<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee required) For the Fiscal Year ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required) For the transition period from _____ to__________
Commission File No. 0-29100
---------------------------
PREMIER RESEARCH WORLDWIDE, LTD.
(Exact name of issuer as specified in its charter)
Delaware 22-3264604
(State of incorporation) (I.R.S. Employer Identification No.)
30 South 17th Street Philadelphia, PA 19103
(Address of Principal Executive Offices - Zip Code)
Registrant's telephone number, including area code: (215) 972-0420
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of the registrant's Common Stock, $.01 par value,
held by non-affiliates, computed by reference to the average of the closing bid
and asked prices of the Common Stock as reported by Nasdaq on March 29, 1999 was
$27,318,000
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Number of shares of Common Stock of the registrant issued and outstanding
as of March 25, 1999 was 7,058,720
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (items 10, 11, 12 and 13) is incorporated
by reference from the Registrant's definitive proxy statement for its Annual
Meeting of Stockholders, to be filed with the Commission pursuant to Regulation
14A, or if such proxy statement is not filed with the Commission on or before
120 days after the end of the fiscal year covered by this Report, such
information will be included in an amendment to this Report filed no later than
the end of such 120-day period.
1
<PAGE>
ITEM 1. BUSINESS
General
Premier Research Worldwide, Ltd. (the "Company") is a full-service
clinical research and consulting organization (CRO) that brings significant
added value to the clinical development process through the application and
integration of science, process and technology. The Company provides clinical
research products and services to the pharmaceutical, biotechnology and medical
device industries and creates client driven clinical R&D process solutions
through coupling the Company's in-depth understanding of clinical development
with technology and efficient workflow processes.
The Company's products and services are provided, both in the United
States and internationally, through two business segments: Clinical Operations,
which include centralized diagnostic testing services and clinical trial and
data management services; and Technology Operations, which includes the
developing, marketing and support of clinical trial and data management
software, support and consulting services. See footnote 11 to the Consolidated
Financial Statements appearing herein for information pertaining to the amounts
of net revenue, operating profit and identifiable assets attributable to each of
the Company's industry segments for the Company's last three fiscal years.
Within Clinical Operations, centralized diagnostic testing services
include ECG and transtelephonic monitoring, Holter monitoring, imaging and
pulmonary function testing which the Company then analyzes or interprets, and
clinical laboratory blood and urine testing. Clinical trial and data management
services include study protocol design, site and investigator recruitment,
patient enrollment, study monitoring and data medical services, report writing,
clinical data collection, analysis and reporting, biostatistical services and
regulatory affairs services.
All of the Company's products and 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, transtelephonic 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 large voluntary
hospital buying group), a limited liability company, which was owned 65% by the
Company and 35% by PREMIER, Inc. Upon the closing of the Company's initial
public offering of its Common Stock in February 1997, PREMIER, Inc.'s minority
interest in this limited liability company, held on behalf of certain member
hospitals, was converted into 330,150 shares of Common Stock of the Company.
In October 1997, the Company acquired the assets and business of DLB
Systems, Ltd. ("DLB"), a provider of clinical trial and data management
software, support and information technology consulting services to the
pharmaceutical, biotechnology and device industry. The acquisition of DLB
provided the opportunity to extend the Company's clinical data management
expertise worldwide. The integration of the Company's rapid data acquisition and
review capacity and DLB's integrated clinical research system allows the Company
to offer technological advantages facilitating drug and medical device
development.
2
<PAGE>
Company Products and Services
Clinical Operations
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 and Holter monitoring. 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 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:
12-lead Eletrocardiography. 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.
Modem ECG. Modem ECG will allow the investigator to telephonically
transmit 12 lead ECG data directly to the Company for interpretation and
immediate return of results back to the investigator. This technology will save
time and money and provide the investigator with immediate feedback as to the
viability of the patient for admission to the clinical trial or adverse side
effects. Modem ECG is in final testing and should be available to the Company's
clients during the first half of 1999.
Holter Monitoring. Holter monitoring is a 24 hour continuous ECG
recording of the heart's rhythm on a cassette tape.
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 drug trials.
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 and data 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.
3
<PAGE>
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 contract with AmericasDoctor.com, Inc., the internet company providing
real-time physician chat, referrals and healthcare events on America Online's
health web page, could provide rapid identification and recruitment of
candidates to participate in clinical trials. During a three-week test period in
the fourth quarter of 1988, the Company received information on over 17,000
people who expressed an interest in volunteering for clinical research programs.
In addition, the Company believes that its affiliation with PREMIER, Inc. and
the resultant access to PREMIER, Inc.'s databases could additionally enhance the
Company's ability to quickly and cost-effectively recruit investigators and
patients for clinical trials. The Company believes that its access to both
AmericasDoctor.com, Inc. and PREMIER, Inc.'s patient databases can provide a
competitive advantage because it permits the Company to identify more precisely
exclusion and inclusion criteria, thereby maximizing patient recruitment without
jeopardizing patient safety.
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 use of the Company's DLB Monitor
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 reviewed 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.
The Company also offers its clients three different mechanisms for
collecting clinical data and storing the data in one integrated database.
Through the use of its Technology Operations segment, the Company can offer (1)
traditional double entry ( where each piece of data is entered into a database
twice for consistency and accuracy checks); (2) web based remote data entry
through the use of the Company's DLB Recorder Remote; and (3) the
PremierResearch * Fax system, a fax based rapid data capture system based on a
combination of a commercially available technology (DataFax TM, 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
PremierResearch * 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 PremierResearch * 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.
4
<PAGE>
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-five CANDAs. The Company
believes that its technological expertise provides a competitive advantage in
the provision of clinical data management and biostatistical analysis services.
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. The application of the Company's processes and technology 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 client'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.
Regulatory Affairs Services. The Company provides comprehensive
regulatory product registration services for pharmaceutical, biotechnology and
medical device products in North America and Europe, 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 Operations
The Company develops, markets and supports clinical trial and data
management software and provides software support and information technology
consulting services to pharmaceutical, biotechnology and medical device
companies. It also utilizes its technology internally to support its Clinical
Operations services to clients. To date, inter-segment sales have not been
material.
The Company's software is designed to accelerate product development
and to improve the quality of clinical research by providing superior data
handling that facilitates analysis. The 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 acquisition of DLB provided the opportunity to extend
the Company's clinical data management expertise worldwide. The integration of
the Company's rapid data acquisition and review capacity and DLB's integrated
clinical data management system allows the Company to offer technological
advantages facilitating drug and medical device development. The Company's
software is available on multiple platforms which facilitates integration with
the wide variety of systems used by its clients. The Company fully supports and
maintains its client's software installations through annual support agreements.
The annual support agreement entitle the client to ongoing telephone technical
support and improvements and application enhancement and product upgrades. The
Company also provides, for fee, complete software training and an array of
software migration and implementation consulting services. The Company's
clinical trial and data management software products include the following:
5
<PAGE>
DLB Recorder TM. The Company's DLB Recorder Clinical Data Management
System (Recorder) is a comprehensive solution for collecting, cleaning and
managing clinical trial data in any development environment, from single site to
worldwide operations. Recorder aids clinical data management by unifying and
simplifying case report design, database checking and data quality checking.
Recorder offers a three level data structure to effectively assemble new study
data for accelerated analysis and reporting according to company specifications,
therapeutic area requirements or protocol-specific standards. Recorder's unique
Object Cascade eases and simplifies managing changes to evolving standards. Data
entry can be accomplished through common processes or in a study by study manner
with verification and interactive checks from a single entry screen.
Data integrity and quality problems can be identified by programming,
or industry-standard languages can be used to store complex checks in Recorder's
libraries for repeated use. Recorder offers a lifecycle discrepancy management
system to easily locate data discrepancies, then route them to in-house groups
or to the investigator for resolution. Recorder tracks the status of each
discrepancy either on-line or through standard reports, allowing application of
fully-audited solutions directly to the database.
Recorder's flexibility of privileged access and control plus
hierarchical data locking allow multiple levels of security, flexibility and
blinding of data items for archiving data and/or creating interim database
"snapshots" prospectively or retrospectively. Recorder interfaces seamlessly
with SAS(R), exporting all data and definitions in SAS format directly through
SAS/ACCESS(R) pass-through views. Recorder offers standard reports or custom
reports can be built with any Oracle(R)-based reporting or query tool.
Recorder's integrated randomization subsystem easily implements
treatment codes and other randomized aspects of clinical studies, whether
generated for an individual study design, a standardized study design, or
designs imported from other systems. Recorder allows for distribution of data
management operations across sites by operation as well as by individual study
for the greatest flexibility in replication, and to centralize maintenance of
standards or distribute them to other sites.
Recorder's optional Global Dictionary and Codelist Manager subsystem
database structures and maintenance facilities are provided for all standard
medical dictionaries, including dictionary structures for company products,
institutes and investigators.
DLB Recorder Remote TM. The Company's DLB Recorder Remote (Recorder
Remote) is a web based remote data entry system which enables the Company's
pharmaceutical, biotechnology and medical device clients to use standard web
browser tools to input data in real-time online or offline, which saves time and
reduces costs while maintaining a valid, clean central database. Recorder Remote
is currently in beta test and it is anticipated that it will be released to the
market in the first half of 1999.
Users of Recorder can speed collection and integration of data via the
World Wide Web, using standard browser tools such as Netscape Navegator(R) or
Microsoft Internet Explorer(R). With Web-based distribution of information,
investigators, CRAs and medical directors can all be simultaneously aware of a
study's progress, enabling decisions to be made more quickly, and directives to
be transmitted at megabyte speed. Recorder Remote Data Capture System maintains
a full audit trail, and improves accuracy by performing data validation at the
point of entry.
DLB Monitor TM. The Company's DLB Monitor and Field Monitor (Monitor)
create a comprehensive system and methodology for clinical trial management,
which supports the planning and management of a development program and
associated studies from Phase I through Phase IV.
6
<PAGE>
Monitor Clinical Trial Management Software is an effective tool for
ongoing coordination and management of clinical trials. Designed for maximum
flexibility and functionality, Monitor provides fast, accurate answers to
operational issues whenever they are needed. The tool enables managers to track
recruitment (by patient, center, region, protocol and program), contacts, site
visits, CRF milestones, grant and investigator payments, supplies and finances.
Monitor is a comprehensive project management system, supporting planning and
scheduling from the overall program to the individual patient, and provides
up-to-date reviews of the study's progress, either by desired completion date or
projected start date. Monitor integrates with popular desktop management tools
such as Microsoft Project(R), and can automatically transfer data between global
locations so all users can base decisions on the same current and consistent
information.
Alert. Alert is a comprehensive clinical safety reporting system
providing a complete solution for multi-national regulatory compliance for
manufacturers of pharmaceuticals, biologics, consumer health care products and
medical devices. Alert Adverse Event Management Software, is an integrated tool
(integrated with Recorder and Monitor) for collecting and reporting safety data
analysis information providing complete, validated adverse event management
capabilities that meet the global needs of pharmaceutical, biotechnology,
medical device and healthcare companies. Alert allows reporting of adverse
events from multiple sources, including clinical trials, spontaneous events,
published articles and journals, and regulatory authority reports. Alert data
can be stored in company and/or product-specific databases, and is the only
system that provides the convenience of both single and double data entry, with
interactive batch verification of the second entry. Data may be validated at
entry or post-entry, and both high-volume and occasional data entry are
supported for managing and tracking cases and case workflow, supports
checklists, action items and reporting history. Ad hoc case reviews may be made
by Alert's fast Query-by-Example facility, or its more generalized Query
Builder, which allows selection of virtually any set of criteria for exploration
of any set of data fields in the database. Alert generates single- and
multi-case reports including FDA 3500A, Clinical Trial 10-Day Report, FDA
Periodic Report, Increased Frequency Report, CIOMS I/II, BfArM (Germany), EMEA
Spontaneous Report, EMEA Clinical Report, and AFM Report (France). It also
allows creation and storage of custom, company or site-specific templates for
tracking checklists which implement company-specific Standard Operating
Procedures (SOPs). Alert supports reconciliation of adverse event cases
submitted on CRFs with commercial or company-developed clinical data management
systems, and it cooperates efficiently with Recorder by utilizing
consistently-defined data items in both systems to reconcile adverse events in
either system that may not be found in the other, or that exist in both, with
any differences highlighted.
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.
Technology Utilization and Development
The Company has a history of technological innovation in the support of
clinical trials, including:
The first electronic transfer of centralized diagnostic data,
eliminating manual key punching (1979), the
First multi-site remote data entry system used by the FDA, partially
replacing site monitoring (1984), the
First computer-assisted new drug application, shortening regulatory
review process (1985). The Company has since filed over 65 full data
review CANDAs, and the
First NDA Day, a one day intensive session between the FDA and the
product's sponsor utilizing the interactive features and real-time data
query capabilities of the CANDA (1988).First interactive CANDA,
providing for the interactive review of clinical data by the FDA,
further accelerating the regulatory review process (1993).
7
<PAGE>
The Company's technology, designed primarily for the internal use of
the Company to support Clinical Operations includes:
PremierResearch * 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.
Navigator is a user friendly software designed to allow medical and regulatory
personnel to interactively review and analyze research data. 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 * CARD (computer assisted research and development) and
for electronic regulatory submissions for pharmaceutical clients under the name
PremierResearch * CANDA.
PremierResearch * 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 which is then available for
on-line review by project management, diagnostic services and clinical research
personnel. The Company believes that Enterprise facilitates and speeds product
development by making it easier for the Company, on behalf of the client, to
collect, store, retrieve and utilize the massive amounts of data traditionally
collected in clinical trials.
8
<PAGE>
PremierResearch * 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 * Fax
process. This system receives CRFs, electronically enters the information into
data bases, 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 * 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 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.
Strategic Investments and Relationships
The company has sought and continues to seek strategic investments and
relationships to leverage its position in the market place by attracting new
technologies and/ or services to increase its capabilities and ability to
provide value added products and services.
AmericasDoctor.com, Inc. In July, 1998, the Company made a $1 million
equity investment in AmericasDoctor.com, Inc. (formerly kmown as America's
Doctor), an internet company, which provides real-time physician chat, referrals
and healthcare events on America Online's Health web page. AmericasDoctor.com,
Inc. became fully operational in September 1998 and is providing one-on-one
doctor chat service using a state-of-the-art, 24 hour physician staffed call
center. The Company has an exclusive contract with AmericasDoctor.com, Inc. to
provide the Company with information on individuals who have expressed an
interest in participating in future clinical trials. During a three week test
period in the fourth quarter of 1998, the Company received information on over
17,000 people who expressed an interest in volunteering for clinical research
programs. Since patient recruitment remains the single largest cause of delayed
clinical trials, such a large source of referrals may be advantageous in the
future to the Company as well as other clinical research organizations and the
patient recruitment efforts of clinical trial sponsor organizations.
9
<PAGE>
RX2OTC Joint Venture. During the third quarter of 1998, PRWW entered
into a strategic relationship with Nelson Communications Inc., one of the
leading independent providers of marketing and communication services to the
healthcare industry. The Company formed a joint venture with Nelson, named
RX2OTC, which will focus on the expanding business segment of bringing
prescription products to the over-the-counter market. The combination of the
Company's clinical science, process and technology expertise and Nelson's market
research, strategy and communications expertise might result in a creative
resource for those healthcare companies looking to take products to the OTC
market in a more timely manner.
PREMIER, Inc. In September 1995, the Company with PREMIER, Inc. formed
a limited liability company, owned 65% by the Company, for the provision of
clinical research services. Upon the Company's initial public offering of its
Common Stock in February 1997, PREMIER, Inc.'s interest in the limited liability
company converted into 330,150 shares of the Company's Common Stock which is
held by PREMIER, Inc. on behalf of certain of its affiliated hospitals.
PREMIER, Inc. is a voluntary hospital buying group of more than 230
independent, not-for-profit health systems in fifty states which operate or are
affiliated with approximately 1,700 hospitals. Healthcare organizations purchase
goods and services worth approximately $8.5 billion a year through PREMIER, Inc.
group contracts. PREMIER, Inc. is considered the largest committed healthcare
group purchasing organization in the world.
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.
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. 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.
During 1998, the Company successfully integrated the Clinical
Operations and Technology Operations sales forces into a cohesive multi
product/service focused organization. The sales force has extensive
pharmaceutical, biotechnology, medical device, software and consulting
experience which, under the team selling concept, presents the client with a
full picture, integrated solution to the clinical trial process.
