and $2 million to $4 million for
geographic expansion. The Company intends to use the remaining net proceeds
for possible future acquisitions, working capital and other general corporate
purposes. The Company has no commitments or agreements with respect to any
acquisition. The Company has no other specific uses for the proceeds of this
offering, and the exact uses of such proceeds will be subject to the
discretion of management. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL
The Company relies on a number of key executives including Joel
Morganroth, M.D., its President and Chief Executive Officer; Christopher
Gallen, M.D., Ph.D., President, Clinical Research Services; Glenn Cousins,
President, Diagnostic Services; and David Evans, Senior Vice President and
Chief Technical Officer. The loss of the services of any of the Company's key
executives could have a material adverse effect on the Company. There can be
no assurance the Company will be able to continue to attract and retain
qualified personnel. See "Business -- Employees" and "Management."
VARIATION IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's quarterly operating results have been and will continue to
be subject to variation, depending on factors such as the commencement,
completion or cancellation of significant contracts, the mix of contracted
services, foreign exchange rate fluctuations, the timing of start-up expenses
for new offices and services, and the costs associated with integrating
acquisitions. The Company has experienced, and expects to experience in the
future, seasonal variations in its revenues. The Company believes that
quarterly comparisons of its financial results should not be relied upon as
an indication of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly
Results."
ACQUISITION RISKS
The Company reviews acquisition candidates in the ordinary course of its
business. Acquisitions involve numerous risks, including the expenses
incurred in connection with the acquisition, difficulties in assimilating
operations and products, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. Acquisitions of foreign companies also involve the additional risks
of assimilating differences in foreign business practices, hiring and
retaining qualified personnel and overcoming language barriers. There can be
no assurance that any future acquisitions will be successfully integrated
into the Company's operations. See "Use of Proceeds" and "Business -- The
Company's Strategy."
Due to the fact that the Company has been a subsidiary of UM, it will not
be eligible to use the pooling of interests method of accounting for
acquisitions made during the two year period following this offering, which
could make potential acquisitions less attractive to the Company.
COMPETITION; INDUSTRY CONSOLIDATION
The CRO industry is highly fragmented, with several hundred CROs ranging
in size from one person consulting firms to full-service, global product
development organizations. The Company primarily competes against other CROs,
some of which possess substantially greater capital, technical and other
resources than the Company. To a lesser extent, the Company also competes
against universities and teaching hospitals. As a result
8
<PAGE>
of competitive pressures and the potential for economies of scale, the
industry is consolidating. This trend is likely to produce increased
competition among the larger CROs for clients and acquisition candidates.
There are few barriers to entry for small, limited-service entities entering
the CRO industry and these entities also may compete with established CROs
for clients. The Company believes that major pharmaceutical, biotechnology
and medical device companies tend to develop preferred provider relationships
with full-service CROs, effectively excluding smaller CROs from the bidding
process. The Company may find reduced access to certain potential clients due
to these arrangements. In addition, the CRO industry has attracted the
attention of the investment community, which could lead to increased
competition by increasing the availability of financial resources for CROs.
Increased competition may lead to price and other forms of competition that
could adversely affect the Company. See "Business -- Competition."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; ABILITY TO RESPOND TO TECHNOLOGICAL
CHANGE
The Company relies principally upon trade secret and contract law to
protect its proprietary technology, and there can be no assurance that such
measures will prove adequate. The Company's future success depends in part
upon its ability to enhance its current technology and to develop and
introduce new technology that keeps pace with technological developments and
the sophisticated needs of its clients. There can be no assurance that the
Company will successfully develop and introduce such enhancements or new
technologies. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's technology
non-competitive or obsolete.
POTENTIAL LIABILITY
The Company could be held liable for errors or omissions in connection
with any of the services it performs. Clinical research services involve the
testing of new drugs and devices on human volunteers pursuant to a study
protocol that has been approved by an impartial review board with medical and
non-medical members. Such testing exposes the Company to the risk of
liability for personal injury or death to patients resulting from their
participation in the study, including, among other things, possible
unforeseen adverse side effects or improper use of a new drug or device. Many
of these patients are already seriously ill and are at risk of further
illness or death. In addition, the Company could be liable for the general
risks associated with its Phase I clinical research unit, where healthy and
at times unhealthy volunteers are housed and treated. Potential liabilities
include, but are not limited to, unforeseen adverse side effects resulting
from the use of new drugs or devices and the professional malpractice of
medical care providers. While the Company is not aware of any errors or
omissions which are likely to have a material adverse impact on its financial
condition, the Company could be materially adversely affected if it were
required to pay damages or incur defense costs in connection with a claim
that is beyond the scope of an indemnity provision or beyond the scope or
level of insurance coverage maintained by it or the client, or where the
indemnifying party does not fulfill its indemnification obligations. In
addition, there can be no assurance that such insurance will continue to be
available on terms acceptable to the Company. See "Business -- Potential
Liability and Insurance."
DEPENDENCE ON GOVERNMENT REGULATION
Human pharmaceutical products, biological products, and medical devices
are subject to rigorous regulations by the federal government, principally
the FDA, and foreign governments if products are tested or marketed abroad.
In the United States, the Federal Food, Drug, and Cosmetic Act ("FFDCA")
governs clinical trials and approval procedures, as well as the development,
manufacturing, safety, labeling, storage, record keeping and marketing of
pharmaceutical products and medical devices. Biological products are subject
to similar regulation under both the FFDCA and the Public Health Service Act.
Because the Company offers services relating to the conduct of clinical
trials and the preparation of marketing applications, the Company is
obligated to comply with applicable regulatory requirements governing these
activities, both in the United States and in foreign countries. Requirements
governing these activities vary from country to country.
A relaxation in the scope of regulatory requirements, such as the
introduction of simplified marketing applications for pharmaceuticals,
biologics, or medical devices, could decrease the business opportunities
available to the Company. In addition, the Company's failure to comply with
applicable regulations relating to the conduct
9
<PAGE>
of clinical trials or the preparation of marketing applications could lead to
a variety of sanctions. For example, regulatory violations in the United
States could result, depending on the nature of the violation and the type of
product involved, in the issuance of a Warning Letter; termination of a
clinical study; refusal of the FDA to approve clinical trial or marketing
applications or withdrawal of such applications; injunction; seizure of
investigational products; civil penalties; criminal prosecutions; or
debarment of the Company from assisting in the submission of abbreviated drug
applications for generic drugs. Such sanctions could have a material adverse
effect on the Company.
The Company's laboratory services are subject to regulation under the
Clinical Laboratory Improvement Amendments of 1988. Violations of these
requirements can lead to a variety of sanctions, including enjoining the
Company from providing laboratory services, which could have a material
adverse effect on the Company. See "Business -- Industry Trends" and
"Business -- Government Regulation."
UNCERTAINTY IN HEALTH CARE INDUSTRY AND POTENTIAL HEALTH CARE REFORM
The federal and numerous state governments have undertaken efforts to
control growing health care costs through legislation, regulation and
voluntary agreements with medical care providers and pharmaceutical,
biotechnology and medical device companies. In recent years, several
comprehensive health care reform proposals were introduced in the U.S.
Congress. The intent of the proposals was, generally, to expand health care
coverage for the uninsured and to reduce the growth of total health care
expenditures. While none of the comprehensive proposals was adopted, health
care reform may again be addressed by the U.S. Congress. Implementation of
comprehensive or incremental government health care reform, as well as
industry-wide health care cost containment pressures, may adversely affect
research and development expenditures by pharmaceutical, biotechnology and
medical device companies, which could decrease the business opportunities
available to the Company. The Company is unable to predict the likelihood of
such legislation being enacted into law or the effects such legislation or
cost containment pressures would have on the Company. See "Business --
Industry Overview."
EXCHANGE RATE FLUCTUATIONS
The Company expects net revenues derived from operations outside the
United States to grow in future years. For the years ended December 31, 1994,
1995 and 1996, the Company's non-U.S. net revenues represented 17.0%, 9.8%
and 14.9%, respectively, of total net revenues. Since the revenues and
expenses of the Company's foreign operations generally are denominated in
foreign currencies, exchange rate fluctuations between such foreign
currencies and the United States dollar will subject the Company to currency
translation risk with respect to the reported results of its foreign
operations, as well as to risks sometimes associated with international
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after the offering. The initial public offering price
will be determined through negotiations between the Company and the
Underwriters and may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. 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, and may further
experience in the future, significant price and volume fluctuations unrelated
to the operating performance of particular companies. These market
fluctuations may have a material adverse effect on the market price of the
Company's Common Stock.
THE EFFECT OF CERTAIN CHARTER PROVISIONS; PREFERRED STOCK ISSUANCE
The Company's Certificate of Incorporation requires an affirmative
super-majority (80%) stockholder vote before the Company can enter into
certain defined business combinations, except for combinations that meet
10
<PAGE>
certain specified conditions. The Certificate of Incorporation also provides
for staggered three year terms for members of the Board of Directors, the
amendment of which requires an affirmative super-majority (70%) stockholder
vote. The Company has 500,000 authorized shares of Preferred Stock, none of
which will be outstanding upon completion of the offering. Pursuant to the
Certificate of Incorporation, the Board of Directors has the authority to
issue Preferred Stock in one or more series, and to fix the rights,
preferences, privileges and restrictions, including dividend, conversion,
voting, redemption (including sinking fund provisions) and other rights,
liquidation preferences and the number of shares constituting any series and
the designation of such series, without any further vote or action by the
stockholders of the Company. These charter provisions could have the effect
of discouraging potential take-over attempts and may make attempts by
stockholders to change the management of the Company more difficult. See
"Description of Capital Stock."
DILUTION TO NEW INVESTORS
Purchasers of Common Stock in this offering will experience immediate and
substantial dilution in the net tangible book value per share of the Common
Stock of $10.59 per share. See "Dilution."
RISK OF HAZARDOUS MATERIAL CONTAMINATION
The Company's clinical activities have involved, and may continue to
involve, the controlled use of hazardous materials. Although the Company
believes that its safety procedures for handling the disposal of such
materials comply with the standards prescribed by state and federal laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for damages which, to the extent not covered
by existing insurance or indemnification, could have a material adverse
effect on the Company.
CONCENTRATION OF OWNERSHIP IN CURRENT STOCKHOLDERS
Following this offering, the Company's current stockholders will
beneficially own approximately 61.7% of the outstanding shares of Common
Stock. As a result, such persons will have the ability to control the
election of the Company's directors and the outcome of corporate actions
requiring stockholder approval. This concentration of ownership could have
the effect of discouraging potential take-over attempts and may make more
difficult attempts by stockholders to change the management of the Company.
ABSENCE OF DIVIDENDS
The Company has no present plans to pay cash dividends to its stockholders
and, for the foreseeable future, intends to retain all of its earnings for
use in its business. The declaration of any future dividends by the Company
is within the discretion of its Board of Directors and will be dependent on
the earnings, financial condition and capital requirements of the Company, as
well as any other factors deemed relevant by its Board of Directors. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, of the 15,000,000 authorized shares of
Common Stock, 7,276,993 shares will be issued and outstanding or reserved for
issuance pursuant to the exercise of outstanding stock options. Upon
completion of this offering, the Company will have 6,732,150 shares of Common
Stock outstanding. The 2,750,000 shares offered hereby will be freely
tradeable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except for any such shares held by "affiliates" of
the Company within the meaning of the Securities Act, which will be subject
to the resale limitations of Rule 144 promulgated under the Securities Act
("Rule 144"). The Company believes that the remaining outstanding shares, and
the 544,843 shares issuable upon exercise of outstanding options, may be sold
pursuant to Rule 144 or Rule 701 under the Securities Act in compliance with
the limitations thereof beginning 90 days after the offering. In accordance
with the terms of the lock-up agreements entered into with the Company, the
Company's directors, executive officers, and stockholders have agreed not to
sell the shares owned by each of them without the prior written consent of
Montgomery Securities for a period of 180 days (365 days, in the case of Dr.
Morganroth) following the first offer of shares of Common Stock pursuant to
this Prospectus. See "Shares Eligible for Future Sale."
11
<PAGE>
COMPANY HISTORY
The Company is a Delaware corporation. It and its predecessors have
operated since 1977 as direct or indirect subsidiaries or as divisions of UM
Holdings, Ltd. ("UM"), a private holding company that owns several companies
in different industries, including a manufacturer and distributor of fitness
equipment, a provider of management services to providers of executive
physical examinations and other medical services, and a regional commercial
airline. The Company's original predecessor, Cardio Data Systems, began
providing Holter monitoring analysis services to pharmaceutical companies
developing new drugs. Over time, additional diagnostic testing services were
added, and this business became separately operated as CDS Research. In 1984,
UM acquired Research Data Corporation ("RDC"), a provider of specialized data
processing services designed to aid pharmaceutical companies submitting new
drugs for regulatory approval. RDC pioneered the computer assisted new drug
application ("CANDA"), filing the first CANDA in 1985.
The CDS Research and RDC divisions were operationally combined in 1993 to
form Research Data Worldwide. In the same year, the Company opened its Phase
I clinical research unit. The Company was incorporated in Delaware in 1993
and became operational when UM contributed the Research Data Worldwide
division to the Company in 1994.
To take advantage of the potential synergies and cross-selling
opportunities with its centralized diagnostic testing services, the Company
added clinical trial management capabilities in September 1995 by forming a
limited liability company with PREMIER, Inc., which is owned 65% by the
Company and 35% by PREMIER, Inc. PREMIER, Inc. is the nation's largest
voluntary healthcare alliance, with 1,800 affiliated hospitals and
institutions throughout the United States, representing over 300,000 hospital
beds. Upon the closing of this offering, PREMIER, Inc.'s minority interest in
the limited liability company will convert into 330,150 shares of the
Company's Common Stock, representing approximately 4.9% of the outstanding
Common Stock, pursuant to an agreement entered into by the parties in 1995.
After such conversion, the limited liability company will be wholly-owned by
the Company. Shortly after forming the limited liability company, the Company
changed its name from Research Data Worldwide, Ltd. to Premier Research
Worldwide, Ltd.
The Company's principal executive offices are located at 124 South 15th
Street, Philadelphia, Pennsylvania 19102. Its telephone number is
215-972-0420.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of
Common Stock offered by the Company pursuant to this offering are estimated
to be $27.3 million ($30.2 million if the Underwriters over-allotment option
is exercised in full) at an assumed initial public offering price of $15.00
per share and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholder.
The Company intends to use $6 million to $8 million of the net proceeds of
this offering for capital expenditures (including expansion of facilities,
acquisition of equipment and development and improvement of information
technology systems), and $2 million to $4 million to fund the costs of
geographic expansion involving new offices in California and North Carolina
and expansion of the Company's office in the United Kingdom. The remainder of
the net proceeds will be used for working capital and other general corporate
purposes, including possible future acquisitions. The Company has no
commitments or agreements with respect to any acquisition. Pending such uses,
the Company intends to invest the net proceeds from this offering in
short-term, investment-grade, interest bearing securities.
DIVIDEND POLICY
Until 1996, UM maintained a central cash management function for all of
its subsidiaries, including the Company. Settlement of cash disbursement and
collection transactions by UM on behalf of the Company have been recorded
through equity in the historical financial statements. See Consolidated
Financial Statements, including Notes thereto. The Company made net
distributions to UM for the year ended December 31, 1996 of $1,212,000. After
the closing of this offering, the Company intends to retain any earnings for
future growth, does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future and will not make any further distributions
to UM.
12
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization after giving
effect to the conversion of PREMIER, Inc.'s minority interest in the limited
liability company into Common Stock of the Company upon the closing of this
offering; and (iii) the pro forma capitalization as adjusted to give effect
to the sale of 2,000,000 shares of Common Stock offered by the Company (at an
assumed initial public offering price of $15.00 per share and after deducting
the estimated underwriting discount and estimated offering expenses payable
by the Company).
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -------------
(in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, $10 par value, 500,000
shares authorized, none issued and
outstanding ........................... $ -- $ -- $ --
Common Stock, $.01 par value, 15,000,000
shares authorized, 4,402,000 shares
issued and outstanding (actual);
4,732,150 shares issued and outstanding
(pro forma); 6,732,150 shares issued
and outstanding (pro forma as
adjusted) (1) ......................... 44 47 67
Additional paid-in capital .............. 2,273 2,270 29,550
Retained earnings ....................... 199 199 199
-------- ----------- -------------
Total stockholders' equity ......... 2,516 2,516 29,816
-------- ----------- -------------
Total capitalization ............... $2,516 $2,516 $29,816
======== =========== =============
</TABLE>
- ------
(1) Excludes (i) 521,637 shares reserved for issuance upon the exercise of
outstanding options at a weighted average exercise price of $2.26 per
share (ii) 23,206 shares reserved for issuance upon the exercise of
outstanding options at an assumed initial public offering price of
$15.00, and (iii) 490,000 shares reserved for future grant under the
Company's 1996 Stock Option Plan. See "Management -- Stock Option Plans"
and Note 8 of Notes to Consolidated Financial Statements.
13
<PAGE>
DILUTION
At December 31, 1996, the Company's pro forma net tangible book value was
approximately $2.4 million, or $.51 per common share after giving effect to
the conversion of PREMIER, Inc.'s minority interest in the limited liability
company into 330,150 shares of Common Stock of the Company upon the closing
of this offering. Pro forma net tangible book value per share is equal to the
Company's total tangible assets less total liabilities divided by the total
number of shares of Common Stock outstanding on a pro forma basis. After
giving effect to the sale of the 2,000,000 shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $15.00 per
share and after deducting the estimated underwriting discount and offering
expenses payable by the Company) and the application of the estimated net
proceeds therefrom, the Company's pro forma as adjusted net tangible book
value at December 31, 1996 would have been approximately $29.7 million, or
$4.41 per share. This represents an immediate increase in pro forma net
tangible book value of $3.90 per share to the existing stockholders and an
immediate dilution in pro forma net tangible book value of $10.59 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price .................................. $15.00
Pro forma net tangible book value before the offering ..... $ 51
Increase attributable to new investors .................... 3.90
-------
Pro forma as adjusted net tangible book value after the offering 4.41
--------
Dilution in pro forma net tangible book value to new
investors(1) ................................................. $10.59
========
</TABLE>
The following table summarizes on a pro forma as adjusted basis as of
December 31,1996, the differences between the existing stockholders and new
investors purchasing shares in this offering (at an assumed initial public
offering price of $15.00 per share) with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid to the Company:
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
------------------------ -------------------------- Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)(3) 4,732,150 70.3% $ 2,908,000 8.8% $ .61
New investors(3) ........... 2,000,000 29.7 30,000,000 91.2 15.00
----------- --------- ------------- ---------
Total ............ 6,732,150 100.0% $32,908,000 100.0%
=========== ========= ============= =========
</TABLE>
- ------
(1) If all options to purchase Common Stock outstanding as of December 31,
1996 with exercise prices less than the assumed initial public offering
price of $15.00 per share were to be exercised, the pro forma as adjusted
net tangible book value after this offering would be $4.26 per share and
the dilution per share in pro forma net tangible book value to new
investors in this offering would be $10.74 per share.
(2) Includes 330,150 shares of Common Stock issuable upon conversion of the
minority interest in limited liability company into shares of Common
Stock of the Company upon the closing of this offering.
(3) The sale by the Selling Stockholder of 750,000 shares in this offering
will reduce the number of shares held by existing stockholders to
3,982,150, or approximately 59.2%, and will increase the number of shares
held by new investors to 2,750,000, or approximately 40.8%, of the total
number of shares of Common Stock to be outstanding after the offering.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected statement of operations data for the years ended December 31,
1994, 1995 and 1996, and the selected balance sheet data as of December 31,
1995 and 1996, have been derived from consolidated financial statements of
the Company audited by Arthur Andersen LLP, independent public accountants,
included elsewhere in this Prospectus. The selected balance sheet data as of
December 31, 1993 and 1994, and the selected statement of operations data for
the year ended December 31, 1993, have been derived from the Company's
audited financial statements not included herein. The selected statement of
operations data for the year ended December 31, 1992 and the selected balance
sheet data as of 1992 have been derived from the Company's unaudited internal
financial statements not included herein and reflect all adjustments that
management considers necessary for a fair and consistent presentation of the
financial position and results of operations for those periods. The following
selected financial data are qualified by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1992(1) 1993(1) 1994(1) 1995 1996
-------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................. $8,083 $10,245 $12,910 $12,218 $15,396
Less: Reimbursed costs ............... -- -- -- (154) (113)
-------- --------- --------- --------- ---------
Net revenues ......................... 8,083 10,245 12,910 12,064 15,283
-------- --------- --------- --------- ---------
Costs and expenses:
Direct costs ....................... 1,971 2,428 3,473 4,124 6,285
Selling, general and administrative 4,017 7,278 7,245 6,375 6,783
Depreciation and amortization ...... 688 785 1,197 1,013 704
-------- --------- --------- --------- ---------
Total costs and expenses ............. 6,676 10,491 11,915 11,512 13,772
-------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest .................. 1,407 (246) 995 552 1,511
Minority interest in limited liability
company's loss ..................... -- -- -- 48 332
-------- --------- --------- --------- ---------
Income (loss) before income taxes .... 1,407 (246) 995 600 1,843
Income tax provision (benefit) (2) ... 562 (69) 415 259 773
-------- --------- --------- --------- ---------
Net income (loss) (3) ................ $ 845 $ (177) $ 580 $ 341 $ 1,070
======== ========= ========= ========= =========
Pro forma net income (4) ............. $ 878
Pro forma net income per share (4) ... $ .18
=========
Shares used in computing pro forma net
income per share (4) ............... 4,997
=========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1992(1) 1993(1) 1994(1) 1995 1996
------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ......... $ 241 $ 285 $ 447 $ 33 $ 1,498
Working capital (deficit) ......... 525 (260) 87 1,729 1,595
Total assets ...................... 3,570 5,126 5,155 4,400 5,748
Minority interest in
limited liability
company ........................ -- -- -- 332 --
Total stockholders' equity ........ 1,856 2,248 2,175 2,658 2,516
</TABLE>
Footnotes appear on next page
15
<PAGE>
- ------
(1) For periods prior to June 1, 1994, the Company operated as direct or
indirect subsidiaries or as divisions of UM. Effective June 1, 1994, the
Company was capitalized through the transfer of the net assets and
operations of the divisions by UM.
(2) The Company is included in the consolidated income tax returns of UM. The
historical financial statements reflect income taxes calculated on a
separate company basis. See Note 6 of Notes to Consolidated Financial
Statements.
(3) Net income (loss) for all periods presented includes various transactions
with related parties, including administrative services and a facility
lease from UM and consulting fees paid to the Company's President, who is
a stockholder. See Note 7 of Notes to Consolidated Financial Statements.
(4) Reflects the conversion of PREMIER, Inc.'s minority interest in limited
liability company into Common Stock of the Company upon the closing of
this offering. See Note 1 of Notes to Consolidated Financial Statements
for discussion of the calculation of pro forma net income, pro forma net
income per share and the shares used in computing pro forma net income
per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and related Notes contained elsewhere
in this Prospectus.
OVERVIEW
The Company is a CRO providing a broad range of integrated product
development services on a global basis to its clients in the pharmaceutical,
biotechnology and medical device industries. The Company's services include
centralized diagnostic testing, clinical trial management, clinical data
management, biostatistical analysis, Phase I clinical research, health care
economics and outcomes research and regulatory affairs services.
The Company's diagnostic service contracts are on a fee-for-service basis
and generally have terms from one month to two years. A portion of the
Company's fee typically is paid upon contract execution as a non-refundable
up-front payment, with the remaining amounts billed monthly. Clinical
research service contracts generally are fixed priced, with certain variable
components, and range in duration from a few months to two years. A portion
of the Company's fee typically is paid upon contract execution as a
non-refundable up-front payment, with the balance billed in accordance with
contract terms. The Company's contracts generally may be terminated with or
without cause on 30 to 90 days notice. Clients terminate or delay contracts
for a variety of reasons, including, among others, the failure of products
being tested to satisfy safety or efficacy requirements; unexpected or
undesired clinical results of the product; the client's decision to forego a
particular study; insufficient patient enrollment or investigator
recruitment; and production problems resulting in shortages of required
clinical supplies. In the year ended December 31, 1996, 18 Company contracts
were terminated for which the remaining contract amounts totalled
approximately $4.2 million. Although in the event of termination, the Company
typically is entitled to all sums owed for work performed through the notice
of termination, all costs associated with termination of the study, and the
unamortized portion of any non-refundable up-front payments, the loss or
delay of a large project or contract or the loss or delay of multiple smaller
contracts could have a material adverse effect on the Company.
Revenues from diagnostic service contracts generally are recognized on a
per procedure basis as the work is performed. Revenues from clinical research
service contracts generally are recognized on a percentage of completion
basis as work is performed. For the years ended December 31, 1996 and 1995,
the diagnostic services revenues represented 78.8% and 65.1%, respectively,
of total net revenues. The Company regularly subcontracts with third-party
investigators in connection with clinical trials and with other third-party
providers for specialized services. These and other reimbursable costs are
paid by the Company and reimbursed by clients and, in accordance with
industry practice, are included in revenues. Since reimbursed costs may vary
significantly from contract to contract and are not meaningful for analyzing
trends in revenues, they are included in gross revenues but excluded from net
revenues. Consistent with industry practice, the Company considers net
revenues its primary measure of growth. The Company has had, and expects to
continue to have, certain clients from which at least 10% of the Company's
overall revenue is generated. The Company believes that such concentration of
business is not uncommon in the CRO industry.
In the last year, the Company has experienced significant growth through
internal expansion, reflecting an expansion of the Company's client base,
additional services offered by the Company and an increase in the number and
size of projects under management. Net revenues grew from $12.1 million for
the year ended December 31, 1995 to $15.3 million for the year ended December
31, 1996.
The Company's backlog consists of anticipated net revenues from work under
letters of intent and contracts that have been signed but not yet completed.
At December 31, 1996, backlog was approximately $13.3 million. The Company
believes that its backlog as of any date is not necessarily a meaningful
predictor of future results because backlog can be affected by a number of
factors, including variable size and duration of contracts, some of which are
performed over several years. The Company recognizes revenue over the
duration of the contract as services are provided. No assurance can be given
that the Company will be able to fully realize all of its backlog as net
revenues. See "Business -- Backlog."
The Company conducts operations on a global basis, with offices in the
United States and the United Kingdom. For the years ended December 31, 1994,
1995 and 1996, the Company's non-U.S. net revenues represented 17.0%, 9.8%
and 14.9%, respectively, of total net revenues.
17
<PAGE>
Contracts between the Company's international division and its clients
generally are denominated in Pounds Sterling. Because substantially all of
the international division's expenses are paid and payments are received in
Pounds Sterling, its earnings are not materially affected by fluctuations in
the exchange rates. However, the Company's financial statements are
denominated in U.S. dollars and, accordingly, changes in the exchange rate
between foreign currencies and the dollar do affect the Company's financial
results. Cumulative adjustments from translating the international division's
financial statements have been immaterial and, therefore, have been charged
to income as incurred.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net revenues. The trends illustrated in the following
table may not be indicative of future results.
<TABLE>
<CAPTION>
Percentage Increase
Percentage of Net Revenues (Decrease)
------------------------------- --------------------
Year Ended Fiscal Fiscal
December 31, 1994 1995
------------------------------- to to
1994 1995 1996 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues ................. 100.0% 100.0% 100.0% (6.2)% 26.4%
Costs and expenses:
Direct costs ............... 26.9 34.2 41.1 17.1 53.7
Selling, general and
administrative .......... 56.1 52.8 44.4 (11.1) 6.3
Depreciation and
amortization ............ 9.3 8.4 4.6 (16.7) (30.0)
-------- -------- --------
Income before income taxes and
minority interest .......... 7.7% 4.6% 9.9% (44.5) 172.7
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1996 AND 1995
Net revenues increased $3.2 million, or 26.4% to $15.3 million for the
year ended December 31, 1996, compared to the year ended December 31, 1995.
The increase was directly attributable to a significant increase in the
volume of diagnostic services. Diagnostic services revenues increased $4.2
million or 53.2% for the year ended December 31, 1996, compared to the prior
year, and include an increase of $1.1 million in the net revenues of the
Company's U.K. subsidiary. Offsetting the increase in diagnostic services
revenues was a $0.9 million decrease in CANDA revenues and a $0.2 million
decrease in Phase I clinical trials revenues. The decrease in CANDA revenues
was due to the decrease in the level of new contract signings resulting from
the Company's larger pharmaceutical clients' ability to perform such services
in-house and a reduced pressure to file CANDAs stemming from a reduction in
FDA review time. The Company believes that the decrease in Phase I revenues
primarily was caused by a delay in the commencement of domestic Phase I
trials in 1996 as a result of certain consolidations occuring in the
pharmaceutical industry. The Company believes that these factors are unlikely
to cause a continuing decrease in CANDA and Phase I revenues, but that these
business areas are likely to experience slower growth than other sectors of
its business.
Direct costs increased $2.2 million, or 53.7%, to $6.3 million for the
year ended December 31, 1996, compared to the year ended December 31, 1995.
As a percentage of net revenues, direct costs increased to 41.1% in 1996,
compared to 34.2% in 1995. The increase primarily was attributable to
increased consulting fees paid to the Company's President in connection with
medical interpretations for diagnostic tests, in addition to general
increases in connection with the increase in diagnostic services. The
consulting fees for medical interpretations increased from $0.8 million in
1995 to $1.8 million in 1996. The Company and the President have entered into
a new consulting agreement that discontinued such variable fees effective
January 1, 1997. See "Certain Relationships and Related Party Transactions"
and Notes 7 and 9 of Notes to Consolidated Financial Statements.
Selling, general and administrative expenses increased $0.4 million, or
6.3% to $6.8 million for the year ended December 31, 1996, compared to the
year ended December 31, 1995. As a percentage of net revenues, selling,
general and administrative expenses decreased from 52.8% in 1995 to 44.4% in
1996. The dollar
18
<PAGE>
increase resulted from additional costs, primarily payroll, required to build
the clinical trials management business. The reduction as a percentage of net
revenues was due to the relatively fixed nature of the expenses, the
Company's focus on monitoring support costs and efficiencies gained through
increased volume.
Depreciation and amortization decreased $0.3 million, or 30.0%, to $0.7
million for the year ended December 31, 1996, compared to the year ended
December 31, 1995. As a percentage of net revenues, depreciation and
amortization decreased from 8.4% in 1995 to 4.6% in 1996. The decrease
primarily was the result of the Company's continuing transition from more
expensive mainframe computers to less expensive personal and server-based
computers.
The Company's effective income tax rate for the year ended December 31,
1996 was 41.9%, compared to 43.2% for the year ended December 31, 1995. The
rate decrease in 1996 was the result of a higher proportion of non-deductible
expenses as a percentage of net income in 1995 compared to 1996.
YEAR ENDED DECEMBER 31, 1995 AND 1994
Net revenues decreased $0.8 million, or 6.2%, to $12.1 million for the
year ended December 31, 1995, compared to the year ended December 31, 1994.
The decrease primarily was attributable to a decrease in the Company's CANDA
revenues, partially offset by an increase in the Company's Phase I clinical
testing revenues. CANDA revenues decreased $1.5 million from 1994 due to a
decrease in the level of new contract signings caused by the Company's larger
pharmaceutical clients' ability to perform such services in-house. Diagnostic
services revenues were relatively flat in 1995 compared to 1994, with
domestic revenues increasing $0.9 million, and international revenues
decreasing $1.1 million. The increase in domestic diagnostic services
revenues was due to an increase in both the volume and the pricing of
diagnostic services. The decrease in international diagnostic services
revenues primarily was the result of two major project cancellations due to
unexpected clinical results. Diagnostic services revenues in 1995 include
$1.2 million of the remaining unamortized non-refundable up-front payments
on certain canceled studies, including $0.2 million at the Company's U.K.
subsidiary.
Direct costs increased $0.6 million, or 17.1%, to $4.1 million for the
year ended December 31, 1995, compared to the year ended December 31, 1994.
As a percentage of net revenues, direct costs increased to 34.2% in 1995 from
26.9% in 1994. The increase was primarily attributable to additional costs
related to the volume increase at the Phase I clinical research unit, in
addition to increased consulting fees paid to the Company's President in
connection with medical interpretations for diagnostic tests. Such consulting
fees increased from $0.5 million in 1994 to $0.8 million in 1995. See
"Certain Relationships" and Notes 7 and 9 of Notes to Consolidated Financial
Statements.
Selling, general and administrative expenses decreased $0.8 million, or
11.1%, to $6.4 million for the year ended December 31, 1995, compared to the
year ended December 31, 1994. As a percentage of net revenues, selling,
general and administrative expenses decreased to 52.8% in 1995 from 56.1% in
1994. The decrease resulted primarily from the decrease in management and
administrative expenses related to CANDA services as the Company reacted to
the reduction in its CANDA business.