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
72% of net revenues in 1998 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 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 1997 research and
development expenditures as reported by Med Ad News. During 1998, pharmaceutical
companies accounted for approximately 63% 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 1998, the Company provided services under
289 contracts for 91 clients, including some of the largest pharmaceutical
companies in the United States, Europe and Japan. During 1996, Sandoz
Pharmaceuticals Corporation and Zeneca Pharmaceuticals accounted for
approximately 15.3% and 10.1% of the Company's net revenues, respectively.
During 1998 and 1997, no single client accounted for more than 10% of the
Company's net revenues. The loss of any significant client could have a material
adverse effect on the Company's net revenues.
10
<PAGE>
Forward Load Backlog
The company's forward load backlog (also commonly referred to as
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 generally lasts from one month to two years.
Forward load 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. Forward load backlog at December 31,
1998 for Clinical Operations was approximately $33 million as compared to a
backlog of $30 million at the end of 1997. The Company experienced growth in
both centralized diagnostic testing services and in clinical data management
services. The growth was somewhat offset by a decline in the backlog for the
clinical laboratory portion of centralized diagnostic testing as the Company,
during 1998, chose not to actively promote this smaller, less profitable portion
of the business. The Company believes that backlog for Technical Operations is
not meaningful and has not been included in the backlog figures as delivery
times for software products and consulting services are relatively short and
therefore the backlog from year-to-year can change dramatically.
The Company believes that its Clinical Operations forward load backlog
as of any date is not necessarily a meaningful predictor of future results.
Clinical studies under contracts included in the forward load 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 frequently is
entitled to keep any portion of any advance payment and receive certain fees for
winding down a study that is terminated or delayed.
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
Quintiles Transnational Corporation, ClinTrials Research, Inc., Covance, Inc.,
Kendle, Pharmaceutical Product Development, Inc. and PAREXEL International
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. 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.
11
<PAGE>
The Company's Technology Operations segment, DLB, competes primarily
with Fraser Williams and Clinarium in the trial management area. Its data
management competitors include Domain, Oracle Clinical and DZS. In addition the
Company vies for business primarily with Domain and Clinarium in the safety
arena. In all areas, the primary competitive differentiator for DLB is
implementation certainty, which includes a fixed cost and time frame and assured
accuracy and completeness.
Government Regulation
Human pharmaceutical products, biological products and medical devices
are subject to rigorous regulations by the federal government, principally the
Food and Drug Administration (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 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:
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 laboratory 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.
12
<PAGE>
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 pre-clinical 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.
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.
13
<PAGE>
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, pre-market 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, post-market 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 pre-market 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)
pre-market 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 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.
14
<PAGE>
If a manufacturer cannot establish that a proposed device is
substantially equivalent to a legally marketed predicate device, the
manufacturer must seek pre-market 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 non-clinical 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.
15
<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.
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 $5 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.
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.
16
<PAGE>
Employees
At December 31, 1998, the Company had 274 employees. At its US locations, the
Company had 227 employees (217 full-time, 10 part-time). At its UK locations,
the Company had 47 employees (all full-time). On December 31, 1998, 39 employees
held M.D., Ph.D. or other masters or post-graduate degrees. The Company believes
that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases all of its facilities. The Company's principal
offices are located in Philadelphia, PA. On January 3, 1999 the Company moved
into new Philadelphia facilities, comprised of approximately 58,000 square feet
under a lease expiring in 2005. The Company also maintains offices of
approximately 9,000 square feet in Peterborough, UK and 6,875 square feet in
Maidenhead, UK. The Peterborough and Maidenhead leases expire in 2009 and 2004,
respectively. The Peterborough lease contains a termination option as of June
30, 1999. The Company has notified the landlord of its intent to exercise the
termination option and has identified a smaller facility at a comparable cost
per square foot.
The Company's DLB operations are located in Bridgewater, New Jersey,
where it leases approximately 10,600 square feet. The Bridgewater lease expires
in 1999. The Company believes that the leases generally reflect market rates in
their respective geographic areas.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters during the fourth quarter of the
year covered by this Report to a vote of the security holders through the
solicitation of proxies or otherwise.
17
<PAGE>
SPECIAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT
Officers are elected by the Board of Directors and serve at the
pleasure of the Board. The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joel Morganroth, M.D 53 Chief Executive Officer
Joseph Esposito 45 President & Chief Operating Officer
David Dworaczyk, Ph.D. 43 Sr. Vice President, Business Development
Barry Sachais, Ph.D. 57 Sr. Vice President, Clinical Operations
Glenn Cousins 41 Sr. Vice President, Diagnostic Services
David A. Evans 41 Sr. Vice President & Chief Technical Officer
Fred M. Powell 37 Vice President, Finance and Administration
</TABLE>
Dr. Morganroth has served as the Chief Executive Officer of the Company
since 1993 and as a Director of the Company since 1997. In addition, Dr.
Morganroth 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 served
for over 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.
Mr. Esposito joined the Company as President of DLB Systems in October
1997 and became President and Chief Operating Officer of Premier Research
Worldwide in April 1998. From May 1997 until joining the Company, Mr. Esposito
had served as President of DLB Systems, Inc. In addition, Mr. Esposito served as
President, Worldwide Operations for Computron (1994-1997) and held various
senior management positions at Ross Systems, Inc. (1991-1994). From 1979 to
1991, Mr. Esposito held various senior management positions with Wang, which
produced computing equipment related to peripheral devices and workflow/image
management software.
Dr. Dworaczyk joinded the Company as Senior Vice President, Business
Development in April 5, 1998. Prior to joining the Company, he held several
senior management positions at Solvay Pharmaceuticals from 1989 to 1997
including the position of Director of Computer Aided Registration Statements.
After leaving Solvay and until joining Premier Research, he founded and operated
his own consulting company focused on drug and medical device development. He
has been actively involved in the pharmaceutical industry for over 18 years and
has worked in addition at Norwich Eaton Pharmaceuticals and DuPont
Pharmaceuticals. His professional experience encompasses domestic and
international research and development, commercial operations, business
development and strategic planning.
Dr. Sachais joined the Company as Vice President-Clinical Research in
September 1997 and was named Senior Vice President-North American Operations in
April 1998. Prior to joining the Company, he held the position of Vice President
of Clinical Research for Quintiles CNS in San Diego from 1993 to 1997 and
Director of Clinical research at Kendle from 1991 to 1993. He has spent more
than 30 years in the pharmaceutical development area including 14 years at Ciba
Geigy and 7 years with Sandoz. The majority of his career, Dr. Sachais has
managed CNS Drug Development. In that regard, he was vice president in the CNS
therapeutic area at Ciba Geigy. Dr. Sachais received his Ph.D. degree in
pharmacology from New Jersey College of Medicine in 1968.
Mr. Cousins has served in various capacities since joining the Company
in 1980. Mr. Cousins has served as Senior Vice President, Diagnostic Services
since 1998. He served as Vice President and Chief Operating Officer of the
Company from 1993 to 1996 and as President, Diagnostic Services from 1996 to
1998.
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 and was the principal
designer of the first CANDA.
18
<PAGE>
Mr. Powell has served as Vice President, Finance and Administration and
Chief Financial Officer 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on The Nasdaq National
Market System since February 4, 1997, under the symbol "PRWW". Before February
1997, no established public trading market existed for the Company's Common
Stock. Below is the range of high and low sales information for the Common Stock
for the following quarters as quoted on The Nasdaq National Market System:
Calendar Period High Low
- --------------- ---- ---
1998
First Quarter $13.000 $4.500
Second Quarter 6.375 4.500
Third Quarter 5.500 3.750
Fourth Quarter 6.125 2.750
1997
First Quarter (February 4 - March 31) $26.250 $13.125
Second Quarter 17.000 5.375
Third Quarter 12.000 7.625
Fourth Quarter 14.250 6.250
No dividends were paid on the Common Stock in 1997 or 1998. The Company plans to
retain future earnings to fund the development and growth of its business and
therefore does not anticipate paying cash dividends in the foreseeable future.
During 1998, the Company issued 279,120 shares of its Common Stock upon
exercise of outstanding options pursuant to its 1993 Non-Qualified Stock Option
Plan, for which it received $633,602. The issuance of such shares was exempt
from the registration requirements of the Securities Act of 1933, as amended,
pursuant to Rule 701 promulgated under said Act.
As of March 15, 1999, there were approximately 1,200 holders of record
of the Company's Common Stock.
In its initial public offering, the Company sold 2,206,250 shares of
Common Stock (including over-allotments), pursuant to its Registration Statement
on Form S-1, File No. 333-17001 (the "Registration Statement"), which was
declared effective by the Securities and Exchange Commission on February 3, 1997
(the "Effective Date"). The gross proceeds to the Company from the IPO were
approximately $37,506,000, and, after underwriting discounts and commissions,
expenses paid to or for the benefit of underwriters, and other costs of the IPO,
net proceeds to the Company were approximately $34,182,000.
19
<PAGE>
From the Effective Date to December 31, 1998, the Company purchased
approximately $4,861,000 of property and equipment, used approximately
$3,176,000 for working capital, $5,668,000 for short-term investments,
$8,655,000 for the purchase of DLB and $1,000,000 for an equity investment in
AmericasDoctors.com, Inc.
None of the foregoing payments resulted in direct or indirect payments
(i) to directors or officers of the Company, nor their associates, (ii) to
persons owning 10% or more of the Common Stock of the Company, nor (iii) to
affiliates of the Company.
The Company's use of proceeds does not represent a material change in
the use of proceeds described in the Prospectus contained within the
Registration Statement.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company is
qualified by reference to, and should be read in conjunction with, the
consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report.
<TABLE>
<CAPTION>
Consolidated Statements of Operations Data
(in thousands, except per share data) Year Ended December 31
-----------------------------------------------------------------
1998 1997 1996 1995 1994(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 38,134 $ 15,327 $ 15,396 $ 12,218 $ 12,910
Less: Reimbursed costs (6,327) (1,164) (113) (154) --
------------ ----------- --------- ----------- ----------
Net revenues 31,807 14,163 15,283 12,064 12,910
------------ ----------- --------- ----------- ----------
Costs and expenses:
Direct costs 13,847 7,167 6,285 4,124 3,473
Selling, general and administrative 16,165 9,922 6,783 6,375 7,245
Depreciation and amortization 1,606 709 704 1,013 1,197
Write-off of acquired in-process research
and development (2) -- 7,883 -- -- --
----------- ----------- --------- ---------- ----------
Total costs and expenses 31,618 25,681 13,772 11,512 11,915
----------- ----------- --------- ---------- ----------
Income (loss) from operations 189 (11,518) 1,511 552 995
Other income, net 1,012 1,250 -- -- --
----------- ---------- --------- ---------- ----------
Income (loss) before income taxes and
minority interest 1,201 (10,268) 1,511 552 995
Minority interest in limited liability
company -- -- 332 48 --
----------- ---------- ---------------------- ----------
Income (loss) before income taxes 1,201 (10,268) 1,843 600 995
Income tax provision (benefit) (3) 480 (4,037) 773 259 415
----------- ----------- --------- ---------- ----------
Net income (loss) (4) $ 721 $ (6,231) $ 1,070 $ 341 $ 580
=========== =========== ========= ========== ==========
Basic net income (loss) per share $ 0.10 $ (0.93)(2) $ 0.24 $ 0.08 $ 0.13
Diluted net income (loss) per share $ 0.10 $ (0.93)(2) $ 0.23 $ 0.08 $ 0.13
Consolidated Balance Sheet Data
(in thousands) December 31
-------------------------------------------------------
1998 1997 1996 1995 1994(1)
------------- ----------- ----------- ---------- --------
Cash and cash equivalents and
short-term investments $ 16,490 $ 21,763 $ 1,498 $ 33 $ 447
Working capital 20,017 21,661 1,595 1,729 87
Total assets 40,172 36,774 5,748 4,400 5,155
Total stockholders' equity 30,941 30,467 2,516 2,658 2,175
</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 divisions by UM.
21
<PAGE>
(2) Represents a one-time charge of $7.9 million ($0.71 per share) for the
write-off of acquired in-process research and development in connection
with the acquisition of DLB Systems, Inc.
(3) For periods prior to February 3, 1997, the Company was included in the
consolidated income tax returns of UM. The financial statements reflect
income taxes calculated on a separate company basis for all periods
presented. See Note 7 of Notes to Consolidated Financial Statements.
(4) 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 Chief Executive
Officer, who is a stockholder. See Note 8 of Notes to Consolidated
Financial Statements.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company is a clinical research organization 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
products and services are provided, both in the United States and
internationally, through two business segments: Clinical Operations, which
include centralized diagnostic testing services, clinical trial management
services and clinical data management services; and Technology Operations, which
includes the development, marketing and support of clinical trial and data
management software, support and consulting services. The Company had operated a
Phase I Clinical Research Unit, which was closed in the first quarter of 1998.
The Company's centralized diagnostic testing services are on a
fee-for-service basis and contracts generally have terms of one month to two
years. A portion of the Company's fee frequently is paid upon contract execution
as a non-refundable up-front payment, with the remaining amounts billed monthly.
Clinical trial and data management services are generally fixed priced
contracts, with certain variable components, and range in duration from a few
months to two years. A portion of the Company's fee frequently is paid upon
contract execution as a non-refundable up-front payment, with the balance billed
in accordance with the 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 the product(s) 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
supplies. Revenues from clinical trial software and services are derived
primarily from software license fees, software maintenance and support and
consulting services.
Revenues from centralized diagnostic testing services are recognized as
the services are performed. Revenues from clinical trial and data management
services are generally recognized on a percentage of completion basis as work is
performed. 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.
Revenues from technology software licenses are recognized upon shipment
of the software and related documentation when collectibility is deemed probable
and the license fee is deemed fixed and determinable. Revenues from software
maintenance and continuing support contracts are recognized on a straight-line
basis over the period in which the software maintenance and continuing support
is provided, generally twelve months. Revenues from consulting and training
services are recognized when the services are performed.
The Company conducts operations on a global basis, with offices in the
United States and United Kingdom. For the years ended December 31, 1998, 1997
and 1996, the Company's international net revenues represented 14.5%, 6.9% and
14.9%, respectively, of total net revenues.
23
<PAGE>
Results of Operations
Year ended December 31, 1998, compared to the year ended December 31, 1997
Net revenues increased 124.6% or $17.6 million to $31.8 million for the
year ended December 31, 1998 compared to $14.2 million for the year ended
December 31, 1997. The Company experienced increased net revenues in all ongoing
service lines.
Clinical Operations net revenues increased 91.7% or $10.4 million to
$21.7 million for the year ended December 31, 1998 compared to $11.3 million for
the year ended December 31, 1997. Contributing to this increase was centralized
diagnostic testing service revenues which increased 42.4% to $9.8 million for
the twelve months ended December 31, 1998 compared to $6.9 million for the same
period in 1997. The increase in centralized diagnostic testing service revenues
resulted from increased contract signings in 1998 which resulted in an increase
of more than 50% in the number of diagnostic procedures performed. In addition,
1998 net revenues include the recognition of $0.8 million for work completed
under a contract which was cancelled before completion. Clinical trial and data
management services increased 168.8% or $7.5 million to $11.9 million for the
twelve months ended December 31, 1998 compared to $4.4 million for the same
twelve months in 1997. The increase in clinical trial and data management net
revenues is attributable to recognition of part of the 1997 backlog and new
contracts signed in 1998. The increase in clinical trial and data management net
revenues includes $0.6 million generated from the Company's UK operation, which
didn't offer such services until late 1997.
Technology Operations net revenue results for 1998 reflect the full
year effect of the acquisition of DLB Systems, which occurred in October 1997.
Technology net revenues for the year ended December 31, 1998 were $9.9 million
compared to $0.8 million for the year ended December 31, 1997.
Other net revenues result from the Company's Phase I Clinical Research
Unit which was closed during the first quarter of 1998. Phase I net revenues for
the twelve months ended December 31, 1998 were $0.2 million compared to $2.1
million for the twelve months ended December 31, 1997.
Direct costs increased $6.7 million or 93.2% to $13.8 million for the
year ended December 31, 1998 compared to $7.2 million for the same period in
1997. The increase in overall direct costs reflects the full-year 1998 impact of
DLB operations, acquired in October, 1997, the personnel and related expense
impact of increased staffing needed to support increased net revenues and the
full-year 1998 impact of the Company's decision to build its international
clinical trials and data management service capabilities in Europe, which began
in late 1997. Direct costs, as a percent of net revenues, declined to 43.5% in
1998 from 50.6% in 1997. The decrease in direct costs as a percentage of net
revenues was primarily due to the full year impact of DLB Systems, whose
products and services have lower direct costs as a percentage of revenues,
recognition of $0.8 million in net revenues for work completed under a contract
which was cancelled before completion, closure of the Phase I unit which had a
higher percentage of direct cost to net revenues and to the overall increase in
net revenues.
Selling, general and administrative expenses increased 62.9% to $16.2
million in 1998 from $9.9 million in 1997. The increase in selling, general and
administrative expenses is the result of the full-year impact of DLB Systems,
acquired in October 1997, the full-year impact of increases to the company's
domestic infrastructure to promote and support future growth in operations and
the full-year impact of the Company's decision to build its international
clinical trials and data management service capabilities. As a percentage of net
revenues, selling, general and administrative expenses declined to 50.8% for the
twelve months ended December 31, 1998 compared to 70.1% for the same twelve
months of 1997. The decline in selling, general and administrative expenses as a
percentage of net revenue was primarily due to the Company's ability to spread
the fixed portion of selling, general and administrative expenses over a larger
revenue base.
24
<PAGE>
Depreciation and amortization expense for the year ended December 31,
1998 increased to $1.6 million for the year ended December 31, 1998 compared to
$0.7 million for the year ended December 31, 1997. The year-to-year increase was
due to the full-year impact of the DLB System's goodwill amortization and
increased capital expenditures in 1998.
Other income of $1.0 million during the year ended December 31, 1998
declined from the $1.3 million reported for the year ended December 31, 1997.
Other income resulted primarily from income earned on investment of the net
proceeds of the Company's initial public offering in February 1997.
The Company had an income tax provision of $0.5 million for the year
ended December 31, 1998 compared to a tax benefit of $4.0 million for the year
ended December 31, 1997. The Company's effective income tax rate for the year
ended December 31, 1998, was 40.0%, compared to 39.3% for the year ended
December 31, 1997.
Year ended December 31, 1997, compared to the year ended December 31, 1996
Net revenues decreased $1.1 million or 7.3% to $14.2 million for the
year ended December 31, 1997, compared to $15.3 million for the year ended
December 31, 1996.
Clinical Operations' net revenues decreased 19.7% or $2.8 million to
$11.3 million for the year ended December 31, 1997 compared to $14.1 million for
the year ended December 31, 1996. The decrease was primarily due to a $5.1
million decrease in central diagnostic testing service revenues for the year
ended December 31, 1997, primarily the result of several significant ECG
contracts, which were ongoing in 1996, being completed in early 1997, with a low
level of new ECG contracts initiated in 1997. Partially offsetting the decrease
in central diagnostic testing service revenues, were increased clinical trial
and data management net revenues. The clinical trial and data management net
revenue growth was attributable to the Company's increased service capabilities
developed during 1997. Revenues for the year ended December 31, 1997 were also
increased by $0.4 million in connection with a payment received in the first
quarter for a licensing agreement termination.
Technology Operations' net revenues for the twelve months ended
December 31, 1997 were $0.8 million and reflect the October 31, 1997 acquisition
of DLB Systems, Inc. (DLB)
Other revenues, which represent the Company's Phase I Clinical Research
Unit, increased to $2.1 million for the year ended December 31, 1997 from $1.2
million for 1996 as the result of several large contracts that were conducted in
1997.
Direct costs increased $0.9 million or 14.0% to $7.2 million for the
year ended December 31, 1997, compared to the year ended December 31, 1996. The
increase was primarily attributable to increased direct labor costs incurred in
connection with the growth in Phase I and clinical trial and data management net
revenues and from the October 31 1997 acquisition of DLB Systems. Partially
offsetting these increases was a $1.4 million decline in direct costs of central
diagnostic testing services. Prior to 1997, the Company paid ECG reading
analysis fees to a professional corporation owned by Joel Morganroth, MD, the
Company's Chief Executive Officer. The Company and Dr. Morganroth entered into
new employment and consulting agreements, effective January 1, 1997, whereby Dr.
Morganroth no longer receives ECG reading fees. During 1996, Dr. Morganroth was
paid $1.8 million for ECG reading services compared with $0.1 million in 1997
under the terms of the consulting agreement. See Notes 8 and 10 of Notes to
Consolidated Financial Statements. As a percentage of net revenues, direct costs
increased to 50.6% in 1997, compared to 41.1% in 1996 and is primarily the
result of the decline in net revenues in 1997.
25
<PAGE>
Selling, general and administrative expenses increased $3.1 million or
46.3% to $9.9 million for the year ended December 31, 1997, compared to the year
ended December 31, 1996. During 1997, the Company initiated new sales and
marketing campaigns, doubled the size of the direct sales force, increased its
commitment to its proprietary software systems and expanded its service
capabilities through increased personnel. In addition, the acquisition of DLB
added $0.4 million to the overall growth in selling, general and administrative
expenses. As a result of the foregoing, selling, general and administrative
expenses, as a percent of net revenue, increased to 70.1% for the year ended
December 31, 1997, compared to 44.4% for the year ended December 31, 1996.
Depreciation and amortization expense for the year ended December 31,
1997 was comparable to the year ended December 31, 1996, at $0.7 million.
In connection with the DLB acquisition, the Company assigned $7.9
million of the total purchase price to in-process research and development and
such amount was written-off as a one-time charge ($0.71 per share) in the fourth
quarter of 1997.
Other income of $1.3 million during the year ended December 31, 1997,
resulted primarily from income earned on investment of the net proceeds of the
Company's initial public offering in February 1997.
The Company had an income tax benefit of $4.0 million for the year
ended December 31, 1997 compared to a tax provision of $0.8 million for the year
ended December 31, 1996. The Company's effective income tax rate for the year
ended December 31, 1997, was 39.3%, compared to 41.9% for the year ended
December 31, 1996. The rate decrease in 1997, was primarily the result of
investment interest earned in 1997 that was not taxable for state purposes. The
1997 tax benefit included the recognition of a significant deferred tax asset,
primarily due to the write-off of in-process research and development and net
operating loss carry-forwards. See Note 7 of Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
The clinical research and technology industries generally are not very
capital intensive. The Company's principal cash needs relate to funding
receivables as client payments generally lag up to 90 days after the invoice
date.
In February 1997, the Company completed the initial public offering of
its common stock, which resulted in proceeds from the offering, net of expenses,
of $34.2 million. As of December 31, 1998, the Company had cash and cash
equivalents of $10.8 million and short-term investments of $5.7 million. The
Company generally places its investments in A1P1 rated commercial bonds and
paper, municipal securities and certificates of deposit with maturities of less
than one year.
For the year ended December 31, 1998, the Company used cash in
operating activities of $0.8 million compared to cash used by operations of $3.8
million during the year ended December 31, 1997. The decrease in operating cash
usage was due primarily to the Company's 1998 net profit of $0.7 million
compared to a net loss of $6.2 million in 1997 and an increase in deferred
revenues. This was partially offset by higher accounts receivable and prepaid
expenses in 1998.
During the year ended December 31, 1998, the Company purchased $3.4
million of property and equipment compared to $1.5 million purchased in 1997.
The increase in the purchase of property and equipment reflects the needs to
support the overall growth in the business.
On July 2, 1998, the Company made an investment of $1.0 million for a
minority equity position in AmericasDoctors.com, Inc., an internet company which
provides real-time physician chat, referrals and health care events access on
America Online's Health web site.
26
<PAGE>
On July 20, 1998, the Company announced that its Board of
Directors had authorized the repurchase, over time, of up to 500,000 shares of
the Company's common stock at prices determined appropriate by the Company. As
of December 31, 1998, the Company had used $.8 million to repurchase 177,800
shares of its Common Stock at an average price of $4.38 per share.
During the year ended December 31, 1998, the Company received $.6
million in cash from the exercise of 279,120 employee stock options at an
average exercise price per option of $2.27.
The Company has a line of credit arrangement with First Union National
Bank totaling $3.0 million. At December 31, 1998, the Company had no outstanding
borrowings under the line.
The Company expects that existing cash and cash equivalents, short-term
investments, cash flow from operations and borrowings under its line of credit
will be sufficient to meet its foreseeable cash needs for at least the next
year. However, there may be acquisition and other growth opportunities that
require additional external financing and the Company may from time to time seek
to obtain additional funds from the public or private issuances of equity or
debt securities. There can be no assurance that such financings will be
available or available on terms acceptable to the Company.
Year 2000
The Company is aware of the issues and problems associated with the
Year 2000 date change. The Company has been addressing company-wide data
processing and infrastructure issues since 1995. Premier Research has undertaken
a Year 2000 Compliance Plan that will be completed by September 1, 1999. In
addition, the Company also plans to have all clinical systems Year 2000
compliant by June 30, 1999. The purpose of this plan is to assure that Premier
Research, as a corporate entity, has assessed and taken appropriate actions
necessary to become compliant with any issues regarding Year 2000 requirements.
The problems surrounding Year 2000 compliance are of extreme concern to the
Company, since Premier Research is a clinical research organization providing
diagnostic testing and clinical research services to the pharmaceutical
industry, as well as a developer of clinical database management software. The
Company produces and delivers information that is date sensitive, especially in
deriving date and time calculations; Premier Research currently can provide to
its clients, date formats that contain century markers or 4-digit year fields
for any of its clinical and diagnostic information.
The Company's strategy to address Year 2000 compliance is to replace
potentially non-compliant software and hardware with new compliant systems or
updated Year 2000 compliant versions. The inventory and assessment phases of the
Year 2000 plan have primarily been completed for its hardware and software
systems. The Company has begun its remediation phase of the plan through the
replacement and updating of systems.
As of today over 90% of the Company's information technology
infrastructure has been assessed and found to be free from any Year 2000 issues.
Those that have shown not to be in compliance are currently being evaluated and
renovated for compliance. If a system can not be made compliant to the
requirements, the system will be replaced with one that is compliant.
The Company is also assessing its facilities worldwide that it leases
or owns, and plans to complete its deployment of applicable contingency plans by
September 1, 1999.
The Company is also assessing and surveying its suppliers of third
party products and services. Based upon information received from such parties,
the Company believes that most of its suppliers are developing, assessing and
remediating any issues associated with their Year 2000 plans. The Company cannot
at this time fully assess the status of its suppliers until they have completed
their own efforts. It will review the readiness of the suppliers on an on-going
basis throughout the remainder of the year and will implement specific actions
to rectify potential problems in its supply chain.
27
<PAGE>
As with any other company in its industry or any business in general,
the Company is exposed to risks associated with failures in the private and
public sector to become Year 2000 compliant. These risks include the possibility
that public infrastructure systems, such as electricity, water, natural gas or
telecommunications may fail in this country and other countries in the world
that the Company does business. In addition, there are those risks that the
internal systems of the Company's suppliers, service providers and customers
will fail. The Company also relies considerably on travel and could be adversely
affected, if air and train travel is disrupted by issues related to the Year
2000.
The Company also relies heavily on the healthcare industry. This
industry and its related clinical investigational sites may not have focused
their efforts on the Year 2000 issue to the same degree. Thus the Company has an
increased risk that its investigational sites, necessary for the conduct of
clinical trials, will be unable to provide timely answers and data that it needs
to perform services on time to its contractual clients. Also, the failure of the
Company's customers to address the Year 2000 issue could negatively impact on
their ability to use the Company's services. While contingency plans will be
developed to address these risks, the Company cannot assure that those plans
will sufficiently protect the Company from the effects of those risks. Any
disruptions from the realization of any of these risks could adversely affect
the Company's ability to perform its services.
The Company estimates that the costs associated with its Year 2000
program will be approximately $ 0.5 million, including costs already incurred.
Total Year 2000 costs of approximately $0.3 million have been incurred by the
Company through December 31, 1998. The estimates of cost, timing and impact of
addressing the Year 2000 issue are based on numerous assumptions of future
events, including the continued availability of certain resources, the ability
of the Company to meet its deadlines and the cooperation of third parties.
However, there can be no guarantee that the assumptions will be correct and that
these estimates will be achieved. Actual results could differ significantly from
those expected by the Company.
Inflation
The Company believes the effects of inflation and changing prices
generally do not have a material adverse effect on its results of operations or
financial condition.
Cautionary Statement for Forward-Looking Information
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth above may constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve a number of risks and
uncertainties such as competitive factors, technology development, market demand
and the Company's ability to obtain new contracts and accurately estimate net
revenues due to variability in size, scope and duration of projects, and
internal issues of the sponsoring client. Further, information on potential
factors that could affect the Company's financial results can be found in the
Company's Registration Statement on Form S-1 and its Reports on Forms 10-K and
10-Q filed with the Securities and Exchange Commission.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary financial market risks include fluctuations in
interest rates and currency exchange rates.
Interest Rate Risk
The Company generally places its investments in A1P1 rated commercial
bonds and paper, municipal securities and certificates of deposit with fixed
rates with maturities of less than one year. The company actively manages its
portfolio of cash equivalents and marketable securities but in order to ensure
liquidity, will only invest in instruments with high credit quality where a
secondary market exists. The company has not and does not hold any derivatives
related to its interest rate exposure. Due to the average maturity and
conservative nature of the Company's investment portfolio, a sudden change in
interest rates would not have a material effect of the value of the portfolio.
Management estimates that had the average yield of the Company's investments
decreased by 100 basis points, the Company's interest income for the year ended
December 31, 1998 would have decreased by less than $200,000. This estimate
assumes that the decrease occurred on the first day of 1998 and reduced the
yield of each investment by 100 basis points. The impact on the Company's future
interest income, of future changes in investment yields, will depend largely on
the gross amount of the Company's investments. See "Liquidity and Capital
Resources".
28
<PAGE>
Foreign Currency Risk
The Company operates on a global basis from locations in the United
States and the United Kingdom. All international net revenues are billed and
expenses incurred in either US dollars or Pounds Sterling. As such, we face
exposure to adverse movements in the exchange rate of the Pound Sterling. As the
currency rate changes, translation of the income statement of our UK entity from
the local currency to US dollars affects year-to-year comparability of operating
results. The Company does not hedge translation risks because any cash flows
from international operations are generally reinvested. To date, the effect of
foreign currency fluctuations are reflected in the company's operating results
and have not been material.
Management estimates that a 10% change in the exchange rate of the
Pound Sterling would have impacted the reported operating loss for international
operations by less than $200,000.
The introduction of the Euro as a common currency for members of the
European Monetary Union took place in January 1999. The Company has not
determined what impact, if any, the Euro will have on the Company's foreign
exchange exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is set forth on Pages F-1
through F-20.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
MANAGEMENT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors of the Company is incorporated by
reference from the "Election of Directors" section of the Proxy Statement for
the Company's 1999 Annual Meeting of Shareholders (the "Proxy Statement"). For
information concerning the executive officers of the Company, see "Executive
Officers of Registrant" in Part 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" in the Proxy Statement is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Relationships and Related Party Transactions" in the Proxy
Statement is incorporated herein.