Depreciation and amortization decreased $.2 million, or 16.7%, to $1.0
million for the year ended December 31, 1995, compared to the year ended
December 31, 1994. As a percentage of net revenues, depreciation and
amortization decreased to 8.4% in 1995 from 9.3% in 1994. The decrease
primarily was the result of the Company's transition from more expensive
mainframe computers to less expensive personal and server-based computers.
The Company's effective income tax rate for the year ended December 31,
1995 was 43.2%, compared to 41.7% for the year ended December 31, 1994. The
rate increase in 1995 primarily was the result of the U.K. subsidiary's loss,
partially offset by a one-time state tax benefit in connection with a change
in tax law that reinstated the net operating loss carryforward provisions of
that state, allowing the Company to utilize a suspended carryforward from
1993.
QUARTERLY RESULTS
The Company's quarterly operating results have been, and are expected to
continue to be, subject to fluctuations, depending on factors such as the
commencement, completion or cancellation of large contracts, the mix
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of contract services, the progress of ongoing contracts, the timing of
start-up expenses for new offices and the introduction of new products and
services. Because a large percentage of the Company's operating costs are
relatively fixed in the short term, variations in the timing and progress of
large contracts could have a material adverse effect on 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. See "Risk Factors -- Variation in Quarterly Operating
Results; Seasonality."
The following table presents unaudited quarterly results for the Company
for each of the eight most recent fiscal quarters ended December 31, 1996. In
the opinion of the Company, this information includes all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial information set forth for those periods. This quarterly financial
data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. The operating
results for any quarter are not necessarily indicative of the results of any
future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues .................... $3,243 $2,558 $3,194 $3,069 $2,890 $4,271 $4,446 $3,676
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
Costs and expenses:
Direct costs ................. 832 872 1,091 1,329 1,170 1,702 1,743 1,670
Selling, general and
administrative ............. 1,693 1,411 1,496 1,775 1,548 1,655 1,867 1,713
Depreciation and amortization . 292 266 228 227 203 188 165 148
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
Total costs and expenses ........ 2,817 2,549 2,815 3,331 2,921 3,545 3,775 3,531
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
Income (loss) before income taxes
and minority interest ....... 426 9 379 (262) (31) 726 671 145
Minority interest in limited
liability company's (income)
loss ......................... -- -- (21) 69 101 107 95 29
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
Income (loss) before income taxes . 426 9 358 (193) 70 833 766 174
Income tax provision (benefit) .. 169 4 142 (56) 30 359 330 54
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
Net income (loss) ............... $ 257 $ 5 $ 216 $ (137) $ 40 $ 474 $ 436 $ 120
========== ========== =========== ========== ========== ========== =========== ==========
</TABLE>
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The CRO industry generally is not capital intensive. The Company's
principal cash needs relate to funding receivables as client payments
generally lag 45 to 75 days after the invoice date. The Company historically
has funded the increase in receivables through cash generated from
operations.
For the year ended December 31, 1996, the Company's operations generated
$3.0 million in cash, primarily related to the Company's income before
depreciation. At December 31, 1996, the Company had cash and cash equivalents
of $1.5 million and working capital of $1.6 million. For the year ended
December 31, 1995, the Company's operations used $0.8 million of cash,
primarily attributable to a $1.3 million decrease in deferred revenues, as
1995 contract signings did not include significant up-front payments,
partially offset by the Company's income before depreciation for the period
and other changes in working capital accounts. For the year ended December
31, 1994, the Company's operations generated $1.6 million in cash, primarily
attributable to the Company's income before depreciation. During 1994, the
Company acquired property and equipment for $0.8 million. At December 31,
1994, the Company had cash and cash equivalents of $0.4 million and working
capital of $0.1 million.
The Company has a $1.0 million Revolving Credit Facility with First Union
National Bank to be used for working capital purposes at the Company's
discretion, which is collateralized by substantially all of the assets of the
Company. Borrowings under the line are limited to 60% of eligible accounts
receivable, as defined. Interest on any outstanding portion of the line is at
the bank's prime lending rate plus 0.5% (8.75% at December 31, 1996). The
line expires June 30, 1997, and is renewable annually thereafter. The Company
had no outstanding borrowings under the line as of December 31, 1996. The
line contains certain financial and operational covenants, including minimum
levels of tangible net worth and working capital and limitations on sales of
capital stock, acquisitions of other entities, loans to related parties,
dividend payments, sale leaseback transactions, types of investments and
lease payments. In November 1996, the Company received a commitment from its
bank to increase the line to $5.0 and to change the covenants to permit this
offering. This commitment is subject to typical conditions.
The Company has no long-term debt or material long-term obligations other
than its real property leases. See "Business -- Facilities" and Note 9 of
Notes to Consolidated Financial Statements. The Company currently is
budgeting approximately $3.0 million for capital expenditures in 1997.
The Company expects existing cash and cash equivalents, cash flow from
operations, the net proceeds from this offering and borrowings under its line
of credit will be sufficient to meet its foreseeable cash needs for at least
the next two years. Although the Company presently is not a party to any
acquisition agreements or similar arrangements, there may be acquisitions or
other growth opportunities that require additional external financing, and
the Company may from time to time seek to obtain additional funds from public
or private issuances of equity or debt securities. There can be no assurance
that such financings will be available on terms acceptable to the Company.
The Company historically has made distributions to UM, its principal
stockholder, including net distributions of $1,212,000 paid to UM in fiscal
1996. Subsequent to this offering, the Company does not anticipate paying any
cash dividends in the foreseeable future and will not make further
distributions to UM. The Company currently intends to retain future earnings
to fund the growth of its business. See "Dividend Policy."
The Company believes that the effects of inflation and changing prices
generally do not have a material adverse effect on its results of operations
or financial condition.
21
<PAGE>
BUSINESS
GENERAL
Premier Research Worldwide, Ltd. (the "Company") is a clinical research
organization ("CRO") providing a broad range of integrated product
development services to its clients in the pharmaceutical, biotechnology and
medical device industries. The Company complements the research and
development departments of its clients by offering high quality clinical
research services on an as-needed basis, thereby providing a variable cost
alternative to certain fixed costs typically associated with internal product
development. Over the last three years, the Company has built a base of over
85 clients, including 22 of the 25 largest pharmaceutical companies in the
world (on the basis of research and development expenditures as reported by
Med Ad News). During 1996, the Company performed services under 199 contracts
for 60 clients. The Company's services include centralized diagnostic
testing, clinical trial management, clinical data management, biostatistical
analysis, Phase I clinical research, health care economics and outcomes
research and regulatory affairs services.
Throughout its history, the Company has been an innovator in the use of
new technologies that speed product development and regulatory review. For
example, the Company created and filed the first computer-assisted new drug
application ("CANDA") with the United States Food & Drug Administration
("FDA"). The Company has designed its technology to simplify and make more
efficient the collection, transfer, analysis and preparation of clinical
trial data. The Company believes that its proprietary technology links all
facets of clinical development, produces cost advantages, facilitates
superior levels of service, improves the quality of clinical research and
enhances the Company's global capabilities.
All of the Company's services are designed to help clients reduce their
product development time in a cost-effective manner. In 1977 the Company's
predecessor, Cardio Data Systems, began providing diagnostic testing services
used to evaluate the safety and efficacy of new drugs. Today, the Company
provides these services, which include electrocardiograms ("ECGs"), Holter
monitoring, pulmonary function testing, blood and urine sampling, and other
tests, on a centralized basis. To take advantage of the potential synergies
and cross-selling opportunities with its centralized diagnostic testing
services, the Company added clinical trial management capabilities in
September 1995 by forming with PREMIER, Inc. a limited liability company,
which is owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing
of this offering, PREMIER, Inc.'s minority interest in this limited liability
company will be converted into 330,150 shares of Common Stock of the Company.
Although a substantial majority of the Company's net revenues is still
derived from centralized diagnostic testing services, the Company today has
the capacity to provide the full range of CRO services on a global basis.
INDUSTRY BACKGROUND
CROs provide product development services to the pharmaceutical,
biotechnology and medical device industries, and derive substantially all of
their revenues from the research and development expenditures of these
industries. The CRO industry provides a comprehensive range of product
development services, including study design, clinical trial management, data
collection, biostatistical analysis, diagnostic testing and regulatory
services. All these clinical trials services are subject to applicable
government regulations in jurisdictions where the services are provided.
The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited- service providers to a few large,
full-service CROs with global capabilities. Although there are few barriers
to entry for small, limited-service providers, the Company believes that
there are significant barriers to becoming a full-service CRO with global
capabilities. Some of these barriers include the high fixed personnel costs
required to develop broad therapeutic capabilities, the need for
sophisticated management information systems, expertise and technology to
manage complex clinical trials, the ability to access investigators and
specific patient populations in sufficient numbers and the infrastructure
necessary to serve the global needs of clients.
As a result of competitive pressures and economies of scale, the CRO
industry is consolidating. Mergers and acquisitions have resulted in the
emergence of a few large, full-service CROs with the capital, technical and
financial resources to conduct all phases of clinical trials on behalf of
pharmaceutical, biotechnology and medical device companies. The Company
believes that industry trends favor those CROs able to provide a full range
of services.
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<PAGE>
Diagnostic testing services form a part of most new drug studies. While
most CROs sub-contract these services, the Company directly provides a full
array of centralized diagnostic testing services. The Company believes that
the ability to provide a broad range of centralized diagnostic testing
services will become an important factor in competing as a full-service CRO.
INDUSTRY TRENDS
According to R&D Directions magazine, the global pharmaceutical and
biotechnology industries spent an estimated $35 billion in 1995 on research
and development, of which the Company estimates $20 billion was spent on the
type of services offered by the Company. Of this amount, approximately $2.5
billion was outsourced to CROs. The Company believes that the following
trends will lead to increased outsourcing of drug and device development
activities by pharmaceutical, biotechnology and medical device companies:
CLIENT DEMAND FOR FASTER PRODUCT DEVELOPMENT
Pharmaceutical, biotechnology and medical device companies face increased
pressure to bring innovative, patent-protected products to market in the
shortest possible time, while following good clinical practices and adhering
to applicable government regulations. Reducing product development time
maximizes the client's potential period of marketing exclusivity and, in
turn, the potential economic returns for new products. The Company believes
that CROs able to improve the speed and quality of product development,
through appropriate clinical, technological and organizational expertise, are
able to provide more effective product development services than most
pharmaceutical, biotechnology or medical device companies could perform
internally. The Company believes that the practice of some pharmaceutical,
biotechnology or medical device companies to contract with full-service CROs,
rather than separately contracting specific phases of product development to
several different CROs, also may result in faster overall development times.
In addition, the Company believes that its clients increasingly recognize
that the use of technology to produce clinical databases designed to
facilitate regulatory review reduces product development and regulatory
review time.
COST CONTAINMENT PRESSURES
Cost containment pressures on pharmaceutical and medical device companies
arising from market acceptance of generic drugs, managed care pressures to
reduce prices, the development of large purchasing alliances and the use of
formulary restrictions has led to increased scrutiny of product development
expenses. This cost containment pressure has prompted many pharmaceutical and
medical device companies to reduce staffing levels, to centralize research
and development and to increase outsourcing to CROs. In addition, the Company
believes that the increased need to differentiate products and to generate
support for product pricing will aid the growth of pharmacoeconomic and
outcomes research, both for products under development and products already
on the market.
The pharmaceutical and medical device industries are consolidating in
response to the need for cost reductions. Once consolidated, many
pharmaceutical and medical device companies outsource to CROs in an effort to
reduce the high fixed personnel cost associated with internal drug
development. At the same time, the Company believes that pharmaceutical and
medical device companies will continue to develop new products that represent
potential sources of new business for the Company and other CROs.
INCREASINGLY COMPLEX AND STRINGENT REGULATIONS
Increasingly complex and stringent regulatory requirements have added to
the volume of data required for regulatory filings. The pharmaceutical and
biotechnology industries are increasingly outsourcing to CROs to manage the
added work loads created by these regulatory requirements. More stringent
regulatory requirements are being applied to medical devices as well. The
Company believes that this trend will increase the volume of data required
for device regulatory filings and escalate the demand for data collection and
analysis services during the device development process, creating additional
opportunities for CROs.
DEVELOPMENT OF DRUGS FOR COMPLEX DISEASES
The development of an increasing number of drugs targeted at complex
chronic diseases, such as Alzheimer's disease, and drugs that address
specific patient populations, such as stroke patients, has increased
23
<PAGE>
the need for specialized clinical trial management and patient recruitment
services. The Company believes that this increased complexity will result in
greater outsourcing by pharmaceutical, biotechnology and medical device
companies to CROs with particular expertise in certain therapeutic areas and
with the ability to access these specific populations.
BIOTECHNOLOGY INDUSTRY GROWTH
In the last decade, the United States biotechnology industry has grown
rapidly and is developing an increasing number of the new products submitted
for regulatory approval. According to the Pharmaceutical Research and
Manufacturers of America, from 1989 to 1996, the number of biotechnology
products in clinical trials rose from 80 to over 280, an annual compounded
growth rate of approximately 20%. Many biotechnology companies do not have
the necessary staff, expertise or financial resources to conduct clinical
trials on their own, and may not believe that it is in their strategic
interest to create such capabilities. The Company believes that biotechnology
companies provide growth opportunities for CROs. In addition, the
biotechnology industry is conducting more clinical trials outside the United
States, benefiting CROs with international capabilities.
GLOBALIZATION OF CLINICAL RESEARCH AND DEVELOPMENT
Pharmaceutical, biotechnology and medical device companies are
increasingly attempting to expand the market for new products by pursuing
regulatory approvals in multiple countries simultaneously, rather than
sequentially as they have in the past. Expanding the market for a product and
accelerating regulatory review times are particularly important to these
companies because of limited patent lives and the high development costs of
new products. To respond to these pressures and to gain access to the global
marketplace, pharmaceutical, biotechnology and medical device companies are
increasingly outsourcing to CROs that have full-service, international
capabilities and that are able to coordinate concurrent regulatory filings.
NEED FOR SOPHISTICATED DATA MANAGEMENT
During a clinical trial, clients often receive data from multiple sources
in a variety of incompatible formats. To make cost effective, real-time
product development decisions using this data, it is necessary to have
sophisticated data management systems that can more easily analyze the data.
As a result, both clients and government regulators seek real-time,
interactive access to clinical data.
In addition to increasing the volume of data required for filings,
regulatory agencies are also requesting data in electronic form, permitting
more direct independent analysis. For example, the FDA has issued guidelines
encouraging the use of computer-assisted filings in an effort to expedite the
review process. Additionally, the need for pharmacoeconomic and outcomes
research increases the requirements for data. The Company believes that
pharmaceutical, biotechnology and medical device companies may outsource to
CROs with sophisticated data management capabilities to reduce costs and to
access their technological expertise.
THE COMPANY'S STRATEGY
The Company's objective is to accelerate its clients' product development
timelines. The Company's strategies for achieving this objective are
described below. While the Company does not believe it practicable to
quantify or otherwise attempt to assign relative weights to the specific
strategies, the following strategies are listed in what the Company believes
to be their general order of importance.
USE INNOVATIVE TECHNOLOGY TO ACCELERATE AND IMPROVE PRODUCT DEVELOPMENT
The Company believes that its proprietary technology links all facets of
clinical development, produces cost advantages, facilitates superior levels
of service, improves the quality of clinical research and enhances the
Company's global capabilities. The Company has specifically designed its
technology for use by medical personnel rather than information technology
specialists. The Company's technology enables it to create and continually
update its clinical databases as trials progress and allows for interactive
review of data by its clients and governmental regulators. See "Technology."
PROVIDE COMPREHENSIVE PRODUCT DEVELOPMENT SERVICES
The Company believes that CROs able to offer a full range of product
development services will have a competitive advantage because a single
provider increases the speed and accuracy of clinical data collection through
compatible systems and uniform data formats. The Company provides a full
array of clinical research
24
<PAGE>
services, including, centralized diagnostic testing services, clinical trial
management, clinical data management, biostatistical analysis, Phase I
clinical research, health care economics and outcomes research and regulatory
affairs services. The Company believes that offering a full range of
centralized diagnostic services, in addition to its other clinical research
services, provides an additional competitive advantage.
EXPAND CAPACITY FOR GLOBAL PRODUCT DEVELOPMENT SERVICES
The Company believes that the ability to provide global product
development services enhances its ability to compete for large multi-national
business. The Company has an international presence in diagnostic services
and has supported trials in 32 countries out of its Philadelphia, PA and
Peterborough, U.K. offices. Using this experience and infrastructure, the
Company is expanding its clinical trial management and clinical data
management services to areas outside of the United States. As part of this
expansion strategy, the Company intends to hire additional personnel in the
clinical trial management and clinical data management areas for its
Peterborough, U.K. office, and during 1997 it intends to increasingly use the
U.K. office to support international elements of U.S. trials.
DEVELOP ITS STRATEGIC RELATIONSHIP WITH PREMIER, INC.
The Company intends to leverage its strategic relationship with PREMIER,
Inc., the largest voluntary alliance of hospitals in the United States. In
1996, PREMIER, Inc. negotiated on behalf of the alliance, group purchases of
approximately $10 billion of medical devices, supplies and pharmaceuticals.
PREMIER, Inc. actively aids the Company in marketing its services to the
numerous pharmaceutical, biotechnology and medical device companies that sell
products and services to the alliance. In addition, the Company believes that
its access to PREMIER, Inc.'s patient and physician databases provides a
competitive advantage for patient and investigator recruitment. PREMIER, Inc.
is developing a large trial management organization, for which the Company
will be the exclusive CRO. The Company and PREMIER, Inc. also have begun
working together to develop an adverse event reporting system and a drug use
information system, and the Company plans to expand this activity to include
such services to PREMIER, Inc. members and other health systems. See
"Relationship with PREMIER, Inc."
PURSUE STRATEGIC ACQUISITIONS
The Company plans to pursue strategic acquisitions of related businesses
and selected CROs. Acquisition candidates must provide opportunities for
innovation and growth and include businesses that provide complementary
services, expand the Company's geographic presence, provide new therapeutic
expertise, or have complementary client bases. While the Company is actively
seeking such strategic acquisitions, it has no commitments or agreements with
respect to any acquisition.
COMPANY SERVICES
The Company's historic business has been the provision of centralized
diagnostic testing services, which continues to account for a substantial
majority of the Company's net revenues. The Company added clinical trial
management capabilities in September 1995 when it formed with PREMIER, Inc. a
limited liability company owned 65% by the Company and 35% by PREMIER, Inc.
Upon the closing of this offering, PREMIER, Inc.'s interest in this limited
liability company will convert into 330,150 shares of the Company's Common
Stock. Today, the Company provides a full range of clinical research
services. The Company's services include centralized diagnostic testing
services, clinical trial management, clinical data management, biostatistical
services, Phase I clinical research, health care economics and outcomes
research and regulatory affairs services, both in the United States and
internationally.
CENTRALIZED DIAGNOSTIC TESTING SERVICES
Diagnostic tests are employed in clinical trials to measure the effect of
the product on certain body organs and systems, to determine the product's
safety and/or efficacy. Diagnostic testing services provided by the Company
include a variety of diagnostic tests, such as ECGs, Holter monitoring and
clinical laboratory services. These services, which the Company provides on a
centralized basis, are part of most new drug studies. In most cases, the ECG
and transtelephonic monitoring strips, Holter monitoring tapes, imaging and
pulmonary function computer disks and blood and urine samples are delivered
to the Company, which the Company then analyzes or interprets. The Company
provides a broad array of centralized diagnostic testing services, including
the following:
25
<PAGE>
12-lead Electrocardiography. The ECG provides an electronic map of the
heart's rhythm and structure, and typically is performed in most clinical
trials. ECG strips are measured by the Company's analysts utilizing a
digitizing system, and are then interpreted by a Board-certified
cardiologist.
Holter Monitoring. Holter monitoring is a 24 hour continuous ECG recording
of the heart's rhythm on a cassette tape. The Company has provided Holter
monitoring services since 1977.
Transtelephonic Monitoring (TTM). TTM measures the electrical activity of
the heart, typically for 5 to 30 seconds. This data is transmitted over
telephone lines by patients carrying a self-activated transmitting device.
This test typically is utilized in trials seeking to identify symptomatic
heart rhythm events.
Pulmonary Function Testing (PFT). PFT measures the lungs' capacity and
function by having the patient breathe into a spirometer.
Diagnostic Imaging. This service is used in all clinical imaging
modalities, including standard radiography (e.g., x-rays), contrast-enhanced
radiography (e.g., angiography, studies of the gastrointestinal tract),
computed techniques (including CT scanning and MRI), nuclear medicine
techniques and ultrasonography to determine or confirm the condition of a
patient.
Clinical Laboratory Services. The Company performs centralized reference
testing of blood and urine samples for multi-center drug trials and in
support of the Company's Phase I clinical research unit.
CLINICAL TRIAL MANAGEMENT SERVICES
The Company offers complete services for the design, performance and
management of clinical trial programs. The results of clinical trials form
the basis on which regulatory approval is granted for pharmaceutical and
biotechnology products and medical devices. The Company's multi-disciplinary
clinical research group and extensive network of consultants examine a
product's pre-clinical and clinical data to design protocols that will
evaluate the product's safety and efficacy. The Company can then manage every
aspect of clinical trials, including protocol and database design, site and
investigator recruitment, regulatory initiation, patient enrollment, study
monitoring and data collection, medical services and report writing.
The Company's clinical trial management services include the following:
Study Protocol Design. The protocol defines the medical issues the study
seeks to examine and the statistical tests that will be conducted to
determine whether the product is safe and effective or, in some
pharmacoeconomic trials, whether it is cost-effective. Detailed in the
protocol are: (i) the number and type of clinical, laboratory and outcomes
measures that are to be tracked and analyzed, (ii) the number of patients
required to produce a statistically valid result, (iii) the period of time
over which the patients must be tracked and (iv) the dosage and frequency of
drug administration or the program of use of the relevant device.
Site and Investigator Recruitment. The drug or device being tested is
administered to patients by physicians (investigators), at hospitals, clinics
or other locations (sites). Potential investigators are identified by a
number of means. In some cases, the sponsor has pre-selected investigators
with whom it wishes to work. The CRO generally solicits the investigator's
participation in the study. Each trial's success depends on the successful
identification and recruitment of investigators with an adequate base of
patients who meet the requirements of the study protocol. The Company has a
database of several thousand investigators, both within and outside the
PREMIER, Inc. alliance of hospitals. Access to this data allows the Company
to readily identify the sites and investigators able to provide the requisite
patient population.
Patient Enrollment. Investigators find and enroll patients suitable for
each study according to the protocol. The speed with which trials can be
completed is significantly affected by the rate at which patients are
enrolled. Inability to recruit a sufficient number of patients in a timely
manner is a recurring problem and one of the most frequent causes of clinical
trial delays, as well as a major source of cost overruns for the sponsor. The
Company believes that its affiliation with PREMIER, Inc. and the resultant
access to PREMIER, Inc.'s databases should enhance the Company's ability to
quickly and cost-effectively recruit investigators and patients for clinical
trials. The Company believes that its access to PREMIER, Inc.'s patient
databases provides a competitive advantage because it permits the Company to
identify more precisely exclusion and inclusion criteria, thereby maximizing
patient recruitment without jeopardizing patient safety.
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Regulatory Services. Each site is required to document compliance with
regulations governing the conduct of clinical trials, which must be completed
before a trial can be initiated. The PremierResearcho CTIMS (clinical trial
information management system) facilitates this process by providing
real-time tracking of the status of all relevant documents to the Company and
to the client.
Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
customized case report forms ("CRFs") and laboratory reports. Traditionally,
these data are assessed at the study site by specially trained clinical
research associates, also known as CRAs or monitors. The CRAs compare the
data to the medical records at the site to reduce the possibility of fraud or
error. The CRA requires site personnel to correct errors to facilitate
efficient data entry. CRAs visit sites regularly to ensure that the CRFs are
completed correctly and that all data specified in the protocol are
collected. CRFs are reviewed for consistency and accuracy before their data
are entered into an electronic database. In most CROs, these data are
manually entered by personnel who are not trained to evaluate the content of
the data.
The Company also offers its clients the PremierResearcho Fax system, a
data entry system based on a combination of a commercially available
technology (DataFax(TR), Clinical DataFax Systems Inc.) and procedures and
software developed by the Company, which can accelerate the completion,
correction and review of accurate CRF data. The PremierResearcho Fax system
permits a CRF to be filled out by the investigating site, faxed to the
Company and reviewed using the Company's Navigator system within days of a
patient's visit. The data from the fax are automatically downloaded into the
Company's database by means of optical character recognition and the results
are carefully checked both by computer and by trained clinical research
personnel. Any errors are compiled and automatically faxed back to the site
for correction. This process allows a large portion of data errors to be
identified and corrected within a week of a given patient's visit, as opposed
to the traditional correction process that typically requires several weeks
to several months. The Company believes that correcting a large portion of
the errors as the trial progresses decreases the time and expense of clinical
data collections and is a significant competitive advantage.
Medical Services and Report Writing. During the course of a clinical
trial, the Company may provide medical research services, including medical
monitoring of the clinical trials and interpretation of clinical trial
results. In addition, the statistical analysis of the data collected during a
trial, together with other clinical data, are included in a final report
generated for inclusion in a regulatory document. The Company's
PremierResearcho CARD (computer-assisted research and development) technology
allows for immediate correction of data and identification of safety and
efficacy issues that may change the course of the clinical development plan
or accelerate its timeline. The Company believes that this results in
improved medical services.
CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL ANALYSIS
The Company has a history of technological innovation in the provision of
services in drug trials, including creating the first computer-assisted new
drug application ("CANDA") and creating over sixty CANDAs. The Company
believes that its technological expertise provides a competitive advantage in
the provision of clinical data management and biostatistical analysis
services.
Clinical Data Management. The Company's data management professionals
assist in the design of protocols and CRFs, as well as the development of
training manuals for investigational staff to ensure that data are collected
in a systematic format. Once the study protocol has been finalized, CRFs for
recording the desired information must be developed. Different CRFs may be
used at different assessment periods during the course of a trial reflecting
the variety of data collected, and there may be as many as 100 or more CRFs
for each patient in a given study. The Company's technically trained staff
format CRFs compatible with the optical character recognition capabilities of
the Company's PremierResearcho Fax system. CRFs, when utilized with the
PremierResearcho Fax system, increase the accuracy and reduce the time and
cost of data processing during the trial. Databases are designed according to
the analytical specifications of the project and the particular needs of the
client. The Company provides clients with data listings, data review and
coding, data entry, database verification and editing and problem data
resolution. In addition, the Company offers its clients the ability to
compile the clinical data for an electronic regulatory submission, such as a
CANDA.
Biostatistical Analysis. The Company's biostatistics professionals provide
biostatistical consulting, database design, data analysis and statistical
reporting. These professionals develop and review protocols, design
appropriate analysis plans and design report formats to address the
objectives of the study protocol and the cli-
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ent's individual objectives. The Company's programming staff and
biostatisticians work together to perform appropriate analyses and produce
tables, graphs, listings and other applicable displays of trial results. In
addition, biostatisticians can assist clients in government regulatory
proceedings and in legal proceedings.
PHASE I CLINICAL RESEARCH
The Company maintains a 28-bed, monitored clinical research unit in which
it conducts Phase I clinical research studies. This unit focuses on complex
Phase I trials that require diagnostic testing such as ECG, Holter monitoring
and similar services.
HEALTH CARE ECONOMICS AND OUTCOMES RESEARCH
In response to the increased need for pharmacoeconomic and outcomes data
following product approval, the Company plans to offer a variety of health
information services using its expertise in data collection, acquisition,
monitoring, and auditing. The Company intends to design and conduct
pharmacoeconomic, technology assessment, and clinical outcomes studies for
pharmaceutical clients as well as for PREMIER, Inc. and its affiliated
hospitals and institutions. PREMIER, Inc. and the Company are developing an
adverse event reporting system and a drug use information system. The Company
plans to expand this activity to include such services to PREMIER, Inc.
members and other health systems.
REGULATORY AFFAIRS SERVICES
The Company provides comprehensive regulatory product registration
services for pharmaceutical, biotechnology and medical device products in
North America, including regulatory strategy formulation, document
preparation and intermediation with the FDA and other regulatory agencies.
The Company reviews published literature, assesses the scientific background
of a product and the competitive and regulatory environment, identifies
deficiencies and defines the steps necessary to obtain registration in the
most expeditious manner. Through this service, the Company helps its clients
determine the feasibility of developing a particular product or product line.
TECHNOLOGY
The Company's technology is designed to accelerate product development and
to improve the quality of clinical research by providing superior data
handling that facilitates analysis. Its technology is developed for clinical
research personnel, rather than information technology specialists, enabling
medical reviewers to make timely and accurate decisions during the product
development process. The Company's software is available on multiple
platforms such as Microsoft Windows, Macintosh, and DOS, which facilitates
integration with the wide variety of systems used by its clients.
The Company believes that its technology is attractive to its clients'
clinical groups, since it includes "user-friendly" tools specifically
designed for clinical research personnel. The Company believes that this
provides a competitive advantage, since this group is influential in CRO
selection.
The Company has a history of technological innovation in supporting
clinical trials, including:
o First electronic transfer of centralized diagnostic data, eliminating
manual key punching (1979).
o First multi-site remote data entry system used by the FDA, partially
replacing site monitoring (1984).
o First computer-assisted new drug application, shortening the regulatory
review process (1985). The Company has since created over 60 full data
review CANDAs, which it believes constitutes more CANDAs of this kind
than those created by all the other major CROs combined.
o First NDA Day, a one day intensive session between the FDA and the
product's sponsor using the interactive features and real-time data
query capabilities of the CANDA (1988).
o First interactive CANDA, providing for the interactive review of
clinical data by the FDA, further accelerating the regulatory review
process (1993).
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The Company's technology includes:
PremierResearch o Navigator. Navigator is the Company's proprietary, highly
interactive software system designed specifically for the review, analysis
and submission of clinical data in the new drug or device application
process. The Company's role in the first CANDA submission, the first
interactive CANDA and the first NDA Day, which are described above, are
examples of uses of the technology that has evolved into Navigator. Navigator
is designed to allow medical and regulatory personnel to interactively review
and analyze research data. It is a "user-friendly" software that permits
medical personnel to: subset data; better analyze and understand clinical
trial results, including adverse events and identification of outliers;
graphically display clinical research data; and respond more quickly to
regulatory review questions. The Company believes that use of its Navigator
system speeds both the product development and regulatory review process,
which allows the client to prioritize, change or potentially terminate
development of the product.
The Company markets the Navigator system for single clinical studies or
single laboratory datasets under the name PremierResearch o CARD
(computer-assisted research and development). Immediate review of clinical
information to detect errors in trial conduct is possible with
PremierResearch o CARD, allowing for rapid correction of data and
identification of safety and efficacy issues that may change the course of
the clinical development plan or accelerate its timeline.
The Company markets the Navigator system for electronic regulatory
submissions for pharmaceutical clients under the name PremierResearch o CANDA.
PremierResearch o CANDA allows for faster and more effective medical review
and analysis of the submission by the product's sponsor and by regulatory
authorities than conventional tools. Navigator also may be used for the
regulatory submission of biologic and medical device clinical data.
PremierResearch o Enterprise. Enterprise is a proprietary information
management system that permits efficient and timely delivery of diagnostic
and clinical trial data to the user. Enterprise integrates an entire set of
data from an individual patient in a clinical trial. This information is then
available for on-line review by project management, diagnostic services and
clinical research personnel. Enterprise also provides for flexible encoding
and transfer of the clinical information to the client, based on standardized
data specifications or the client's own specifications. The data can be
provided to the client in a variety of data and media formats, as well as
bundled with Navigator, to allow for immediate interactive review. The
Company believes that Enterprise facilitates and speeds product development
by making it easier for the client to collect, store, retrieve and utilize
the massive amounts of data traditionally collected in clinical trials.
PremierResearch o Fax. The Company has developed an overall data-handling
process based on the use of a commercial technology (DataFax(TM), Clinical
DataFax Systems Inc.) supplemented by validation procedures and export
software and procedures allowing integration into the Company's proprietary
Navigator system in an overall system referred to as the PremierResearch o Fax
process. This system receives CRFs, electronically enters the information
into databases, electronically queries the site to correct data errors and
inconsistencies, and compiles the resultant database for rapid export into
the Navigator system for clinical review. The Company believes that the
PremierResearch o Fax system can accelerate the collection and correction of
the CRF, which is filled out by investigators at a site and faxed to the
Company within days of the patient visit. The data from the fax is
automatically downloaded into the Company's database by means of optical
character recognition and the results are carefully checked by both the
computer and trained clinical research personnel. Any errors are compiled and
automatically faxed back to the site for correction. This process allows a
large portion of data errors to be resolved within a week of a given
patient's visit, as opposed to the traditional correction process that
typically requires several weeks to several months. The Company believes that
correcting a large portion of errors as the trial progresses decreases the
time and expense of clinical data collection.
The Company is in the early stages of developing a remote pen-based data
entry system that permits two-way interaction between the Company and the
site (PremierResearch o Pad), and an interactive voice response system for
automated telephone data entry (PremierResearch o Voice), which will augment
PremierResearch o Fax.
PremierResearch o CTIMS. The Company's proprietary project management
software, PremierResearch o CTIMS (clinical trial information management
system), manages the clinical trial process. CTIMS automates many laborious
tasks of trial management using software modules for various applications.
These modules allow for regulatory and other document tracking; investigator,
site and patient recruitment and tracking; CRA monitoring; and contract
management.
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RELATIONSHIP WITH PREMIER, INC.
In September 1995, the Company formed a limited liability company with
PREMIER, Inc., which is owned 65% by the Company, for the provision of
clinical research services. Pursuant to an agreement between the parties,
PREMIER, Inc. contributed to the limited liability company cash in the amount
of $300,000, certain other assets and certain contracts, and the Company
agreed to manage the limited liability company and to fund its working
capital requirements for a three year period. Upon the closing of this
offering, PREMIER, Inc.'s interest in the limited liability company will,
pursuant to the 1995 agreement, convert into 330,150 shares of the Company's
Common Stock. After such conversion, the limited liability company will be
wholly-owned by the Company.
PREMIER, Inc. is a voluntary healthcare alliance of 1,800 affiliated
hospitals and institutions which is the result of the merger of the Premier
Health Alliance, Inc., American Healthcare Systems, Inc. and SunHealth
Alliance, Inc. It is the largest voluntary healthcare alliance in the United
States, representing over 300,000 hospital beds throughout the United States.
PREMIER, Inc. negotiated, on behalf of the alliance, group purchases of
approximately $6 billion and $10 billion of medical devices, supplies and
pharmaceuticals in 1995 and 1996, respectively.
The agreement between PREMIER, Inc. and the Company gives the Company
access to information about PREMIER, Inc.'s pharmaceutical contacts as well
as access to PREMIER, Inc.'s databases of patients and physicians for use in
connection with the Company's clinical research studies. The Company, in
turn, has agreed that PREMIER, Inc.'s affiliated hospitals will be utilized
as investigator sites for these studies; however, the Company is not
restricted from using investigator sites outside the PREMIER, Inc. alliance.
In addition to these contractual provisions, the Company seeks to leverage
its strategic relationship with PREMIER, Inc. in the following ways:
o PREMIER, Inc. has agreed to introduce the Company to pharmaceutical and
device companies that sell or propose to sell products to the alliance,
and to include a requirement in all of its drug and device purchase
agreements that such companies will consider utilizing the Company's
services in their clinical trials. For this purpose, the Company has
assigned one salesperson to work exclusively at PREMIER, Inc.'s
principal purchasing office and to participate in group purchasing
meetings.
o PREMIER, Inc., with the assistance of the Company, is developing a large
trial management organization ("TMO"), for which the Company will be the
exclusive CRO. The TMO will standardize and coordinate investigators,
clinical sites and patient recruitment and form a central institutional
review board ("IRB"). The Company believes that its involvement with
this TMO will facilitate the development of close working relationships
with a large nationwide network of investigators, producing improvements
in the quality, speed and cost of the clinical development process.
o The Company has access to PREMIER, Inc.'s databases. This access permits
the Company to independently estimate the available patient population
in a given area and to assess whether an individual investigator has
direct access to a suitable patient population. Knowing whether a given
investigator can supply a sufficient number of patients meeting the
inclusion and exclusion criteria of a particular protocol is an
important competitive advantage, since patient enrollment is a critical
factor in a successful trial. Additionally, the Company will use its
access to this database to generate pharmacoeconomic and outcomes data
for its clients.
o The Company and PREMIER, Inc. are collaborating on the development of an
adverse events reporting system and drug use information system. It is
expected that these systems will be used by PREMIER, Inc.'s affiliated
hospitals and subsequently may be marketed to other hospitals.
The Company believes that PREMIER, Inc. benefits from its relationship
with the Company in a variety of ways. The Company's commitment to utilize
PREMIER, Inc.'s affiliated hospitals in its studies may constitute an
incentive for hospitals to join the PREMIER, Inc. alliance, due to both the
fees received by the hospital and the prestige of being involved in clinical
research. The statistical and data management services being developed by the
Company also are expected to provide helpful information and expertise to
PREMIER, Inc. in making its purchasing decisions.
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SALES AND MARKETING
The Company's marketing strategy is to focus on prospective clients whose
product development projects are complex. The Company's sales staff maintains
direct contacts and relationships with clients and prospective clients. Two
senior salespeople with substantial experience in the marketing of large
trials have recently joined the Company. The Company believes that a large
percentage of its clients have been referred by others in the industry, and
its salespeople seek to foster such referrals.
The Company believes that its technology is attractive to the clinical
staff of its clients because of its "user-friendly" tools specifically
designed for clinical research personnel. The Company believes that this
provides it with a competitive marketing advantage, since such personnel are
influential in CRO selection.
While the Company seeks new clients, it also attempts to increase repeat
business with existing clients by meeting high quality and timely performance
standards and through proactive project management. Approximately 80% of net
revenues in 1996 were derived from clients for which the Company previously
has performed services. When the Company increases the amount of business
with an existing client, both benefit from the efficiencies of using proven
systems already in place for study conduct and data delivery.
The Company intends to use its affiliation with PREMIER, Inc. to gain
access to pharmaceutical, biotechnology and medical device companies that
sell or propose to sell products to PREMIER, Inc. For this purpose, the
Company has assigned one salesperson to work exclusively at PREMIER, Inc.'s
principal purchasing office and to participate in group purchasing meetings
to directly market the Company's services.
The Company uses direct mailings of brochures and marketing materials to
existing and prospective clients and advertises in trade journals and similar
publications. The Company also attends and exhibits at selected trade shows
in the United States and Europe.
CLIENTS
Over the last three years, the Company has provided services to 22 of the
top 25 pharmaceutical companies in the world as ranked by 1995 research and
development expenditures as reported by Med Ad News. During 1996,
pharmaceutical companies accounted for approximately 88% of the Company's net
revenues. In the future, as the Company expands its clinical research
services, it expects that biotechnology and medical device companies will
account for a more significant percentage of its net revenues. During 1996,
the Company provided services under 199 contracts to 60 clients, including
some of the largest United States, European and Japanese pharmaceutical
companies. In 1994, Searle and Bristol Meyers Squibb accounted for
approximately 17.0% and 11.5% of the Company's net revenues respectively and
in 1995 Pfizer, Bristol Meyers Squibb and Rhone Poulenc Rorer accounted for
approximately 15.0%, 12.1% and 10.0% of the Company's net revenues
respectively. During 1996, Sandoz and UCB accounted for approximately 15.3%
and 10.1% of the Company's net revenues respectively. The loss of any
significant client could have a material adverse effect on the Company's net
revenues. See "Risk Factors -- Dependence on Certain Industries and Clients"
and "Risk Factors -- Loss or Delay of Contracts."
BACKLOG
Backlog consists of anticipated net revenues from work under letters of
intent and contracts that have been signed but not yet completed. Once work
under a contract or letter of intent commences, revenues are generally
recognized over the life of the contract, which usually lasts for anywhere
from one month to two years. Backlog excludes anticipated net revenues from
projects for which the Company has commenced work but for which a definitive
contract or letter agreement has not been executed. Backlog at December 31,
1996 was approximately $13.3 million.
The Company believes that its backlog as of any date is not necessarily a
meaningful predictor of future results. Clinical studies under contracts
included in backlog are subject to termination or delay. Clients terminate or
delay contracts for a variety of reasons including, among others, the failure
of products being tested to satisfy safety requirements, unexpected or
undesirable clinical results of the product, the client's decision to forego
a particular study, insufficient patient enrollment or investigator
recruitment or production problems resulting in shortages of the drug. Most
of the Company's contracts are terminable without cause upon 30 to 90 days
notice by the client. The Company typically is entitled to keep any advance
payment and receive certain fees for winding down a study that is terminated
or delayed and, in some cases, a termination fee. See "Risk Factors --
Dependence on Certain Industries and Clients" and "Risk Factors -- Loss or
Delay of Contracts."
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COMPETITION
The decision of whether to outsource can place the Company in competition
with a client's in-house development group. However, once the decision is
made to outsource, the Company primarily competes against other full service
CROs and, to a lesser extent, universities and teaching hospitals. Some of
these competitors have substantially greater capital, technical and other
resources than the Company. Large CROs with which the Company competes
include ClinTrials Research, Inc., Covance, Inc., IBAH, Inc., Pharmaceutical
Product Development, Inc., PAREXEL International Corporation and Quintiles
Transnational Corporation. CROs generally compete on the basis of experience,
medical and scientific expertise in specific therapeutic areas, the quality
of clinical research, the ability to organize and manage large-scale trials
on a global basis, the ability to manage large and complex medical databases,
the ability to provide statistical and regulatory services, the ability to
recruit investigators and patients, the ability to integrate information
technology with systems to improve the efficiency of clinical research, an
international presence, financial viability and price. The Company believes
that it competes favorably in all of these areas.
The CRO industry is highly fragmented, with participants ranging from
several hundred small, limited-service providers to a few large,
full-service CROs with global operations. The trend toward CRO industry
consolidation has resulted in heightened competition among the CROs for
clients and acquisition candidates. In addition, consolidation within the
pharmaceutical industry, as well as a trend by pharmaceutical companies to
outsource to fewer CROs, has heightened competition among CROs for contracts
from that industry. The Company believes major pharmaceutical, biotechnology
and medical device companies tend to develop preferred provider relationships
with full-service CROs, effectively excluding smaller CROs from the bidding
process. The Company may find reduced access to certain potential clients due
to these arrangements.
GOVERNMENT REGULATION
Human pharmaceutical products, biological products and medical devices are
subject to rigorous regulations by the federal government, principally the
FDA, and foreign governments if products are tested or marketed abroad. In
the United States, the FFDCA governs clinical trials and approval procedures
as well as the development, manufacturing, safety, labeling, storage, record
keeping and marketing of pharmaceutical products and medical devices.
Biological products are subject to similar regulation under both the FFDCA
and the Public Health Service Act. Because the Company offers services
relating to the conduct of clinical trials and the preparation of the
marketing applications, the Company is obligated to comply with applicable
regulatory requirements governing these activities, both in the United States
and in foreign countries. Requirements governing these activities vary from
country to country.
In the United States, the Company is subject to inspection by the FDA to
evaluate compliance with applicable requirements governing the conduct of
clinical trials. If the FDA discovers that the Company has violated
applicable requirements relating to the conduct of clinical trials or the
preparation of marketing applications, discussed in more detail below, the
FDA may take enforcement action such as issuance of a Warning Letter;
termination of a clinical study; refusal to approve clinical trial or
marketing applications or withdrawal of such applications; injunction;
seizure of investigational products; civil penalties; or recommending
criminal prosecutions. Pursuant to the FDA's fraud policy, the FDA generally
will refuse to approve a pending clinical trial or marketing application, or
withdraw such application, if it discovers conduct such as submission of
fraudulent applications, making untrue statements of material facts, or
giving or promising bribes or illegal gratuities. The Company also is subject
to both mandatory and permissive debarment by FDA, which would prohibit the
Company from assisting in the submission of abbreviated new drug applications
for generic drugs. Conviction of criminal conduct relating to the development
or approval of an abbreviated drug application is a prerequisite to such
debarment. Such sanctions could have a material adverse effect on the
Company. The Company believes that it is in material compliance with all
applicable governmental regulations.
The following is a summary of the specific requirements relating to the
clinical testing and approval of drugs, biologics and devices follows.
Drug Development and Approval in the United States -- An Overview
Drug products marketed in the United States usually require approval by
the FDA before marketing. The steps required before a new prescription drug
may be marketed in the United States include (i) preclinical labo-
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ratory and animal tests; (ii) the submission to the FDA of an Investigational
New Drug application ("IND"), which must be evaluated and found acceptable by
the FDA before human clinical trials may commence; (iii) adequate and
well-controlled human clinical trials to establish the safety and
effectiveness of the drug; (iv) the submission of a New Drug Application
("NDA") to the FDA; and (v) FDA approval of the NDA. The Company's services
relate to steps (ii) through (iv) of this process.
Clinical trials to evaluate the safety and effectiveness of drugs are
generally conducted in three sequential phases that may overlap. In Phase I
(typically lasting from 6 months to one year), the drug is introduced into a
small number of human subjects, usually healthy volunteers, to determine
safety (adverse effects), dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. Phase II (typically lasting from one to
two years) involves clinical trials in a limited patient population to
determine the effectiveness of the pharmaceutical for specific targeted
indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. After a compound has been
shown in Phase II trials to have an acceptable safety profile and probable
effectiveness, Phase III trials (typically lasting from 2 to 3 years) are
undertaken in an expanded patient population at multiple clinical sites to
further evaluate clinical effectiveness and safety within an expanded patient
population.
Prior to commencing each phase of a clinical trial, a drug sponsor must
submit an IND application to the FDA. The IND application must contain, among
other things, protocols for each study; a description of the composition,
manufacture, and control of the drug substance and the drug product;
information about preclinical pharmacological and toxicological studies of
the drug; and a summary of previous human experience with the investigational
drug. Unless the FDA objects, the IND will become effective 30 days following
its receipt by the FDA. If the FDA has concerns about the proposed clinical
trial, it may delay the trial and require modifications to the trial protocol
prior to permitting the trial to begin. In addition, all clinical trials of
new drugs must obtain approval of the institutional review board ("IRB") at
each institution at which the trial is conducted. The IRB reviews the study
to verify the method of experimentation and safety, and to ensure that
subjects give their informed consent to participate in the clinical trial.
When results from a Phase II or Phase III study show promise in the
treatment of a serious or immediately life-threatening disease in patients
for whom no comparable or satisfactory alternative drug or other therapy
exists, the FDA may allow the manufacturer to make the new drug available to
a larger number of patients through the regulated mechanism of a treatment
IND. Although less scientifically rigorous than a controlled clinical trial,
the treatment IND facilitates availability of promising drugs to ill patients
prior to general marketing and also allows sponsors to obtain additional data
on the drug's safety and effectiveness. In general, treatment use of an
investigational drug is conditioned upon compliance with safeguards of the
IND process such as informed consent, IRB approval, and other requirements.
Once a clinical trial with proper IRB and IND approval is commenced, the
conduct of the clinical trial is governed by extensive FDA regulations.
Clinical trial sponsors (i.e., the persons who initiate the trials but do not
actually conduct the investigations) are responsible for the selection of
qualified investigators, providing investigators with protocols and other
necessary information, monitoring the investigation, reporting changes in
study protocol to the FDA, reporting to the FDA and investigators safety
reports of serious and unexpected adverse experiences associated with use of
the drug, and maintaining records concerning the study. To the extent that
the Company performs these functions on behalf of a drug sponsor, the Company
must comply with these requirements.
Upon completion of clinical trials that demonstrate the safety and
efficacy of a new drug, a drug sponsor must submit an NDA and obtain FDA
approval of an NDA prior to marketing the drug. The NDA must include
information pertaining to the composition, manufacture, and specification of
the drug substance; a description of the preclinical studies; a description
of the human pharmacokinetic data and human bioavailability data;
descriptions of clinical investigations; a statistical evaluation of the
clinical data; and proposed labeling. Submission of an NDA does not assure
the FDA approval for marketing. The application review process generally
takes at least two to three years to complete, and the FDA may require
additional data or other studies during the course of its review.
Notwithstanding the submission of such data, the FDA ultimately may decide
that the application does not satisfy its regulatory criteria for approval.
Finally, the FDA may require additional clinical testing following NDA
approval to confirm safety and efficacy (Phase IV clinical tests). No
assurance exists that clinical studies conducted will provide sufficient
information to support the filing of an NDA.
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Clinical trials may be conducted outside of the United States without an
IND. The FDA will accept data from such foreign clinical trials to support
clinical investigations in the United States and/or approval of an NDA only
if the agency determines that the trials are well-designed, well-conducted,
performed by qualified investigators, and conducted in accordance with
internationally recognized ethical principles.
Less extensive approval requirements can apply to generic drugs.
Abbreviated requirements are applicable to drugs that are, for example,
either bioequivalent to brand name "pioneer" drugs, or otherwise similar to
pioneer drugs, such that all the safety and efficacy studies previously
conducted on the pioneer product need not be repeated for approval. Changes
in approved drug products, such as in the delivery system, dosage form or
strength, can also be the subject of abbreviated application requirements.
Biological Product Development and Approval in the United States -- An
Overview
Like drugs and medical devices, biological products (i.e., those derived
from living materials of humans, plant, animals or microorganisms, such as
vaccines) are subject to extensive regulation by FDA. Biological products are
regulated primarily under the Public Health Service Act, but are also subject
to regulation under the FFDCA.
While some biological products may be approved for marketing via a new
drug application ("NDA"), most manufacturers must obtain two licenses from
FDA prior to marketing a biological product: a license for the manufacturing
establishment, and a product license. In order to obtain a product license, a
manufacturer must obtain FDA approval of a product license application
("PLA"). Similar to an NDA, a PLA must contain the following information:
nonclinical and clinical data demonstrating the product's safety, purity and
potency; a description of the manufacturing methods; data regarding the
product's stability; test results for the lots represented by the submitted
samples, and samples of the product and its labeling.
The sponsor of a clinical trial involving a biological product must file
an IND with FDA, unless the product is exempt from such requirement. Once the
IND becomes effective, the conduct of the clinical trial is governed by the
same regulatory requirements governing drug clinical trials. Thus, to the
extent that the Company performs these functions on behalf of the biological
product sponsor, the Company must comply with these requirements.
Device Development and Approval in the United States -- An Overview
The FFDCA and regulations thereunder require that, unless exempted by
regulation, all products meeting the statutory definition of "device" receive
the FDA clearance of a premarket notification (510(k) submission or FDA
approval of a premarket approval ("PMA") application prior to marketing in
the United States. Generally, devices are distinguished from drugs through
the characteristic of acting or achieving their effect through means other
than pharmacologic action.
The FDA categorizes medical devices into three regulatory classifications
(Class I, II, and III) on the basis of controls deemed reasonably necessary
to ensure their safety and effectiveness. Class I devices are subject to
general controls (e.g., labeling, premarket notification, and adherence to
good manufacturing practice regulations for medical devices), and Class II
devices are subject to general controls and special controls (e.g.,
performance standards, postmarket surveillance, patient registries and FDA
guidelines). Class III devices (generally including life-sustaining,
life-supporting, or implantable devices, or new devices that have been found
not to be substantially equivalent to a legally marketed predicate device)
are those which must receive premarket approval ("PMA") prior to marketing.
Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance or approval through either a 510(k)
premarket notification or a PMA. A 510(k) clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed "predicate" device (i.e., a Class I or II
medical device, or to a Class III medical device for which the FDA has not
called for a PMA). The 510(k) must include, among other information, proposed
labeling and advertisements; data demonstrating substantial equivalence to a
claimed predicate; and any additional information regarding the device
requested by the FDA that is necessary to make a finding as to substantial
equivalence to a predicate device. The FDA can require clinical studies to
demonstrate that a device is as safe and effective as the predicate device.
The FDA recently has been requiring a more rigorous demonstration of
substantial
34
<PAGE>
equivalence than in the past. It generally takes from four to twelve months
from submission of a 510(k) to obtain 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information or
data are needed before a substantial equivalence determination can be made.
If a manufacturer cannot establish that a proposed device is substantially
equivalent to a legally marketed predicate device, the manufacturer must seek
premarket approval of the proposed device from the FDA through the submission
of a PMA application. A PMA application must be supported by extensive data,
including nonclinical laboratory studies or animal testing; clinical trial
data; and a bibliography of all published reports reasonably known to the
manufacturer concerning safety or effectiveness. In addition, the PMA must
include a full description of the device and its components; the principle of
operation of the device; a full description of the methods, facilities and
controls used for manufacturing, processing, packing, storage and, where
appropriate, installation; and proposed labeling. Upon receipt of a PMA
application, the FDA makes a threshold determination as to whether the
application is sufficiently complete to permit a substantive review. If the
FDA determines that the PMA application is sufficiently complete to permit a
substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth
review of the PMA. An FDA review of a PMA application generally takes one to
two years from the date the PMA application is accepted for filing, but may
take significantly longer. The review time is often significantly extended by
the FDA asking for more information or clarification of information already
provided in the submission. During the review period, an advisory committee,
typically a panel of clinicians, will likely be convened to review and
evaluate the application and provide recommendations to the FDA as to whether
the device should be approved. The FDA is not bound by the recommendations of
the advisory panel. If the FDA's evaluation of the PMA application is
favorable, the FDA will issue either an approval letter or an approvable
letter, which usually contains a number of conditions which must be met in
order to secure final approval of the PMA. When and if those conditions have
been fulfilled to the satisfaction of the FDA, the FDA will issue a PMA
approval letter, authorizing marketing of the device for certain indications.
If the FDA's evaluation of the PMA application is not favorable, the FDA will
deny approval of the PMA application or issue a "not approvable" letter. The
FDA may also determine that additional clinical trials are necessary, in
which case PMA approval may be delayed for several years while additional
clinical trials are conducted and submitted in an amendment to the PMA.
Human clinical trials are always required to support a PMA application,
and may be required to support a 510(k) submission. If the device involved
presents a "significant risk" to the patient, the clinical trial sponsor must
obtain IRB approval for the study and must file an investigational device
exemption ("IDE") application with the FDA prior to commencing human clinical
trials. The IDE application must include reports of prior clinical and
nonclinical investigations of the device; an investigational plan; a
description of the methods, facilities, and controls used for the
manufacture, processing, packing, storage, and, where appropriate,
installation of the device; information concerning the investigators
participating in the study and the IRB's that approved the study; copies of
labeling; copies of forms to be provided to subjects to obtain informed
consent; and other relevant information requested by the FDA. As with IND
applications, the IDE will become effective 30 days following its receipt by
the FDA unless the FDA objects to the application. If the FDA has concerns
about the proposed clinical trial, it may delay the trial and require
modifications to the trial protocol prior to permitting the trial to begin.
Clinical trials involving a device that presents a "nonsignificant risk" to
the patient may begin after the sponsor has obtained approval by one or more
appropriate IRB's, but not the FDA. Such investigations are, nevertheless,
subject to informed consent requirements, monitoring by the sponsor, and
record keeping requirements.
As discussed with respect to clinical studies involving drugs, the FDA
strictly regulates the conduct of all clinical trials involving medical
devices, regardless of whether the clinical trial is conducted under an IDE.
The sponsor of a clinical study involving a device is responsible for
ensuring that proper IRB and/or FDA approval is obtained prior to commencing
the study, selecting qualified investigators and informing investigators of
all necessary information, monitoring the investigation, informing the IRB
and the FDA about significant new information pertaining to the
investigation, and maintaining accurate and current records concerning the
investigation. The sponsor must evaluate unanticipated adverse effects and
terminate the study if it presents an unreasonable risk to subjects. To the
extent that the Company performs these functions on behalf of a
investigational device sponsor, the Company must comply with these
requirements.
35
<PAGE>
The FDA will accept foreign clinical studies involving devices that are
not conducted under an IDE if the data are valid and the investigator has
conducted the studies in conformance with the "Declaration of Helsinki" or
the laws and regulations of the country in which the research is conducted,
whichever accords greater protection to human subjects. Foreign clinical data
that meets these requirements may form the sole basis for PMA approval if the
foreign data are applicable to the United States population and medical
practice, studies were performed by clinical investigators of recognized
competence, and (if necessary) the FDA validates the data through an on-site
inspection or other means.
CLIA Requirements -- An Overview
The Company's clinical laboratory services are subject to the requirements
of the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). This law
requires all laboratories to meet specified standards in the areas including
personnel qualification, administration, participation in proficiency
testing, patient test management, quality control, and quality assurance. In
addition, laboratories such as the Company's clinical laboratory must obtain
appropriate certification under CLIA. The Company has obtained such
certification for its clinical laboratory.
Under CLIA, the Company's clinical laboratory is subject to inspection by
the United States Department of Health and Human Services or a designee.
Violations of the CLIA requirements may result in sanctions including
suspension, limitation, or revocation of certification; enjoinment of
laboratory activities; civil money penalties; or criminal prosecution for
intentional violations. There can be no assurance that the regulations under,
and future administrative interpretations of, CLIA will not have an adverse
impact on the Company's services in this area.
Foreign Regulatory Requirements
The Company also is subject to foreign regulatory requirements governing
clinical trials and product approval requirements. Whether or not the FDA
approval has been obtained to conduct a clinical trial or market an
FDA-regulated product, approval by comparable regulatory authorities in
foreign countries usually must be obtained to conduct such activities in
those countries. See "Risk Factors -- Dependence on Government Regulation."
POTENTIAL LIABILITY AND INSURANCE
The Company attempts to manage its risk of liability for personal injury
or death to patients from administration of products under study through
contractual indemnification provisions with clients and through insurance
maintained by the Company and its clients. Contractual indemnification
generally does not protect the Company against certain of its own actions,
such as negligence. The terms and scope of such indemnification vary from
client to client and from trial to trial. Although most of the Company's
clients are large, well capitalized companies, the financial viability of
these indemnification provisions cannot be assured. Therefore, the Company
bears the risk that the indemnifying party may not have the financial ability
to fulfill its indemnification obligations. The Company also maintains
professional liability insurance in the amount of $1 million per claim and in
the aggregate and an umbrella policy of $3 million. 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 beyond the scope of an
indemnity provision or beyond the scope or level of insurance coverage
maintained by it or the client or where the indemnifying party does not
fulfill its indemnification obligations. See "Risk Factors -- Potential
Liability."
INTELLECTUAL PROPERTY
The Company's services have been enhanced by significant investment in
information technology. The Company's information services group is committed
to achieving operating efficiencies through technical advances. The Company
has developed certain computer software and technically derived procedures
that it seeks to protect through a combination of contract law, trademarks,
and trade secrets. Although the Company does not believe that its
intellectual property rights are as important to its results of operations as
are such factors as technical expertise, knowledge, ability and experience of
the Company's professionals, the Company believes that its technical
capabilities provide significant benefits to its clients.
36
<PAGE>
EMPLOYEES
At December 31, 1996, the Company had 130 employees. At the U.S. location
in Philadelphia, PA, the Company had 114 employees (93 full-time, 21
part-time). At the U.K. location in Peterborough, the Company had 16
employees (all full-time). On December 31, 1996, 20 employees held M.D.,
Ph.D. or other masters or post-graduate degrees. The Company believes that
its relations with its employees are good.
FACILITIES
The Company leases all of its facilities. The Company's principal offices
are located in Philadelphia, PA, where it leases approximately 35,000 square
feet under a lease expiring in 2003. This facility is owned by UM Holdings,
Ltd. See "Certain Relationships." The Company also maintains an office of
approximately 9,000 square feet in Peterborough, U.K. The Company believes
that the leases generally reflect market rates in their respective geographic
areas.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names, ages and titles of the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- ----- --------
<S> <C> <C>
Joel Morganroth, M.D. 51 President and Chief Executive Officer
Glenn Cousins 39 President, Diagnostic Services
Christopher C. Gallen, M.D., Ph.D. 46 President, Clinical Research Services
David A. Evans 39 Sr. Vice President and Chief Technical Officer
Fred M. Powell 35 Vice President, Finance and Administration
Carol Miller 38 Sr. Vice President, Business Development
Joan Carter 53 Chairman, Director
John J. Aglialoro 53 Director
Arthur Hull Hayes, Jr., M.D. 63 Director
Arthur W. Hicks, Jr. 38 Director
Jerry D. Lee 60 Director
Philip J. Whitcome, Ph.D. 48 Director
Connie Woodburn 42 Director
</TABLE>
Joel Morganroth, M.D., President and Chief Executive Officer. Dr.
Morganroth has served as the Chief Executive Officer of the Company since
1993 and has consulted for the Company since 1976. Dr. Morganroth was a
Professor of Medicine and Pharmacology at Hahnemann University from 1982 to
1992, and served as a Director of Cardiac Research and Development at the
Graduate Hospital of Philadelphia from 1987 until 1992. Currently, Dr.
Morganroth is an Adjunct Professor of Medicine (Pharmacology) at Jefferson
Medical College of Thomas Jefferson University and Clinical Professor of
Medicine at the University of Pennsylvania School of Medicine. Dr. Morganroth
is an internationally recognized cardiologist and clinical researcher. He has
served for ten years as a Medical Review Officer/Expert for the FDA and since
1995 has served in a similar capacity for the Health Protection Branch of
Canada.
Glenn Cousins, President, Diagnostic Services. Mr. Cousins has served in
various capacities since joining the Company in 1980. Most recently, Mr.
Cousins served as Vice President and Chief Operating Officer of the Company
from 1993 until he was appointed to his present position in 1996 as
President, Diagnostic Services.
Christopher C. Gallen, M.D., Ph.D., President, Clinical Research Services.
Dr. Gallen serves as President, Clinical Research Services of the Company,
which he joined in January 1996. Prior to joining the Company, Dr. Gallen
held various management positions with Quintiles Transnational Corporation in
San Diego, California, including Senior Director of Medical and Scientific
Services (1995-1996) and Director of Medical and Scientific Services
(1994-1995). Dr. Gallen was also associated with the Scripps Research
Institute in La Jolla, California, serving as Director, Biomagnetism
Laboratory from 1987 to 1994. Dr. Gallen served as Staff Neurologist for the
Scripps Clinic and Research Foundation (1990-1995) and Consultant
Psychiatrist for the San Diego County Department of Mental Health
(1985-1994).
David A. Evans, Senior Vice President and Chief Technical Officer. Mr.
Evans has served as Senior Vice President and Chief Technical Officer since
January 1994. Mr. Evans, who joined the Company in 1980, has also served as
Vice President (1989-1990) and Executive Vice President (1991-1993). Mr.
Evans led the Company's effort to provide CANDAs to the FDA and was the
principal designer of the first CANDA.
Fred M. Powell, C.P.A., Vice President, Finance and Administration. Mr.
Powell has served as Vice President, Finance and Administration of the
Company since 1995. Since joining the Company in 1993, Mr. Powell also has
served as Director of Finance and Administration (1993-1995) and Director of
Finance (1993). Prior to joining the Company, Mr. Powell was employed as an
Assistant Controller for Crown Textile Co. (1989-1993), and as a Senior
Manager of KPMG Peat Marwick LLP. While at KPMG Peat Marwick LLP, Mr. Powell
specialized in the pharmaceutical and service industries.
Carol Miller, Senior Vice President, Business Development. Ms. Miller
joined the Company as Senior Vice President, Business Development in November
1996. Prior to joining the Company, Ms. Miller was employed
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<PAGE>
by ClinTrials Research, Inc., where she served as Senior Director, Business
Development (1996), Business Development Manager (1995-1996), Assistant
Director (1993-1995), Senior Manager (1993), Senior Clinical Project Manager
(1992-1993), and Clinical Project Manager (1992). Ms. Miller also was
employed by Clinical Science Research International/Pharmco as Senior
Clinical Research Associate (1991) and Clinical Project Manager (1991-1992).
Joan Carter, Chairman, Director. Ms. Carter has served as Chairman of the
Company's Board of Directors since 1996, and as a member of the Board of
Directors of the Company or its predecessors since their founding. Ms. Carter
is a founder and since 1972 has been a director and executive officer of UM,
which is the indirect majority stockholder of the Company. She has served as
President of UM since 1986. Ms. Carter is also a member of the Board of
Directors of the Federal Reserve Bank of Philadelphia.
John J. Aglialoro, Director. Mr. Aglialoro has served on the Board of
Directors of the Company or its predecessors since their founding. Mr.
Aglialoro is a founder and since 1972 has been a director and executive
officer of UM. Mr. Aglialoro has held the position of Chairman of UM since
1982.
Arthur Hull Hayes, Jr., M.D., Director. Dr. Hayes has served on the
Company's Board of Directors since 1996. Since 1991, Dr. Hayes has served as
President and Chief Operating Officer of MediScience Associates, Inc., a
consulting firm. Dr. Hayes is an advisor to the Company and others in
healthcare product development and regulation, clinical pharmacology, and
medical and pharmacy practice, and is internationally recognized as a medical
researcher and clinician. Dr. Hayes served as Commissioner of the FDA from
1981 to 1983. He is also a member of the Board of Directors of Celgene, Inc.,
Myriad Genetics and NaPro Biopharmaceuticals, Inc.
Arthur W. Hicks, Jr., Director. Mr. Hicks has served on the Company's
Board of Directors since 1995. Mr. Hicks is UM's Vice President and Chief
Financial Officer, in which capacity he has served since 1988. He is a
certified public accountant, and prior to joining UM, was employed by Ernst &
Young LLP, a public accounting firm.