<PAGE>
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
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
Consolidated Financial Statement Schedule:
II. Valuation and Qualifying Accounts F-20
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. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 3, 1999
F-2
<PAGE>
Premier Research Worldwide, Ltd. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1997
------------ ------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 10,822,000 $ 4,679,000
Short-term investments 5,668,000 17,084,000
Accounts receivable, net 10,423,000 5,169,000
Prepaid expenses and other 2,176,000 945,000
Deferred income taxes 159,000 91,000
------------ ------------
Total current assets 29,248,000 27,968,000
Property and equipment, net 4,110,000 1,986,000
Goodwill, net 2,160,000 2,538,000
Other assets 1,023,000 23,000
Deferred income taxes 3,631,000 4,259,000
------------ ------------
$ 40,172,000 $ 36,774,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,519,000 $ 1,745,000
Accrued expenses 1,156,000 1,214,000
Deferred revenues 5,556,000 3,348,000
------------ ------------
Total current liabilities 9,231,000 6,307,000
------------ ------------
Commitments and contingencies (Note 10)
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, 7,217,520 and 6,938,400 shares
issued and outstanding 72,000 69,000
Additional paid-in capital 37,061,000 36,430,000
Treasury stock, 177,800 shares at cost (779,000) --
Accumulated deficit (5,413,000) (6,032,000)
------------ ------------
Total stockholders' equity 30,941,000 30,467,000
------------ ------------
$ 40,172,000 $ 36,774,000
============ ============
</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
------------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 38,134,000 $ 15,327,000 $ 15,396,000
Less: Reimbursed costs (6,327,000) (1,164,000) (113,000)
------------ ------------ ------------
Net revenues 31,807,000 14,163,000 15,283,000
------------ ------------ ------------
Costs and expenses:
Direct costs 13,847,000 7,167,000 6,285,000
Selling, general and administrative 16,165,000 9,922,000 6,783,000
Depreciation and amortization 1,606,000 709,000 704,000
Write-off of acquired in-process
research and development -- 7,883,000 --
------------ ------------ ------------
Total costs and expenses 31,618,000 25,681,000 13,772,000
------------ ------------ ------------
Income (loss) from operations 189,000 (11,518,000) 1,511,000
Other income, net 1,012,000 1,250,000 --
------------ ------------ ------------
Income (loss)before income taxes
and minority interest 1,201,000 (10,268,000) 1,511,000
Minority interest in limited liability
company -- -- 332,000
------------ ------------ ------------
Income (loss) before income taxes 1,201,000 (10,268,000) 1,843,000
Income tax provision (benefit) 480,000 (4,037,000) 773,000
------------ ------------ ------------
Net income (loss) $ 721,000 $ (6,231,000) $ 1,070,000
============ ============ ============
Basic net income (loss) per share $ 0.10 $ (0.93) $ 0.24
Diluted net income (loss) per share $ 0.10 $ (0.93) $ 0.23
</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>
Retained
Common Stock Additional Earnings
--------------------------- Paid-in Treasury (Accumulated
Shares Amount Capital Stock Deficit) Total
------ ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 4,402,000 $ 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 4,402,000 44,000 2,273,000 -- 199,000 2,516,000
Net proceeds from
issuance of common
stock 2,206,250 22,000 34,160,000 -- -- 34,182,000
Conversion of minority
interest into
common stock 330,150 3,000 (3,000) -- -- --
Net loss -- -- -- -- (6,231,000) (6,231,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 6,938,400 69,000 36,430,000 -- (6,032,000) 30,467,000
Net income -- -- -- -- 721,000 721,000
Deemed distribution for
income taxes -- -- -- -- (102,000) (102,000)
Purchase of treasury stock -- -- -- (779,000) -- (779,000)
Exercise of stock options 279,120 3,000 631,000 -- -- 634,000
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 7,217,520 $ 72,000 $ 37,061,000 $ (779,000) $ (5,413,000) $ 30,941,000
============ ============ ============ ============ ============ ============
</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
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 721,000 $ (6,231,000) $ 1,070,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities-
Depreciation and amortization 1,606,000 709,000 704,000
Write-off of acquired in-process research and development -- 7,883,000 --
Minority interest in limited liability company -- -- (332,000)
Deferred income taxes 411,000 (4,149,000) (25,000)
Loss (gain) on sales of property and equipment -- 36,000 (2,000)
Changes in operating assets and liabilities, excluding effects of
business acquisition:
Accounts receivable (5,254,000) (1,277,000) (251,000)
Prepaid expenses and other (1,231,000) (524,000) 28,000
Accounts payable 774,000 (295,000) 356,000
Accrued expenses (11,000) (6,000) 198,000
Payable to UM Holdings, Ltd. for income taxes -- (485,000) 485,000
Deferred revenues 2,208,000 586,000 783,000
------------ ------------ ------------
Net cash provided by (used in) operating activities (776,000) (3,753,000) 3,014,000
------------ ------------ ------------
Investing activities:
Purchases of property and equipment (3,352,000) (1,509,000) (371,000)
Proceeds from sales of property and equipment -- -- 34,000
Net (purchases) sales of short-term investments 11,416,000 (17,084,000) --
Net cash paid for business acquisition -- (8,655,000) --
Investment in AmericasDoctor.com, Inc. (1,000,000) -- --
------------ ------------ ------------
Net cash provided by (used in) investing activities 7,064,000 (27,248,000) (337,000)
------------ ------------ ------------
Financing activities:
Net distributions to UM Holdings Ltd. -- -- (1,212,000)
Net proceeds from the issuance of common stock -- 34,182,000 --
Net proceeds from exercise of stock options 634,000 -- --
Repurchase of common stock for treasury (779,000) -- --
------------ ------------ ------------
Net cash provided by (used in)
financing activities (145,000) 34,182,000 (1,212,000)
------------ ------------ ------------
Net increase in cash and cash equivalents 6,143,000 3,181,000 1,465,000
Cash and cash equivalents, beginning of year 4,679,000 1,498,000 33,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 10,822,000 $ 4,679,000 $ 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:
Background
Premier Research Worldwide, Ltd. (the "Company"), a Delaware corporation, is a
clinical research organization 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 operates in two
business segments: Clinical Operations, which includes centralized
diagnostic testing, clinical trial management, clinical data management,
biostatistical analysis, health care economics and outcomes research and
regulatory affairs services; and Technology Operations, which includes
developing, marketing and support of software products used in the management of
clinical trials. The Company also has a wholly-owned operating subsidiary in the
United Kingdom (UK).
Initial Public Offering
The Company completed an initial public offering of its common stock effective
February 3, 1997. The Company sold 2,750,000 shares of common stock at an
initial public offering price of $17.00, of which 2,000,000 shares were issued
and sold by the Company and 750,000 shares were sold by UM Holdings, Ltd. (UM).
Additionally, 412,500 shares of common stock were purchased at $17.00 per share
by the underwriters, upon the exercise of an over-allotment option, of which
206,250 shares were purchased from the Company and 206,250 shares were purchased
from UM. The net proceeds to the Company, after deducting underwriting discounts
and expenses, were approximately $34.2 million.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company, its subsidiaries and Premier Research LLC prior to February 1997 (see
Note 6). All significant inter-company 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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Recapitalization
On October 24, 1996, the Company's Board of Directors approved an amendment to
the Company's Certificate of Incorporation increasing the number of authorized
shares of common stock to 15,000,000 shares and authorizing 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-7
<PAGE>
Revenues
Clinical Operations revenues are generally 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 a few
months to two years. 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 consolidated balance sheets. Clinical Operations
revenues for twelve months ended December 31, 1998 include $0.8 million for work
completed under a contract which was cancelled before completion. Technology
Operations include software license revenues which are recognized upon shipment
of the software and related documentation when collectibility is deemed probable
and the license fee is deemed fixed and determinable. Revenues from software
maintenance and support contracts are recognized on a straight-line basis over
the term of the contract, generally 12 months. Revenues from related training
and consulting services are recognized as services are performed. Technology
Operations revenues for the year ended December 31, 1997 include $0.4 million
recognized in connection with a license agreement termination.
Cash and Cash Equivalents
The Company considers cash on deposit with financial institutions and all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. At the balance sheet dates, cash equivalents consisted
primarily of investments in money market funds, municipal securities and bonds
of government sponsored agencies.
Short-term Investments
At December 31, 1998, short-term investments consisted of commercial bonds and
paper, municipal securities, certificates of deposit and bonds of government
sponsored agencies with maturities of less than one year. Pursuant to Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", available-for-sale securities are
carried at fair value, based on quoted market prices, with unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
The Company has classified all of its short-term investments at December 31,
1998 as available-for-sale and at December 31, 1998, unrealized gains and losses
were immaterial. Realized gains and losses during 1998 were also immaterial. For
the purpose of determining realized gains and losses, the costs of the
securities sold is based upon specific identification.
Investment in AmericasDoctor.com, Inc.
In July 1998, the Company paid $1 million for a minority equity position in
AmericasDoctor.com, Inc., an internet company that provides physician referrals
and healthcare events on America Online's Health web page. This investment is
being accounted for on the cost method. AmericasDoctor.com, Inc. is a privately
held company and the Company believes that the cost of their investment
approximates fair value at December 31, 1998. The $1 million investment is
included in long-term assets in the accompanying consolidated balance sheet.
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 using the
straight-line method over the shorter of the estimated useful life of the asset
or the remaining 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 included in other income. Depreciation
expense was $1,228,000, $605,000, and $656,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
F-8
<PAGE>
Goodwill
Goodwill is amortized using the straight-line method over five to eight years
and is net of accumulated amortization of $704,000 and $325,000 as of December
31, 1998 and 1997, respectively. The related amortization expense was $378,000,
$104,000 and $48,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
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 cash flows in measuring
whether goodwill should be written down to the fair value, in accordance with
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". Management believes that there has been no impairment
of long-lived assets as of December 31, 1998.
Accrued Expenses
Included in accrued expenses at December 31, 1998 and 1997 is accrued payroll of
$515,000 and $538,000, respectively.
Software Development Costs
Research and development expenditures are charged to operations as incurred. In
1998 and 1997, research and development expense was approximately $2,500,000
and $700,000 respectively. Research and development expense was not material in
1996. SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
The Company has determined that technological feasibility for its products is
generally achieved upon completion of a working model. Since software
development costs have not been significant after the completion of a working
model, all such costs have been charged to expense as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the
years ended December 31, 1998, 1997 and 1996 was $473,000, $310,000, and $84,000
and respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company was included in the consolidated federal tax return of UM until
February 1997 and files separate state, local and foreign income tax returns.
The accompanying financial statements reflect income tax expense calculated on a
separate-company basis for all periods presented.
F-9
<PAGE>
Supplemental Cash Flow Information
The Company paid approximately $128,000, $819,000, and $316,000 for income taxes
in the years ended December 31, 1998, 1997 and 1996, respectively, of which
$575,000 was paid to UM in 1997 in accordance with the tax sharing agreement.
The Company was not required to make payments to UM for income taxes in 1996
(see Note 7). The following table displays the net non-cash assets that were
consolidated as a result of the Company's business acquisition in 1997 (see Note
2):
Non-cash asset (liabilities):
Accounts receivable $1,055,000
Prepaid expenses and other 35,000
Property and equipment 386,000
Other assets 23,000
In-process research and development 7,883,000
Goodwill 2,548,000
Accounts payable (1,209,000)
Accrued expenses (450,000)
Deferred revenues (1,616,000)
-----------
Net cash paid for acquisition $8,655,000
===========
Other Income
Other income consists primarily of earnings on short-term investments.
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 year ended December 31, 1996,
two clients accounted for 25% of the Company's net revenues. For the years ended
December 31, 1998 and 1997, no single client accounted for greater than 10% of
net revenues. 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 UK 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 UK financial statements are immaterial.
Net Income (Loss) Per Common Share
The Company follows SFAS No. 128 "Earnings per Share". This statement requires
the presentation of basic and diluted earnings per share. Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the year. Diluted
net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the year,
adjusted for the dilutive effect of common stock equivalents, which consist
primarily of stock options, using the treasury stock method.
F-10
<PAGE>
The table below sets forth the reconciliation of the numerators and denominators
of the basic and diluted net income (loss) per share computations.
Year Ended December 31,
- -----------------------
<TABLE>
<CAPTION>
Net Per Share
Income (Loss) Shares Amount
------------- ------ ----------
1998
<S> <C> <C> <C>
Basic net income $ 721,000 7,102,000 $ 0.10
Effect of dilutive shares -- 102,000 --
----------- ----------- --------
Diluted net income $ 721,000 7,204,000 $ 0.10
=========== =========== ========
1997
Basic net loss $(6,231,000) 6,702,000 $ (0.93)
Effect of dilutive shares -- -- --
----------- ----------- --------
Diluted net loss $(6,231,000) 6,702,000 $ (0.93)
=========== =========== ========
1996
Basic net income $ 1,070,000 4,402,000 $ 0.24
Effect of dilutive shares -- 248,000 (0.01)
----------- ----------- --------
Diluted net income $ 1,070,000 4,650,000 $ 0.23
=========== =========== ========
</TABLE>
In computing diluted net income (loss) per share, 435,385, 851,620 and
8,804 options to purchase shares of common stock were excluded from the
computation for the years ended December 31, 1998, 1997 and 1996, respectively.
The options were excluded from the 1998 and 1996 computations because
the exercise prices of such options were greater than the average market price
of the Company's Common Stock during 1998 and 1996, respectively. The options
were excluded from the 1997 computation because their effect would be
anti-dilutive.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. SFAS No. 130 was effective for financial statements issued
for fiscal years beginning after December 15, 1997. The Company's comprehensive
income includes net income and unrealized gains on short-term investments and
losses from foreign currency translation. These unrealized gains and losses and
currency translation adjustments were immaterial for all periods presented.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
2. Acquisition of DLB Systems, Inc.
Effective October 31, 1997, the Company acquired substantially all of the assets
of DLB Systems, Inc. ("DLB") for $6,500,000 in cash, its prior $1.0 million
investment and the assumption of certain liabilities. The acquisition was
accounted for under the purchase method of accounting, whereby the purchase
price was allocated to the assets acquired and the liabilities assumed, based on
their fair market values at the acquisition date. The excess of the purchase
price over the estimated fair market value of the net assets acquired was
assigned to identifiable intangibles. The Company assigned $7,883,000 to
in-process research and development and such amount was charged to operations in
the accompanying consolidated statement of operations. The Company also recorded
goodwill of $2,548,000, which is being amortized on a straight-line basis over
eight years.
F-11
<PAGE>
DLB's results of operations have been included in the Company's consolidated
financial statements from the effective date of the acquisition. The following
table summarizes the unaudited pro forma results of operations of the Company as
if the acquisition of DLB had occurred on January 1, 1996. The pro forma
information does not purport to be indicative of the results that would have
been attained if the operations had actually been combined during the periods
presented.
Year Ended December 31
----------------------------
1997 1996
----------- -----------
Net revenues $19,461,000 $21,615,000
Operating loss (5,105,000) (1,751,000)
Net loss (2,631,000) (1,477,000)
Basis and diluted net loss per share (0.39) (0.34)
The pro forma amounts do not include the one-time charge of $7,883,000 ($0.71
per share) related to the write-off of in-process research and development.
3. ACCOUNTS RECEIVABLE:
December 31
----------------------------
1998 1997
------------ ------------
Billed $10,307,000 $ 4,916,000
Unbilled 359,000 431,000
Allowance for doubtful accounts (243,000) (178,000)
----------- ------------
$10,423,000 $ 5,169,000
=========== ============
4. PROPERTY AND EQUIPMENT:
December 31
---------------------------------
1998 1997
-------------- --------------
Computer and other equipment $ 9,466,000 $7,551,000
Furniture and fixtures 1,436,000 636,000
Leasehold improvements 808,000 171,000
------------ --------------
11,710,000 8,358,000
Less-Accumulated depreciation (7,600,000) (6,372,000)
------------- --------------
$ 4,110,000 $ 1,986,000
============= ==============
5. LINE OF CREDIT:
The Company has a line of credit with a bank, through June 30, 1999, that
provides for borrowings up to $3 million at an interest rate of prime minus 35
basis points. The line of credit agreement includes certain covenants, the most
restrictive of which limit future indebtedness and require compliance with a
liabilities-to-tangible net worth ratio. To date, the Company has not borrowed
any amounts under its line of credit.
6. 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 agreed to manage Premier LLC and to fund Premier LLC's
working capital needs for three years in exchange for a 65% interest in Premier
LLC. In accordance with the agreement, PREMIER, Inc.'s ownership interest in
Premier LLC automatically converted into 330,150 shares of common stock
concurrent with the Company's initial public offering.
F-12
<PAGE>
7. INCOME TAXES:
The Company was included in the consolidated federal income tax returns of UM
until February 1997 under a tax-sharing agreement pursuant to which the Company
would pay to UM amounts equal to the taxes that the Company would have paid had
it filed separate federal income tax returns. The agreement did not provide for
UM to pay the Company for tax losses that UM may utilize. Upon finalizing the
Company's 1997 tax return in 1998, the Company recorded a deemed distribution of
$102,000 for tax losses attributed to the Company but included in UM's
consolidated tax return.
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------
1998 1997 1996
------------- -------------- -----------
<S> <C> <C> <C>
Current provision :
Federal $ -- $ -- $ 485,000
State and local 69,000 112,000 218,000
Foreign -- -- 95,000
------------- -------------- -----------
69,000 112,000 798,000
------------- -------------- -----------
Deferred provision (benefit):
Federal 146,000 (3,103,000) (19,000)
State and local 34,000 (617,000) (6,000)
Foreign 231,000 (429,000) --
------------ -------------- -----------
411,000 (4,149,000) (25,000)
------------ -------------- -----------
$ 480,000 $ (4,037,000) $ 773,000
============ ============== ===========
</TABLE>
Foreign income (loss) before income taxes was $676,000, $(1,300,000) and
$288,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The reconciliation between income taxes at the federal statutory rate and the
amount recorded in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Tax at federal statutory rate $ 408,000 $(3,491,000) $ 627,000
State and local taxes, net of federal 70,000 (505,000) 140,000
Amortization of goodwill 16,000 16,000 16,000
Other (14,000) (57,000) (10,000)
----------- ----------- -----------
$ 480,000 $(4,037,000) $ 773,000
=========== =========== ===========
</TABLE>
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Goodwill amortization $ 2,986,000 $3,129,000
Net operating loss carry-forwards 652,000 853,000
Depreciation (7,000) 30,000
Reserves and accruals 159,000 338,000
------------ -----------
$ 3,790,000 $4,350,000
============ ==========
</TABLE>
F-13
<PAGE>
At December 31, 1998, the Company had a net operating loss carry-forward for
federal income tax purposes of approximately $1.5 million which will begin to
expire in 2012, a net operating loss carry-forward for state tax purposes of
approximately $2.5 million which will begin to expire in 2007 and a UK loss
carry-forward of approximately $27,000 which has no expiration date.
Management has determined that it is more likely than not that future taxable
income will be sufficient to realize all of the Company's deferred tax assets.
Approximately $10.5 million of future taxable income is needed for the Company
to fully realize the net deferred tax asset recorded at December 31, 1998.
8. RELATED PARTY TRANSACTIONS:
TRANSACTIONS WITH UM
The Company leased its primary operating facility from UM (see Note 10) in 1998,
1997 and 1996 and participated in UM's 401(k) profit sharing plan in 1997 and
1996. The Company was charged $349,000, $349,000 and $382,000 for rent under the
facility lease for the years ended December 31, 1998, 1997 and 1996,
respectively, and $ 47,000 and $69,000 for profit sharing plan contributions for
the years ended December 31, 1997 and 1996, respectively. The Company believes
that all amounts charged by UM were reasonable.
In 1997, the Company paid UM $485,000 for 1996 income taxes payable and $90,000
for estimated 1997 income taxes due under the tax sharing agreement (see Note
7).
TRANSACTIONS WITH THE COMPANY'S CHIEF EXECUTIVE OFFICER
The Company's Chief Executive Officer, who is a stockholder, is a cardiologist
who, in addition to his role as Chief Executive Officer of the Company, provides
medical services to the Company as an independent contractor through his
wholly-owned Professional Corporation (see Note 10). Fees incurred under this
consulting arrangement approximated $144,000, $144,000 and $1,955,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The Medical Director
fees are included in direct costs as they relate to medical interpretations for
diagnostic tests. In addition, at December 31, 1998 and 1997 amounts owed to the
Company's Chief Executive Officer in connection with the consulting agreement
were $48,000 and $24,000 , respectively, and are included in accounts payable in
the accompanying consolidated balance sheets.
The Company and the Company's Chief Executive Officer entered into new
employment and consulting agreements effective January 1, 1997 (see Note 10). In
January 1996, the Chief Executive Officer and UM entered into an agreement
whereby the Chief Executive Officer purchased 660,300 shares of the Company's
Common Stock from UM for $750,000.
9. STOCK OPTION PLANS:
In August 1993, the Company established a nonqualified stock option plan (the
"1993 Plan") authorizing 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 options
cover the purchase of common stock of the Company at exercise prices initially
set at or above current fair value as determined by the Board of Directors.
Options granted under the 1993 Plan became fully vested 90 days after the
Company's initial public offering and expire five years from the initial public
offering date. No additional options may be granted under this plan.
F-14
<PAGE>
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 ten years from
the grant date and are exercisable in accordance with vesting provisions set by
the Board.
During September 1998, the Company offered a stock option exchange program to
its employees for options granted under the 1996 Plan. Under the program, stock
options could be exchanged, on a one for two basis with the new exercise price
set at the greater of 50% of the original exercise price or the closing price on
September 30, 1998, the final day of the exchange program. A total of 77,350
stock options were exchanged and 38,675 were reissued in the exchange program at
an average exercise price of $6.50.
Information with respect to outstanding options under the plans is as follows:
Outstanding Option Price
Shares Per Share
------------ ---------------
Balance, December 31, 1995 473,215 $ 2.27
Granted 57,226 1.14-17.00
----------- ---------------
Balance, December 31, 1996 530,441 1.14-17.00
Granted 330,679 8.25-22.125
Cancelled (9,500) 13.00-13.125
----------- ---------------
Balance, December 31, 1997 851,620 1.14-22.125
Granted 252,675 3.75-9.00
Exercised (279,120) 2.27
Cancelled (151,675) 8.25-13.13
----------- ---------------
Balance, December 31, 1998 673,500 $ 1.14-$22.125
=========== ===============
As of December 31, 1998, 296,478 options with a weighted average exercise price
of $4.19 per share were exercisable and 82,223 options were available for future
grants under the 1996 Plan.
F-15
<PAGE>
The Company accounts for its option grants under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and the related
interpretations. In 1995, the FASB issued SFAS No. 123, " Accounting for
Stock-based Compensation". SFAS No. 123 established a fair value based method of
accounting for stock-based compensation plans. 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 No. 123, the Company's
net income (loss) and basic and diluted net income (loss) per share would have
been adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported $721,000 $(6,231,000) $1,070,000
Pro forma 571,000 (6,342,000) 1,043,000
Basic net income (loss) per share:
As reported 0.10 (0.93) 0.24
Pro forma 0.08 (0.95) 0.24
Diluted net income (loss) per share:
As reported 0.10 (0.93) 0.23
Pro forma 0.08 (0.95) 0.22
</TABLE>
The weighted average fair value per share of the options granted during
1998, 1997 and 1996 was estimated as $2.12, $5.40 and $0.80 , respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Risk-free interest rate 5.3% 6.1% 5.4%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life 3 years 3 years 3 years
Expected volatility 55.0% 55.0% 0.0%
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to options granted
prior to 1995, and additional option grants are anticipated.
10. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space and equipment under operating leases, including
its primary operating facility. During the years ended December 31, 1998, 1997
and 1996, the Company leased its primary operating facility from UM under a
lease agreement executed in June 1996 that expires in September 2003 (see Note
8). The Company terminated the facility lease with UM, without penalty, on
January 3, 1999 and moved into a new facility under a lease agreement executed
in June 1998 that expires in August 2005. Rent expense for all operating leases
for the years ended December 31, 1998, 1997 and 1996 was $1,203,000, $708,000,
and $830,000, respectively.
F-16
<PAGE>
Future minimum lease payments as of December 31, 1998 are as follows:
Total
-----
1999 $1,391,000
2000 1,306,000
2001 1,393,000
2002 1,394,000
2003 1,394,000
2004 and thereafter 1,777,000
------------
$8,655,000
============
AGREEMENTS WITH THE COMPANY'S CHIEF EXECUTIVE OFFICER
The Company has entered into employment and consulting agreements with its Chief
Executive Officer that continue through December 31, 2001. Either the Company or
the Chief Executive Officer 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 relates to the Chief
Executive Officer's capacity as a medical doctor and cardiologist and, among
other things, requires the Chief Executive Officer 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 and it continues on a year to year basis unless
terminated. The consulting agreement replaced a prior agreement whereby the
Chief Executive Officer received additional compensation for medical
interpretations of diagnostic tests (see Note 8).
CONTINGENCIES
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.
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.
11. OPERATING SEGMENTS:
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued, effective for fiscal years ending after
December 15, 1998. The Company has adopted this statement for the year ended
December 31, 1998. The Company's reportable segments are strategic business
units that offer different products and services to a common client base. The
segments are managed separately because each business requires different
technology.
The Company's products and services are provided through two business segments,
both in the United States and internationally: Clinical Operations, which
includes centralized diagnostic testing services, clinical trial management
services and clinical data management services; and Technology Operations, which
includes clinical trial and data management software, support and consulting
services. The Company's discontinued Phase I Clinical Research Unit and income
and expense not allocated to reportable segments is reported as Other.
During 1998 and 1997, no single client accounted for more than 10% of a
segment's net revenues. During 1996, Sandoz Pharmaceuticals Corporation and
Zeneca Pharmaceuticals accounted for approximately 15.3% and 10.1% of the
Company's Clinical Operations net revenues, respectively.
F-17
<PAGE>
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1). The Company evaluates
performance based on the net revenues and operating earnings performance of the
respective business segments.
Segment information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,1998
-------------------------------------------------------------------
Clinical
Operations Technology Other Total
---------- ---------- ----- -----
<S> <C> <C> <C> <C>
Net revenues from external customers $21,688,000 $ 9,930,000 $ 189,000 $31,807,000
Income (loss) from operations (1,565,000) 1,689,000 65,000 189,000
Identifiable assets 14,189,000 4,588,000 21,395,000 40,172,000
Depreciation and amortization 1,097,000 509,000 - 1,606,000
Capital expenditures 2,864,000 488,000 - 3,352,000
Year Ended December 31, 1997
-------------------------------------------------------------------
Clinical
Operations Technology Other Total
---------- ---------- ----- -----
Net revenues from external customers $11,315,000 $ 795,000 $ 2,053,000 $14,163,000
Loss from operations (2,525,000) (8,311,000) (682,000) (11,518,000)
Identifiable assets 6,263,000 3,573,000 26,938,000 36,744,000
Depreciation and amortization 547,000 75,000 87,000 709,000
Capital expenditures 1,437,000 30,000 42,000 1,509,000
Year Ended December 31, 1996
-------------------------------------------------------------------
Clinical
Operations Technology Other Total
---------- ---------- ----- -----
Net revenues from external customers $14,088,000 $ - $ 1,195,000 $15,283,000
Income (loss) from operations 2,395,000 - (884,000) 1,511,000
Identifiable assets 3,768,000 - 1,980,000 5,748,000
Depreciation and amortization 610,000 - 94,000 704,000
Capital expenditures 371,000 - - 371,000
</TABLE>
The Company operates on a worldwide basis with two locations in the United
States and two locations in the United Kingdom. Geographic information is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------
North
America Europe Total
------- ------ -----
<S> <C> <C> <C>
Net revenues from external customers $27,187,000 $4,620,000 $31,807,000
Income (loss) from operations 2,037,000 (1,848,000) 189,000
Identifiable assets 38,033,000 2,139,000 40,172,000
Year Ended December 31, 1997
--------------------------------------------------
North
America Europe Total
------- ------ -----
Net revenues from external customers $ 13,188,000 $ 975,000 $ 14,163,000
Loss from operations (10,218,000) (1,300,000) (11,518,000)
Identifiable assets 36,226,000 548,000 36,774,000
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------------
North
America Europe Total
------- ------ -----
<S> <C> <C> <C>
Net revenues from external customers $ 13,000,000 $ 2,283,000 $ 15,283,000
Income from operations 1,223,000 288,000 1,511,000
Identifiable assets 4,604,000 1,144,000 5,748,000
</TABLE>
F-19
<PAGE>
SCHEDULE II
PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance Balance
Beginning of Charges to Deductions End
Period Expense from Reserve Other of Period
------------ ---------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998 $178 - -- $65 $243
December 31, 1997 $140 - $3 $41 $178
December 31, 1996 $140 - -- -- $140
</TABLE>
F-20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements of the Company filed as a part of
this Report are listed on the attached Index to Consolidated
Financial Statements and Financial Schedule at [F-1]
2. The Schedules to the financial statements of the Company filed
as a part of this Report are listed in the attached Index to
Consolidated Financial Statements and Financial Statement
Schedule at [F-1]
3 Exhibits.
<PAGE>
The following exhibits are filed herewith, unless otherwise marked:
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 Asset Purchase Agreement among Premier Research, DLB Systems, Inc. and Recalmon(1)
3.1 Amended and Restated Certificate of Incorporation(2)
3.2 Bylaws(2)
3.3 Amendment to Bylaws (filed herewith)
4.1 Form of Stock Certificate(2)
4.2 Preferred Stock Purchase Agreement between Premier Research and DLB Systems, Inc.(3)
10.1 Employment Agreement with Joel Morganroth, M.D.(2)(4)
10.2 Management Consulting Agreement with Joel Morganroth, M.D., P.C.(2)(4)
10.3 Stock Option Agreement - Jerry Lee(2)(4)
10.4 Stock Option Agreement - Arthur Hayes(2)(4)
10.5 Stock Option Agreement - Connie Woodburn(4) (5)
10.6 Amended and Restated 1993 Stock Option Plan(2)(4)
10.7 1996 Stock Option Plan(2)(4)
10.8 Lease of Philadelphia Facilities with amendment thereto(2)
10.9 Agreement and Plan of Organization entered into with Premier Health Alliance, Inc.(2)
10.10 Tax Sharing Agreement with UM Holdings, Inc.(2)
10.12 Revolving Credit Agreement with First Union National Bank(2)
10.13 Promissory Note to First Union National Bank(2)
10.14 Restated Stock Option Agreement to PREMIER, Inc.(2)(4)
10.15 Restated Stock Option Agreement to Jerry Lee(2)(4)
10.16 Restated Option Agreement to Arthur Hays(2)(4)
10.17 Tax Indemnity Agreement with UM Holdings, Ltd.(2)
10.18 Amended Restated Stock Option Agreement to PREMIER, Inc.(4)
10.19 Strategic Alliance Agreement by and between Premier Research Worlwide and en Vision Sciences, Inc.(5)
10.20 Employment Agreement with Joseph Esposito(4)(5)
10.21 Common Stock Purchase Agreement among AmericasDoctor.com, Inc., Medical Advisory Systems, Inc. and Premier
Research Worldwide (filed herewith)
10.22 Support and Service Agreement between AmericasDoctor.com, Inc. and Premier Research Worldwide (filed herewith)
10.23 Sublease Agreement between Premier Research Worldwide and Raytheon Engineers & Constructors, Inc.
(filed herewith) 21.1 Subsidiaries of the Registrant (filed herewith)
21.1 Subsidiaries of the Registrant (filed herewith)
23.1 Consent of Arthur Andersen, LLP (filed herewith)
24.1 Powers of Attorneys of certain signatories (included on the signature page)
27.0 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE>
(1) Incorporated by reference to the exhibit with the same number,
filed in connection with the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on
November 12, 1997.
(2) Incorporated by reference to the exhibit with the same number,
filed in connection with the Company's Registration Statement
on Form S-1, File No. 333-17001, declared effective by the
Securities and Exchange Commission on February 3, 1997.
(3) Incorporated by reference to Exhibit 4.1, filed in connection
with the Company's Form 10-Q on August 14, 1997, and as
amended by the Company's Form 10-Q/A filed on October 7, 1997.
(4) Management contract or compensatory plan or arrangement.
(5) Incorporated by reference to the exhibit with the same number,
files in connection with the Company's Form 10K on March 30,
1998.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 30th day of March,
1999.
PREMIER RESEARCH WORLDWIDE, LTD.
By: /s/ Joel Morganroth
- ----------------------------------------
Joel Morganroth,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Joel Morganroth Chief Executive Officer, Director March 30, 1999
- ----------------------------
Joel Morganroth, M.D. (Principal executive officer)
/s/ Joseph Esposito President and Chief Operating Officer March 30, 1999
- ----------------------------
Joseph Esposito
/s/ Fred M. Powell Senior Vice President, Finance/Administration March 30, 1999
- ----------------------------
Fred M. Powell (Principal financial and accounting officer)
/s/ Joan Carter Chairman, Director March 30, 1999
- ----------------------------
Joan Carter
/s/ John Aglialoro Director March 30, 1999
- ----------------------------
John Aglialoro
/s/ Arthur Hull Hayes Director March 30, 1999
- ----------------------------
Arthur Hull Hayes, Jr., M.D.
/s/ Arthur W. Hicks Director March 30, 1999
- ----------------------------
Arthur W. Hicks, Jr.
/s/ Charles L. Jacobson Director March 30, 1999
- ----------------------------
Charles L. Jacobson, M.D.