Jerry D. Lee, Director. Mr. Lee has served on the Company's Board of
Directors since 1996. Mr. Lee was a partner in the accounting firm of Ernst &
Young LLP from 1969 until his retirement in 1995. He was managing partner of
its Philadelphia office from 1979 to 1989 and a member of the firm's
world-wide multi-national partner group from 1989 to 1995.
Philip J. Whitcome, Ph.D., Director. Dr. Whitcome has served on the
Company's Board of Directors since January 1997. Since 1995, Dr. Whitcome has
served as Chairman of the Board of Directors of Avigen, a biotechnology
company, for which he also acted as Chief Financial Officer from March 1996
to September 1996. From 1988 to 1994, Dr. Whitcome was President and Chief
Executive Officer of Neurogen Corporation, a biopharmaceutical company. From
1981 to 1988, Dr. Whitcome was employed at Amgen Inc., a biopharmaceutical
company, serving most recently as Director of Strategic Planning. Prior to
joining Amgen, he served as Manager of Corporate Development for Medical
Products at Bristol-Myers Squibb Co. and held research and marketing
management positions with the Diagnostics Division of Abbott Laboratories.
Connie Woodburn, Director. Ms. Woodburn has served on the Company's Board
of Directors since 1996. Ms. Woodburn is Executive Vice President of PREMIER,
Inc., the nation's largest voluntary healthcare alliance, where she has been
employed in a variety of management capacities since 1987.
Mr. Aglialoro and Ms. Carter are married. There are no other family
relationships among the directors or executive officers.
Members of the Board of Directors serve three year terms with staggered
expiration dates. The terms of Ms. Carter, Ms. Woodburn and Dr. Whitcome
expire in 2000, the terms of Mr. Hicks and Mr. Lee expire in 1999 and the the
terms of Mr. Aglialoro and Dr. Hayes expire in 1998. Officers are elected by
the Board of Directors and serve at the pleasure of the Board.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with each of the
executive officers named in the Summary Compensation Table. Under these
agreements, the employment may be terminated with or without
39
<PAGE>
cause at any time. In the event that the Company terminates an officer's
employment other than "for cause", the Company is obligated to continue
normal salary payments for up to six months (one year in the case of Dr.
Morganroth). Pursuant to the agreement, each officer has agreed not to
compete with the Company during his employment and for a period of two years
thereafter. In November 1996, Dr. Morganroth entered into a new employment
agreement that became effective January 1, 1997, and continues, unless
terminated, through December 31, 2001. Under the terms of this agreement, Dr.
Morganroth will receive an annual salary which for 1997 will equal $201,000.
A professional corporation of which Dr. Morganroth is the sole stockholder
and employee has separately agreed to provide services to the Company,
including serving as medical director and providing medical interpretation
for diagnostic tests, with an annual fee of $144,000 which commenced on
January 1, 1997. See "Certain Relationships and Related Party Transactions."
BOARD COMMITTEES
The Executive Committee of the Board of Directors is composed of Ms.
Carter and Mr. Aglialoro, the Compensation and Personnel Committee is
composed of Mr. Lee and Ms. Woodburn, the Audit Committee is composed of Mr.
Hicks and Mr. Lee, and the Scientific Oversight Committee is composed of Dr.
Hayes and Dr. Whitcome.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive a fee of $1,000 for
each directors meeting attended and $500 for each committee meeting attended.
Upon completion of this offering, non-employee directors also will receive an
annual retainer of $2,000. Each director is reimbursed for out-of-pocket
expenses incurred in connection with attending meetings and other services as
a director. At the time of their initial election to the Board, Mr. Lee, Dr.
Hayes, Ms. Woodburn and Dr. Whitcome were each granted options to acquire
4,402 shares of Common Stock of the Company. These options will become first
exercisable on the earlier of the seventh anniversary of the date of grant or
180 days following the closing of this offering, and in the latter case will
remain exercisable for five years thereafter.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid by the Company for the year ended December 31, 1996 to the
Company's Chief Executive Officer and to each of the Company's other
executive officers whose salary and bonus exceeded $100,000 in such year:
Summary Compensation Table
<TABLE>
<CAPTION>
Long term
Annual Compensation
Compensation(1) --------------
--------------------- Number of All Other
Name and Principal Position Year Salary Bonus Options Compensation(2)
--------------------------------- ------ ---------- ------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Joel Morganroth, M.D. 1996 $172,219 -- -- --(3)
President and Chief Executive
Officer
Christopher C. Gallen, M.D.,
Ph.D. 1996 $156,182 -- 44,020 --
President, Clinical Research
Services
David A. Evans 1996 $128,639 -- -- $6,414
Sr. Vice President and Chief
Technical Officer
Glenn Cousins 1996 $120,336 -- -- $7,200
President, Diagnostic Services
</TABLE>
<PAGE>
- ------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser
of $50,000 or 10% of the total of annual salary and bonuses for the
officer for such year.
(2) Represents the Company's 401(k) plan contributions.
(3) Excludes consulting fees of $1,955,000 paid to a professional corporation
owned by Dr. Morganroth. See "Certain Relationships and Related Party
Transactions."
STOCK OPTION GRANTS
The following tables contain certain information concerning the grant of
stock options under the Company's 1993 Non-Qualified Stock Option Plan during
the year ended December 31, 1996, and the number and
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<PAGE>
value of options held at December 31, 1996 by each of the Company's executive
officers named in the Summary Compensation Table. These options will become
exercisable on the sooner of July 1, 2003 or the 90th day following the
closing of this offering. Prior to the offering, the Company has been
privately-held and there has been no public market for its securities. The
Company believes that the options were granted at prices in excess of the
then fair market value of the stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------
Potential
Realizable Value
at Assumed Annual
Rates of
Number of Percent of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise or Option Term
Options Employees in Base Price Expiration ----------------
Name Granted Fiscal Year ($/Sh) Date(1) 5%(2) 10%(2)
- ---- -------------- -------------------- --------------- -------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Joel Morganroth, M.D. -- -- -- -- -- --
Christopher C. Gallen, M.D.,
Ph.D. 44,020 100% $ 2.27 2/7/02 $ 0 $ 0
David A. Evans -- -- -- -- -- --
Glenn Cousins -- -- -- -- -- --
</TABLE>
- ------
(1) Assumes that the closing of this offering occurs on February 7, 1997.
(2) Amounts represent hypothetical gains that could be achieved for the
options if exercised at the end of the option term. These gains are based
upon assumed rates of share price appreciation set by the Securities and
Exchange Commission of five percent and ten percent of the fair value of
the Common Stock on the date of grant of the options (which was
substantially less than the exercise price), compounded annually from the
date of grant to the option expiration date. The gains shown are net of
the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise. While these assumptions
result in no potential realizable value of the option, a calculation
based on the proposed initial public offering price would result in a
significant potential realizable value. Actual gains, if any, are
dependent on the performance of the Common Stock and the date on which
the option is exercised.
<PAGE>
FISCAL 1996 YEAR END OPTION VALUES
Value of Unexercised
Number of In-the-Money Options
Unexercised Options at December 31,
Name at Fiscal Year End 1996(1)
---- ------------------- --------------------
Joel Morganroth, M.D. 220,100 $2,801,873
Christopher C. Gallen, M.D.,
Ph.D. 44,020 560,375
David A. Evans 33,015 420,281
Glenn Cousins 66,030 840,562
- ------
(1) Based upon assumed public offering price of $15.00 per share.
STOCK OPTION PLANS
1993 Non-Qualified Stock Option Plan. The Company's 1993 Non-Qualified
Stock Option Plan (the "1993 Plan") authorizes the grant of options to
acquire up to 1,100,500 shares of the Company's Common Stock. The purpose of
the 1993 Plan was to provide an incentive for key individuals to advance the
success of the Company. The Plan is administered by a committee of not less
than two directors, the members of which are ineligible to participate in the
Plan. The Committee, in its discretion, determines who shall receive options
under the Plan.
The 1993 Plan provides for the grant of non-qualified options to acquire
the Company's Common Stock. The option price for each option which has been
granted under the 1993 Plan is $2.27 per share. Each option granted under the
1993 Plan will become exercisable on July 1, 2003 or on the 90th day
following the closing of the initial public offering ("IPO") of the Company's
Common Stock (the "IPO Date"), as defined, and will expire on the fifth
anniversary of the IPO Date. The offering pursuant to this Prospectus will
constitute an IPO, as defined in the 1993 Plan. In accordance with the terms
of lock-up agreements entered into with the Company, the holders of the
options have agreed not to sell shares of Common Stock owned by each of them
without the prior written consent of Montgomery Securities for a period of
180 days (365 days, in the case of Dr. Morganroth) following the first offer
of shares of Common Stock pursuant to this Prospectus. See "Underwriting."
Options covering 517,235 shares of the Common Stock are outstanding under
the 1993 Plan as of the date of this Prospectus. The Company does not
anticipate granting any additional options under the Plan prior to the
offering hereunder, and under the terms of the 1993 Plan, no further options
can be granted under the 1993 Plan after the IPO Date.
41
<PAGE>
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") authorizes the grant of options to acquire up to 500,000 shares of the
Company's Common Stock. Such options may be incentive stock options ("ISOs")
within the meaning of the Internal Revenue Code of 1986, as amended, or
options that do not qualify as ISOs ("Non-Qualified Options").
The 1996 Plan is administered by a Committee of the Board of Directors
(the "Committee") consisting of not less than two directors of the Company.
The Committee has full power and authority to interpret the provisions, and
supervise the administration, of the 1996 Plan. It determines, subject to the
provisions of the 1996 Plan, to whom options are granted, the number of
shares of Common Stock subject to each option, whether an option shall be an
ISO or a Non-Qualified Option and the period during which each option may be
exercised. In addition, the Committee determines the exercise price of each
option, subject to the limitations provided in the 1996 Plan. The exercise
price per share of any ISO granted under the Plan may not be less than 100%
of the fair market value per share of Common Stock on the date of grant (110%
of such fair market value if the grantee owns stock representing more than
10% of the combined voting power of all classes of the Company's stock). The
aggregate fair market value (determined as of the time such option is
granted) of the Common Stock for which any employee may have ISOs which
become exercisable for the first time in any calendar year may not exceed
$100,000.
ISOs may have an exercise option period of up to 10 years (five years for
optionees who own more than 10% of the total combined voting power of all
classes of stock of the Company or its parent or any subsidiary corporation).
Non-Qualified Options will have an exercise option period as specified by the
Committee at the time of grant.
The 1996 Plan provides that upon termination of employment of the optionee
for any reason other than death or disability, the right to exercise the
option (to the extent otherwise exercisable) will terminate within three
months following cessation of employment. In the event of termination of
employment due to death or disability, the same provisions apply except that
the period of time for exercise is one year.
The options granted pursuant to the 1996 Plan are not transferable except
in the event of death. Options may be granted under the 1996 Plan to
employees and directors of the Company and to others providing services or
having a relationship with the Company. No options may be granted under the
1996 Plan after November 18, 2006.
At the present time, no options have been granted under the 1996 Plan. The
Company has agreed to grant to an employee an option for 10,000 shares
pursuant to the 1996 Plan, at the offering price hereunder. After the
completion of the offering, the Company's Compensation Committee intends to
consider granting appropriate levels of stock options under the 1996 Plan.
401(K) PLAN
The Company has participated in a deferred savings program for employees
pursuant to Section 401(k) of the Internal Revenue Code of 1986 sponsored by
UM, for which the Company is charged for the profit sharing plan
contributions made with respect to its employees. During 1997, the Company
intends to adopt its own 401(k) program, which will be substantially
identical to the UM program. Under the 401(k) program, full-time employees of
the Company who have completed at least one year of employment may elect to
defer receipt of a specified portion of their compensation, with the Company
providing limited matching contributions. Subject to certain limitations
relating to non-discrimination, a participant is permitted to contribute
between 2% and 10% of his or her compensation to the program. The Company
makes matching contributions, up to 6% of compensation, equal to 25% to 100%
of the employee's contribution, based upon years of service. The amount that
may be contributed by a participant in any single year may not exceed an
amount specified by law, which for 1996 was $9,500. Vesting of Company
contributions commence upon the completion of two years of service and then
increases until full vesting occurs upon completion of five years of service.
An employee's contributions are fully vested immediately.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Personnel Committee is composed of Mr. Lee and Ms.
Woodburn, neither of whom is a current or former officer or employee of the
Company.
42
<PAGE>
Prior to the formation of the Compensation and Personnel Committee,
decisions with respect to executive compensation were determined by the Board
which, at the time of such determinations, was composed of John Aglialoro and
Joan Carter. Ms. Carter is the Chairman of the Board, and Mr. Aglialoro is a
director of the Company. They also are executive officers, directors and the
principal stockholders of UM, which prior to this offering was the principal
stockholder of the Company. See "Certain Relationships and Related Party
Transactions."
PRINCIPAL AND SELLING STOCKHOLDERS
Of the shares of Common Stock offered hereby, 750,000 are being sold by UM
Holdings, Ltd. through its wholly-owned subsidiary UM Equity Corp. (the
"Selling Stockholder" and, collectively with UM Holdings, Ltd., "UM"). The
Company will not receive any of the proceeds from the shares of Common Stock
being sold by UM. Substantially all of the capital stock of UM is owned
equally by John Aglialoro and Joan Carter.
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company by UM, the Company's
directors and executive officers, and each other person known to the Company
to own beneficially more than 5% of the Common Stock, and as adjusted to
reflect UM's sale of Common Stock in this offering.
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------ ---------- ------------------------------
Shares Shares Shares
Beneficially Percentage Being Beneficially Percentage
Name of Beneficial Owner Owned Owned Offered(1) Owned Owned
----------------------------------------- -------------- ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
UM Holdings, Ltd. (2) ................... 3,741,700 79.1% 750,000 2,991,700 44.4%
Joel Morganroth, M.D. (3) ............... 880,400 17.8 880,400 12.7
PREMIER, Inc. (4) ....................... 334,552 7.1 334,552 5.0
Glenn Cousins (5) ....................... 66,030 1.4 66,030 1.0
Christopher C. Gallen, M.D., Ph.D.(5) ... 44,020 * 44,020 *
David A. Evans (5) ...................... 33,015 * 33,015 *
Fred M. Powell (5) ...................... 22,010 * 22,010 *
Carol Miller ............................ -- -- -- --
Joan Carter (6) ......................... 3,741,700 79.1 2,991,700 44.4
John J. Aglialoro (6) ................... 3,741,700 79.1 2,991,700 44.4
Arthur Hull Hayes, Jr., M.D. (7) ........ 4,402 * 4,402 *
Arthur W. Hicks, Jr. (5) ................ 44,020 * 44,020 *
Jerry D. Lee (7) ........................ 4,402 * 4,402 *
Philip J. Whitcome, Ph.D. (7) ........... 4,402 * 4,402 *
Connie Woodburn (7)(8) .................. 4,402 * 4,402 *
All directors and executive officers as a
group (13 persons)(9) .................. 4,848,803 93.6 4,098,803 57.1
</TABLE>
<PAGE>
- ------
* Less than 1.0%
(1) Assumes no exercise of the over-allotment option.
(2) Represents shares owned by its wholly-owned subsidiary, UM Equity Corp.
UM's address is 56 Haddon Avenue, Haddonfield, NJ 08033.
(3) Includes (i) 495,225 shares owned by a trust for the benefit of Dr.
Morganroth's minor children, as to which Dr. Morganroth disclaims
beneficial ownership, and (ii) 220,100 shares issuable with respect to
options granted pursuant to the Company's 1993 Non-Qualified Stock Option
Plan, which become exercisable in full on the 90th day following the
closing of this offering. Dr. Morganroth's address is 124 S. 15th Street,
Philadelphia, PA 19102.
(4) Upon the closing of this offering, PREMIER, Inc.'s minority interest in
limited liability company will automatically be converted into 330,150
shares of Common Stock of the Company. The interest in limited liability
company is, and the shares of Common Stock into which the interest will
be converted will be, held by a trust for the benefit of the owners of
Premier Health Alliance Inc. at the time of the merger which resulted in
the formation of PREMIER, Inc. The trustee for this trust is a
wholly-owned subsidiary of PREMIER, Inc. Includes options granted to
Connie Woodburn, a director of the Company and an executive officer of
PREMIER, Inc., which in accordance with her employment arrangement are
held for the benefit of PREMIER, Inc. PREMIER, Inc.'s address is 3
Westbrook Corporate Center, Westchester, Illinois 60154.
(5) Represents shares issuable with respect to options granted pursuant to
the Company's 1993 Non-Qualified Stock Option Plan, which become
exercisable in full on the 90th day following the closing of this
offering.
(6) Represents shares owned by UM, of which Mr. Aglialoro and Ms. Carter are
the principal stockholders and act as executive officers and directors.
(7) Represents shares issuable upon exercise of stock options that become
exercisable in full 180 days following the closing of this offering.
(8) Represents shares issuable under a stock option which, due to Ms.
Woodburn's employment relationship with PREMIER, Inc., are held for the
benefit of such company. Excludes shares owned by PREMIER, Inc., for
which Ms. Woodburn is an executive officer.
(9) Includes 446,803 shares issuable upon exercise of stock options.
43
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company or its predecessors have been direct or indirect subsidiaries
or divisions of UM since 1977. Upon closing of the offering, UM will
indirectly own approximately 44.4% of the Company's Common Stock (40.1% if
the Underwriters' over-allotment option is exercised in full). John Aglialoro
and Joan Carter, who are married, are executive officers, directors and the
principal stockholders of UM; Ms. Carter is the Chairman and Mr. Aglialoro is
a director of the Company.
UM has had the following arrangements with the Company:
The Company's principal executive and operations facility is owned by UM
and leased to the Company. The current annual rent under this lease is
$349,000. The Company believes that the terms of this lease are as favorable
to the Company as would have been obtained through arms-length negotiations
with an unrelated party. See "Business -- Facilities."
UM has historically provided various administrative services to the
Company, including accounting, human resources and computer services, for
which it was charged $160,000 in 1995. In 1996, UM decentralized most of
these functions, and now provides primarily 401(k) administrative services.
For 1996, UM charged the Company $44,000. The Company also has participated
in UM's deferred savings program for employees pursuant to Section 401(k) of
the Internal Revenue Code. The Company was charged $59,000 and $69,000 for
1995 and 1996, respectively, for profit sharing plan contributions made
pursuant to this program on behalf of its employees. During 1997, the Company
expects to adopt its own Section 401(k) program, which will be substantively
identical to the UM program. Until April 1996, the Company participated in
UM's centralized cash management program. Pursuant to this program, the
Company's cash receipts were remitted to, and cash disbursements were funded
by, UM, with UM retaining any excess cash.
The Company performed blood and urine analysis services for a subsidiary
of UM. The Company charged market fees for these services of $115,000 and
$7,000 for 1995 and 1996, respectively. The Company utilized a different UM
subsidiary for subcontracted diagnostic services, for which it incurred
market fees of $94,000 and $77,000 for 1995 and 1996, respectively. The
Company does not anticipate using these subcontracted services in the future.
The Company sold fixed assets to UM at their carrying values of $66,000 and
$29,000 for 1995 and 1996, respectively.
The Company is, and until the closing of the offering hereunder will
continue to be, included in the consolidated income tax filings of UM. The
Company, UM and other subsidiaries of UM have entered into a tax sharing
agreement pursuant to which the Company will pay to UM amounts equal to the
income taxes which the Company would otherwise have paid had it filed
separate income tax returns.
Certain of the Company's diagnostic testing and clinical research
contracts require that specified medical professional services be provided by
Dr. Morganroth, the Company's President and Chief Executive Officer. The
Company has retained Joel Morganroth, M.D., PC, a professional corporation
owned by Dr. Morganroth, to provide these and other services, which include
serving as Medical Director to the Company, acting as principal investigator
for various studies, and providing medical interpretation for diagnostic
tests from time to time as required. These arrangements resulted in payments
to the professional corporation during 1995 and 1996 of $956,000 and
$1,955,000, respectively. Effective January 1, 1997, the professional
corporation will receive a fixed annual fee of $144,000, for these services.
In January 1996, UM sold 660,300 shares of the Company's outstanding
Common Stock to Dr. Morganroth for a total purchase price of $750,000. Such
purchase price was based upon the then fair market value of the stock, as
determined by UM's Board of Directors. In connection with this sale, UM
loaned Dr. Morganroth $750,000. This collateralized loan, which bears
interest at 5.5% per annum, is payable on December 31, 1997.
During 1995, the Company and PREMIER, Inc. formed a limited liability
company, owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing
of this offering, PREMIER, Inc.'s interest in the limited liability company
will convert into 330,150 shares of the Company's Common Stock. Connie
Woodburn, a director of the Company, serves as Executive Vice President of
PREMIER, Inc.
The Company believes that the terms of all of the above transactions are
as favorable to the Company as would have been obtained through arms-length
negotiations with an unrelated party.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, $.01 par value, and 500,000 shares of Preferred Stock, $10 par
value.
COMMON STOCK
As of December 31, 1996, there were 4,732,150 shares of Common Stock
outstanding. The holders of shares of Common Stock are entitled to one vote
per share held on all matters submitted to a vote of stockholders of the
Company and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of the Common Stock entitled to vote in any election
of directors may elect all of the directors standing for election, and after
the offering the current stockholders and directors and officers of the
Company will be able to elect all of the directors. In addition, holders of
the Common Stock are entitled to receive ratably such dividends, if any, as
may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of the dissolution, liquidation or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of all liabilities of the
Company. Dividend and liquidation rights attributable to the Common Stock
would be subject to any preferential rights associated with any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All outstanding shares of Common Stock are,
and the shares of Common Stock offered by the Company in this offering will
be, when issued, fully paid and nonassessable.
PREFERRED STOCK
Presently, there are no shares of Preferred Stock outstanding. The Board
of Directors has the authority to issue Preferred Stock in one or more
series, and to fix the rights, preferences, privileges and restrictions,
including dividend, conversion, voting, redemption (including sinking fund
provisions), and other rights, liquidation preferences and the number of
shares constituting any series and the designations of such series, without
any further vote or action by the shareholders of the Company. The rights and
preferences of the Preferred Stock may be senior to the rights and
preferences of the Common Stock. Because the terms of the Preferred Stock may
be fixed by the Board of Directors of the Company without stockholder action,
the Preferred Stock could be issued quickly with terms calculated to defeat a
proposed takeover of the Company, or to make the removal of the management of
the Company more difficult. Under certain circumstances, this could have the
effect of decreasing the market price of the Common Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, 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 Certificate of Incorporation of the Company requires an affirmative
super-majority (80%) stockholder vote before the Company can enter into
certain defined business combinations, except for combinations that meet
several specified conditions, and an affirmative super-majority (70%)
stockholder vote to amend the provision of the Certificate of Incorporation
pertaining to a staggered Board of Directors. These provisions, as well as
the provisions of the Certificate of Incorporation described above relating
to the staggered terms of the Board of Directors and the ability of the Board
of Directors to issue shares of Preferred Stock, could discourage potential
take-over attempts and may make more difficult attempts by stockholders to
change the management of the Company.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware 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
45
<PAGE>
as the breach of a director's duty of loyalty or acts or omissions which
involve intentional misconduct or a knowing violation of law. The General
Corporation Law of Delaware also authorizes the Company to indemnify its
directors and officers. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve
as directors.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 6,732,150 shares
of Common Stock outstanding. Of the shares outstanding upon completion of
this offering, the 2,750,000 shares sold in this offering will be freely
tradeable without restriction or registration under the Act, except for
shares purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Act.
The remaining 3,982,150 shares of Common Stock outstanding, and the
544,843 shares issuable upon exercise of outstanding stock options, will be
"restricted securities" (the "Restricted Shares") within the meaning of Rule
144 under the Act, and may not be sold in the absence of registration under
the Act unless an exemption from registration is available, including an
exemption contained in Rule 144 or Rule 701 under the Act.
In general, Rule 144, as currently in effect, provides that any person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least two years, including persons who may be deemed "affiliates" of the
Company (as defined under the Act), is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
(i) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed with
the Securities and Exchange Commission (the "Commission"), or (ii) 1% of the
shares of Common Stock then outstanding. In addition, sales under Rule 144
are subject to certain other restrictions regarding the manner of sale,
required notice and availability of current public information concerning the
Company. A person who is not deemed an "affiliate" of the Company, has not
been an affiliate for at least three months prior to the sale and who has
beneficially owned shares for at least three years after the later of the
date the shares were acquired from the Company or the date they were
purchased from an affiliate of the Company, is entitled to sell such shares
under Rule 144(k) immediately without regard to the volume limitations and
current public information requirements described above. Affiliates,
including members of the Board of Directors and executive officers, continue
to be subject to such limitations.
Shares issuable on the exercise of outstanding options may be eligible for
sale in the public market pursuant to Rule 701 under the Act. In general,
Rule 701 permits resale of shares issued pursuant to certain compensatory
benefit plans and contracts commencing ninety days after the issuer becomes
subject to the reporting requirements of the Exchange Act, in reliance upon
Rule 144, but without compliance with certain restrictions of Rule 144,
including the holding period requirements.
The Company, the Selling Stockholder (which prior to this offering is the
principal stockholder of the Company), all optionees (who will have the right
to acquire a total of 544,843 shares of Common Stock pursuant to stock
options exercisable 90 or 180 days following the closing of the offering
hereunder), and each other stockholder, executive officer and director of the
Company have agreed with the Representatives of the Underwriters that,
subject to certain exceptions, they will not offer, sell, contract to sell,
grant any option to purchase, or otherwise dispose of any shares of Common
Stock, or any securities convertible or exercisable or exchangeable for
shares of Common Stock, beneficially owned by them for a period of 180 days
(365 days, in the case of Dr. Morganroth) following the first offer of shares
of Common Stock pursuant to this Prospectus without the prior written consent
of the Underwriters' Representatives.
Prior to this offering, there has been no market for the Common Stock of
the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market could
adversely effect prevailing market prices.
46
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, Furman
Selz LLC and Genesis Merchant Group Securities (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company and the Selling
Stockholder the number of shares of Common Stock indicated below opposite
their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase all of the shares if they purchase any of the shares.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------- -----------
<S> <C>
Montgomery Securities ......................................
Furman Selz LLC ............................................
Genesis Merchant Group Securities ...........................
-----------
Total .................................................... 2,750,000
===========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $______ per share; and the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$______ per share to certain other dealers. After the offering, the offering
price and other selling terms may be changed by the Representatives. The
Common Stock is offered subject to receipt and acceptance by the
Underwriters, and to certain other conditions, including the right to reject
orders in whole or in part.
The Company and the Selling Stockholder have granted an option to the
Underwriters, exercisable during the 30-day period after the date shares of
Common Stock are first offered for sale pursuant to this Prospectus, to
purchase up to a maximum of 412,500 additional shares of Common Stock to
cover over-allotments, if any, at the same price per share as the initial
shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise this option, the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the offering.
The Underwriting Agreement provides that the Company, the Selling
Stockholder and UM Holdings, Ltd. will indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
will contribute to payments the Underwriters may be required to make in
respect thereof.
The Company and its directors, executive officers, and stockholders have
agreed that for a period of 180 days (365 days, in the case of Dr.
Morganroth) following the first offering of shares pursuant to this
Prospectus, they will not, directly or indirectly, offer, sell, contract to
sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock without
the prior written consent of Montgomery Securities. Montgomery Securities
may, in its sole discretion and at any time without prior notice, release all
or any portion of the shares of Common Stock subject to the lock-up
agreements.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the
offering.
Prior to the offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in such negotiations are the history of, and the
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the Company's past and present
operations, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the offering and the market price of and demand for publicly-traded
common stocks of comparable companies in recent periods.
47
<PAGE>
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "PRWW."
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company and the Selling Stockholder by Archer & Greiner, A Professional
Corporation, Haddonfield, New Jersey. James H. Carll, who is a member of the
firm of Archer & Greiner, P.C., is a director of UM Holdings, Ltd. and UM
Equity Corp. Certain legal matters will be passed upon for the Underwriters
by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
EXPERTS
The audited Consolidated Financial Statements of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended, for the registration of the
securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith, as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, or otherwise, each
such statement being qualified in all respects, by such reference to such
exhibit. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and financial statements and notes filed as a
part thereof.
As a result of this offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). So long as the Company is subject to periodic reporting
requirements of the Exchange Act, it will continue to furnish the reports and
other information required thereby to the Securities and Exchange Commission.
The Company will furnish to its shareholders annual reports containing
audited financial statements and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
48
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Public Accountants ......................... F-2
Consolidated Balance Sheets ...................................... F-3
Consolidated Statements of Operations ............................ F-4
Consolidated Statements of Stockholders' Equity .................. F-5
Consolidated Statements of Cash Flows ............................ F-6
Notes to Consolidated Financial Statements ....................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Premier Research Worldwide, Ltd.:
We have audited the accompanying consolidated balance sheets of Premier
Research Worldwide, Ltd. (an indirect subsidiary of UM Holdings, Ltd., see
Note 1) and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Premier Research Worldwide,
Ltd. and subsidiaries, as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Philadelphia, Pa.,
January 27, 1997
ARTHUR ANDERSEN LLP
F-2
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 33,000 $1,498,000
Accounts receivable, net ....................................... 2,586,000 2,837,000
Prepaid expenses and other ..................................... 414,000 386,000
Deferred income taxes .......................................... 106,000 106,000
------------ -------------
Total current assets ......................................... 3,139,000 4,827,000
Property and equipment, net ......................................... 1,049,000 732,000
Goodwill, net ....................................................... 142,000 94,000
Deferred income taxes ............................................... 70,000 95,000
------------ -------------
$4,400,000 $5,748,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 475,000 $ 831,000
Accrued expenses ............................................... 526,000 664,000
Accrued income taxes ........................................... 46,000 106,000
Payable to UM Holdings, Ltd. for income taxes .................. -- 485,000
Deferred revenues .............................................. 363,000 1,146,000
------------ -------------
Total current liabilities .................................... 1,410,000 3,232,000
------------ -------------
Minority interest in limited liability company ...................... 332,000 --
------------ -------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock- $10 par value, 500,000 shares authorized, none
issued and outstanding ....................................... -- --
Common stock-$.01 par value, 15,000,000 shares authorized,
4,402,000 shares issued and outstanding ...................... 44,000 44,000
Additional paid-in capital ..................................... 2,273,000 2,273,000
Retained earnings .............................................. 341,000 199,000
------------ -------------
Total stockholders' equity ................................... 2,658,000 2,516,000
------------ -------------
$4,400,000 $5,748,000
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Revenues ............................................. $12,910,000 $12,218,000 $15,396,000
Less-Reimbursed costs ................................ -- (154,000) (113,000)
------------- ------------- --------------
Net revenues ......................................... 12,910,000 12,064,000 15,283,000
------------- ------------- --------------
Costs and expenses:
Direct costs .................................... 3,473,000 4,124,000 6,285,000
Selling, general and administrative ............. 7,245,000 6,375,000 6,783,000
Depreciation and amortization ................... 1,197,000 1,013,000 704,000
------------- ------------- --------------
Total costs and expenses ............................. 11,915,000 11,512,000 13,772,000
------------- ------------- --------------
Income before income taxes and minority interest ..... 995,000 552,000 1,511,000
Minority interest in limited liability company's loss -- 48,000 332,000
------------- ------------- --------------
Income before income taxes ........................... 995,000 600,000 1,843,000
Income tax provision ................................. 415,000 259,000 773,000
------------- ------------- --------------
Net income ........................................... $ 580,000 $ 341,000 $ 1,070,000
============= ============= ==============
Pro forma net income per share (Note 1):
Pro forma net income before income taxes ........ $ 1,511,000
Pro forma income tax provision .................. 633,000
--------------
Pro forma net income ............................ $ 878,000
==============
Pro forma net income per share .................. $ 0.18
==============
Shares used in computing pro forma net income per
share ......................................... 4,997,000
==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Division
Stock Capital Earnings Equity Total
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 .. $ -- $ -- $ -- $ 2,248,000 $ 2,248,000
Net income ........... -- -- 300,000 280,000 580,000
Contribution of
division equity by
UM Holdings, Ltd. .. 44,000 2,484,000 -- (2,528,000) --
Net distributions to
UM Holdings, Ltd. .. -- (353,000) (300,000) -- (653,000)
--------- ------------- ------------- ------------- -------------
Balance, December 31, 1994 44,000 2,131,000 -- -- 2,175,000
Net income ........... -- -- 341,000 -- 341,000
Net contributions from
UM Holdings, Ltd. .. -- 142,000 -- -- 142,000
--------- ------------- ------------- ------------- -------------
Balance, December 31, 1995 44,000 2,273,000 341,000 -- 2,658,000
Net income ........... -- -- 1,070,000 -- 1,070,000
Net distributions to
UM Holdings, Ltd. .. -- -- (1,212,000) -- (1,212,000)
--------- ------------- ------------- ------------- -------------
Balance, December 31,
1996 ............... $44,000 $2,273,000 $ 199,000 $ -- $ 2,516,000
========= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1994 1995 1996
----------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income .................................... $ 580,000 $ 341,000 $ 1,070,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization ............ 1,197,000 1,013,000 704,000
Provision for losses on accounts
receivable ............................. 79,000 57,000 --
Minority stockholder contribution of
services ............................... -- 30,000 --
Minority interest in limited liability
company's loss ......................... -- (48,000) (332,000)
Deferred income taxes .................... (95,000) (23,000) (25,000)
Loss (gain) on sales of property and
equipment .............................. 55,000 (37,000) (2,000)
Changes in assets and liabilities--
Accounts receivable ................. (285,000) (317,000) (251,000)
Prepaid expenses and other .......... 1,000 (268,000) 28,000
Accounts payable .................... (251,000) 181,000 356,000
Accrued expenses .................... 171,000 (366,000) 138,000
Accrued income taxes ................ 89,000 (124,000) 60,000
Payable to UM Holdings, Ltd. for
income taxes ...................... -- -- 485,000
Deferred revenues ................... 101,000 (1,261,000) 783,000
---------- ------------- -------------
Net cash provided by (used in)
operating activities ......... 1,642,000 (822,000) 3,014,000
---------- ------------- -------------
Investing activities:
Purchases of property and equipment ........... (828,000) (205,000) (371,000)
Proceeds from sales of property and equipment . 1,000 171,000 34,000
----------- ------------- -------------
Net cash used in investing
activities ................... (827,000) (34,000) (337,000)
---------- ------------- -------------
Financing activities:
Net contributions from (distributions to) UM
Holdings, Ltd. .............................. (653,000) 142,000 (1,212,000)
Minority interest contribution ................ -- 300,000 --
----------- ------------- -------------
Net cash provided by (used in)
financing activities ......... (653,000) 442,000 (1,212,000)
---------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 162,000 (414,000) 1,465,000
Cash and cash equivalents, beginning of year ....... 285,000 447,000 33,000
----------- ------------- -------------
Cash and cash equivalents, end of year ............. $ 447,000 $ 33,000 $ 1,498,000
=========== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Premier Research Worldwide, Ltd. (the "Company"), a Delaware corporation,
is a clinical research organization providing services to the worldwide
pharmaceutical, biotechnology and medical device industries. The Company's
services include centralized diagnostic testing, clinical trials management,
clinical data management, biostatistical analysis, Phase I clinical research,
health care economics and outcomes research and regulatory affairs services.