/s/ Jerry D. Lee Director March 30, 1999
- ----------------------------
Jerry D. Lee
/s/ Philip J. Whitcome Director March 30, 1999
- ----------------------------
Philip J. Whitcome, Ph.D.
/s/ Connie Woodburn Director March 30, 1999
- ----------------------------
Connie Woodburn
</TABLE>
52
<PAGE>
Article IX of the by-laws of Premier Research Worldwide, Ltd. is amended to
read in its entirety as follows:
ARTICLE IX
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the board of
directors and shall be a Chairman of the Board, a chief executive officer, a
president, a secretary and a treasurer. The board of directors may also choose
one or more vice chairmen, vicepresidents, assistant secretaries and assistant
treasurers.
Section 2. The board of directors at its first meeting after each annual
meeting of shareholders shall choose a Chairman of the Board, a chief executive
officer, a president, a secretary, and a treasurer, none of whom need be a
member of the board except for the Chairman of the Board.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board of directors.
Section 4. The salaries of all officers and agents of the Corporation shall
be fixed by the board of directors.
Section 5. Each officer of the Corporation shall hold office until his
successor is chosen and qualifies, except in the event of his death, resignation
or removal. Any officer elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the board of
directors. Any vacancy occurring in any office of the Corporation shall be
filled by the board of directors. Any two or more officers, other than those of
president and secretary, may be held by the same person.
-1-
<PAGE>
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at all meetings of the
board of directors and shareholders, if present thereat, may appoint between
meetings of the board ad hoc committees to the board, which appointments shall
be subject to the approval of the board at its next meeting, may make
recommendations to the board with respect to the membership of the committees to
the board, and shall exercise such other powers and perform such other duties as
shall be assigned to him from time to time by the board.
THE VICE CHAIRMAN
Section 7. The vice chairman, or if there shall be more than one, the vice
chairmen in the order determined by the board of directors, shall, in the
absence or disability of the Chairman, perform the duties and exercise the
powers of the Chairman and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE CHIEF EXECUTIVE OFFICER
Section 8. The chief executive officer ("CEO") shall, unless otherwise
provided by the board of directors, be the chief executive officer of the
Corporation. As chief executive officer, he shall have general supervision over
the affairs of the Corporation, subject to the policies and directives of the
board of directors and shall supervise and direct all officers and employees of
the Corporation, but may delegate in his discretion any of his powers to any
officer or such other executives as he may designate.
THE PRESIDENT
Section 9. Unless otherwise provided by the board of directors, the
president will be the chief operating officer of the Corporation and shall have
general supervision over and control of the operations and activities of the
Corporation, subject to the supervision and control of the board of directors,
and shall have general supervision and direction of all operating officers and
employees of the Corporation, but may delegate in his discretion any of his
powers as chief operating officer to any vice president or such other executives
as he may designate. In the absence or disability of the CEO, the president
shall perform the duties and exercise the powers of the chief executive officer.
The president shall have such other duties as from time to time may be assigned
to him by the board of directors.
-2-
<PAGE>
Section 10. The Chairman of the Board, vice chairman, CEO, president, or
any vice president shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the Corporation.
THE VICE-PRESIDENTS
Section 11. The vice president, or if there shall be more than one, the
vice-presidents in the order determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors, the Chairman of the Board, the CEO or the
president may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 12. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings of
the meetings of the Corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors, the
Chairman of the Board, the CEO or the president, under whose several supervision
he shall be. He shall have custody of the corporate seal of the Corporation and
he, or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature.
Section 13. The assistant secretary, or if there shall be more than one,
the assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
-3-
<PAGE>
THE TREASURER AND ASSISTANT TREASURERS
Section 14. The treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the board of directors.
Section 15. He shall disburse the funds of the Corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the CEO, the
president and the board of directors, at its regular meetings, or when the board
of directors so requires, an account of all his transactions as treasurer and of
the financial condition of the corporation.
Section 16. If required by the board of directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 17. The assistant treasurer, or, if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
Among
AMERICA'S DOCTOR, INC.,
MEDICAL ADVISORY SYSTEMS, INC.
and
PREMIER RESEARCH WORLDWIDE, LTD.
Dated July 2, 1998
<PAGE>
COMMON STOCK PURCHASE AGREEMENT, dated July 2, 1998, between AMERICA'S
DOCTOR, INC., a Delaware corporation (the "Company"), and MEDICAL ADVISORY
SYSTEMS, INC., a Delaware corporation ("MAS"), and PREMIER RESEARCH WORLDWIDE,
LTD., a Delaware corporation ("PRWW"). MAS and PRWW are at times herein
individually referred to as a "Purchaser" and collectively as the "Purchasers".
WHEREAS the Company wishes to issue and sell to each Purchaser an
aggregate of 50,000 shares of Series A Common Stock, $0.01 par value, of the
Company (the "Stock"), at a purchase price of $20 per share, payable as provided
herein;
WHEREAS each Purchaser wishes to purchase said shares, all on the terms
and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the parties hereby agree as follows:
I.
THE SHARES
SECTION 1.01 Purchase and Sale of the Shares.
(a) Subject to the terms and conditions set forth herein, the Company
shall sell to each Purchaser, and each Purchaser shall purchase from the
Company, on the Closing Date, 50,000 authorized but unissued shares of Stock
(said shares being herein called the "Shares") at a purchase price of $20 per
share for an aggregate purchase price equal to $1,000,000, and the Company shall
issue and deliver a stock certificate or certificates in definitive form,
registered in the name of the Purchaser, evidencing the Shares being purchased
by it hereunder.
<PAGE>
(b) As payment in full for the Shares to be purchased by it, and
against delivery of the stock certificate or certificates therefor as aforesaid,
PRWW shall deliver to the Company on the Closing Date a certified or official
bank check in Philadelphia Clearing House funds payable to the order of the
Company in the amount of $1,000,000, or shall transfer such sum to the account
of the Company by wire transfer.
(c) As payment in full for the Shares to be purchased by MAS hereunder,
MAS shall:
(i) Provide to the Company during the Pre-Start-Up Period (as such
term is defined in the MAS Service Agreement referred to in paragraph 4(i)
below) the systems hardware, software and ongoing support specified more fully
in paragraph 13(a) of the MAS Service Agreement, for which MAS shall receive a
credit of $360,000, representing the purchase price for 18,000 shares of the
Stock hereunder; and
(ii) Make the twelve consecutive monthly payments specified below
(with the first such payment due in the month following the end of the
Pre-Start-Up Period), representing payment of the purchase price for the
indicated number of shares of the Stock:
A. Eleven monthly payments of $53,320 each, each representing
the purchase price for 2,666 shares.
B. A twelfth payment of $53,480, representing the purchase
price for 2,674 shares.
At the Closing, the Company shall execute 13 stock certificates
representing the respective shares of the Stock, the purchase price for which is
to be satisfied by MAS pursuant to clauses (i) and (ii) above. The Company shall
deliver each such certificate to MAS as the
-2-
<PAGE>
purchase price for the Stock represented thereby has been satisfied or paid in
accordance with the above provisions.
SECTION 1.02 Closing Date. The closing of the sale and purchase of the
Shares shall take place at the office of Archer & Greiner, A Professional
Corporation, One Centennial Square, Haddonfield, New Jersey 08033, at 10:00
a.m., on July 2, 1998, or at such other date and time as may be mutually agreed
upon between the Purchasers and the Company (such date and time of closing being
herein called the "Closing Date").
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as follows:
SECTION 2.01 Organization, Qualifications and Corporate Power. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and is duly licensed or
qualified as a foreign corporation in each other jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it makes such licensing or qualification necessary and where the
failure to be so qualified would have a material adverse effect upon the
business or assets of the Company. The Company has the corporate power and
authority to own and hold its properties and to carry on its business as
currently conducted, to execute, deliver and perform this Agreement, the
Registration Rights Agreement, the PRWW Service Agreement, the MAS Service
Agreement, the Stockholders Agreement and the Warrants (as such terms are
defined in Article IV or VI below) (collectively, the "Operative Documents"),
and to issue, sell and deliver the Shares and the Warrant Shares. The copies of
the Company's Certificate of
-3-
<PAGE>
Incorporation and by-laws heretofore delivered to the Purchasers are complete
and correct. The Company does not own any capital stock of or other equity
interest in any other corporation or organization.
SECTION 2.02 Authorization of Agreement, Etc.
(a) The execution, delivery and performance by the Company of the
Operative Documents and the issuance, sale and delivery of the Shares and the
Warrant Shares, have been fully authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation or Bylaws of the Company, or any
provision of any indenture, agreement or other instrument by which the Company
or any of its properties or assets is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.
(b) The Shares and the Warrant Shares have been duly authorized and,
when issued and delivered in accordance with this Agreement or the Warrant (as
applicable), will be validly issued, fully paid and non-assessable shares of
Stock. The issuance, sale and delivery of the Shares and the Warrant Shares is
not subject to any preemptive rights of shareholders of the Company or to any
right of first refusal or other similar right in favor of any person.
SECTION 2.03 Validity. This Agreement has been fully executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The other Operative
Documents, when executed and
-4-
<PAGE>
delivered in accordance with this Agreement, will constitute the legal, valid
and binding obligation of the Company, enforceable in accordance with their
respective terms.
SECTION 2.04 Capital Stock. The authorized capital stock of the Company
consists of 1,000,000 shares of the Stock. The shareholders of the Company and
the number of shares of capital stock owned by each are set forth in Schedule
2.04A hereto. Except for the options, warrants and convertible unsecured
promissory notes, the terms of which are fully described in Schedule 2.04B
hereto, (i) no subscription, warrant, option, convertible security or other
right (contingent or other) to purchase or acquire any shares of any class of
capital stock of the Company is authorized or outstanding, (ii) there is not any
commitment of the Company to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets, (iii) the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof, and (iv) to the Company's knowledge, there are
no existing rights of first refusal, registration rights or voting agreements
with respect to any of the Company's outstanding shares, except as described on
Schedule 2.04C. A true and correct copy of the Stock Option Agreement to Scott
Rifkin, M.D., is set forth as Schedule 2.04D. All of the outstanding shares of
the Stock have been issued in compliance with all applicable Federal securities
law.
SECTION 2.05 Financial and Other Data. All financial and other data
pertaining to the Company and its business, assets and affairs, which has been
or hereafter prior to the Closing shall be furnished to either Purchaser by the
Company, are or will be at the time the same are so furnished, true, accurate
and complete in all material respects. To the best
-5-
<PAGE>
knowledge and belief of the Company, except as described herein or in the
Business Plan (as defined below), the Company has no obligations or liabilities,
absolute, accrued or contingent, which in accordance with generally accepted
accounting principles should be listed on a balance sheet or described on the
notes thereto. To the date hereof, the Company has operated in a pre-start-up
phase consistent with the Business Plan.
SECTION 2.06 Events Subsequent to January 1, 1998. Since January 1,
1998 except as set forth in Schedule 2.06 hereto, the Company has not (i) issued
any stock, bonds or other corporate securities, (ii) borrowed any amount or
incurred any liabilities (absolute or contingent), except current liabilities
incurred, and liabilities under contracts entered into, in the ordinary course
of business, none of which, individually or in the aggregate, are material to
the Company, (iii) discharged or satisfied any lien or incurred or paid any
obligation or liability (absolute or contingent) other than current liabilities
incurred in the ordinary course of business, (iv) declared or made any payment
or distribution to shareholders or purchased or redeemed any shares of its
capital stock or other securities, (v) mortgaged, pledged or subjected to lien
any of its assets, tangible or intangible, other than liens of taxes not yet due
and payable, (vi) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any debts or claims,
(vii) sold, assigned or transferred any patents, trademarks, trade names,
copyrights, trade secrets or other intangible assets, (viii) suffered any
losses, or waived any rights of substantial value, whether or not in the
ordinary course of business, (ix) made any changes in officer compensation,
except in the ordinary course of business and consistent with past practice, or
(x) entered into any transaction except in the ordinary course of business
(recognizing that the Company is in a start-up phase of its
-6-
<PAGE>
business). Since such date, except as set forth in said Schedule 2.06, there has
been no material change in the accounting methods or practices of the Company.
Between the date hereof and the Closing Date, the Company will not do
any of the things listed in Section 2.06 above, except as contemplated by
Schedule 2.06 hereto.
SECTION 2.07 Actions Pending. There is no action, suit, investigation
or proceeding pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its properties or rights, before any court or by
or before any governmental body or arbitration board or tribunal. To the best
knowledge and belief of the Company, there does not exist any basis for any such
action, suit, investigation or proceeding. The foregoing includes, without
limiting its generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of any employees or
prospective employees of the Company or their use, in connection with the
Company's business, of any information or techniques which might be alleged to
be proprietary to their former employers. There are no decrees, injunctions or
orders of any court or governmental department or agency outstanding against the
Company.
SECTION 2.08 Trade Secrets. No third party has claimed that any person
affiliated with the Company has, in respect of his activities to date, violated
any of the terms or conditions of his employment contract with such third party,
or disclosed or utilized any trade secrets or proprietary information or
documentation of such third party, or interfered in the employment relationship
between such third party and any of its employees. The Company is not aware that
any person affiliated with it has employed or will employ any trade secrets or
any information or documentation proprietary to any former employer, or that
any person
-7-
<PAGE>
affiliated with the Company has violated any confidential relationship which
such person may have had with any third party, in connection with the
development, manufacture and sale of any products of the Company. To the
Company's knowledge, there is no infringement by the Company of any third party
intellectual property right. All employees of the Company with access to
confidential information and who have executed employment agreements have
executed and delivered to the Company a non-disclosure and non-competition
agreement.
SECTION 2.09 Title to Properties. The Company has good and marketable
title to all its real property and owns outright all its other properties and
assets, free and clear of mortgages/pledges, security interests, liens, charges
and other encumbrances, except (i) as described in Schedule 2.09 hereto, (ii)
liens for current taxes not yet due and (iii) minor imperfections of title, if
any, not material in amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations or
proposed operations of the Company.
SECTION 2.10 Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
owned by any third party is a valid and subsisting agreement, without any
default of the Company thereunder and, to the best knowledge and belief of the
Company, without any default thereunder of the other party thereto. The
Company's possession of such property has not been disturbed nor has any claim
been asserted against the Company adverse to its rights in such leasehold
interests,
SECTION 2.11 Taxes. The Company has filed or caused to be filed all
Federal, state and local tax returns and reports which are required to be filed
and has paid or caused to be paid all taxes as shown on all Federal, state and
local tax returns filed by it or on any
-8-
<PAGE>
assessment received by it to the extent that such taxes have become due, and all
of the foregoing are correct and complete in all material respects. All accruals
for taxes owed by the Company are adequately reflected on the financial
statements described in Section 2.05 above. No issues have been raised or
deficiencies asserted by any taxing authority with respect to the Company's tax
liabilities or any of its tax returns or reports.
SECTION 2.12 Patents, Trademarks, Etc. To the best knowledge and belief
of the Company, the Company owns the patents, trademarks, service marks, trade
names, copyrights and licenses listed in Schedule 2.12 hereto without conflict
with the rights of others, the same constitute all the patents, trademarks,
service marks, trade names, copyrights and licenses necessary in the conduct of
the business of the Company, and, except as indicated in said Schedule 2.12,
there exists no right of any person to receive a royalty with respect thereto or
to utilize or otherwise appropriate the same, and the Company has no
distribution, marketing or other agreements granting rights to third parties
relating in whole or in part to any items of the foregoing categories, except
licenses granted in the ordinary course of its business. All technical
information developed by and belonging to the Company which has not been
patented by it is and will continue to be protected by measures deemed prudent
by the Company for the maintenance of secrecy relating thereto.
SECTION 2.13 Governmental Approvals. No registration or filing with, or
consent or approval of, or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance of the Operative Documents and the issuance,
sale and delivery of the Shares, the Warrants and the Warrant Shares hereunder.
-9-
<PAGE>
SECTION 2.14 Use of Proceeds. Unless otherwise agreed to by the PRWW
board representative, the Company will apply the proceeds of the issuance and
sale of the Shares for start up and operating costs as described in the Business
Plan. In no event will the proceeds of the issuance and sale of the Shares to
PRWW be utilized to retire any portion of the Bridge Loan (as defined in
subparagraph (k) of Article IV below).
SECTION 2.15 Disclosure. The Company has furnished to the Purchasers a
copy of the Company's business plan attached as Schedule 2.15A, used in
connection with its offer of the Shares (the "Business Plan"). In addition, the
Purchasers have had lengthy discussions regarding this investment and the
Company in general with representatives of the Company. To the Company's best
knowledge and belief, after due inquiry, the Business Plan and this Agreement do
not contain any untrue statement of material fact or omit to state any material
fact necessary in order to make the statements contained therein or herein, in
light of the circumstances under which they are made, not misleading. The
projections of financial results contained in the Business Plan were in all
material respects prepared accurately based upon the assumptions described
therein, which assumptions the Company believes to be realistic. The Company is
a start-up company without any meaningful financial or operating history and the
Purchasers were made aware of the speculative nature and high degree of risk of
loss involved with this purchase as set forth in Schedule 2.15B hereto.
SECTION 2.16 Offering of the Shares. Neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Shares or any similar security of
the Company has offered the Shares or any such security for sale to, or
solicited any offers to buy the Shares or any similar
-10-
<PAGE>
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any person or persons other than the Purchasers and not more than
35 non-accredited investors (including, if applicable, the Purchasers). Neither
the Company nor any person acting on its behalf has taken or will take any
action (including, without limitation, any offer, issuance or sale of any
security of the Company, pursuant to the Business Plan or otherwise), under
circumstances which might require the integration of such security with the
Shares under the Securities Act of 1933 (the "Securities Act") or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
thereunder which might subject the offering, issuance or sale of the Shares to
the registration provisions of the Securities Act. The offering, issuance and
sale of the Shares hereunder is exempt from the federal registration
requirements.
SECTION 2.17 Employment Contracts, Etc.; Certain Material
Transactions. Except as set forth in Schedule 2.17 hereto, (i) the Company is
not a party to any employment or deferred compensation agreements, (ii) the
Company does not have any bonus, incentive or profit-sharing plans, (iii) the
Company does not have any pension, retirement or similar plans or obligations,
and (iv) there are no existing material arrangements or proposed material
transactions between the Company and any officer or director or holder of more
than 10% of the capital stock of the Company. The Company is not a party to any
collective bargaining agreement and, to the best of its knowledge, no
organizational efforts are currently being made with respect to any of its
employees. Any employment agreements to be entered into in the future or
contemplated and listed on Schedule 2.17 but not executed on or before the
Closing Date, will be approved by the Company's Compensation Committee.
-11-
<PAGE>
SECTION 2.18 Other Contracts and Commitments. The Company is not in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in the Company's Certificate of Incorporation
or by-laws or in any agreement or instrument to which it is a party which may
result in any material adverse change in the condition, financial or other, of
the Company, and, to the best knowledge and belief of the Company, there are no
existing such defaults by the other parties thereto. Attached hereto as Schedule
2.18 is a true, complete and correct copy of the Interactive Services Agreement
between the Company and America Online, Inc. (the "AOL Agreement"). The AOL
Agreement is a valid and subsisting agreement, and no default has occurred
thereunder by the Company or AOL.
SECTION 2.19 Compliance With Law. The Company is not in default under
any order of any court, governmental authority or arbitration board or tribunal
to which the Company is or was subject or in violation of any laws, ordinances,
governmental rules or regulations to which the Company is or was subject, except
for such violations which do not, individually or in the aggregate, have a
material adverse effect on the Company. The Company has not failed to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of the properties of the Company or to the conduct of the business
of the Company and the failure of which to obtain would have a material adverse
effect on the Company.
SECTION 2.20 Employee Benefits Plans. The Company has never been a
party to a multi-employer retirement plan. The Company has no Employee Benefit
Plans subject to the
-12-
<PAGE>
provisions of the Employee Retirement Income Security Act of 1974 (as such term
is defined therein).
SECTION 2.21 Insurance. The Company maintains insurance with
responsible and reputable insurance companies in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general area in which the Company operates
or owns such properties.
III.
REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
Each Purchaser represents and warrants to the Company (for itself and
not for the other Purchaser) that it is acquiring the Shares for its own account
for the purpose of investment and not with a view to or for sale in connection
with any distribution thereof. Each Purchaser represents and warrants that it is
an "accredited investor" as such term is defined under the Securities Act of
1933, as amended (the "Securities Act") or that it has sufficient knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of this purchase. Each Purchaser further represents that it
understands that (i) the Shares have not been registered under the Securities
Act by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) and 4(6) thereof,
(ii) the Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) the Shares will bear a legend to such effect (to be removed
when such restrictions are no longer applicable), and (iv) the Company will make
a notation on its transfer books to such effect. The Purchaser further
understands that the exemption from registration afforded by Rule 144 under the
-13-
<PAGE>
Securities Act depends on the satisfaction of various conditions and that, if
applicable, Rule 144 affords the basis of sales of the Shares in limited amounts
under certain conditions. The Purchaser acknowledges that it has had a full
opportunity to request from the Company all instruments, documents, records and
books pertaining to this investment, all of which requested documentation has
been made available by the Company, and the Purchaser has received such
information that it deems relevant in making a decision to purchase the Shares
being purchased by it hereunder. The Purchaser has had the full and fair
opportunity to have the Company's Business Plan, other documents and this
Agreement reviewed thoroughly by independent, competent advisors and counsel or,
if not, then the Purchaser has made the fully informed, independent decision not
to do so, and the Purchaser has duly considered the factors listed on Schedule
2.15 hereto (provided that the review and receipt of any such information shall
not in any manner qualify or diminish the representations of the Company
contained in Article II). The Purchaser will comply with any restrictions on
transferability of the Shares contained in the Registration Rights Agreement and
the Stockholders Agreement.
IV.
CONDITIONS TO THE OBLIGATIONS
OF EACH PURCHASER
The obligation of each Purchaser to purchase and pay for the Shares
being purchased by it on the Closing Date is, at its option, subject to the
simultaneous Closing of the purchase of Shares hereunder by the other Purchaser
and, at its option, is further subject to the satisfaction, on or before such
date, of the following conditions:
-14-
<PAGE>
(a) Opinion of Counsel. The Purchaser shall have received from Rifkin,
Livingston, Levitan & Silver, LLC, counsel for the Company, an opinion dated the
Closing Date, in form and substance satisfactory to the Purchaser and its
counsel, to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. The
Company has the corporate power and authority to own and hold its properties and
to carry on its business as currently conducted, to execute, deliver and perform
the Operative Documents, and to issue, sell and deliver the Shares and the
Warrant Shares.
(ii) The authorized capital stock of the Company consists of
1,000,000 shares of Series A Common Stock, of which 234,651 shares are
outstanding, which outstanding shares have been validly issued and are fully
paid and non-assessable.
(iii) Such counsel, without independent investigation, is not aware
of any non-compliance with any Federal securities laws in connection with the
original issuance of the presently outstanding shares of the Company's capital
stock.
(iv) The execution, delivery and performance by the Company of the
Operative Documents, and the issuance, sale and delivery of the Shares and the
Warrant Shares, have been duly authorized by all requisite corporate action, and
will not violate any provision of law, the Certificate of Incorporation or
by-laws of the Company or, to the knowledge of such counsel, without independent
investigation, any provision of any material agreement or other instrument by
which the Company or any of its properties or assets is bound or affected, or
conflict with, result in a breach of or constitute a default under any such
agreement or other instrument.
-15-
<PAGE>
(v) Each of the Operative Documents has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency
and similar laws, to moratorium laws from time to time in effect and to general
equity principles), except that such counsel need express no opinion as to the
indemnification provisions of the Registration Rights Agreement.
(vi) The Shares have been issued, sold and delivered by the Company
pursuant to this Agreement and are duly authorized, validly issued, fully paid
and nonassessable shares of Stock.
(vii) The issuance, sale and delivery of the Shares to the
Purchaser, under the circumstances contemplated by this Agreement, are exempt
from the registration requirements of the Federal securities laws.
(viii) Such counsel does not represent the Company with respect to
pending or overtly threatened litigation, and to its knowledge without
independent investigation there is no such pending or threatened litigation
outstanding.
(ix) Such counsel is not aware of any material default by the
Company under any agreement or instrument of the Company or any failure by the
Company to comply with applicable law.
(x) To the knowledge of such counsel, all consents and approvals
required for the execution, delivery and performance by the Company of this
Agreement have been duly obtained.
-16-
<PAGE>
(b) Representations and Warranties to be True and Correct; Performance.
The representations and warranties contained in Article II hereof shall be true
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; the Company
shall have performed and complied with all agreements and conditions contained
herein required to be performed or complied with by it prior to or at the
Closing Date; and each Purchaser shall have received a certificate dated the
Closing Date, executed by the Company's president or vice president, to each
such effect.
(c) Consents and Approvals. All necessary consents and approvals from
governmental and third parties required for the sale and issuance of the Shares
hereunder and the other actions contemplated hereby shall have been duly
obtained.
(d) Secretary's Certificate. Each Purchaser shall have received a
certificate from the Secretary or Assistant Secretary of the Company, with
respect to the Company's Certificate of Incorporation and by-laws and
resolutions of the Company's Board of Directors authorizing the transactions
contemplated hereby.
(e) Election of Directors. Each Purchaser's designee shall have been
elected to the Company's Board of Directors.
(f) Stockholders' and Voting Agreement. On the Closing Date, the
Company and the other parties thereto shall have executed and delivered the
Stockholders' and Voting Agreement among the Company and its shareholders, in
the form of Annex III hereto (the "Stockholders Agreement").
(g) Registration Rights Agreement. On the Closing Date the Company
shall have executed and delivered the Registration Rights Agreement, in the form
of Annex IV hereto (the
-17-
<PAGE>
"Registration Rights Agreement").
(h) [RESERVED]
(i) MAS Service Agreement. On the Closing Date, the Company and MAS
shall have executed and delivered the Services Agreement in the form of Annex V
hereto (the "MAS Service Agreement").
(j) PRWW Service Agreement. On the Closing Date, the Company and PRWW
shall have executed and delivered the Services Agreement in the form of Annex VI
hereto (the "PRWW Service Agreement").
(k) Bridge Loan. At or prior to the Closing, the Company shall have
received a $900,000 bridge loan from Mercantile Safe Deposit & Trust Co., on
terms and conditions satisfactory to each Purchaser, guaranteed by the
individuals listed on Schedule 4(k) hereto (the "Loan Guarantors"), for which
the Loan Guarantors shall receive in the aggregate warrants to acquire not more
than 7,500 shares of the Stock, on terms and conditions satisfactory to each
Purchaser.
(1) Additional Equity Funding. Unless otherwise agreed to by the PRWW
board representative, at or prior to the Closing, the Company shall have issued
and sold 25,000 shares of the Stock to the individual investors listed in Part A
of Annex VII hereto (the "Wyndhurst Group"), for an aggregate consideration,
paid in cash, of $500,000, and shall have issued and sold 25,000 shares of the
Stock to the individual investors listed in Part B of said Annex (the "Seidman
Group"), for an aggregate consideration, paid in cash, of $500,000.
-18-
<PAGE>
V.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to issue and sell the Shares to the
Purchasers on the Closing Date is, at its option, subject to the satisfaction,
on or before such date, of the following conditions:
(a) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article III hereof shall be true and
correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
(b) Operative Documents. The other parties thereto shall have executed
and delivered to the Company the Operative Documents.
(c) Consents and Approvals. All necessary consents and approvals from
governmental and third parties required for the sale and issuance of the Shares
hereunder shall have been duly obtained.
VI.
ADDITIONAL EQUITY OFFERING; ISSUANCE OF WARRANTS
SECTION 6.01 Equity Offering. The Company shall use its best efforts to
sell, within 45 days of the Closing Date, 150,000 shares of the Stock to as yet
undetermined investors (the "Prospective Investors"), for an aggregate
consideration of $3,000,000, payable in cash. Such issuance shall be on terms
(for example, purchase price, payment terms, registration rights, etc.) no more
favorable than those provided hereunder to MAS and PRWW.
-19-
<PAGE>
SECTION 6.02 Issuance of Warrants. On the 45th day following the
Closing Date, the Company will issue warrants to purchase its Stock,
substantially in the form an Annex VIII hereto (the "Warrants"), to PRWW, MAS,
the Wyndhurst Group and the Seidman Group, pro rata to the Stock owned by each.
The Warrants will permit the holder thereof to purchase the number of shares of
Stock represented thereby (herein, the "Warrant Shares"), at any time during a
10 year period, for a purchase price of $.01 per share. The aggregate number of
Warrant Shares issuable under all of the Warrants shall equal the result of (a)
$3,000,000, minus (b) the aggregate purchase price received from the Prospective
Investors, divided by (c) $3,000,000, multiplied by (d) 50,000 shares.
VII.
COVENANTS OF THE COMPANY
The Company covenants and agrees that, unless the Purchasers shall
otherwise consent in writing:
(a) Financial Statements. The Company shall furnish to each Purchaser
the financial statements and other information required to be provided to
holders of the Common Stock pursuant to the Stockholders Agreement.
(b) Insurance. The Company will maintain insurance with responsible and
reputable insurance companies in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and owning similar
properties in the same general area in which the Company operates or owns such
properties.
-20-
<PAGE>
(c) Key Man Insurance. The Company will use best efforts to obtain
within 90 days of the Closing Date, and thereafter will maintain in effect, key
man life insurance in an amount of not less than $1,000,000 on the life of its
CEO.
(d) Non-Disclosure Agreements. The Company will maintain in effect with
each of its employees who are privy to confidential information of the Company,
and who have or shall execute an employment agreement, a covenant, in form and
substance reasonably deemed to be appropriate by the Company, pursuant to which
each such employee shall agree not to disclose or utilize confidential or
proprietary information of the Company or to compete with the Company.
(e) Access to Records. The Company shall afford to each Purchaser and
its employees, counsel and other authorized representatives free and full
access, on a reasonable basis during normal business hours, to all of the books,
records and properties of the Company and to all officers and employees of the
Company for any reasonable purpose whatsoever; provided that such free and full
access does not unreasonably interfere with the normal business operations of
the Company. The Purchaser'shall use its best efforts to maintain the
confidentiality of any confidential and proprietary information so obtained by
it which is not otherwise available from other sources; provided, however, that
the foregoing shall in no way limit or otherwise restrict the ability of the
Purchaser or such authorized representatives to disclose any such information
concerning the Company which it may be required to disclose (i) to its partners
to the extent required to satisfy its fiduciary obligations to such persons, or
(ii) otherwise pursuant to or required by law.
-21-
<PAGE>
(f) Budgets and Operating Forecast. The Company will promptly provide
each Purchaser will copies of any budgets which it may from time to time adopt,
which in any event shall include an annual budget to be prepared and distributed
not later than 45 days after the commencement of each fiscal year.
(g) Existence; Maintenance of Property. The Company shall do or cause
to be done all things necessary to maintain, preserve and keep in full force and
effect its corporate existence and all rights, licenses, permits and franchises
necessary to the proper conduct of its business and the ownership, leasing or
operation of its properties. The Company shall maintain and operate its
business and properties in accordance with all applicable laws and regulations
and take all reasonable action which may be required to obtain, preserve, renew
and extend all licenses, permits, authorizations, trade names, trademarks,
copyrights and patents which may be necessary for the continuance of the
operation of any such property by it. The Company shall at all times maintain
and preserve all property necessary in the conduct of its business and keep the
same in good repair, working order and condition, and from time to time make, or
cause to be made, all necessary and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may properly and advantageously be conducted at all times.
(h) Payment of Debts, Taxes, Etc. The Company shall pay all
indebtedness and obligations promptly and in accordance with normal terms and
pay and discharge promptly all taxes, assessments and governmental charges or
liens imposed upon it or upon its income or receipts or in respect of any of its
property, before the same shall become in default, as well as all lawful claims
which, if unpaid, might result in the creation of a lien or charge upon such
-22-
<PAGE>
properties or any part thereof; provided, however, that the Company shall not be
required to pay and discharge or to cause to be paid and discharged any such
indebtedness, obligation or tax so long as the validity or amount thereof shall
be contested in good faith and the Company shall set aside on its books such
reserves as are required by generally accepted accounting principles with
respect to any such indebtedness, obligation or tax.