The Company has an operating subsidiary in the United Kingdom (U.K.), is a
65% majority owner of a limited liability company in the United States,
Premier Research LLC (see Note 5) and is an indirect subsidiary of UM
Holdings, Ltd. ("UM").
For periods prior to June 1, 1994, the Company's business operated as
direct or indirect subsidiaries or as divisions of UM. Effective June 1,
1994, the net assets and operations of the division were transferred to the
Company by UM. The transfer was recorded as a capital contribution of the
carrying value of the division's net assets.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company, its subsidiaries and Premier Research LLC. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported assets and liabilities and contingency
disclosures at the date of the financial statements and the reported
operations during the reporting period. Actual results could differ from
those estimates.
REVENUES
Revenues are recorded when services are rendered. Revenues under certain
clinical research service contracts are recognized under the
percentage-of-completion method and include a proportion of the revenues
expected to be realized on the contract in the ratio of costs incurred to
estimated total costs. Such contracts are generally completed within 12 to 18
months. A provision for the loss on a contract is made when current estimates
indicate a total contract loss. The Company often receives non-refundable
deposits from its customers that are recorded as deferred revenues in the
accompanying balance sheets. For the years ended December 31, 1995 and 1996,
the Company recognized revenues of $1,313,000 and $49,000, respectively, for
such deposits related to customer project cancellations. The Company also
recognizes rental revenue on equipment in connection with its diagnostic
services.
CASH AND CASH EQUIVALENTS
Until 1996, UM maintained a centralized cash management function for its
subsidiaries, including the Company. Settlement of all cash disbursement and
collection transactions by UM on behalf of the Company have been recorded
through equity. In 1996, UM decentralized its cash management function for
its subsidiaries and, therefore, the Company now maintains its own bank
accounts. The Company has always maintained a bank account in the U.K.
Cash and cash equivalents include highly liquid investments purchased with
an original maturity of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets
ranging from three to five years. Leasehold improvements are amortized over
the lease term. Repair and maintenance costs are expensed as incurred.
Improvements and betterments are capitalized. Gains or losses on the
disposition of property and equipment are charged to operations. Depreciation
expense was $1,149,000, $965,000, and $656,000 for the years ended December
31, 1994, 1995 and 1996,, respectively.
F-7
<PAGE>
GOODWILL
Goodwill is amortized using the straight-line method over five years and
is net of accumulated amortization of $173,000 and $221,000 as of December
31, 1995 and 1996, respectively. The related amortization expense was $48,000
for each of the years ended December 31, 1994, 1995, and 1996.
The Company continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life may warrant
revision or that the remaining goodwill balance may not be recoverable. If
factors indicate that goodwill should be evaluated for possible impairment,
the Company would use an estimate of the related undiscounted operating
income over the remaining life in measuring whether goodwill is recoverable.
ACCRUED EXPENSES
Included in accrued expenses at December 31, 1995 and 1996 is accrued
payroll of $98,000 and $235,000, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense
for the years ended December 31, 1994, 1995 and 1996 was $65,000, $118,000,
and $84,000, respectively.
INCOME TAXES
Income taxes are calculated using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Accordingly, deferred tax assets and liabilities are recognized
currently for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their
respective tax bases. The Company is included in the consolidated federal tax
return of UM and files separate state, local and foreign income tax returns.
The accompanying financial statements reflect income tax expense calculated
on a separate-company basis.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid approximately $71,000, $95,000, and $316,000 for income
taxes in the years ended December 31, 1994, 1995 and 1996, respectively (see
Note 6).
The minority owner of Premier Research LLC (see Note 5) contributed
$50,000 of fixed assets in 1995.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade accounts receivable
from companies operating in the pharmaceutical industry. For the years ended
December 31, 1994, 1995 and 1996 two, three, and two clients accounted for
29%, 37% and 25% of the Company's net revenues, respectively. No other single
client accounted for greater than 10% of net revenues during these periods.
Receivables from these clients were $889,000 and $109,000 at December 31,
1995 and 1996, respectively. Due to the contract nature of the Company's
business and the relative size of such contracts in comparison to the
Company, it is not unusual for a significant customer in one year to be
insignificant in the next year. The loss of any such client could have a
material adverse effect on the Company's operations. In addition, the Company
maintains reserves for potential credit losses and such losses, in the
aggregate, have not historically exceeded management expectations.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of the Company's U.K. subsidiary are translated at
the exchange rate as of the end of each reporting period. The income
statement is translated at the average exchange rate for the period.
Cumulative adjustments from translating the U.K. financial statements are
immaterial and, therefore, have been charged to income as incurred.
F-8
<PAGE>
PRO FORMA NET INCOME PER SHARE
The Company's historical stockholders' equity and net income does not
reflect the conversion of the minority interest in Premier Research LLC (see
Note 5), into Common Stock of the Company upon the closing of the Company's
proposed initial public offering (see Note 11). Accordingly, historical net
income per share is not considered meaningful and has not been presented.
Pro forma net income includes the minority interest in the limited
liability company's income or loss. The shares used in computing pro forma
net income per share include the effect of the minority interest conversion
as if the conversion occurred on January 1, 1996. In addition, the shares
used in computing pro forma net income per share also include the dilutive
effect of common stock equivalents outstanding during the periods, consisting
of common stock options, using the treasury stock method.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No.
121). SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill. The Company
adopted SFAS No. 121 effective January 1, 1996. The adoption did not have an
effect on the Company's financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 established financial accounting
and reporting standards for stock-based employee compensation plans. This
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. The Company has
adopted the disclosure requirement of this statement (see Note 8).
2. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1996
------------- ------------
<S> <C> <C>
Billed ......................... $1,851,000 $2,962,000
Unbilled ....................... 875,000 15,000
Allowance for doubtful accounts (140,000) (140,000)
------------- ------------
$2,586,000 $2,837,000
============= ============
</TABLE>
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Computer and other equipment .. $ 5,517,000 $ 5,807,000
Furniture and fixtures ........ 583,000 601,000
Leasehold improvements ........ 129,000 129,000
------------- -------------
6,229,000 6,537,000
Less -- Accumulated
depreciation ................. (5,180,000) (5,805,000)
------------- -------------
$ 1,049,000 $ 732,000
============= =============
</TABLE>
F-9
<PAGE>
4. LINE OF CREDIT:
The Company has a line of credit with a bank, through June 1997, that
provides for borrowings up to $1 million at an interest rate of prime plus
.5%. Borrowings are limited to 60% of eligible accounts receivable, as
defined, and are secured by substantially all of the Company's assets. The
line of credit agreement includes certain covenants, the most restrictive of
which limit future indebtedness, dividends and equity issuances. To date, the
Company has not borrowed any amounts under its line of credit.
5. PREMIER RESEARCH LLC:
In September 1995, the Company and PREMIER, Inc. entered into the
Agreement and Plan of Organization of a limited liability company, Premier
Research LLC (Premier LLC). Under the terms of the agreement, PREMIER, Inc.
contributed $300,000 in cash, $50,000 in property, $30,000 in services and
the business operations of its Contract Research Organization Division for a
35% interest in Premier LLC. The Company contributed $100 in cash, agreed to
manage Premier LLC and agreed to fund Premier LLC's working capital needs for
three years in exchange for a 65% interest in Premier LLC. Under the terms of
the agreement, if the Company completes a public stock offering, as defined
(see Note 11), PREMIER, Inc.'s ownership interest in Premier LLC will
automatically convert into the number of shares of Common Stock equal to 7.5%
of the outstanding Common Stock of the Company prior to the offering.
6. INCOME TAXES:
The Company is included in the consolidated federal income tax return of
UM. UM and the Company have entered into a tax-sharing agreement pursuant to
which the Company will pay to UM amounts equal to the taxes that the Company
would have paid had it filed a separate federal income tax return. The
agreement does not provide for UM to pay the Company for tax losses.
Therefore, any benefit related to tax losses has been recorded as a deemed
distribution to UM in the accompanying financial statements. In addition,
taxes payable to UM under the tax-sharing agreement for years prior to 1996
have been forgiven by UM and, accordingly, have been recorded as
contributions from UM.
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Current provision:
Federal ........ $250,000 $ 359,000 $485,000
State and local 97,000 46,000 218,000
Foreign ........ 163,000 (123,000) 95,000
----------- ----------- ----------
510,000 282,000 798,000
----------- ----------- ----------
Deferred benefit:
Federal ........ (68,000) (21,000) (19,000)
State and local (27,000) (2,000) (6,000)
Foreign ........ -- -- --
----------- ----------- ----------
(95,000) (23,000) (25,000)
----------- ----------- ----------
$415,000 $ 259,000 $773,000
=========== =========== ==========
</TABLE>
Foreign income (loss) before income taxes was $494,000, $(372,000), and
$288,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
F-10
<PAGE>
The reconciliation between income taxes at the statutory federal rate and
the amount recorded in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Tax at statutory federal rate ....... $338,000 $204,000 $627,000
State and local taxes, net of federal 46,000 29,000 140,000
Amortization of goodwill ............ 16,000 16,000 16,000
Other ............................... 15,000 10,000 (10,000)
----------- ----------- ----------
$415,000 $259,000 $773,000
=========== =========== ==========
</TABLE>
The components of the Company's deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
----------- ----------
<S> <C> <C>
Allowance for doubtful accounts $ 57,000 $ 57,000
Depreciation .................. 70,000 95,000
Reserves and accruals ......... 49,000 49,000
----------- ----------
$176,000 $201,000
=========== ==========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
TRANSACTIONS WITH UM
UM provided various administrative services to the Company including
accounting, human resources and certain computer services prior to 1996. UM
has historically charged the Company for these services through corporate
allocations based primarily on actual costs incurred. These expenses were
$165,000 and $160,000 for the years ended December 31, 1994 and 1995,
respectively. In 1996, UM decentralized most of these functions, and now
provides primarily 401(k) administrative services. For the year ended
December 31, 1996, UM's charges were $44,000.
The Company is included in UM's consolidated income tax filings (see Note
6), leases its primary operating facility from UM (see Note 9) and
participates in UM's 401(k) profit sharing plan. The Company was charged
$709,000 $488,000, and $382,000 for rent under the facility lease and
$53,000, $59,000, and $69,000 for profit sharing plan contributions for the
years ended December 31, 1994, 1995 and 1996, respectively. The Company
believes that all amounts charged by UM were reasonable.
Included in net revenues for the years ended December 31, 1995 and 1996 is
$115,000 and $7,000, respectively, charged to a UM subsidiary, for laboratory
testing services. Included in direct costs for the years ended December 31,
1994, 1995 and 1996 is $312,000, $94,000, and $77,000, respectively, charged
by a UM subsidiary for certain subcontracted diagnostic testing services. In
the years ended December 31, 1994, 1995 and 1996, the Company sold fixed
assets to UM and certain of its subsidiaries at their carrying values of
$8,000, $66,000 and $29,000, respectively.
<PAGE>
TRANSACTIONS WITH THE COMPANY'S PRESIDENT
The Company's President, who is a stockholder, is a cardiologist who
provides medical services to the Company as an independent contractor in
addition to his role as President of the Company (see Note 9). Fees incurred
under this consulting arrangement approximated $680,000, $956,000, and
$1,955,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, of which $144,000 per year represents fees for his role as the
Company's Medical Director, as defined. Accordingly, the Medical Director
fees are included in selling, general and administrative expenses and the
incremental fees, which primarily relate to medical interpretations for
diagnostic tests, are included in direct costs in the accompanying statements
of operations. In addition, at December 31, 1995 and 1996, amounts owed to
the Company's President in connection with the consulting agreement were
$59,000 and $325,000, respectively, and are included in accounts payable in
the accompanying balance sheets.
The Company and the Company's President have entered into new employment
and consulting agreements effective January 1, 1997 (see Note 9).
F-11
<PAGE>
In January 1996, the President and UM entered into an agreement whereby
the President purchased 660,300 shares of the Company's Common Stock from UM
for $750,000. The President also has an outstanding option to purchase
220,100 shares of Common Stock (see Note 8).
8. STOCK OPTION PLANS:
In August 1993, the Company established a nonqualified stock option plan
covering certain key employees. The options cover the purchase of Common
Stock of the Company at exercise prices initially set above current fair
value as determined by the Board of Directors. Options granted under the plan
are exercisable on July 1, 2003 or earlier if there is a sale of the Company
or a public offering of the Company's Common Stock, as defined.
Information with respect to outstanding options under the plan is as
follows:
<TABLE>
<CAPTION>
Outstanding Option Price
Shares Per Share
------------- --------------
<S> <C> <C>
Balance, January 1, 1994 .. 440,200 $ 4.54
Granted ................. -- --
Canceled ................ -- --
------------- --------------
Balance, December 31, 1994 440,200 4.54
Granted ................. 506,230 2.27
Canceled ................ (473,215) 2.27-4.54
------------- --------------
Balance, December 31, 1995 473,215 2.27
Granted ................. 44,020 2.27
Canceled ................ -- --
------------- --------------
Balance, December 31, 1996 517,235 $ 2.27
============= ==============
</TABLE>
As of December 31, 1996, no options were exercisable and there were
583,265 additional options available for future grants under the plan. The
Company does not anticipate granting any additional options under the plan
prior to the Company's initial public offering (see Note 11) and under terms
of the plan, no further options can be granted under the plan after the
closing of the initial public offering.
In 1996, the Company adopted a new stock option plan (the "1996 Plan")
that authorizes the grant of both incentive and non-qualified options to
acquire up to 500,000 shares of the Company's Common Stock. The Company's
Board of Directors determines the exercise price of the options under the
1996 Plan. The exercise price of incentive stock options may not be below
fair value on the grant date. Incentive stock options under the 1996 Plan
expire 10 years from the grant date and are exercisable in accordance with
vesting provisions set by the Board. No options are outstanding under the
1996 Plan, however, the Company has agreed to grant an employee an option for
10,000 shares at an assumed initial public offering price of $15.00 per share
(see Note 11).
In January 1996, the Company granted a director an option for 4,402 shares
of Common Stock at an exercise price of $1.14 per share. In addition, in 1996
and in January 1997 the Company granted three other directors options for a
total of 13,206 shares of Common Stock at the initial public offering price
(see Note 11).
F-12
<PAGE>
The Company applies Accounting Principal Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and the related interpretations in accounting
for its stock option plans. The disclosure requirement of FASB Statement No.
123 "Accounting for Stock-Based Compensation" ("SFAS 123") was adopted by the
Company in 1996. Had compensation cost for the Company's stock option plans
been determined based upon the fair value of the options at the date of
grant, as prescribed under SFAS 123, the Company's net income would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1996
----------- ------------
<S> <C> <C>
Net income, as reported .............. $ 341,000 $1,070,000
Pro forma net income
(loss) ............................. (116,000) 1,027,000
</TABLE>
The fair value of the options granted during 1995 and 1996 is estimated as
$0.97 per share on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield - 0.0%, volatility -
55.0%, risk-free interest rate - 6.2%, and an expected life of 3 years.
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space and equipment under operating leases,
including its primary operating facility, which it leases from UM under a
lease agreement executed in June 1996 that runs through September 2003 (see
Note 7). In 1995, the Company entered into an agreement to sublet office
space that was previously vacated. Accordingly, the Company reduced its
reserve for the future vacated lease payments by approximately $175,000 by
recording a reduction to rent expense in 1995. The reserve for the vacated
lease payments was approximately $90,000 and $31,000 at December 31, 1995 and
1996, respectively, and is included in accrued expenses in the accompanying
balance sheets. Future minimum lease payments as of December 31, 1996,
without consideration of sublease income, are as follows:
<TABLE>
<CAPTION>
Related Party Other Total
--------------- ------------ ------------
<S> <C> <C> <C>
1997 .............. $ 349,000 $ 272,000 $ 621,000
1998 .............. 349,000 152,000 501,000
1999 .............. 349,000 140,000 489,000
2000 .............. 349,000 129,000 478,000
2001 .............. 349,000 129,000 478,000
2002 and thereafter 601,000 971,000 1,572,000
--------------- ------------ ------------
$2,346,000 $1,793,000 $4,139,000
=============== ============ ============
</TABLE>
Future minimum payments due the Company under the sublease agreement total
$63,000 in 1997.
<PAGE>
AGREEMENTS WITH THE COMPANY'S PRESIDENT
The Company has entered into new employment and consulting agreements with
its President (see Note 7). The employment agreement was executed in November
1996, became effective January 1, 1997, and continues through December 31,
2001. Either the Company or the President may terminate the agreement at any
time, with or without cause. However, if the Company terminates the agreement
without cause, the Company must continue to pay the President's salary for a
one year period subsequent to the termination.
The consulting agreement was executed in October 1996, and relates to the
President's capacity as a medical doctor and cardiologist and, among other
things, requires the President to serve as Medical Director and/or principal
investigator for the Company in addition to providing medical interpretations
of diagnostic tests from time to time, as required. Compensation under the
consulting agreement is $144,000 per year. The consulting agreement commenced
on January 1, 1997 for a one year period and will continue thereafter from
year to year unless terminated, as defined. The new consulting agreement
replaced a prior agreement whereby the President received additional
compensation for medical interpretations of diagnostic tests (see Note 7).
F-13
<PAGE>
CONTINGENCIES
The Company believes it has adequate insurance coverage against possible
liabilities that may be incurred in connection with the conduct of its
business primarily as it relates to the testing of new drugs or medical
devices. While the Company believes it operates safely and prudently, in
addition to managing liability risks through contractual indemnification, 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 beyond the
scope of an indemnity provision or insurance coverage, or if an indemnity is
not upheld or if the claim exceeds the insurance policy limits.
10. GEOGRAPHIC INFORMATION:
The Company's operations involve a single industry segment providing
clinical research and development services. Financial information by
geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Net revenues:
North America ........ $10,712,000 $10,881,000 $13,000,000
Europe ............... 2,198,000 1,183,000 2,283,000
------------- ------------- --------------
$12,910,000 $12,064,000 $15,283,000
============= ============= ==============
Operating income (loss):
North America ........ $ 501,000 $ 924,000 $ 1,223,000
Europe ............... 494,000 (372,000) 288,000
------------- ------------- --------------
$ 995,000 $ 552,000 $ 1,511,000
============= ============= ==============
Identifiable assets:
North America ........ $ 4,095,000 $ 4,006,000 $ 4,604,000
Europe ............... 1,060,000 394,000 1,144,000
------------- ------------- --------------
$ 5,155,000 $ 4,400,000 $ 5,748,000
============= ============= ==============
</TABLE>
11. RECAPITALIZATION:
The Company is contemplating an initial public offering of 2,750,000
shares of its Common Stock, of which 750,000 will be sold by UM (see Note 7).
In connection therewith, on October 24, 1996, the Company's Board of
Directors approved an increase in the number of authorized shares of Common
Stock to 15,000,000 shares and authorized 500,000 shares of Preferred Stock.
In addition, on November 26, 1996, the Company effected a 2,201-for-one split
of its Common Stock. The increase in authorized shares and the stock split
have been retroactively reflected in the accompanying consolidated financial
statements.
F-14
<PAGE>
===============================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company or by any of the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction in which such
an offer of solicitation would be 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 the date hereof.
------
TABLE OF CONTENTS
------
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ............................................. 3
Risk Factors ................................................... 7
Company History ................................................ 12
Use of Proceeds ................................................ 12
Dividend Policy ................................................ 12
Capitalization ................................................. 13
Dilution ....................................................... 14
Selected Consolidated Financial Data ........................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................................... 17
Business ....................................................... 22
Management ..................................................... 38
Principal and Selling Stockholders ............................. 43
Certain Relationships and Related Party
Transactions .................................................. 44
Description of Capital Stock ................................... 45
Shares Eligible for Future Sale ................................ 46
Underwriting ................................................... 47
Legal Matters .................................................. 48
Experts ........................................................ 48
Additional Information ......................................... 48
Index to Financial Statements .................................. F-1
</TABLE>
Until __________, 1997 (25 days after the date of this Prospectus) all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligations of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
2,750,000 SHARES
LOGO PREMIER RESEARCH
WORLDWIDE
COMMON STOCK
------
PROSPECTUS
------
MONTGOMERY SECURITIES
FURMAN SELZ
GENESIS MERCHANT GROUP
SECURITIES
, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an estimate of the expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts, commissions, and other
compensation:
SEC registration fee............................... $ 15,333.00
---------
NASD filing fee.................................... $ 5,560.00
---------
NASDAQ National Market Fee......................... $ 34,330.38
---------
Printing and engraving............................. $ 110,000.00
---------
Transfer agent's fees and expenses................. $ 10,000.00
---------
Attorneys' fees and expenses....................... $ 200,000.00
---------
Blue sky fees...................................... $ 10,000.00
---------
Accountants' fees and expenses..................... $ 150,000.00
---------
Miscellaneous...................................... $ 64,776.62
---------
TOTAL................. $ 600,000.00
---------
- --------------
*To be supplied by Amendment.
The above expenses will be paid by the Company, except that
registration and filing fees will be paid by the Company and the Selling
Stockholder pro rata according to the number of shares of Common Stock sold by
each.
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law, the Company
must indemnify each of its directors and officers against his expenses (that is,
reasonable costs, disbursements and counsel fees) in connection with any
proceeding involving such person by reason of his having been an officer,
director, employee or agent of the Company, or who is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
extent he is successful on the merits. Moreover, under such statutory provision
the Company has the corporate power to indemnify its officers and directors
against expenses and (in the case of proceedings other than those by or in the
right of the Company) liabilities incurred in such a proceeding, provided (i)
the officer or director has acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company and (ii)
with respect to any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful. In the case of a proceeding by or in the right of the
Company, however, such indemnification is not permitted if the individual is
adjudged to be liable to the Company, unless a court determines that he is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
II-1
<PAGE>
The determination of whether indemnification is proper under the
circumstances, unless made by a court, is determined by a majority of the
disinterested members of the Board of Directors or committee thereof, by
independent legal counsel if a quorum of the disinterested members of the Board
of Directors or committee thereof is not available or if the disinterested
members of the Board of Directors or a committee thereof so direct, or by the
stockholders.
The Company's Bylaws require the Company to indemnify each director and
officer if Section 145 of the Delaware General Corporation Law permits the
Company to do so.
The Company intends to obtain a $5,000,000 directors' and officers'
liability insurance policy, which will afford officers and directors insurance
coverage for losses arising from claims based on breaches of duty, negligence,
error and other wrongful acts.
Item 15. Recent Sales of Unregistered Securities.
In January 1996, the Company's principal stockholder, UM Holdings,
Ltd., sold to Joel Morganroth, M.D., the Company's President and Chief Executive
Officer, 300 shares of Common Stock for a purchase price of $750,000 which was
satisfied by the delivery of Dr. Morganroth's promissory note in such amount.
There were no underwriting discounts or commissions paid in connection with this
transaction. UM Holdings, Ltd. relied upon the availability of Section 4(2) of
the Securities Act of 1933, as amended, in that the sale did not involve a
public offering.
In November, 1996, the Company issued 4,400,000 shares of its Common
Stock to its stockholders, as a stock split effectuated by means of a stock
dividend. The issuance of such shares was exempt from the registration
requirements of the Act because there was no "sale" of such securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
Number Description
------ -----------
1.1 Form of Agreement Among Underwriters, together with forms of
Selected Dealer Agreement and Underwriting Agreement.***
3.1 Restated Certificate of Incorporation.**
3.2 By-Laws.**
5.1 Opinion of Archer & Greiner, A Professional Corporation.*
10.1 Employment Agreement with Joel Morganroth, M.D.**
10.2 Management Consulting Agreement with Joel Morganroth,
M.D., P.C.**
10.3 Stock option agreement - Jerry Lee**
10.4 Stock option agreement - Arthur Hayes**
10.5 Stock option agreement - Connie Woodburn**
10.6 Amended and Restated 1993 Stock Option Plan.**
10.7 1996 Stock Option Plan.**
II-2
<PAGE>
10.8 Lease of Philadelphia Facilities, with amendment thereto.**
10.9 Agreement and Plan of Organization entered into with Premier
Health Alliance, Inc.**
10.10 Tax Sharing Agreement with UM Holdings, Ltd**
10.11 Teaming Agreement with Pharmaco LSR International**
10.12 Revolving Credit Agreement with First Union National Bank**
10.13 Promissory Note to First Union National Bank**
10.14 Restated Directors Stock Option Agreement to PREMIER, Inc.
on behalf of Connie Woodburn.*
10.15 Restated Stock Option Agreement to Jerry Lee.*
10.16 Restated Stock Option Agreement to Arthur Hays.*
10.17 Tax Indemnity Agreement with UM Holdings, Ltd.*
10.18 Stock Option Agreement -- Philip Whitcome***
11.1 Statement re: Computation of Per Share Earnings*
21.1 Subsidiaries**
23.1 Consent of Archer & Greiner, A Professional Corporation - See
Exhibit 5.1
23.2 Consent of Arthur Andersen, LLP***
24.1 Power of Attorney of Directors and Officers - See Signature
Page to Registration Statement filed on November 27, 1996.
99.1 Consent of Proposed Director Philip J. Whitcome*
- ----------
* Filed with Amendment No. 1 on January 6, 1997.
** Filed with Registration Statement on November 27, 1996.
*** Filed with this Amendment.
(b) Financial Statement Schedule.
Number Description
------ -----------
II Valuation and Qualifying Accounts.
Item 17. Undertakings.
The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, 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
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 Company hereby undertakes that, for determining any liability under
the Securities Act, it will treat the information omitted from the form of
Prospectus filed as a part of this Registration Statement in reliance upon Rule
430(A) and contained in a form of Prospectus filed by the Company under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
II-3
<PAGE>
The Company hereby undertakes that, for determining any liability under
the Securities Act, it will treat each post-effective Amendment that contains a
form of Prospectus as a new Registration Statement for the securities offered in
the Registration Statement, and the offering of the securities at that time as
the initial bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on January 28, 1997.
PREMIER RESEARCH WORLDWIDE, LTD.
By: /s/ Joel Morganroth, M.D.
-----------------------------------
JOEL MORGANROTH, M.D., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated. Each person whose
signature to this Registration Statement appears below hereby appoints Joel
Morganroth, Fred M. Powell, Arthur W. Hicks, Jr., and James H. Carll, and each
of them, any one of whom may act without the joinder of the others, as his
attorney-in-fact to sign in his behalf individually and in the capacity stated
below and to file all amendments and post-effective amendments to this
Registration Statement, and any and all instruments or documents filed as part
of or in connection with this Registration Statement or the amendments thereto,
and any of such attorneys-in-fact may make such changes and additions to this
Registration Statement as such attorney-in-fact may deem necessary or
appropriate.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and
/s/ Joel Morganroth, M.D. Chief Executive Officer January 28, 1997
- ------------------------------ (Principal executive officer)
Joel Morganroth, M.D.
/s/ Fred M. Powell Vice President, Finance/ January 28, 1997
- ------------------------------ Administration
Fred M. Powell (Principal financial
and accounting officer)
/s/ Joan Carter Chairman, Director January 28, 1997
- ------------------------------
Joan Carter
/s/ John Aglialoro Director January 28, 1997
- ------------------------------
John Aglialoro
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Arthur Hull Hayes, Jr. Director January 28, 1997
- ------------------------------
Arthur Hull Hayes, Jr., M.D.
/s/ Arthur W. Hicks, Jr. Director January 28, 1997
- ------------------------------
Arthur W. Hicks, Jr.
/s/ Jerry D. Lee Director January 28, 1997
- ------------------------------
Jerry D. Lee
/s/ Connie Woodburn Director January 28, 1997
- ------------------------------
Connie Woodburn
/s/ Philip J. Whitcome Director January 28, 1997
- ------------------------------
Philip J. Whitcome, Ph.D.
</TABLE>
II-6
<PAGE>
Premier Research Worldwide, Ltd.
Schedule II - Valuation and Qualifying Accounts
Allowance For Doubtful Accounts
<TABLE>
<CAPTION>
BALANCE CHARGED BALANCE
BEGINNING TO COSTS & END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1996 $140,000 $ -- $ -- $140,000
Year Ended
December 31, 1995 115,000 57,000 (32,000) 140,000
Year Ended
December 31, 1994 156,000 79,000 (120,000) 115,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ------------- -----
1.1 Form of Agreement Among Underwriters, together with forms of
Selected Dealer Agreement and Underwriting Agreement.***
3.1 Restated Certificate of Incorporation.**
3.2 By-Laws.**
5.1 Opinion of Archer & Greiner, A Professional Corporation.*
10.1 Employment Agreement with Joel Morganroth, M.D.**
10.2 Management Consulting Agreement with Joel Morganroth, M.D., P.C.**
10.3 Stock option agreement - Jerry Lee**
10.4 Stock option agreement - Arthur Hayes**
10.5 Stock option agreement - Connie Woodburn**
10.6 Amended and Restated 1993 Stock Option Plan.**
10.7 1996 Stock Option Plan.**
10.8 Lease of Philadelphia Facilities, with amendment thereto.**
10.9 Agreement and Plan of Organization entered into with Premier
Health Alliance, Inc.**
10.10 Tax Sharing Agreement with UM Holdings, Ltd**
10.11 Teaming Agreement with Pharmaco LSR International**
10.12 Revolving Credit Agreement with First Union National Bank**
10.13 Promissory Note to First Union National Bank**
10.14 Restated Directors Stock Option Agreement to PREMIER, Inc. on
behalf of Connie Woodburn.*
10.15 Restated Stock Option Agreement to Jerry Lee.*
10.16 Restated Stock Option Agreement to Arthur Hays.*
10.17 Tax Indemnity Agreement with UM Holdings, Ltd.*
10.18 Stock Option Agreement -- Philip Whitcome***
11.1 Statement re: Computation of Per Share Earnings*
21.1 Subsidiaries**
23.1 Consent of Archer & Greiner, A Professional Corporation - See
Exhibit 5.1
23.2 Consent of Arthur Andersen, LLP***
24.1 Power of Attorney of Directors and Officers - See Signature
Page to Registration Statement filed on November 27, 1996.
99.1 Consent of Proposed Director Philip J. Whitcome*
- ----------
* Filed with Amendment No. 1 on January 6, 1997.
** Filed with Registration Statement on November 27, 1996.
*** Filed with this Amendment.
<PAGE>
MASTER AGREEMENT AMONG UNDERWRITERS
May 13, 1988
MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
1. General. We understand that from time to time you may act as
Representative or as one of the Representatives of the several underwriters of
offerings of securities of various issuers. This Agreement shall apply to any
such offering of securities in which we elect to act as an underwriter after
receipt of an invitation from your Syndicate Department which shall identify the
issuer, contain information regarding certain terms of the securities to be
offered and specify the amount of our proposed participation (subject to
increase as provided in the applicable Underwriting Agreement), and the names of
the other Representatives, if any. At or prior to the time of an offering, you
will advise us, to the extent applicable, as to the expected offering date, the
expected closing date, the initial public offering price, the interest or
dividend rate (or the method by which such rate is to be determined), the
conversion price, the underwriting discount, the management fee, the selling
concession and the reallowance, except that if the public offering price of the
securities is to be determined by a formula based upon the market price of
certain securities (such procedure being hereinafter referred to as "Formula
Pricing"), you shall so advise us and shall specify the maximum underwriting
discount, management fee and selling concession. Such information may be
conveyed by you in one or more communications in the form of letters, wires,
telexes or other written communications or by telephone calls (provided any such
telephone calls are promptly confirmed in writing) (such communications received
by us with respect to an offering are hereinafter collectively referred to as
the "Invitation"). If the Underwriting Agreement (as hereinafter defined)
provides for the granting of an option to purchase additional securities to
cover over-allotments, you will notify us, in the Invitation, of such option.
This Agreement, as amended or supplemented by the Invitation, shall become
effective with respect to our participation in an offering of securities if you
have received our oral or written acceptance and you do not subsequently receive
a written communication revoking our acceptance prior to the time and date
specified in the Invitation (our unrevoked acceptance after expiration of such
time and date being hereinafter referred to as our "Acceptance") Our Acceptance
will constitute our confirmation that, except as otherwise stated in such
Acceptance, each statement included in the Master Underwriters' Questionnaire
set forth as Exhibit A hereto (or otherwise furnished to us) is correct.
The issuer of the securities in any offering of securities made pursuant to
this Agreement is hereinafter referred to as the "Company." If the Underwriting
Agreement does not provide for an over-allotment option, the securities to be
purchased are hereinafter referred to as the "Securities"; if the Underwriting
Agreement provides for an over-allotment option, the securities the Underwriters
are hereinafter called the "Firm Securities" and any additional securities which
may be purchased upon exercise of the over-allotment option are hereinafter
called the "Additional Securities," with the Firm Securities and all or any part
of the Additional Securities being hereinafter collectively referred to as the
"Securities." Any underwriters of Securities under this Agreement, including the
Representatives (as hereinafter defined), are hereinafter collectively referred
to as the "Underwriters." The term "underwriting obligation," as used in this
Agreement with respect to any Underwriter, shall refer to the amount of
Securities, including any Additional Securities (plus such additional Securities
as may be required by the Underwriting Agreement in the event of a default by
one or more of the Underwriters) which such Underwriter is obligated to purchase
pursuant to the provisions of the Underwriting Agreement. All references herein
to "you" or to the "Representatives" shall mean Montgomery Securities and the
other firm or firms, if any, which are named as Representatives in the
Invitation. The Securities to be offered may, but need not, be registered for a
delayed or continuous offering pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act").
<PAGE>
The following provisions of this Agreement shall apply separately to each
individual offering of Securities. This Agreement may be supplemented or amended
by you by written notice to us and, except for supplements or amendments set
forth in an Invitation relating only to a particular offering of Securities, any
such supplement or amendment to this Agreement shall be effective with respect
to any offering of Securities to which this Agreement applies after this
Agreement is so amended or supplemented.
2. Underwriting Agreement; Authority of Representatives. We authorize you to
execute and deliver an underwriting or purchase agreement and any amendment or
supplement thereto and any associated pricing agreement or other similar
agreement (collectively, the "Underwriting Agreement") on our behalf with the
Company and/or any selling securityholder(s) with respect to Securities in such
form as you determine. We will be bound by all terms of the Underwriting
Agreement as executed. We understand that changes may be made in those who are
to be Underwriters and in the amount of Securities to be purchased by them, but
the amount of Securities to be purchased by us in accordance with the terms of
this Agreement and the Underwriting Agreement, including the amount of
Additional Securities, if any, which we may become obligated to purchase by
reason of the exercise of any over-allotment option provided in the Underwriting
Agreement, shall not be changed without our consent. Without limiting the
foregoing, we authorize you to (a) determine all matters relating to advertising
and communications with dealers or others, (b) extend the time within which the
Registration Statement (as hereinafter defined) may become effective, (c)
postpone the closing date or dates for any offering, and (d) exercise any right
of cancellation or termination.
As Representatives of the Underwriters, you are authorized to take such
action as you deem necessary or advisable to carry out this Agreement, the
Underwriting Agreement, and the purchase, sale and distribution of the
Securities, and to agree to any waiver or modification of any provision of the
Underwriting Agreement. To the extent applicable, you are also authorized to
determine (i) the amount of Additional Securities, if any, to be purchased by
the Underwriters pursuant to any overallotment option, and (ii) with respect to
offerings using Formula Pricing, the initial public offering price and the price
at which the Securities are to be purchased by the Underwriters in accordance
with the Underwriting Agreement. Authority with respect to matters to be
determined by you, or by you and the Company pursuant to the Underwriting
Agreement, shall survive the termination of this Agreement. Your authority
hereunder and under the Underwriting Agreement may be exercised by the
Representatives jointly or by Montgomery Securities acting alone.
3. Registration Statement and Prospectus. You will furnish to us, to the
extent made available to you by the Company, copies of the registration
statement, the related prospectus and the amendment(s) thereto (excluding
exhibits but including any documents incorporated by reference therein) on (the
"Commission") in respect of the Securities, and our Acceptance of the Invitation
with respect to an offering of Securities will serve to confirm that we are
willing to accept the responsibility of an Underwriter thereunder and to proceed
as therein contemplated. Such Acceptance will further confirm that the
statements made under the heading "Underwriting" in the proposed final form of
prospectus, insofar as they relate to us, do not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. As hereinafter
mentioned, the "Registration Statement" and the "Prospectus" refer to the
Registration Statement and Prospectus included as a part thereof, in the form in
which the Registration Statement becomes effective (including all information
deemed to be a part thereof pursuant to Rule 430A promulgated under the
Securities Act) and the form in which the Prospectus is filed pursuant to Rule
424 (b) under the Securities Act or, if no such filing is required, the form in
which the Prospectus is in at the time the Registration Statement in which it is
contained becomes effective, with respect to the Securities. Each preliminary
prospectus with respect to the Securities is herein referred to as a
"Preliminary Prospectus." The use of our name in the Prospectus and any
Preliminary Prospectus, as one of the Underwriters, has our consent. You are
authorized, with the approval of counsel for the Underwriters, to approve on our
behalf any further amendments or supplements to the Registration Statement or
the Prospectus which may be necessary or appropriate.
4. Compensation. As our share of the compensation to be paid for your
services, we will pay you, and we authorize you to charge our account therefor,
a management fee as specified in the Invitation for the offering. If there is
more than one Representative, such compensation will be divided among the
Representatives in such proportion as you may determine.
<PAGE>
5. Public Offering. In connection with the public offering of the Securities,
we authorize you, in your discretion:
(a) to determine the time of the initial public offering, the initial public
offering price, the purchase price of the Securities to the Underwriters, and
the concessions and discounts to Selected Dealers (as defined below), to change
the public offering price and such concessions and discounts (and we agree to be
bound by any such change), to furnish the Company with the information to be
included in the Registration Statement and any amendment or supplement thereto
with respect to the terms of the offering, and to determine all matters relating
to advertising and communications with Selected Dealers and others;
(b) to reserve for sale to dealers selected by you, among whom any of the
Underwriters may be included ("Selected Dealers"), who shall be either (i)
members of the National Association of Securities Dealers, Inc. (the
"Association") who agree in writing to comply with Rule 2740 of the
Association's Conduct Rules or (ii) foreign dealers not eligible for membership
in the Association who agree in writing not to make sales within the United
States, its territories or possessions or to persons who are citizens or
residents therein, to comply with the Association's Interpretation with Respect
to Free-Riding and Withholding, and to comply with Rules 2730, 2740, 2420 (as
such Rules apply to foreign non-members of the Association) and 2750 of the
Association's Conduct Rules, and to others, all or any part of the Securities to
be purchased by us, such reservations for sales to Selected Dealers to be in
such proportions as you may determine and such reservations for sales to others
to be as nearly as practicable in proportion to the respective underwriting
obligations of the Underwriters unless you agree to a smaller proportion at the
request of any Underwriter, and from time to time to add to the reserved
Securities any Securities retained by us remaining unsold and to release to us
any of our Securities reserved but not sold;
(c) to sell reserved Securities as nearly as practicable in proportion to the
respective reservations, (i) to Selected Dealers, under Selected Dealers
Agreements in substantially the form attached hereto as Exhibit B or otherwise,
at the public offering price less the applicable Selected Dealers' concession,
and (ii) to others at the public offering price; and
(d) to buy Securities for our account from Selected Dealers at the initial
public offering price amount not in excess of the applicable Selected Dealers'
concession as you determine.
After, and only after, advice from you that the Securities are released for
public offering, we will offer to the public in conformity with the terms of the
offering as set forth in the Prospectus or any amendment or supplement thereto
such of the Securities to be purchased by us as you advise us are not reserved.
We will comply with any and all restrictions which may be set forth in the
Invitation. The initial public advertisement with respect to the Securities
shall appear on such date, and shall include the names of such of the
Underwriters, as you may determine.
6. Additional Provisions Regarding Sales. Any Securities sold by us
(otherwise than through you) which you purchase in the open market or otherwise
prior to the termination of this Agreement as provided in Section 12, shall be
repurchased by us on demand at the cost to you of such purchase plus commissions
and taxes on redelivery. Securities delivered on such repurchase need not be the
identical Securities so purchased. In lieu of such action, you may, in your
discretion, sell for our account the Securities so purchased and debit or credit
our account for the loss or profit resulting from such sale, or charge our
account with an amount not in excess of the Selected Dealers' concession with
respect to such Securities.
Sales of Securities among the Underwriters may be made with your prior
consent or as you deem advisable for Blue Sky law purposes.
In connection with offers to sell and sales of the Securities, we will comply
with all applicable laws and all applicable rules, regulations and
interpretations of all governmental and self-regulatory agencies.
7. Payment and Delivery. At or before such time, on such dates as you may
specify in the Invitation and at your offices unless you otherwise specify in
the Invitation, we will deliver to you a certified or bank cashier's check in
such
<PAGE>
funds as are specified in the Invitation, payable to the order of Montgomery
Securities (unless otherwise specified in the Invitation) in an amount equal to,
as you direct, either (i) the public offering price or prices plus accrued
interest, amortization of original issue discount or dividends, if any, set
forth in the Prospectus less the concession to Selected Dealers in respect of
the amount of Securities to be purchased by us in accordance with the terms of
this Agreement, or (ii) the amount set forth in the Invitation with respect to
the Securities to be purchased by us. We authorize you to make payment for our
account of the purchase price for the Securities to be purchased by us against
delivery to you of such Securities (which, in the case of Securities which are
debt obligations, may be in temporary form), and the difference between such
purchase price of the Securities and the amount of our funds delivered to you
therefor shall be credited to our account.
You may, in your discretion, make payment of such purchase price on our
behalf as provided in Section 8 hereof, but any such payment shall not relieve
us of any of our obligations under the Underwriting Agreement or under this
Agreement and we agree to pay you on demand the amount so advanced for our
account. We authorize you, as our custodian, to take delivery of our Securities
and to hold the same for our account, in your name or otherwise subject to the
provisions of this Agreement, and to deliver our reserved Securities against
sales. Delivery to us of Securities retained by us for direct sale shall be made
by you as soon as practicable after your receipt of the Securities. Upon
termination of the provisions of this Agreement as provided in Section 12, you
shall deliver to us any Securities reserved for our account for sale to Selected
Dealers and others which remain unsold at that time, except that if, upon such
termination, the aggregate of all reserved and unsold Securities of all
Underwriters does not exceed 10% of the total amount of Securities underwritten,
you are authorized in your discretion to sell such Securities for the accounts
of the several Underwriters at such price or prices as you may determine. After
you receive payment for reserved Securities sold for our account, you shall
remit to us the purchase price paid by us for such Securities and debit or
credit our account with the difference (if any) between the sale price and such
purchase price.
If we are a member of The Depository Trust Company or any other depository or
similar facility, you are authorized to make appropriate arrangements for
payment for and/or delivery through its facilities of the Securities to be
purchased by us, or, if we are not a member, settlement may be made through a
correspondent that is a member pursuant to our timely instructions to you.
In the event that the Underwriting Agreement for an offering provides for the
payment of a commission or other compensation to the Underwriters, we authorize
you to receive such commission or other compensation for our account.
8. Authority to Borrow. In connection with the purchase or carrying for our
account of any of the Securities to be purchased by us under this Agreement or
the Underwriting Agreement or any other securities purchased for our account
pursuant to Section 9 hereof, we authorize you, in your discretion, to advance
your funds for our account, charging current interest rates (but not in excess
of the amount permitted by law), to arrange loans for our account, and in
connection therewith to execute and deliver any notes or other instruments and
hold or pledge as security any of our Securities or other securities purchased
for our account. Any lender may rely upon your instructions in all matters
relating to any such loan.
Any Securities held by you for our account may be delivered to us for
carrying purposes, and if so delivered will be redelivered to you upon demand.
9. Stabilization and Over-Allotment. We authorize you, in your discretion, to
make purchases and sales of the Securities, any other securities of the Company
of the same class and series, any securities of the Company into which.-' the
Securities are convertible or exchangeable and any other securities of the
Company which you may designate, in the open market or otherwise, for long or
short account, on such terms and for such prices as you deem advisable, and to
over-allot in arranging sales. Such purchases and sales and over-allotments will
be made for the accounts of the Underwriters as nearly as practicable in
proportion to their respective underwriting obligations. It is understood that
you may have made purchases of securities of the Company for stabilizing
purposes prior to the time when we become one of the Underwriters, and we agree
that any securities so purchased shall be treated as having been purchased for
the respective accounts of the Underwriters pursuant to the foregoing
authorization. We authorize
<PAGE>
you, in your discretion, to cover any short position or liquidate any long
position incurred pursuant to this Section 9 by purchasing or selling Securities
on such terms and at such times and prices during the term of this Agreement or
after its termination as you deem advisable. At no time will the amount of our
net commitment either for long or short account under this Section 9 exceed 15%
of our underwriting obligation. Solely for the purposes of the immediately
preceding sentence, our "underwriting obligation" shall be deemed to exclude any
Securities which we are obligated to purchase solely by virtue of the exercise
of an over-allotment option. We will on demand take up and pay at cost
Securities so purchased and deliver any Securities so sold or overallotted for
our account, and, if any Underwriter defaults in any such obligation, each
non-defaulting Underwriter will assume its proportionate share of such
obligation without relieving the defaulting Underwriter from liability. The
provisions of this Section 9 do not constitute an assurance that the price of
the Securities will be stabilized or that stabilization, if commenced, may not
be discontinued at any time.
Upon request, we will advise you of the Securities retained by us and unsold
and will sell to you for the account of one or more of the Underwriters such of
the unsold Securities retained by us and at such price, not less than the
applicable net price to Selected Dealers nor more than the public offering
price, as you may determine.
We and each other Underwriter authorize you, as our Representative, to file
with the Securities and Exchange Commission (the "Commission") any notices and
reports which may be required as a result of any transactions made by you for
the accounts of the Underwriters pursuant to this Section 9. We understand that,
in the event that you effect stabilization pursuant to this Section, you will
notify us promptly of the date and time when the first stabilizing purchase is
effected and the date and time when stabilization terminated. We agree that by
us may be effected only with your consent, and we will furnish you with such
information and reports relating to such stabilization as are required by the
rules and regulations of the Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
10. Open Market Transactions. Until termination of this Agreement, unless
this restriction is sooner terminated by you, we agree not to bid for, purchase,
sell or attempt to induce others to purchase or sell, directly or indirectly,
any of the Securities or securities exchangeable for, or convertible into, or
exercisable against the Securities, any security of the same class and series as
the Securities and any right to purchase the Securities or any such security,
including trading in any put or call option on any such security other than (a)
as provided for in this Agreement or in the Underwriting Agreement or (b) as a
broker in executing unsolicited orders.
We represent that we have not participated in any transaction prohibited by
the preceding paragraph and that we have at all times complied with the
provisions of Rule l0b-6 of the Commission applicable to the offering of the
Securities.
11. Expenses and Settlement. You may charge our account with all transfer
taxes on sales or purchases made of Securities purchased for our account and
with our proportionate share (based upon our underwriting obligation or upon
sales for our accounts, as you shall determine in your sole discretion) of all
other expenses incurred by you under this Agreement or in connection with the
purchase, carrying, sale or distribution of the Securities. With respect to each
offering of Securities to which this Agreement applies, the respective accounts
of the Underwriters shall be settled as promptly as practicable after the
termination of this Agreement as provided in Section 12, but you may reserve
such amount as you deem advisable for additional expenses. Your determination of
the amount to be paid to or by us will be conclusive. You may at any time make
partial distributions of credit balances or call for payment of debit balances.
Any of our funds in your hands may be held with your general funds without
segregation and without accountability for interest. Notwithstanding any
settlement, we will remain liable for taxes on transfers for our account and for
our proportionate share (based upon our underwriting obligation) of all expenses
and liabilities which may be incurred by or for the accounts of the Underwriters
with respect to each offering of Securities to which this Agreement applies.
12. Termination. With respect to each offering of Securities to which this
Agreement applies, all limitations in this Agreement on the price at which the
Securities may be sold, the periods of time referred to in Sections 6, 7, 11 and
18, the authority granted by the first sentence of Section 9, and the
restrictions contained in Section 10, shall terminate at the close of business
on the 30th day after the commencement of the offering of such Securities. You
may terminate any or all of such provisions at any time prior thereto by notice
to the Underwriters. All other provisions
<PAGE>
of this Agreement shall survive the termination of such provisions and shall
remain operative and in full force and effect with respect to such offering.
13. Default by Underwriters. Default by one or more Underwriters hereunder or
under the Underwriting Agreement shall not release the other Underwriters from
their obligations or affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from such default. If one or more
Underwriters default under the Underwriting Agreement, you may (but shall not be
obligated to) arrange for the purchase by others, including you or other
non-defaulting Underwriters, of the Securities not taken up by the defaulting
Underwriter or Underwriters.
In the event that such arrangements are made, the respective underwriting
obligations of the nondefaulting Underwriters and the amounts of the Securities
to be purchased by others, if any, shall be taken as the basis for all rights
and obligations hereunder; but this shall not in any way affect the liability of
any defaulting Underwriter to the other Underwriters for damages resulting from
its default, nor shall any such default relieve any other Underwriter of any of
its obligations hereunder or under the Underwriting Agreement except as herein
or therein provided. In addition, in the event of default by one or more
Underwriters in respect of their obligations under the Underwriting Agreement to
purchase the Securities agreed to be purchased by them thereunder and, to the
extent that arrangements shall not have been made by you for any person to
assume the obligations of such defaulting Underwriter or Underwriters, we agree,
if provided in the Underwriting Agreement, to assume our proportionate share,
based upon our underwriting obligation, of the obligations of each such
defaulting Underwriter (subject to the limitations contained in the Underwriting
Agreement) without relieving such defaulting Underwriter of its liability
therefor.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any shares of Securities
purchased by you for their respective accounts pursuant to Section 9 hereof, or
to deliver any such shares of Securities sold or over-allotted by you for their
respective accounts pursuant to any provision of this Agreement, and to the
extent that arrangements shall not have been made by you for other persons to
assume the obligations of such defaulting Underwriter or Underwriters, each
non-defaulting Underwriter shall assume its proportionate share of the aforesaid
obligations of each such defaulting Underwriter without relieving any such
defaulting Underwriter of its liability therefor.
14. Position of Representatives; No Liability for Certain Matters. You shall
be under no liability to us for any act or omission except for your lack of good
faith in the performance of the obligations expressly assumed by you in this
Agreement, but no obligations on your part shall be implied or inferred
herefrom. Without limitation, you shall be under no liability for or in respect
of the validity or value of, or title to, the Securities; the form of, or the
statements contained in, or the validity of, the Registration Statement as
initially filed, any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement to any of them, or any other letters
or instruments executed by or on behalf of the Company or others; the form or
validity of the Underwriting Agreement, the Selected Dealers Agreement or this
Agreement; the delivery of the Securities; the performance by the Company or
others of any agreement on its or their part to be performed; the qualification
of the Securities for sale under the laws of any jurisdiction; or any matter in
connection with any of the foregoing. The rights and liabilities of the
Underwriters are several and not joint and nothing shall constitute the
Underwriters a partnership, association or separate entity.
If the Underwriters are deemed to constitute a partnership for federal income
tax purposes, we elect to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended, and
agree not to take any position inconsistent with such election, and you are
authorized, in your discretion, to execute on behalf of the Underwriters such
evidence of such election as may be required by the Internal Revenue Service.
15. Indemnification We will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act, to the extent and upon the terms
upon which each Underwriter agrees to indemnify the Company and other specified
persons as set forth in the Underwriting Agreement.
<PAGE>
If at any time claim or claims (whether alone or together with another
claim or claims) shall be asserted against you, individually or as
Representative of the Underwriters, or against any other Underwriter, or against
any person who controls either you or such other Underwriter within the meaning
of Section 15 of the Securities Act, which claim or claims arise out of or are
based in whole or in part upon (i) any actual or alleged untrue or misleading
statement in or omission from any version of the Registration Statement or
Prospectus, or any amendment or supplement to any of them, (ii) any actual or
alleged action or omission to act by you or any other Underwriter or any other
person in connection with the preparation for and management or other
effectuation of any of the transactions contemplated by this Agreement, the
Selected Dealers Agreement or the Underwriting Agreement or (iii) any other
actual or alleged action or omission in connection with or related to the offer
or sale of the Securities, we authorize you to make such investigation, to
retain or arrange for or approve the retaining of such attorneys (including, in
your discretion, separate attorneys for any single Underwriter or group of
Underwriters) and to take such other action as you shall deem necessary or
desirable under the circumstances, including settlement of any such claim or
claims. We will pay you, on request, our proportionate share (based upon the
underwriting obligation of all Underwriters participating in such
indemnification) of all expenses incurred by you to the date of each such
request (including, without limitation, cost of investigation and the fees and
disbursements of your attorneys and any other attorneys retained by you or whose
retaining you arrange for or approve) in investigating, defending against and
negotiating with respect to such claim or Claims, and our similar proportionate
share of any liability incurred to the date of each such request by you, by any
such other Underwriter or by any such controlling person in respect of such
claim or claims, whether such liability shall be the result of a judgment or the
result of any such settlement. In determining the amount of our obligation under
this paragraph, appropriate adjustment may be made by you to reflect any amounts
received by any one or more Underwriters in respect of such claim from the
Company pursuant to the Underwriting Agreement or otherwise. If any Underwriter
or Underwriters default in their obligation to make any payments under this
second paragraph of Section 15, each non-defaulting Underwriter shall be
obligated to pay its proportionate share of all defaulted payments, based upon
such Underwriter's underwriting obligation as related to the underwriting
obligations of all nondefaulting Underwriters. Nothing herein shall relieve a
defaulting Underwriter from liability for its default. 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.
In addition and without limitation, we will indemnify and hold harmless you,
each other Underwriter and each person, if any, who controls you and each
Underwriter within the meaning of Section 15 of the Securities Act, against any
claim or claims, liabilities and expenses (including, without limitation, costs
of investigation, attorneys' fees and disbursements and amounts paid upon
judgment or settlement) to which you, any such other Underwriters and any such
controlling persons may become subject or incur, in whole or in part, as a
result of our actual or alleged failure to timely perform our obligations under
this Agreement, the Underwriting Agreement or under applicable law or the
inaccuracy of any of our representations in this Agreement or the Master
Underwriters' Questionnaire (as attached hereto as Exhibit A), and we will, upon
such request as may be made from time to time, pay to you, each such other
Underwriter and each such controlling person (i) such expenses as have been
incurred by you, such other Underwriters and such controlling persons to the
date of each such request (including, without limitation, costs of investigation
and attorneys' fees and disbursements) in whole or in part in investigating,
defending against and negotiating with respect to such claim or claims, and (ii)
any liabilities incurred by you, such other Underwriters or such controlling
persons to the date of each such request, in whole or in part, as a result of
such claim or claims, whether such liability shall be the result of a judgment
or the result of any settlement made by you, such other Underwriter or such
controlling person.
You shall give us reasonably prompt notice of the assertion of any such claim
or claims referred to in this Section 15, as well as such reports from time to
time as you shall deem reasonable as to the status thereof and as to the actions
taken by you in respect thereof pursuant to the foregoing authorizations and
indemnifications, although your failure to do so shall not affect our
obligations hereunder. In addition, we will cooperate with you and attorneys
retained by you (or which you arranged for or approved the retaining of) in
investigating and defending against any such claim or claims referred to in this
Section 15 and will make available all relevant records and documents and
appropriate personnel. We understand that the discharge of any obligations that
we may have under the provisions of the preceding two paragraphs of this Section
15 shall not relieve us of any obligation that we may have under the first
paragraph of this Section 15. The foregoing indemnifications will be in addition
to, and will not supersede, any other indemnification to which you, any such
other Underwriter and any such controlling person shall be entitled from us
<PAGE>
by virtue of this Agreement, by operation of law or otherwise.
The provisions of Section 14 hereof and our agreements contained in this
Section 15 shall remain in full force and effect regardless of any investigation
made by or on behalf of you, any other Underwriter or any controlling person and
shall survive the delivery of the Securities and the termination of this
Agreement and the similar agreements entered into with the other Underwriters.
16. Reports and Blue Sky Matters. We authorize you to file with the
Commission and any other governmental agency any reports required in connection
with any transactions effected by you for our account pursuant to this Agreement
and the Underwriting Agreement, and we will furnish any information needed for
such reports. As provided in Section 9 hereof, we agree to notify you in writing
of the information specified in Rule 17a-2 (d) of the Commission promulgated
under the Exchange Act. You shall not have any responsibility with respect to
the right of any Underwriter or other person to sell the Securities in any
jurisdiction, notwithstanding any information you may furnish in that
connection.
We are familiar with Rule 15c2-8 promulgated under the Exchange Act relating
to the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act) and confirm that we will comply
therewith in connection with any sale of Securities.
17. NASD Membership. We understand that you are a member in good standing of
the Association. We confirm that we are actually engaged in the investment
banking or securities business and are either a member in good standing of the
Association or foreign dealer not eligible for membership in the Association who
has agreed not to make sales within the United States, its territories or
possessions or to persons who are citizens thereof or residents therein, to
comply with the requirements of the Association's Interpretation with Respect to
Free-Riding and Withholding in making sales of the Securities and not to use any
means of interstate commerce to effect such sales unless we are registered under
the Exchange Act. In connection with our sale of the Securities, and without
limiting the foregoing, we specifically agree to comply with Rule 2740 of the
Conduct Rules of the Association or, if we are a foreign dealer not a member of
the Association, we agree to comply as though we were a member with Rule 2730,
2740 and 2750 of said Conduct Rules and with Rule 2420 of said Conduct Rules as
that Rule applies to non-member brokers or dealers in a foreign country.
We authorize you to file on our behalf with the Association such documents
and information, if any, which are available or have been furnished to you for
filing pursuant to applicable rules, statements and interpretations of the
Association.
18. Representations and Agreements. (a) We understand that it is our
responsibility to examine the Registration Statement, the Prospectus, any
amendment or supplement thereto relating to the offering of the Securities, any
preliminary prospectus and the material, if any, incorporated by reference
therein and we will familiarize ourselves with the terms of the Securities and
the other terms of the offering thereof which are to be reflected in the
Prospectus and the Invitation with respect thereto. You are authorized, with the
approval of counsel for the Underwriters, to approve on our behalf any
amendments or supplements to the Registration Statement or the Prospectus.
(b) We confirm that the information that we have given or are deemed to have
been given in response to the Master Underwriters' Questionnaire attached as
Exhibit A hereto (which information has been furnished to the Company for use in
the Registration Statement or the Prospectus) is correct. We will notify you
immediately if any development occurs before the termination of this Agreement
under Section 12 as to the offering of Securities which makes untrue or
incomplete any information that we have given or are deemed to have been given
in response to the Master Underwriters' Questionnaire.
(c) Unless we have promptly notified you in writing otherwise, our name as it
should appear in the Prospectus and our address are as set forth on the
signature page hereof.
<PAGE>
(d) We agree that if we are advised by you that the Company was not,
immediately prior to the filing of the Registration Statement, subject to the
requirements of Section 13(a) or 15(d) of the Exchange Act, we will not without
your consent, sell any of the Securities to an account over which we exercise
discretionary authority.
19. Capital Requirements. We confirm that our net capital and the ratio of
our aggregate indebtedness to our net capital is such that we may, in accordance
with and pursuant to Rule 15c3-1 promulgated by the Commission under the
Exchange Act, and other applicable laws, rules and regulations relating to us,
agree to purchase the Securities that we are obligated to purchase hereunder and
under the Underwriting Agreement.
20. Notices. All notices to us will be considered duly given if mailed or
telegraphed to our address as set forth on the signature page hereof (as such
address may be changed by written notice to you). All notices to you will be
considered duly given if mailed or telegraphed to Montgomery Securities at the
address set forth above, directed to the attention of the Syndicate Department,
or to such other address as you may specify to us in writing from time to time.
21. General Provisions. Subject to the provisions of Section 1 hereof, this
Agreement may be amended or modified by notification in writing by you to us.
This Agreement will be governed by and construed in accordance with the laws of
the State of California. The invalidity or unenforceability of any provision or
portion of this Agreement shall not affect the validity or enforceability of the
other provisions hereof. If any provision or portion of this Agreement shall be
invalid or unenforceable for any reason, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Neither this Agreement nor any rights hereunder may be directly or indirectly
assigned (whether by merger, reverse merger, sale of stock or assets, operation
of law or, without limitation, otherwise) by us. This Agreement shall inure to
the benefit of and be binding upon the permissible successors and assigns and
the heirs, executors and administrators of the parties hereto. No such
assignment will relieve us of our obligations hereunder.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be executed
in several counterparts, each one of which shall be an original and all of which
shall constitute one and the same document.
Very truly yours,
---------------------------------
Name of Firm
By: _______________________________
Name: _____________________________
Title: ____________________________
Confirmed, as of the date first above written.
MONTGOMERY SECURITIES
By: ___________________________________
Partner
<PAGE>
EXHIBIT A
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities to which the foregoing Master
Agreement Among Underwriters dated May 13, 1988 between Montgomery Securities
and the Underwriter executing the same relates, except as otherwise disclosed to
the Representatives in writing, such Underwriter advises the Representatives as
follows and authorizes the Representatives to use the information furnished in
response to this Master Underwriters' Questionnaire in the Registration
Statement relating to the Securities:
(a) Neither such Underwriter nor any of its directors, officers or
partners, individually or as a part of a "group" (as that term is used in
Section 13(d)(3) of the Exchange Act), (i) has a "material" relationship
(as defined in Rule 405 under the Act) with the Company or any other seller
of Securities in the offering or (ii) is a director, officer or holder (of
record or beneficially) of 5% or more of any class of voting securities of
the Company or any other seller of Securities in the offering;
(b) With reference to the Interpretation of the Board of Governors of
the Association with respect to the Review of Corporate Financing, neither
such Underwriter nor any of its "related persons" (as defined by the
Association) (i)has purchased or otherwise acquired from the Company any
warrants, options or other securities of the Company within 18 months prior
to the date that the Registration Statement was initially filed or
subsequent to that date, and there are no existing arrangements for any
such purchase or (ii) has had any dealings with the Company (except those
with respect to the Underwriting Agreement) or any "affiliate" of the
Company (as defined in Rule 405 under the Act) as to which documents other
information are required to be furnished to the Association pursuant to
such Interpretation;
(c) Other than as may be stated in the Registration Statement, any
Prospectus, the Master Agreement Among Underwriters, the Underwriting
Agreement or any selling agreements, such Underwriter does not know of any
discounts or commissions, including any cash, securities, contract or other
consideration to be received by any dealer in connection with the sale of
the Securities, or of any intention to over-allot the Securities or to
stabilize the price of any security to facilitate the offering of the
Securities;
(d) If the Securities are to be issued pursuant to a trust indenture,
such Underwriter is not in control of, controlled by, or under common
control with the Trustee, any other trustee under a trust indenture
relating to securities of the Company and qualified under the Trust
Indenture Act of 1939 (an "Other Trustee") or any of their respective
affiliates, and none of said companies or affiliates, or any of their
respective directors or executive officers, is a director, officer,
partner, employee, appointee or representative of such Underwriter;
(e) If the Securities are to be issued pursuant to a trust indenture,
such Underwriter and its directors, executive officers and partners, taken
as a group, did not, on the date of the Trustee's Statement of Eligibility
and Qualification on Form T-l, own beneficially more than 1% of the
outstanding voting securities of the Trustee, the Trustee's parent, any
Other Trustee or the parent of any Other Trustee;
(f) If the Registration Statement is on Form S-l, such Underwriter has
not prepared or had prepared for it within the past 12 months any
engineering, management or similar report or memorandum relating to the
broad aspects of the business, operations or products of the Company,
except for reports solely comprising recommendations to buy, sell or hold
the Company's securities, unless such recommendations have changed within
the past six months;
(g) If the Registration Statement is on either Form S-2 or Form S-3,
such Underwriter has not prepared any report or memorandum for external use
by it or by the Company in connection with the proposed offering of the
Securities;
(h) Such Underwriter's proposed commitment to purchase Securities will
not result in a violation by it of the
<PAGE>
financial responsibility requirements of Rule 15c3-1 under the Exchange
Act;
(i) Such Underwriter is familiar with the rules, regulations and
releases of the Commission dealing with the dissemination of information
prior to and during registration and has not distributed nor will it
distribute any written information outside of its organization relating to
the Company or its securities other than in accordance with such rules,
regulations and releases; and
(j) If the Company is a "public utility," such Underwriter is not a
"holding company" or a "subsidiary company" or an "affiliate" of a "holding
company" or of a "public utility," each as defined in the Public Utility
Holding Company Act of 1935.
All capitalized terms in this Questionnaire not otherwise defined herein are
used as defined in the foregoing Master Agreement Among Underwriters.
May 13, 1988
Very truly yours,
_________________________________
Name of Firm
By: _______________________________
Name: _____________________________
Title: ____________________________
<PAGE>
EXHIBIT B
SELECTED DEALERS AGREEMENT
May 13, 1988
MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
1. General. We understand that Montgomery Securities is entering into this
Agreement with us and other firms who may be offered the right to purchase as
principal a portion of securities being distributed to the public. The terms and
conditions of this Agreement shall be applicable to any public offering of
securities ("Securities") pursuant to a registration statement filed under the
Securities Act of 1933 (the "Securities Act") wherein Montgomery Securities
(acting for its own account or for the account of any underwriting or similar
group or syndicate) is responsible for managing or otherwise implementing the
sale of the Securities to selected dealers ("Selected Dealers") and has
expressly informed us that such terms and conditions shall be applicable. Any
such offering of Securities to us as a Selected Dealer is hereinafter called an
"Offering." In the case of any Offering in which you are acting for the account
of any underwriting or similar group or syndicate ("Underwriters"), the terms
and conditions of this Agreement shall be for the benefit of, and binding upon,
such Underwriters, including, in the case of any Offering in which you are
acting with others as representatives of Underwriters, such other
representatives. The term "preliminary prospectus" means any preliminary
prospectus relating to an Offering of Securities or any preliminary prospectus
supplement together with a prospectus relating to an Offering of Securities; the
term "Prospectus" means the prospectus, together with the final prospectus
supplement, if any, relating to an Offering of Securities, either filed pursuant
to Rule 424(b) or Rule 424(c) under the Securities Act or, if no such filing is
required, the form of final prospectus contained in the related registration
statement at the time that it first becomes effective.
2. Conditions of Offering; Acceptance and Purchase. Any Offering will be
subject to delivery of the Securities and their acceptance by you and any other
Underwriters, may be subject to the approval of certain legal matters by counsel
and the satisfaction of other conditions, and may be made on the basis of
reservation of Securities or an allotment against subscription. You will advise
us by telegram, telex, or other form of written communication ("Written
Communication") of the particular method and supplementary terms and conditions
(including, without limitation, the information as to prices and offering date
referred to in Section 3(b)) of any Offering in which we are invited to
participate. To the extent such supplementary terms and conditions are
inconsistent with any provision herein, such terms and conditions shall
supersede any such provision. Unless otherwise indicated in any such Written
Communication, acceptances and other communications by us with respect to any
Offering should be sent to Montgomery Securities, 600 Montgomery Street, San
Francisco, California 94111. You reserve the right to reject any acceptance in
whole or in part. Payment for Securities purchased by us is to be made at such
office as you may designate, at the public offering price, or, if you shall so
advise us, at such price less the concession to dealers or at the price set
forth or indicated in a Written Communication, on such date as you shall
determine, on one days' prior notice to us, by certified or official bank check
payable in next day funds to the order of Montgomery Securities, against
delivery of certificates evidencing such Securities. If payment is made for
Securities purchased by us at the public offering price, the concession to which
we shall be entitled will be paid to us upon termination of the provisions of
Section 3(b) hereof with respect to such Securities.
<PAGE>
Unless we promptly give you written instructions otherwise, if transactions
in the Securities may be settled through the facilities of The Depository Trust
Company, payment for and delivery of Securities purchased by us will be made
through such facilities if we are a member, or if we are not a member,
settlement may be made through our ordinary correspondent who is a member.
3. Representations, Warranties, and Agreement.
(a) Prospectuses. You shall provide us with such number of copies of each
preliminary prospectus, the Prospectus and any supplement thereto relating to
each Offering as we may reasonably request for the purposes contemplated by the
Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act") and
the applicable rules and regulations of the Securities and Exchange Commission
thereunder. We represent that we are familiar with Rule 15c2-8 under the
Exchange Act relating to the distribution of preliminary and final prospectuses
and agree that we will comply therewith. We agree to keep an accurate record of
our distribution (including dates, number of copies, and persons to whom sent)
of copies of the Prospectus or any preliminary prospectus (or any amendment or
supplement to any thereof), and promptly upon request by you, to bring all
subsequent changes to the attention of anyone to whom such material shall have
been furnished. We agree to furnish to persons who receive a confirmation of
sale a copy of the Prospectus. We agree that in purchasing Securities in an
Offering we will rely upon no statements in the Prospectus delivered to us by
you. We will not be authorized by the issuer or other seller of Securities
offered pursuant to a Prospectus or by any Underwriters to give any information
or to make any representation not contained in the Prospectus in connection with
the sale of such Securities.
(b) Offer and Sale to the Public. With respect to any Offering of Securities,
you will inform us by a Written Communication of the public offering price, the
selling concession, the reallowance (if any) to dealers, and the time when we
may commence selling Securities to the public. After such public offering has
commenced, you may change the public offering price, the selling concession, and
the reallowance to dealers. With respect to each Offering of Securities, until
the provisions of this Section 3(b) shall be terminated pursuant to Section 4,
we agree to offer Securities to the public only at the public offering price,
except that if a reallowance is in effect, a reallowance from the public
offering price not in excess of such reallowance may be allowed as consideration
for services rendered in distribution to dealers who are actually engaged in the
investment banking or securities business, who execute the written agreement
prescribed by Section 24(c) of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD") and who are either
members in good standing of the NASD or foreign brokers or dealers not eligible
for membership in the NASD who represent to us that they will promptly reoffer
such Securities at the public offering price and will abide by the conditions
with respect to foreign brokers and dealers set forth in Section 3(e) hereof.
(c) Stabilization and Overallotment. You may, with respect to any Offering,
be authorized to overallot in arranging sales to Selected Dealers, to purchase
and sell Securities, any other securities of the issuer of the Securities of the
same class and series and any other securities of such issuer that you may
designate for long or short account, and to stabilize or maintain the market
price of the Securities. We agree to advise you from time to time upon request,
prior to the termination of the provisions of Section 3(b) with respect to any
Offering, of the amount of n your request, sell to you, for the accounts of the
Underwriters, such amount of Securities as you may designate, at the public
offering price thereof less an amount to be determined by you not in excess of
the concession to dealers. In the event that prior to the later of (i) the
termination of the provisions of Section 3 (b) with respect to any Offering, or
(ii) the covering by you of any short position created by you in connection with
such Offering for your account or the account of one or more Underwriters, you
purchase or contract to purchase for the account of any of the Underwriters, in
the open market or otherwise, any Securities theretofore delivered to us, you
reserve the right to withhold the above-mentioned concession to dealers on such
Securities if sold to us at the public offering price, or if such concession has
been allowed to us through our purchase at a net price, we agree to repay such
concession upon your demand, plus in each case any taxes on redelivery,
commissions, accrued interest, and dividends paid in connection with such
purchase or contract to purchase.
(d) Open Market Transactions. We agree not to bid for, purchase, attempt to
purchase, or sell, directly or indirectly, any Securities, any other securities
of the issuer of the Securities of the same class and series, or any other
securities of such issuer as you may designate, except as brokers pursuant to
unsolicited orders and as
<PAGE>
otherwise provided in this Agreement. If the Securities are common stock or
securities convertible into common stock, we agree not to effect, or attempt to
induce others to effect, directly or indirectly, any transactions in or relating
to put or call options on any stock of such issuer, except to the extent
permitted by Rule lob-6 under the Exchange Act as interpreted by the Securities
and Exchange Commission.
(e) NASD. We represent that we are actually engaged in the investment banking
or securities business and we are either a member in good standing of the NASD,
or, if not such a member, a foreign dealer not eligible for membership. If we
are such a member, we agree that in making sales of the Securities we will
comply with all applicable rules of the NASD, including, without limitation, the
NASD's Interpretation with Respect to Free-Riding and Withholding and Rule 2740
of the NASD's Conduct Rules. If we are such a foreign dealer, we agree not to
offer or sell any Securities in the United States of America except through you
and in making sales of Securities outside the United States of America we agree
to comply as though we were a member with such Interpretation and Rules 2730,
2740 and 2750 of the NASD's Conduct Rules and to comply with Rule 2420 of such
Rules as it applies to a non-member broker or dealer in a foreign country.
(f) Relationship among Underwriters and Selected Dealers. You may buy
Securities from or sell Securities to any Underwriter or Selected Dealer and,
with your consent, the Underwriters (if any) and the Selected Dealers may
purchase Securities from and sell Securities to each other at the public
offering price less all or any part of the concession. We are not authorized to
act as agent for you or any Underwriter or the issuer or other seller of any
Securities in offering Securities to the public or otherwise. Nothing contained
herein or in any Written Communication from you shall constitute the Selected
Dealers partners with you or any Underwriter or with one another. Neither you
nor any Underwriter shall be under any obligation to us except for obligations
assumed hereby or in any Written Communication from you in connection with any
Offering. In connection with any Offering, we agree to pay our proportionate
share of any claim, demand, or liability asserted against us, and the other
Selected Dealers or any of them, or against you or the Underwriters, if any,
based on any claim that such Selected Dealers or any of them constitute an
association, unincorporated business, or other separate entity, including in
each case our proportionate share of any expense incurred in defending against
any such claim, demand, or liability.
(g) Blue Sky Laws. Upon application to you, you will inform us as to the
jurisdictions in which you believe the Securities have been qualified for sale
under the respective securities or "blue sky" laws of such jurisdictions. We
understand and agree that compliance with the securities or "blue sky" laws in
each jurisdiction in which we shall offer or sell any of the Securities shall be
our sole responsibility and that you assume no responsibility or obligations as
to the eligibility of the Securities for sale or our right to sell the
Securities in any jurisdiction.
(h) Compliance with Law. We agree that in selling Securities pursuant to any
Offering (which agreement shall also be for the benefit of the issuer or other
seller of such Securities), we will comply with the applicable provisions of the
Securities Act and the Exchange Act, the applicable rules and regulations of the
Securities and Exchange Commission thereunder and the applicable rules and
regulations of any securities exchange having jurisdiction over the Offering.
You shall have full authority to take such action as you may deem advisable in
respect of all matters pertaining to any Offering. Neither you nor any
Underwriter shall be under any liability to us, except for lack of good faith
and for obligations expressly assumed by you in this Agreement; provided,
however, that nothing in this sentence shall be deemed to relieve you from any
liability imposed by the Securities Act.
4. Termination; Supplements and Amendments. This Agreement may be terminated
by either party hereto upon five business days' written notice to the other
party; provided that with respect to any Offering for which Written
Communication was sent and accepted prior to such notice, this Agreement as it
applies to such Offering shall remain in full force and effect and shall
terminate with respect to such Offering in accordance with the last sentence of
this Section. This Agreement may be supplemented or amended by you by written
notice thereof to us, and any such supplement or amendment to this Agreement
shall be effective with respect to any Offering to which this Agreement applies
after the date of such supplement or amendment. Each reference to "this
Agreement" herein shall, as appropriate, be to this Agreement as so amended and
supplemented. The terms and conditions set forth in Sections 3(b) and (d) hereof
with regard to any Offering will terminate at the close of business on the
<PAGE>
thirtieth day after the date of the initial public offering of the Securities to
which such Offering related, but such terms and conditions, upon notice to us,
may be terminated by you at any time.
5. Successor and Assigns. This Agreement shall be binding on, and inure to
the benefit of, the parties hereto and other persons specified or indicated in
Section 1 hereof, and the respective successors and assigns of each of them;
provided, however, that we may not assign our rights or delegate any of our
duties under this Agreement without your prior written consent.
6. Governing Law. This Agreement and the terms and condition set forth herein
with respect to any Offering together with such supplementary terms and
conditions with respect to such Offering as may be contained in any Written
Communication from you to us in connection therewith shall be governed by, and
construed in accordance with, the laws of the State of California.
By signing this Agreement we confirm that our subscription to, or our
acceptance of any reservation of, any Securities pursuant to an Offering shall
constitute (i) acceptance of and agreement to the terms and conditions of this
Agreement (as supplemented and amended pursuant to Section 4) together with and
subject to any supplementary terms and conditions contained in any Written
Communication from you in connection with such Offering, all of such shall
constitute a binding agreement between us and you, individually, or as
representative of any Underwriters, (ii) in confirmation that our
representations and warranties set forth in Section 3 hereof are true and
correct at that time and (iii) confirmation that our agreements set forth in
Sections 2 and 3 hereof have been and will be fully performed by us to the
extent and at the times required thereby.
Very truly yours,
_________________________________
Name of Firm
By: _______________________________
Name: _____________________________
Title: ____________________________
Confirmed, as of the date first above written.
MONTGOMERY SECURITIES
By: ___________________________________
Partner
<PAGE>
_______________ Shares
PREMIER RESEARCH WORLDWIDE, LTD.
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
MONTGOMERY SECURITIES
FURMAN SELZ LLC
GENESIS MERCHANT GROUP SECURITIES
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Premier Research Worldwide, Ltd., a
Delaware corporation (the "Company"), proposes to issue and sell 2,000,000
shares of its authorized but unissued Common Stock (the "Common Stock") and the
stockholder of the Company named in Schedule B annexed hereto (the "Selling
Stockholder") propose to sell 750,000 shares of the Company's issued and
outstanding Common Stock to the several underwriters named in Schedule A annexed
hereto (the "Underwriters"), for whom you are acting as Representatives. Said
aggregate of 2,750,000 shares are herein called the "Firm Common Shares." In
addition, the Company and the Selling Stockholder propose to grant to the
Underwriters an option to purchase up to 412,500 additional shares of Common
Stock (the "Optional Common Shares"), as provided in Section 5 hereof. The Firm
Common Shares and, to the extent such option is exercised, the Optional Common
Shares are hereinafter collectively referred to as the "Common Shares."
You have advised the Company and the Selling Stockholder that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
<PAGE>
The Company, the Selling Stockholder and UM Holdings, Ltd.,
the parent of the Company and the Selling Stockholder (the "Parent"), hereby
confirm their respective agreements with respect to the purchase of the Common
Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company, the
Selling Stockholder and the Parent. The Company, the Selling Stockholder and the
Parent, jointly and severally, represent and warrant to the several Underwriters
that:
(a) A registration statement on Form S-1 (File
No. 333-17001) with respect to the Common Shares has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The Company has prepared and has filed or
proposes to file prior to the effective date of such registration statement an
amendment or amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been delivered to
you three signed copies of such registration statement and amendments, together
with three copies of each exhibit filed therewith. Conformed copies of such
registration statement and amendments (but without exhibits) and of the related
preliminary prospectus have been delivered to you in such reasonable quantities
as you have requested for each of the Underwriters. The Company will next file
with the Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, (ii) a final prospectus in accordance with Rules 430A and 424(b) of
the Rules and Regulations or (iii) a term sheet (the "Term Sheet") as described
in and in accordance with Rules 434 and 424(b) of the Rules and Regulations. As
filed, the final prospectus, if one is used, or the Term Sheet and Preliminary
Prospectus, if a final prospectus is not used, shall include all Rule 430A
Information and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to you
prior to the date and time that this Agreement was executed and delivered by the
parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company shall have
previously advised you in writing would be included or made therein. To the
extent applicable, the copies of the
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registration statement and amendments, of each related prospectus subject to
completion, including all documents incorporated by reference therein and of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations furnished to you were identical to the electronically transmitted
copies thereof filed with the Commission pursuant to the Commission's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to
the extent permitted by Regulation S-T.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended; provided, however, that such
term shall also include (i) all Rule 430A Information deemed to be included in
such registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations and (ii) any
registration statement filed pursuant to 462(b) of the Rules and Regulations
relating to the Common Shares. The term "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in the preceding paragraph and any
preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean either (i) the prospectus relating to the
Common Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, (ii) if a Term Sheet is
not used and no filing pursuant to Rule 424(b) of the Rules and Regulations is
required, shall mean the form of final prospectus included in the Registration
Statement at the time such registration statement becomes effective or (iii) if
a Term Sheet is used, the Term Sheet in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, together
with the Preliminary Prospectus included in the Registration Statement at the
time it becomes effective. The term "Rule 430A Information" means information
with respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant to
Rule 430A of the Rules and Regulations. For purposes of this Agreement, all
references to the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendments or supplements to any of the foregoing shall be
deemed to include the respective copies thereof filed with the Commission
pursuant to EDGAR.
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(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any 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; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each Closing
Date hereinafter mentioned, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will include any 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, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter,
directly or through the Representatives, specifically for use in the preparation
thereof.
(c) The Company does not own or control, directly
or indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 22 to the Registration Statement. The Company and
each of its subsidiaries have been duly incorporated and are validly existing as
corporations or limited liability companies in good standing under the laws of
their respective jurisdictions of incorporation or formation, with full power
and authority (corporate and other) to own and lease their properties and
conduct their respective businesses as described in the Prospectus; except as
described in the Prospectus, the Company owns all of the outstanding capital
stock of its subsidiaries free and clear of all claims, liens, charges and
encumbrances; the Company and each of its subsidiaries are in possession of and
operating in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective businesses,
all of which are valid and in full force and effect; the Company and each of its
subsidiaries are duly qualified to do business
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and in good standing as foreign corporations in each jurisdiction in which the
ownership or leasing of properties or the conduct of their respective businesses
requires such qualification, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect upon the Company or the
subsidiary; and no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(d) The Company has an authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the Prospectus
(it being understood that the shares of Common Stock to be issued to Premier,
Inc. upon conversion of its membership interest in Premier Research, LLC. will
not be outstanding until the First Closing Date); the issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, are duly listed on the Nasdaq National Market, have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof contained in
the Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(e) The Common Shares to be sold by the Company
have been duly authorized and, when issued, delivered and paid for in the manner
set forth in this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of
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the Common Shares by the Company pursuant to this Agreement. No stockholder of
the Company has any right which has not been waived to require the Company to
register the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement. No further approval or authority
of the stockholders or the Board of Directors of the Company will be required
for the transfer and sale of the Common Shares to be sold by the Selling
Stockholder or the issuance and sale of the Common Shares to be sold by the
Company as contemplated herein.
(f) The Company and the Parent each has full legal
right, power and authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and the Parent and constitutes a valid and
binding obligation of the Company and the Parent in accordance with its terms.
The making and performance of this Agreement by the Company and the consummation
of the transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries, and will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice or
the passage of time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of its respective properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
its respective properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, except for compliance with the
Act, the Blue Sky laws applicable to the public offering of the Common Shares by
the several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(g) Arthur Andersen LLP, who have expressed their
opinion with respect to the financial statements and schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent accountants as
required by the Act and the Rules and Regulations.
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(h) The financial statements and schedules of the
Company, and the related notes thereto, included in the Registration Statement
and the Prospectus present fairly the financial position of the Company as of
the respective dates of such financial statements and schedules, and the results
of operations and changes in financial position of the Company for the
respective periods covered thereby. Such statements, schedules and related notes
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis as certified by the independent accountants named
in subsection 2(g). No other financial statements or schedules are required to
be included in the Registration Statement. The selected financial data set forth
in the Prospectus under the captions "Capitalization" and "Selected Financial
Data" fairly present the information set forth therein on the basis stated in
the Registration Statement.
(i) Except as disclosed in the Prospectus, and except
as to defaults which individually or in the aggregate would not be material to
the Company, neither the Company nor any of its subsidiaries is in violation or
default of any provision of its certificate of incorporation or bylaws, or other
organizational documents, or is in breach of or default with respect to any
provision of any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which it is
a party or by which it or any of its properties are bound; and there does not
exist any state of facts which constitutes an event of default on the part of
the Company or any such subsidiary as defined in such documents or which, with
notice or lapse of time or both, would constitute such an event of default.
(j) There are no contracts or other documents
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations which have not been described or filed as required. The contracts so
described in the Prospectus are accurate and complete; all such contracts are in
full force and effect on the date hereof; and neither the Company nor any of its
subsidiaries, nor to the best of the Company's knowledge, any other party is in
breach of or default under any of such contracts.
(k) There are no legal or governmental actions, suits
or proceedings pending or, to the best of the Company's knowledge, threatened to
which the Company or any of its subsidiaries is or may be a party or of which
property owned or
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leased by the Company or any of its subsidiaries is or may be the subject, or
related to environmental or discrimination matters, which actions, suits or
proceedings might, individually or in the aggregate, prevent or adversely affect
the transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business, results
of operations or prospects of the Company and its subsidiaries; and no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent which might be expected to affect adversely such condition,
properties, business, results of operations or prospects. Neither the Company
nor any of its subsidiaries is a party or subject to the provisions of any
material injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good
and marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount and do not adversely
affect the use made and proposed to be made of such property by the Company and
its subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(m) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i) the Company and
its subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could result in a material reduction in the future earnings of the
Company and its subsidiaries; (ii) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other
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distributions with respect to its capital stock and the Company and its
subsidiaries are not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Common Shares hereunder or indebtedness
material to the Company and its subsidiaries (other than in the ordinary course
of business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company and its subsidiaries.
(n) Except as disclosed in or specifically
contemplated by the Prospectus, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights, licenses,
approvals and governmental authorizations to conduct their businesses as now
conducted; the expiration of any trademarks, trade names, patent rights, mask
works, copyrights, licenses, approvals or governmental authorizations would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or its subsidiaries;
and the Company has no knowledge of any material infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, mask works,
copyrights, licenses, trade secret or other similar rights of others, and there
is no claim being made against the Company or its subsidiaries regarding
trademark, trade name, patent, mask work, copyright, license, trade secret or
other infringement which could have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company and its subsidiaries.
(o) The Company has not been advised, and has no
reason to believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations;
except where failure to be so in compliance would not materially adversely
affect the condition (financial or otherwise), business, results of operations
or prospects of the Company and its subsidiaries.
(p) The Company and its subsidiaries have filed on a
timely basis all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown as due thereon; and the Company has no
knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company or its subsidiaries which could materially and
adversely
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affect the business, operations or properties of the Company and its
subsidiaries.
(q) The Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in connection
with the offering and sale of the Common Shares other than the Prospectus, the
Registration Statement and the other materials permitted by the Act.
(s) Each of the Company and its subsidiaries maintain
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect.
(t) Neither the Company nor any of its subsidiaries
has at any time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(u) The Parent and the Company have not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Common Shares.
SECTION 3. Representations, Warranties and Covenants
of the Selling Stockholder.
(a) The Parent and the Selling Stockholder, jointly
and severally, represent and warrant to, and agree with, the several
Underwriters that:
(i) Such Selling Stockholder has, and on the
First Closing Date hereinafter mentioned will have, good and marketable title to
the Common Shares proposed to be sold by such
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Selling Stockholder hereunder on such Closing Date and full right, power and
authority to enter into this Agreement and to sell, assign, transfer and deliver
such Common Shares hereunder, free and clear of all voting trust arrangements,
liens, encumbrances, equities, security interests, restrictions and claims
whatsoever; and upon delivery of and payment for such Common Shares hereunder,
the Underwriters will acquire good and marketable title thereto, free and clear
of all liens, encumbrances, equities, claims, restrictions, security interests,
voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed
and delivered a Power of Attorney and caused to be executed and delivered on its
behalf a Custody Agreement (hereinafter collectively referred to as the
"Stockholders Agreement") and in connection herewith such Selling Stockholder
further represents, warrants and agrees that such Selling Stockholder has
deposited in custody, under the Stockholders Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable form for the
Common Shares to be sold hereunder by such Selling Stockholder, for the purpose
of further delivery pursuant to this Agreement. Such Selling Stockholder agrees
that the Common Shares to be sold by such Selling Stockholder on deposit with
the Agent are subject to the interests of the Company and the Underwriters, that
the arrangements made for such custody are to that extent irrevocable, and that
the obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Stockholders Agreement, by any
act of such Selling Stockholder, by operation of law, by the merger, dissolution
or liquidation of such Selling Stockholder or by the occurrence of any other
event. If the Selling Stockholder should be merged, dissolved or liquidated, or
if any other event should occur, before the delivery of the Common Shares
hereunder, the documents evidencing Common Shares then on deposit with the Agent
shall be delivered by the Agent in accordance with the terms and conditions of
this Agreement as if such merger, dissolution or liquidation or other event had
not occurred, regardless of whether or not the Agent shall have received notice
thereof. This Agreement and the Stockholders Agreement have been duly executed
and delivered by or on behalf of such Selling Stockholder and the form of such
Stockholders Agreement has been delivered to you.
(iii) The performance of this Agreement and
the Stockholders Agreement and the consummation of the transactions contemplated
hereby and by the Stockholders Agreement will not result in a breach or
violation by such
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Selling Stockholder of any of the terms or provisions of, or constitute a
default by such Selling Stockholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument to which such Selling Stockholder is a party or
by which such Selling Stockholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Stockholder or any of its
properties.
(iv) Such Selling Stockholder has not taken
and will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the
Prospectus, insofar as it has related to such Selling Stockholder has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made; and neither
the Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, as it relates to such Selling Stockholder, will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(b) The Selling Stockholder agrees with the Company
and the Underwriters not to offer to sell, sell or contract to sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable for any shares of Common Stock, for a period of 180 days after the
first date that any of the Common Shares are released by you for sale to the
public, without the prior written consent of Montgomery Securities, which
consent may be withheld at the sole discretion of Montgomery Securities.
SECTION 4. Representations and Warranties of the Underwriters.
The Representatives, on behalf of the several Underwriters, represent and
warrant to the Company and to the Selling Stockholder that the information set
forth (i) on the cover page of the Prospectus with respect to price,
underwriting discounts and commissions and terms of offering and (ii) under
"Underwriting" in the Prospectus was furnished to the Company by
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and on behalf of the Underwriters for use in connection with the preparation of
the Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, (i) the Company agrees
to issue and sell to the Underwriters 2,000,000 of the Firm Common Shares, and
(ii) the Selling Stockholder agree to sell to the Underwriters 750,000 of the
Firm Common Shares. The Underwriters agree, severally and not jointly, to
purchase from the Company and the Selling Stockholder the number of Firm Common
Shares described below. The purchase price per share to be paid by the several
Underwriters to the Company and to the Selling Stockholder shall be $___ per
share.
The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to 2,000,000 the same proportion as the
number of shares set forth opposite the name of such Underwriter in Schedule A
hereto bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholder shall be to purchase from the Selling
Stockholder that number of full shares which (as nearly as practicable, as
determined by you) bears to 750,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed upon by the Company and the Representatives)
at such time and date, not later than the third (or, if the Firm Common Shares
are priced, as contemplated by Rule 15c6-1(c) under the Securities Exchange Act
of 1934, after 4:30 P.M. Washington D.C. time, the fourth) full business day
following the first date that any of the Common Shares are released by you for
sale to the public, as you shall designate by at least 48 hours prior notice to
the Company (or at such other time and date, not later than one week after such
third or fourth, as the case may be, full
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business day as may be agreed upon by the Company and the Representatives) (the
"First Closing Date"); provided, however, that if the Prospectus is at any time
prior to the First Closing Date recirculated to the public, the First Closing
Date shall occur upon the later of the third or fourth, as the case may be, full
business day following the first date that any of the Common Shares are released
by you for sale to the public or the date that is 48 hours after the date that
the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be
made by or on behalf of the Company and the Selling Stockholder to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Selling Stockholder against payment by you,
for the accounts of the several Underwriters, of the purchase price therefor by
a wire transfer of immediately available funds to accounts designated by the
Company and by the Selling Stockholder, respectively, in proportion to the
number of Firm Common Shares to be sold by the Company and the Selling
Stockholder. The certificates for the Firm Common Shares shall be registered in
such names and denominations as you shall have requested at least two full
business days prior to the First Closing Date, and shall be made available for
checking and packaging on the business day preceding the First Closing Date at a
location in New York, New York, as may be designated by you. Time shall be of
the essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, each of the Company and the Selling Stockholder hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
206,250 Optional Common Shares at the purchase price per share to be paid for
the Firm Common Shares, for use solely in covering any over-allotments made by
you for the account of the Underwriters in the sale and distribution of the Firm
Common Shares. The options granted hereunder may be exercised at any time (but
not more than once) within 30 days after the first date that any of the Common
Shares are released by you for sale to the public, upon notice by you to the
Company and the Selling Stockholder setting forth the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
the names and denominations in which the certificates for such shares are to be
registered and the time and place at which such
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certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. The number of Optional Common
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Optional Common Shares to be sold by the Company and the Selling
Stockholder pursuant to such notice of exercise by a fraction, the numerator of
which is the number of Firm Common Shares to be purchased by such Underwriter as
set forth opposite its name in Schedule A and the denominator of which is
2,750,000 (subject to such adjustments to eliminate any fractional share
purchases as you in your discretion may make). Certificates for the Optional
Common Shares will be made available for checking and packaging on the business
day preceding the Second Closing Date at a location in New York, New York, as
may be designated by you. The manner of payment for and delivery of the Optional
Common Shares shall be the same as for the Firm Common Shares purchased from the
Company and the Selling Stockholder as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such option
by giving written notice of such cancellation to the Company. If the option is
cancelled or expires unexercised in whole or in part, the Company will
deregister under the Act the number of Option Shares as to which the option has
not been exercised.
You have advised the Company and the Selling Stockholder that
each Underwriter has authorized you to accept delivery of its Common Shares, to
make payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in the
judgment of the Representatives is advisable and at the public offering price
set forth on the cover page of and on the terms set
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forth in the final prospectus, if one is used, or on the first page of the Term
Sheet, if one is used.
SECTION 6. Covenants of the Company. The Company covenants and
agrees that:
(a) The Company will use its best efforts to cause
the Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing of
the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed, pursuant
to the applicable paragraph of Rule 424(b) of the Rules and Regulations within
the time period prescribed and will provide evidence satisfactory to you of such
timely filing. The Company will promptly advise you in writing (i) of the
receipt of any comments of the Commission, (ii) of any request of the Commission
for amendment of or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the lifting
of such order at the earliest possible moment. The Company will not file any
amendment or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus of which you
have not been furnished with a copy a reasonable time prior to such filing or to
which you reasonably object or which is not in compliance with the Act and the
Rules and Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be necessary
or advisable to enable the several Underwriters to continue the distribution of
the Common Shares and will use its best efforts to cause the same to become
effective as promptly as possible. The Company will fully and completely comply
with the provisions of Rule 430A of the Rules and Regulations with respect to
information omitted from the Registration Statement in reliance upon such Rule.
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(c) If at any time within the nine-month period
referred to in Section 10(a)(3) of the Act during which a prospectus relating to
the Common Shares is required to be delivered under the Act any event occurs, as
a result of which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts to
cause the same to become effective as soon as possible; and, in case any
Underwriter is required to deliver a prospectus after such nine-month period,
the Company upon request, but at the expense of such Underwriter, will promptly
prepare such amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45
days after the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule 158(c) of the
Rules and Regulations), the Company will make generally available to its
security holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last paragraph
of Section 11(a) of the Act. To the extent applicable, such documents shall be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) During such period as a prospectus is required by
law to be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you and the Selling Stockholder or
mail to your order copies of the Registration Statement, the Prospectus, the
Preliminary Prospectus and all amendments and supplements to any such documents
in each case as soon as available and in such quantities as you and the Selling
Stockholder may request, for the purposes contemplated by the Act. To the extent
applicable,
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such documents shall be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(f) The Company shall cooperate with you and your
counsel in order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate, will comply with such laws and will continue
such qualifications, registrations and exemptions in effect so long as
reasonably required for the distribution of the Common Shares. The Company shall
not be required to qualify as a foreign corporation or to file a general consent
to service of process in any such jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign corporation. The
Company will advise you promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common Stock.
(h) During the period of 180 days after the first
date that any of the Common Shares are released by you for sale to the public,
without the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of Montgomery Securities), the Company will not
(other than pursuant to outstanding stock options disclosed in the Prospectus)
issue, offer, sell, grant options to purchase or
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otherwise dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock or other
equity security; provided, that the Company may grant options to purchase its
Common Stock to directors or employees under stock option plans described in the
Prospectus as long as such options do not become exercisable prior to the end of
said 180-day period.
(i) The Company will apply the net proceeds of the
sale of the Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify
or register its Common Stock for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary trading
in the Company's Common Stock in California), will comply with such Blue Sky
laws and will continue such qualifications, registrations and exemptions in
effect for a period of five years after the date hereof.
(k) The Company will use its best efforts to list,
subject to official notice of issuance, on the Nasdaq National Market, the Stock
to be issued and sold by the Company.
(l) The Company will file Form SR in conformity with
the requirements of the Act and the Rules and Regulations.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective or is terminated, the Company and, unless otherwise paid by the
Company, the Selling Stockholder agree to pay in such proportions as they may
agree upon among themselves all costs, fees and expenses incurred in connection
with the performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the
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Common Stock, (iii) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Common Shares to the Underwriters,
(iv) all fees and expenses of the Company's counsel and the Company's
independent accountants, (v) all costs and expenses incurred in connection with
the preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preliminary Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, this Agreement, the Agreement Among Underwriters, the Selected
Dealers Agreement, the Underwriters' Questionnaire, the Underwriters' Power of
Attorney and the Blue Sky memorandum, (vi) all filing fees, attorneys' fees and
expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws, (vii) the filing fee of the National Association of
Securities Dealers, Inc., and (viii) all other fees, costs and expenses referred
to in Item 13 of the Registration Statement. The Underwriters may deem the
Company to be the primary obligor with respect to all costs, fees and expenses
to be paid by the Company and by the Selling Stockholder. Except as provided in
this Section 7, Section 9 and Section 11 hereof, the Underwriters shall pay all
of their own expenses, including the fees and disbursements of their counsel
(excluding those relating to qualification, registration or exemption under the
Blue Sky laws and the Blue Sky memorandum referred to above). This Section 7
shall not affect any agreements relating to the payment of expenses between the
Company and the Selling Stockholder.
The Selling Stockholder will pay (directly or by
reimbursement) all fees and expenses incident to the performance of its
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to (i) any fees and expenses of counsel
for such Selling Stockholder; (ii) any fees and expenses of the Agent; and (iii)
all expenses and taxes incident to the sale and delivery of the Common Shares to
be sold by such Selling Stockholder to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company, the Parent and the Selling Stockholder
herein set forth as of the date hereof and as of the
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First Closing Date or the Second Closing Date, as the case may be, to the
accuracy of the statements of officers of the Company, the Parent and the
Selling Stockholder made pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholder of their respective obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M. (or, in the case of a registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations relating to the
Common Shares, not later than 10 P.M.), Washington, D.C. Time, on the date of
this Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required pursuant to
Rule 424(b) of the Rules and Regulations, the Prospectus shall have been filed
in the manner and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or,
to the knowledge of the Company, the Selling Stockholder or you, shall be
contemplated by the Commission; and any request of the Commission for inclusion
of additional information in the Registration Statement, or otherwise, shall
have been complied with to your satisfaction.
(b) You shall be satisfied that since the respective
dates as of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital stock of the
Company or any of its subsidiaries or any material change in the indebtedness
(other than in the ordinary course of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the Registration
Statement or the Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company or any of its
subsidiaries, which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company and its
subsidiaries, (iii) no loss or damage (whether or not insured) to the property
of the Company or any of its subsidiaries shall have been sustained which
materially and adversely affects the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries, (iv) no legal or governmental action, suit or proceeding affecting
the Company or any of its subsidiaries which is material to the Company and its
subsidiaries or which affects or may affect the transactions contemplated by
this Agreement shall have been
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instituted or threatened, and (v) there shall not have been any material change
in the condition (financial or otherwise), business, management, results of
operations or prospects of the Company and its subsidiaries which makes it
impractical or inadvisable in the judgment of the Representatives to proceed
with the public offering or purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Archer & Greiner, counsel
for the Company and the Selling Stockholder, addressed to the Underwriters and
dated the First Closing Date, or the Second Closing Date, as the case may be, to
the effect that:
(1) Each of the Company and its
subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions where
the ownership or leasing of properties or the conduct of its business
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
Company and its subsidiaries taken as a whole, and has full corporate
power and authority to own its properties and conduct its business as
described in the Registration Statement;
(2) The authorized, issued and
outstanding capital stock of the Company is as set forth under the
caption "Capitalization" in the Prospectus; all necessary and proper
corporate proceedings have been taken in order to authorize validly
such authorized Common Stock; all outstanding shares of Common Stock
(including the Firm Common Shares and at the Second Closing Date any
Optional Common Shares sold by the Selling Stockholder) have been duly
and validly issued, are fully paid and nonassessable, have been issued
in compliance with federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase any securities arising under the laws of the
State of Delaware, pursuant to the Certificate of Incorporation or
By-laws of the Company or, to the best of such counsel's
22
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knowledge, pursuant to any contract or agreement and conform to the
description thereof contained in the Prospectus; without limiting the
foregoing, there are no preemptive or other rights to subscribe for or
purchase any of the Common Shares to be sold by the Company or the
Selling Stockholder hereunder arising under the laws of the State of
Delaware, pursuant to the Certificate of Incorporation or By-laws of
the Company or, to the best of such counsel's knowledge, pursuant to
any contract or agreement;
(3) All of the issued and
outstanding shares of the Company's subsidiaries have been duly and
validly authorized and issued, are fully paid and nonassessable and are
owned beneficially by the Company free and clear of all liens,
encumbrances, equities, claims, security interests, voting trusts or
other defects of title whatsoever;
(4) The certificates evidencing the
Common Shares to be delivered hereunder are in due and proper form
under Delaware law, and when duly countersigned by the Company's
transfer agent and registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor in accordance with
the provisions of this Agreement, the Common Shares represented thereby
will be duly authorized and validly issued, fully paid and
nonassessable, will not have been issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase
securities, arising under the laws of the State of Delaware, pursuant
to the Certificate of Incorporation or By-laws of the Company or, to
the best of such counsel's knowledge, pursuant to any contract or
agreement and will conform in all respects to the description thereof
contained in the Prospectus;
(5) Except as disclosed in or
specifically contemplated by the Prospectus, to the best of such
counsel's knowledge, there are no outstanding options, warrants or
other rights calling for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of the Company or
any security convertible into or exchangeable for capital stock of the
Company;
(6) (a) The Registration Statement
has become effective under the Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or
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preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are
pending or contemplated by the Commission; any required filing
of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules and Regulations has been made in the
manner and within the time period required by such Rule
424(b);
(b) The Registration Statement,
the Prospectus and each amendment or supplement thereto
(except for the financial statements and schedules included
therein as to which such counsel need express no opinion)
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
(c) To the best of such
counsel's knowledge, there are no franchises, leases,
contracts, agreements or documents of a character required to
be disclosed in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement which are
not disclosed or filed, as required; and
(d) To the best of such
counsel's knowledge, there are no legal or governmental
actions, suits or proceedings pending or threatened against
the Company which are required to be described in the
Prospectus which are not described as required;
(7) The Company has full right,
power and authority to enter into this Agreement and to sell and
deliver the Common Shares to be sold by it to the several Underwriters;
this Agreement has been duly and validly authorized by all necessary
corporate action by the Company, has been duly and validly executed and
delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company in accordance with its terms, except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except as to those provisions
relating to indemnity or contribution for liabilities arising under the
Act as to which no opinion need be expressed; and no approval,
authorization, order, consent, registration, filing, qualification,
license or permit of or with any court, regulatory, administrative or
other governmental body is
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required for the execution and delivery of this Agreement by the
Company or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full force and
effect under the Act and such as may be required under applicable Blue
Sky laws in connection with the purchase and distribution of the
Common Shares by the Underwriters and the clearance of such offering
with the NASD as to which no opinion need be expressed;
(8) The execution and performance of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with, result in the breach of, or
constitute, either by itself or upon notice or the passage of time or
both, a default under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other 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 or any of its or their
property may be bound or affected which is material to the Company and
its subsidiaries taken as a whole, or violate any of the provisions of
the certificate of incorporation or bylaws, or other organizational
documents, of the Company or any of its subsidiaries or, so far as is
known to such counsel, violate any statute, judgment, decree, order,
rule or regulation of any court or governmental body having
jurisdiction over the Company or any of its subsidiaries or any of its
or their property;
(9) Neither the Company nor any
subsidiary is in violation of its certificate of incorporation or
bylaws, or other organizational documents, or to the best of such
counsel's knowledge, in breach of or default with respect to any
provision of any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such counsel to
which the Company or any such subsidiary is a party or by which it or
any of its properties may be bound or affected, except where such
default would not materially adversely affect the Company and its
subsidiaries taken as a whole; and such counsel is not aware of any
failure of the Company or any of its subsidiaries to comply with all
laws, rules, regulations, judgments, decrees, orders and statutes of
any court or jurisdiction to which they are subject, except where
noncompliance would not materially adversely affect the Company and its
subsidiaries taken as a whole;
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(10) The statements in the
Registration Statement and the Prospectus summarizing statutes, rules
and regulations (other than the statements under the captions "Risk
Factors - Dependence on Government Regulation" and "Business -
Government Regulation" as to which such counsel need express no
opinion), including the Delaware corporation law and the description of
the certificate of incorporation and bylaws of the Company, are
accurate in all material respects and fairly present the information
required to be presented by the Act or the Rules and Regulations; and
such counsel does not know of any statutes, rules or regulations
required to be described in the Registration Statement or the
Prospectus that are not described or referred to therein as required;
(11) The statements under the
captions "Risk Factors - Shares Eligible for Future Sale," "Management
- Stock Option Plans," "Management - Employment Contracts," "Management
- 401(k) Plan," "Management Compensation Committee Interlocks and
Insider Participation," "Certain Relationships and Related Party
Transactions," and "Description of Capital Stock" in the Prospectus and
Item 15 in the Registration Statement, insofar as such statements
constitute a summary of documents referred to therein or matters of
law, are accurate summaries and fairly present, in all material
respects, the information called for with respect to such documents and
matters;
(12) The information required to be
set forth in the Registration Statement in answer to Items 9, 10
(insofar as it relates to such counsel) and 11(c) of Form S-1 is, to
the best of such counsel's knowledge, accurately and adequately set
forth therein in all material respects or no response is required with
respect to such Items;
(13) Such counsel is not aware of
any failure of the Company or any of its subsidiaries to obtain any
licenses, consents, certificates, orders, approvals or permits of any
federal, state, local or foreign government authority that are
necessary to conduct its business substantially as described in the
Registration Statement and the Prospectus, except where failure to have
such licenses, consents, certificates, orders, approvals and permits
would not have a material adverse effect on the condition (financial or
otherwise), business, properties, results of
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operations or prospects of the Company and its subsidiaries taken as a
whole;
(14) To the best of such counsel's
knowledge, no holders of securities of the Company have rights which
have not been waived to the registration of shares of Common Stock or
other securities, because of the filing of the Registration Statement
by the Company or the offering contemplated hereby;
(15) To the best of such counsel's
knowledge, this Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by or on behalf of the Selling
Stockholder; the Agent has been duly and validly authorized to act as
the custodian of the Common Shares to be sold by such Selling
Stockholder; and the performance of this Agreement and the Stockholders
Agreement and the consummation of the transactions herein contemplated
by the Selling Stockholder will not result in a breach of, or
constitute a default under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument known to such counsel to which
the Selling Stockholder is a party or by which the Selling Stockholder
or any of its properties may be bound, or violate any statute,
judgment, decree, order, rule or regulation known to such counsel of
any court or governmental body having jurisdiction over the Selling
Stockholder or any of its properties; and to the best of such counsel's
knowledge, no approval, authorization, order or consent of any court,
regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the
Stockholders Agreement or the consummation by the Selling Stockholder
of the transactions contemplated by this Agreement, except such as have
been obtained and are in full force and effect under the Act and such
as may be required under the rules of the NASD and applicable Blue Sky
laws as to which no opinion need be expressed;
(16) To the best of such counsel's
knowledge, the Selling Stockholder has full right, power and authority
to enter into this Agreement and the Stockholders Agreement and to
sell, transfer and deliver the Common Shares to be sold on such Closing
Date by such Selling Stockholder hereunder and good and marketable
title to such Common Shares so sold, free and clear of all liens,
encumbrances, equities, claims, restrictions, security
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interests, voting trusts, or other defects of title whatsoever, has
been transferred to the Underwriters (whom counsel may assume to be
bona fide purchasers) who have purchased such Common Shares hereunder;
and
(17) To the best of such counsel's
knowledge, this Agreement and the Stockholders Agreement are valid and
binding agreements of the Selling Stockholder in accordance with their
terms except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally and except with respect to
those provisions relating to indemnities or contributions for
liabilities under the Act, as to which no opinion need be expressed.
(18) No transfer taxes are required
to be paid in connection with the sale and delivery of the Common
Shares to the Underwriters hereunder.
In rendering such opinion, such counsel may rely as to matters
of local law not involving the laws of Pennsylvania or Delaware, on opinions of
local counsel, and as to matters of fact, on certificates of the Selling
Stockholder and of officers of the Company and of governmental officials, in
which case their opinion is to state that they are so doing and that the
Underwriters are justified in relying on such opinions or certificates and
copies of said opinions or certificates are to be attached to the opinion.
In addition, such counsel shall include a statement to the
effect that such counsel has participated in conferences with officials and
other representatives of the Company, the Representatives, Underwriters' Counsel
and the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective the Registration
Statement (except as to financial statements (including notes and schedules) as
to which such counsel need express no opinion) contained any 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 at the
First Closing Date or the Second Closing Date, as the case may be, the
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Registration Statement or the Prospectus (except as aforesaid) contained any
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, in light of
the circumstances under which they were made, not misleading;
(ii) An opinion of King & Spalding, regulatory
counsel for the Company, addressed to the Underwriters and dated the First
Closing Date or the Second Closing Date, as the case may be, to the effect that:
(1) The statements in the Prospectus under the
captions "Risk Factors - Dependence on Government Regulation,"
and "Business - Government Regulation," and other references
in the Prospectus to those matters described in such sections,
insofar as such statements purport to summarize applicable
provisions of the Federal Food, Drug and Cosmetic Act
("FFDCA"), Part F of the Public Health Service Act ("PHSA")
relating to the licensing of biological products and clinical
laboratories, and the regulations established thereunder, are
accurate summaries in all material respects of the provisions
purported to be summarized under such captions in the
Prospectus; and
(2) Nothing has come to such counsel's
attention in the course of our representation of the Company
that causes them to believe that the statements, to the extent
such statements relate to the FFDCA, or regulations or legal
conclusions under the FFDCA, or to Part F of PHSA relating to
the licensing of biological products and clinical
laboratories, or regulations or legal conclusions under Part F
of the PHSA, under the captions entitled "Risk Factors
Dependence on Government Regulation" and "Business Government
Regulation" and other references to those matters described in
such sections in the Registration Statement at the time the
Registration Statement became effective, 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 in the Prospectus, at
the time the Prospectus was issued and at the First Closing
Date or the Second Closing Date, as the case may be, 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, in
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light of the circumstances under which they were made, not
misleading.
(iii) Such opinion or opinions of Ballard Spahr
Andrews & Ingersoll, counsel for the Underwriters dated the First Closing Date
or the Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the sufficiency of all corporate proceedings and
other legal matters relating to this Agreement, the validity of the Common
Shares, the Registration Statement and the Prospectus and other related matters
as you may reasonably require, and the Company and the Selling Stockholder shall
have furnished to such counsel such documents and shall have exhibited to them
such papers and records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of officers of the Company,
governmental officials and the Selling Stockholder.
(iv) A certificate of the Parent and the Company
executed by the Chairman of the Board or President and the chief financial or
accounting officer of the Parent and the Company, respectively, dated the First
Closing Date or the Second Closing Date, as the case may be, to the effect that:
(1) The representations and
warranties of the Parent and the Company set forth in Section 2 of this
Agreement are true and correct as of the date of this Agreement and as
of the First Closing Date or the Second Closing Date, as the case may
be, and the Parent and the Company have complied with all the
agreements and satisfied all the conditions on their part to be
performed or satisfied on or prior to such Closing Date;
(2) The Commission has not issued
any order preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration Statement or
any amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act;
(3) Each of the respective signers
of the certificate has carefully examined the Registration Statement
and the Prospectus; in his opinion and to the best
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of his knowledge, the Registration Statement and the Prospectus and
any amendments or supplements thereto contain all statements required
to be stated therein regarding the Company and its subsidiaries, and
neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which
the Registration Statement was filed, no agreement, written or oral,
transaction or event has occurred which should have been set forth in
an amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such a
supplement or amendment;
(5) Since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, and except as disclosed in or contemplated by the
Prospectus, there has not been any material adverse change or a
development involving a material adverse change in the condition
(financial or otherwise), business, properties, results of operations,
management or prospects of the Company and its subsidiaries; and no
legal or governmental action, suit or proceeding is pending or
threatened against the Company or any of its subsidiaries which is
material to the Company and its subsidiaries, whether or not arising
from transactions in the ordinary course of business, or which may
adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any of
its subsidiaries has entered into any verbal or written agreement or
other transaction which is not in the ordinary course of business or
which could result in a material reduction in the future earnings of
the Company or incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock, made any
material change in its short-term debt or funded debt or repurchased or
otherwise acquired any of the Company's capital stock; and the Company
has not declared or paid any dividend, or made any other distribution,
upon its outstanding capital stock payable to stockholders of record on
a date prior to the First Closing Date or Second Closing Date; and
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(6) Since the respective dates as of
which information is given in the Registration Statement and the
Prospectus and except as disclosed in or contemplated by the
Prospectus, the Company and its subsidiaries have not sustained a
material loss or damage by strike, fire, flood, windstorm, accident or
other calamity (whether or not insured).
(v) A certificate, dated the First Closing Date or
the Second Closing Date, as the case may be, and addressed to you, signed by or
on behalf of the Selling Stockholder to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true and correct,
as if made at and as of the First Closing Date or the Second Closing Date, as
the case may be, and such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied prior to the First Closing Date or the Second Closing Date, as the
case may be.
(vi) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from Arthur Andersen
LLP, independent accountants, the first one to be dated the day before the date
of this Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second Closing
Date, in form and substance satisfactory to you.
(vii) On or before the First Closing Date, letters
from the Selling Stockholder, each holder of the Company's Common Stock or an
option to purchase the Company's Common Stock and each director and officer of
the Company, in form and substance satisfactory to you, confirming that for a
period of 180 days (365 days in the case of Dr. Joel Morganroth) after the first
date that any of the Common Shares are released by you for sale to the public,
such person will not directly or indirectly sell or offer to sell or otherwise
dispose of any shares of Common Stock or any right to acquire such shares
without the prior written consent of Montgomery Securities, which consent may be
withheld at the sole discretion of Montgomery Securities.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to you
and to Ballard Spahr Andrews & Ingersoll, counsel for the Underwriters. The
Company shall furnish you with
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<PAGE>
such manually signed or conformed copies of such opinions, certificates, letters
and documents as you request. Any certificate signed by any officer of the
Company and delivered to the Representatives or to counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company to the
Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholder without liability on
the part of any Underwriter, the Company or the Selling Stockholder except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholder pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholder to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 7 and Section 11 shall at
all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the
Company and the Selling Stockholder will use your and their best efforts to
cause the Registration Statement to become effective, to prevent the issuance of
any stop order suspending the effectiveness of the Registration Statement and,
if such stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification. (a) The Parent, the Company and
the Selling Stockholder, jointly and severally, agree to indemnify and hold
harmless each Underwriter and each person,
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if any, who controls any Underwriter within the meaning of the Act against any
losses, claims, damages, liabilities or expenses, joint or several, to which
such Underwriter or such controlling person may become subject, under the Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, or arise out of or are based in whole or in part
on any inaccuracy in the representations and warranties of the Parent, the
Company or the Selling Stockholder contained herein or any failure of the
Parent, the Company or the Selling Stockholder to perform their respective
obligations hereunder or under law; and will reimburse each Underwriter and each
such controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that neither the
Parent, the Company nor the Selling Stockholder will be liable in any such case
to the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with the information furnished to the Company pursuant to
Section 4 hereof. The Parent, the Company and the Selling Stockholder may agree,
as among themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for which they
each shall be responsible. In addition to its other obligations under this
Section 11(a), the Parent, the Company and the Selling Stockholder agree,
jointly and severally, that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission, or
any inaccuracy in the representations and warranties of the Parent, the Company
or the Selling Stockholder herein or failure
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<PAGE>
to perform their respective obligations hereunder, all as described in this
Section 11(a), they will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Parent's, the Company's or the Selling Stockholder's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the Company together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Bank of America NT&SA,
San Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an Underwriter within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which the
Parent, the Company or the Selling Stockholder may otherwise have.
(b) Each Underwriter will severally indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Stockholder and each person, if
any, who controls the Company or the Selling Stockholder within the meaning of
the Act, against any losses, claims, damages, liabilities or expenses to which
the Company, or any such director, officer, Selling Stockholder or controlling
person may become subject, under the Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, 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, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
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Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with the information furnished to the Company pursuant to
Section 4 hereof; and will reimburse the Company, or any such director, officer,
Selling Stockholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, Selling
Stockholder or controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action. In addition to its other obligations under this Section
11(b), each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, described in this Section 11(b) which relates to information
furnished to the Company pursuant to Section 4 hereof, it will reimburse the
Company (and, to the extent applicable, each officer, director or controlling
person or the Selling Stockholder) on a quarterly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person or the Selling
Stockholder) for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company (and, to the extent applicable, each officer, director or
controlling person or the Selling Stockholder) shall promptly return it to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Company within 30 days of a request for reimbursement, shall bear interest
at the Prime Rate from the date of such request. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party for
contribution or
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otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence or (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.
(d) If the indemnification provided for in this
Section 11 is required by its terms but is for any reason held to be unavailable
to or otherwise insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Parent, the Company, the Selling Stockholder and the
Underwriters from the
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offering of the Common Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Parent, the Company, the Selling Stockholder and
the Underwriters in connection with the statements or omissions or inaccuracies
in the representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Parent, the Company, the Selling Stockholder and the Underwriters shall be
deemed to be in the same proportion, in the case of the Parent, the Company and
the Selling Stockholder as the total price paid to the Company and to the
Selling Stockholder, respectively, for the Common Shares sold by them to the
Underwriters (net of underwriting commissions but before deducting expenses)
bears to the total price to the public set forth on the cover of the Prospectus,
and in the case of the Underwriters as the underwriting commissions received by
them bears to the total price to the public set forth on the cover of the
Prospectus. The relative fault of the Parent, the Company, the Selling
Stockholder and the Underwriters 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 or the inaccurate
or the alleged inaccurate representation and/or warranty relates to information
supplied by the Parent, the Company, the Selling Stockholder or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in subparagraph (c) of this Section 11, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 11 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Parent, the Company, the Selling
Stockholder and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 11 were determined solely 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
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equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. 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 to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of
the operation of the interim reimbursement arrangements set forth in Sections
11(a) and 11(b) hereof, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition
to this Agreement and the obligation of the Company and the Selling Stockholder
to sell and deliver the Common Shares hereunder, and of each Underwriter to
purchase the Common Shares in the manner as described herein, that, except as
hereinafter in this paragraph provided, each of the Underwriters shall purchase
and pay for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such shares in accordance
with the terms hereof. If any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed to
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purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to the Representatives and the Company
for the purchase of such Common Shares by other persons are not made within 48
hours after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or the Company or the Selling Stockholder
except for the expenses to be paid by the Company and the Selling Stockholder
pursuant to Section 7 hereof and except to the extent provided in Section 11
hereof.
In the event that Common Shares to which a default relates are
to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representatives or the Company shall have the right to postpone the
First or Second Closing Date, as the case may be, for not more than five
business days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become
effective immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., California time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 13, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the
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release by you of telegrams (i) advising Underwriters that the Common Shares are
released for public offering, or (ii) offering the Common Shares for sale to
securities dealers, whichever may occur first.
SECTION 14. Termination. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company
by notice to you and the Selling Stockholder or by you by notice to the Company
and the Selling Stockholder at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall be
without liability on the part of the Company or the Selling Stockholder to any
Underwriter (except for the expenses to be paid or reimbursed by the Company and
the Selling Stockholder pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof) or of any Underwriter to the Company or
the Selling Stockholder (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you
prior to the First Closing Date by notice to the Company (i) if additional
material governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on either
such Exchange or in the over the counter market by the NASD, or a general
banking moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major hostilities or other
national or international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have accelerated
or escalated to such an extent, as, in the judgment of the Representatives, to
affect adversely the marketability of the Common Shares, (iii) if any adverse
event shall have occurred or shall exist which makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or there
shall have been any development
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or prospective development involving particularly the business or properties or
securities of the Company or any of its subsidiaries or the transactions
contemplated by this Agreement, which, in the reasonable judgment of the
Representatives, may materially and adversely affect the Company's business or
earnings and makes it impracticable or inadvisable to offer or sell the Common
Shares. Any termination pursuant to this subsection (b) shall without liability
on the part of any Underwriter to the Company or the Selling Stockholder or on
the part of the Company or the Selling Stockholder to any Underwriter (except
for expenses to be paid or reimbursed by the Company and the Selling Stockholder
pursuant to Sections 7 and 9 hereof and except to the extent provided in Section
11 hereof.
SECTION 15. Failure of the Selling Stockholder to Sell and
Deliver. If the Selling Stockholder shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholder at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholder, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholder, or (ii) purchase the
shares which the Company has agreed to sell and deliver in accordance with the
terms hereof. In the event of a failure by the Selling Stockholder to sell and
deliver as referred to in this Section, either you or the Company shall have the
right to postpone the Closing Date for a period not exceeding seven business
days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected.
SECTION 16. Representations and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Parent, the Company, the Selling Stockholder and
their respective officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter or the Parent, the
Company, the Selling Stockholder or any of their respective partners, officers
or directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder and any termination
of this Agreement.
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SECTION 17. Notices. All communications hereunder shall be in
writing and, if sent to the Representatives shall be mailed, delivered or
telecopied or telegraphed and confirmed to you at 600 Montgomery Street, San
Francisco, California 94111, Attention: Richard A. Smith, with a copy to Jack G.
Levin, Esquire; and if sent to the Company or the Selling Stockholder shall be
mailed, delivered or telecopied or telegraphed and confirmed to the Company at
124 South 15th Street, Philadelphia, PA 19102, Attention: Joel Morganroth, M.D.,
with a copy to the Selling Stockholder at 56 Haddon Avenue, Haddonfield, NJ
08033, Attention: Arthur W. Hicks, Jr. The Company, the Selling Stockholder or
you may change the address for receipt of communications hereunder by giving
notice to the others.
SECTION 18. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 12 hereof, and to the benefit of the officers
and directors and controlling persons referred to in Section 11, and in each
case their respective successors, personal representatives and assigns, and no
other person will have any right or obligation hereunder. No such assignment
shall relieve any party of its obligations hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 19. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of California.
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SECTION 22. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company, the Selling Stockholder and
you.
Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Stockholder represents by so doing that he has
been duly appointed as Attorney-in-fact by the Selling Stockholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding
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agreement among the Parent, the Company, the Selling Stockholder and the several
Underwriters including you, all in accordance with its terms.
Very truly yours,
PREMIER RESEARCH WORLDWIDE, LTD.
By:__________________________
President
SELLING STOCKHOLDER
UM Equity Corp.
By:___________________________
PARENT
UM Holdings, Ltd.
By:___________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
FURMAN SELZ LLC
GENESIS MERCHANT GROUP SECURITIES
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
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By:______________________________
Partner
46
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
Montgomery Securities ................
Furman Selz LLC.......................
Genesis Merchant Group Securities.....
---------
TOTAL ...................... 2,750,000
=========
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[SCHEDULE B
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholder
- --------------------------- -----------
UM Equity Corp.......................... 750,000
TOTAL ................ 750,000
=======
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DIRECTOR STOCK
OPTION AGREEMENT
PREMIER RESEARCH WORLDWIDE, LTD.
Dated as of January 23, 1997, and delivered by Premier Research
Worldwide, Ltd., a Delaware corporation (the "Company"), to Philip J. Whitcome.,
Ph.D., a member of the Board of Directors of the Company. (the "Optionee").
1. Grant. Subject to the terms and provisions hereinafter set forth,
the Company hereby confirms the grant to the Optionee of an option (the
"Option") to purchase an aggregate of 4,402 shares of the common stock, $.01 par
value (the "Common Stock"), of the Company, subject to adjustment as provided
herein, at a price determined in the manner set forth herein. The option
exercise price will equal the Price to the Public of a share of the Common Stock
in the IPO (as defined herein), unless the IPO does not occur prior to December
31, 1997, in which case the option price shall equal the fair market value of
the Common Stock on the date of grant of this Option (January 23, 1997), as
reasonably determined by the Board of Directors.
2. Expiration of Option. The Option shall expire on January 23, 2004,
unless earlier terminated as follows:
(a) Termination of Directorship. If Optionee shall cease to be
a member of the Board of Directors of the Company for any reason, the Option
shall terminate three months following such event.
-1-
<PAGE>
(b) IPO. The Option shall terminate at the end of the five
year period following the closing of the first sale by the Company of shares of
its Common Stock in a registered public offering (an "IPO").
(c) Sale. The Option shall terminate one month following a
Sale of the Company. For purposes herein, the term "Sale" refers to any sale of
substantially all of the assets of the Company, other than in the ordinary
course of business, or a sale or transfer of capital stock of the Company (other
than the sale of stock in the IPO) resulting in a change in the ownership of a
majority of the voting capital stock of the Company, or a merger or
consolidation having the effect of such a sale of capital stock.
3. Events Upon Which Option Becomes Exercisable. The Option shall
be exercisable, for the period indicated, solely upon the first to occur of the
following events, in each case subject to prior termination pursuant to
paragraph 2 above:
(a)During the five year period commencing with the
180th day following the closing of the IPO.
(b) During the one-month period preceding January 23, 2004.
(c) During the one-month period commencing with a Sale of
the Company.
4. Manner of Exercise. During the period, if any, that the Option is
exercisable, the Optionee may exercise the Option with respect to all or any
part of the shares then subject to the Option, by giving the Company written
notice of such exercise, which notice shall be in such form as may from time to
time be specified by the Committee. Such notice shall specify the number of
shares as to which the Option is so exercised and shall be accompanied by full
-2-
<PAGE>
payment for all the shares being purchased. The option price shall be payable in
cash, by check or by tendering to the Company shares of Common Stock having an
aggregate fair market value, determined as of the date of payment by the Board
of Directors of the Company (the "Board"), equal to the option price.
5. Non-Transferability. During the lifetime of the Optionee, the Option
shall be exercisable only by him and shall not be assignable or transferable by
him, and no other person shall acquire any rights therein, the Option being
transferable by the Optionee only by will or the laws of dissent and
distribution.
6. Adjustment in the Event of Recapitalization. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering or any other change in the
corporate structure or shares of the Company, the Board shall make such
adjustment as it may deem equitably required, in the number and kind of shares
covered by the Option and in the option price.
7. Notices. Any notice to the Company provided for in this Stock Option
Agreement shall be addressed to it in care of its Secretary, at its principal
executive offices, and any notice to the Optionee shall be addressed to him at
his address at the time as it is shown on the records of the Company, or to such
other address as either may designate to the other in writing. Any such notice
shall be in writing and shall be deemed to be fully given if delivered by hand
or sent by telegram or by registered or certified mail, postage prepaid,
addressed as stated above.
8. Miscellaneous. All references herein shall include the singular and
the plural and the masculine, feminine and the neuter, as applicable. This Stock
Option Agreement replaces and supersedes all agreements and understandings
between the Company, and the Optionee with
-3-
<PAGE>
respect to the subject matter hereof. This Stock Option Agreement is subject to
modification or amendment solely upon a written agreement signed by the Company
and the Optionee. The validity, construction, interpretation and effect of this
Stock Option Agreement shall be exclusively governed by and determined in
accordance with the laws of the Commonwealth of Pennsylvania.
PREMIER RESEARCH WORLDWIDE, LTD.
By /s/ Joan Carter
----------------------------
Joan Carter, Chairman
The Optionee named herein hereby acknowledges receipt of this Stock
Option Agreement and confirms that this Stock Option Agreement supersedes all
agreements and understandings between the parties with respect to the subject
matter hereof.
/s/ Philip J. Whitcome
-----------------------------------
Philip J. Whitcome, Ph.D., Optionee
-4-
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent pubic accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 27, 1997