(i) Litigation or Other Notices. The Company shall deliver to each
Purchaser promptly following the occurrence thereof written notice of the
following:
(A) all events of default under any of the terms or provisions of
any material note, or of any other evidence of material indebtedness or
agreement or contract governing the borrowing of money of the Company;
(B) levy of an attachment, execution or other process against any
of the property or assets, real or personal, of the Company or any of its
subsidiaries, unless the same is reasonably discharged within thirty days and is
so discharged;
(C) the filing or commencement of any action, suit or proceeding by
or before any court or any federal, state, municipal or other governmental
department, commission, instrumentality or agency which may result in material
liability to, or otherwise materially adversely affect, the Company;
(D) any matter of non-general effect which has resulted in, or
which may result in, a material adverse change in the financial condition or
operations of the Company.
(j) Performance of Obligations. The Company shall do and perform every
act and discharge all of the obligations required to be performed and discharged
under any of the Operative Documents at the time or times and in the manner
therein and herein specified.
-23-
<PAGE>
(k) Meetings of the Board of Directors. The Company shall call, and use
its best efforts to have, regular meetings of the Board of Directors of the
Company not less than quarterly.
(l) Board of Directors; Membership Thereon. The Board of Directors
shall be of such size and composed of such designees as is more fully specified
in the Stockholders Agreement.
VIII.
[RESERVED]
IX.
MISCELLANEOUS
SECTION 9.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
one half of the fees and disbursements of each Purchaser's counsel. With the
Purchasers' prior knowledge and approval, closing costs of this transaction
payable to third parties have been incurred by the Company which are to be
satisfied by (i) cash payments equal to 8% of the proceeds of the offering
hereunder due out of the offering and (ii) issuance of shares of the Common
Stock equal to 9% of the Company's Common Stock outstanding after the sale and
purchase hereunder; the cash payments will accrue until such time as the Company
has sufficient funds to pay this cost, at the prudent discretion of management.
The Company further confirms that its legal and accounting fees arising from
this offering shall not exceed $50,000.
-24-
<PAGE>
SECTION 9.02 Survival of Agreements. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance, sale and delivery of the Shares
pursuant hereto.
SECTION 9.03 Brokerage. Each party hereto represents and warrants to
the other that it has incurred no brokerage or other commissions relative to
this Agreement or to the transactions contemplated hereby, based in any way on
agreements, arrangements or understandings made or claimed to have been made by
such party with any third party, except for the consulting fees payable by the
Company included within the closing costs referred to in Section 9.01 above.
Notwithstanding the foregoing, each party hereto will indemnify and hold
harmless the other against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby (other than such consulting fees), based in any way on agreements,
arrangements or understandings made or claimed to have been made by such party
with any third party.
SECTION 9.04 Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 9.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, addressed as follows:
(a) if to the Company, at:
11403 Cronridge Drive
Suite 200
Owings Mills, MD 21117
-25-
<PAGE>
(b) if to PRWW, at:
Premier Research Worldwide, Ltd.
124 S. 15th Street
Philadelphia, Pennsylvania 19102-3010
Attn: CEO
(c) If to MAS, at:
8050 Southern Maryland Boulevard
Owings, MD 20736
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others in accordance with this Section
9.05.
SECTION 9.06 Law Governing Construction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Maryland.
In the event any provision of this Agreement shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall attach
only to such provision and shall not affect or render invalid or unenforceable
any other provision of this Agreement.
SECTION 9.07 Entire Agreement. This Agreement constitutes the
entire Agreement of the parties with respect to the subject matter hereof and
may not be modified, waived or amended except in writing.
SECTION 9.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-26-
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have executed
this Agreement as of the day and year first above written.
AMERICA'S DOCTOR, INC.
By /s/ Scott Rifkin
-------------------------------
President
MEDICAL ADVISORY SYSTEMS, INC.
By: /s/ Ronald Pickett
------------------------------
PREMIER RESEARCH WORLDWIDE, L.T.D.
By: /s/ Fred M. Powell
-------------------------------
-27-
<PAGE>
SUPPORT AND SERVICE AGREEMENT
-----------------------------
THIS AGREEMENT, is made the 2nd day of July, 1998, by and between PREMIER
RESEARCH WORLDWIDE, LTD., a Delaware corporation with its principal place of
business located at 124 S. 15th Street, Philadelphia, PA 19102 (referred to
herein as "PRWW") and AMERICA'S DOCTOR, INC., a Delaware corporation with its
principal place of business located at 11403 Cronridge Drive, Suite 200, Owings
Mills, MD 21117 (referred to herein as "AD").
WHEREAS, the parties hereto have entered into a Stock Purchase Agreement
dated as of July 1, 1998 (the "Stock Purchase Agreement") wherein PRWW has
purchased certain stock in AD pursuant to the terms of the Stock Purchase
Agreement; and
WHEREAS, the parties hereto are entering into this Agreement pursuant to
and in connection with the Stock Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Services" shall mean the providing of support and services to
PRWW by AD as set forth in Subsection 3.1 of this Agreement.
1.2 "Term" shall mean the period of time during which this Agreement
is in force.
1.3 "Operative" shall mean the Services'conforming in all material
respects to the performance levels and requirements detailed in
this Agreement.
1.4 "Effective Date" shall mean July 2, 1998.
1.5 All other defined terms shall have the meanings ascribed to them
in this Agreement.
2. TERM AND TERMINATION
2.1 The Term of this Agreement shall begin on the Effective Date and
shall continue until this Agreement is terminated as provided in
Subsection 2.2.
2.2 This Agreement may be terminated as follows:
(a) By the mutual, written agreement of the parties to terminate
this Agreement; or
<PAGE>
(b) On written notice by a party if the other party materially
breaches any provision hereof and does not cure such breach within
thirty (30) days after its receipt of written notice, specifying the
breach, from the non-breaching party; or
(c) On written notice by a party if the other party files a
voluntary bankruptcy proceeding, becomes subject to an involuntary
bankruptcy proceeding (which is not dismissed or stayed within 30 days
of its commencement), becomes subject to a receiver or trustee, or
makes an assignment for the benefit of its creditor; or
(d) By PRWW without cause with sixty (60) days prior notice to
AD; or
(e) From and after the date that PRWW no longer owns at least I
% of the outstanding voting stock of AD, by AD without cause with 60
days prior notice to PRWW.
3. SUPPORT AND SERVICE PROVISIONS.
3.1. AD agrees to provide the following to PRWW:
(a) AD shall provide PRWW with direct links from all AD's
existing and future website(s) (but not every page within such
websites) to users to provide the following:
(i) ongoing solicitation and quantification of qualified
clinical research organization (CRO) volunteer patients to participate
in clinical/medical studies administered by PRWW; and'
(ii) education of the users on the societal merits of
participating in clinical research.
(b) AD shall promote and market PRWW's studies on line through
use of its promotional space on its existing and future Health Main
Page(s) to connect to promotional material for PRWW studies.
(i) As an example, AD will offer its AOL users daily and
monthly themes such as "Heart Disease Prevention." Such promotional ads
will be connected to a number of targeted choices for the AOL users. If
the AOL user selects a PRWW targeted choice, the AOL user will be
immediately connected to a PRWW targeted site (the "Targeted Site").
2
<PAGE>
(ii) The Targeted Site will be created by AD specifically
for PRWW under the supervision of and pursuant to the sole discretion
of PRWW (AD having the right not to follow PRWW's directions if the
same would be detrimental in any material respect to AD's image or
business plan). The Targeted Site will give the AOL user appropriate
information about PRWW's clinical research activities. If the AOL user
wishes to volunteer, the AOL user will make a choice by clicking an
icon and will be led automatically and immediately to a form to
complete (the "Form" or "Forms" as the context may require). The Form
will be created by AD specifically for PRWW under the supervision of
and pursuant to the sole discretion of PRWW. The Form will gather the
information which PRWW needs for its own purposes and will be varied
within reason from study to study at the sole discretion of PRWW. AD
shall provide all such completed forms to PRWW by e-mail or other
agreedupon means on a daily basis. AD will also provide to PRWW monthly
statistical summaries of the information gathered on the Forms as well
as its updated monthly databases.
3.2. PRWW agrees to provide the following to AD:
(a) Introductions to the Premier Hospital Group and other
related healthcare organizations;
(b) Introductions to the pharmaceutical, medical instrument
companies, and other organizations with which PRWW has an ongoing
business relationship (PRWW representing that it has relationships with
at least twenty such entities).
4. EXCLUSIVITY/CONFIDENTIALITY
4.1 AD shall provide the above described Services exclusively to PRWW
and shall not provide similar services to any other person or
entity relating to recruitment for clinical trials.
4.2 AD shall not design or provide any program that is in any way
substantially similar or related to the program provided to PRWW
for or in conjunction with any other person or entity relating to
recruitment for clinical trials without the express written
permission of PRWW.
4.3 All materials, documents, and other information shared with PRYM
by AD during the course of this Agreement shall be deemed to be,
between AD and PRWW, confidential information ("Information") and
AD shall share same only with those persons performing hereunder
who have a need-to-know same in order to perform the Services.
Upon termination of this Agreement, all Information provided to
PRWW by AD hereunder shall continue to be the
3
<PAGE>
exclusive property of PRWW. AD shall be liable for any
unauthorized use or disclosure of the Information by AD's
employees which could have reasonably been prevented by AD.
4.4 AD represents, warrants, covenants and agrees that it shall
maintain reasonable safeguards against the destruction, loss or
alteration of information and data under its control and required
to be provided to PRWW hereunder.
4.5 AD shall not, without the prior written approval of PRWW, publicly
disclose in any press release, filing, brochure or document any
information pertaining to this Agreement (it being understood that
AD may disclose this Agreement to potential investors).
4.6 Nothing herein confers or shall confer upon PRWW any right, title
or interest in any goodwill, trademark, trade name, brand name,
knowledge or credibility of AD. PRWW acknowledges that all such
interests are the exclusive property of AD. PRWW shall not assert
any claim of ownership or right to the same.
4.7 Nothing herein confers or shall confer upon AD, any right, title
or interest in any goodwill, trademark, trade name, brand name,
knowledge or credibility of PRWW. AD acknowledges that all such
interests are the exclusive property of PRWW. AD shall not assert
any claim of ownership or right to same.
5. GENERAL PROVISIONS
5.1 Each party hereto shall indemnify and hold the other party and its
directors, officers, employees, agents, subsidiaries, parents,
affiliates, consultants and subcontractors (all "Associates")
harmless from any claim, liability, loss, damages or expense,
together with all reasonable costs and expenses relating thereto-,
including reasonable attorneys' fees, resulting from the
negligent, reckless or willful acts or omissions of such party,
its agents or employees in connection with the providing of the
Services hereunder.
5.2 Each party hereto shall indemnify and hold the other party and its
Asgociates harmless from any and all claim, liability, loss,
damages or expense, together with all reasonable costs and
expenses relating thereto, including reasonable attorneys' fees,
arising out of or resulting from any breach of any representation,
warranty, covenant or obligation of such party contained in this
Agreement.
5.3 Each party hereto shall indemnify and hold the other party and its
Associates harmless from any and all claim, liability, loss,
damages or expense, together with all reasonable costs and
expenses relating thereto, including reasonable
4
<PAGE>
attorneys' fees, arising from a claim that the Services provided
by such party, or any part thereof, infringes a patent, copyright,
trade secret or other intellectual property right of a third
party.
5.4 Each party hereto shall promptly notify the other party in writing
of the assertion of any claim, liability, loss, damages or expense
described in this Section 5. The indemnifying party shall have the
exclusive right to control the defense and settlement of such
claim, and the indemnified party and its Associates shall
cooperate and provide all reasonable information, assistance and
authority to enable the indemnifying party to conduct such
defense.
5.5 In the event that the Services provided by a party hereunder, or
any part thereof, are found to infringe a patent, copyright or
other intellectual property right, such party shall, in addition
to the indemnity provided above, take the following actions at its
expense: (a) procure for the other party the right to continue to
use the Services; or (b) if such cure is not made available
despite such party's best efforts to secure same, replace or
modify the offending element(s) of the Services provided for
hereunder by such party, so that it/they are no longer infringing
while still meeting the requirements of this Agreement. A party
shall not have liability hereunder for any claim based on the
other party or its Associates' misuse of any product or use or
combination of any product with software, hardware or other
materials.
5.6 The parties respective rights and obligations under Sections 4.3,
4.4, 4.5, 4.6 and 4.7 hereof and this Section 5 shall survive any
expiration or termination of this Agreement.
6. ADDITIONAL COVENANTS, REPRESENTATIONS AND WARRANTIES
6.1 AD represents that AOL has represented to it that AOL has
approximately 32 million impressions per year on the Health Main
Page. This represents the number of times per year that an AOL
user enters the Health Main Page screen each year.
6.2 AD represents that AOL has represented to it that IntelliHealth,
an AOL Health Main Page Anchor Tenant without real time medical
services, is running 2.5 - 3.0 million page impressions per month.
6.3 AD represents that the users of the Health Main Page and the
Anchor Tenants of the Health Main Page are within a demographic
group from which volunteers of the nature needed by PRWW are
typically found.
5
<PAGE>
6.4 AD represents that it is an anchor tenant on the AOL Health Main Page.
AD anticipates more than 500,000 users in its first month of operations
as an Anchor Tenant on AOL's Health Main Page based upon discussions
with AOL and representatives of other Health Main Page Anchor Tenants.
6.5 AD shall use its best efforts to perform the Services hereunder pursuant
to the highest standards in the industry.
6.6 AD will designate and at all times use its best efforts to maintain its
facility, equipment and service personnel in a manner necessary to
provide the Services to PRWW as contemplated in this Agreement.
6.7 AD shall designate and maintain at all times a specific contact person
located at the offices of AD who will have primary responsibility to
respond, or facilitate the response, to telephone requests for Service
by PRWW.
6.8 AD represents, warrants, covenants and agrees that AD's personnel
performing hereunder are and shall be skilled in the providing of the
Services.
6.9 AD represents, warrants, covenants and agrees that it has in effect, and
shall use its best efforts to establish and maintain in effect during
the term of this Agreement, all hardware, software, firmware and other
intellectual property license and support agreements (including, without
limitation, those agreements necessary to secure access to and use of
new release levels, amendments, improvements and updates to such
hardware, software, firmware and other intellectual property) as are
necessary to lawfully and properly provide the Services.
6.10 AD represents, warrants, covenants and agrees that it currently, and
shall for the term of this Agreement, strictly enforce any material
rights, warranties, licenses and other benefits accruing to it under
each of its agreements with third parties whose goods or services are
utilized in the providing of the Services.
6.11 AD represents, warrants, covenants and agrees that the hardware,
software, firmware and intellectual property provided, developed and/or
used by AD hereunder shall not infringe upon or violate any patent,
copyright, trademark, trade secret or other intellectual property right
of any third party.
6.12 AD represents, warrants, covenants and agrees that the Services shall be
furnished and in all respects provided in conformance and compliance
with applicable laws.
6
<PAGE>
6.13 AD represents, warrants, covenants and agrees that the software and
firmware utilized to provide the Services hereunder shall not incur
errors or defects as a result of the century date change in the year
2000.
6.14 AD hereby represents and warrants that it has the authority to enter
into this Agreement and the right to provide the Services to PRWW
hereunder without breach of any obligation to AOL or any third party,
and that its performance under this Agreement will not breach any
obligation to AOL or any third party, or any contract, agreement, rule,
law or regulation of whatsoever nature.
7. ASSIGNMENT
Neither party shall assign any of its rights nor delegate any of its
obligations under this Agreement without the prior written consent of
the other party; provided that the rights and obligations of a party
under this Agreement will be automatically assigned to and assumed by
any successor to it by merger or consolidation or any person which
acquires substantially all of the assets and business of such person.
Any prohibited assignment or delegation shall be null and void.
8. RELATIONSHIP OF THE PARTIES
The parties are independent contractors. Nothing in this Agreement or in
the activities contemplated by the parties pursuant to this Agreement
shall be deemed to create an agency, partnership, employment or joint
venture relationship between the parties. Each party shall be deemed to
be acting solely on its own behalf and, except as expressly stated, has
no authority to pledge the credit of, or incur obligations or perform
any acts or make any statements on behalf of, the other party. Neither
party shall represent to any person or permit any person to act upon the
belief that it has any such authority from the other party. Neither
party's officers or employees, agents or contractors shall be deemed
officers, employees, agents or contractors of the other party for any
purpose.
9. AMENDMENT
No changes, amendments or modifications of any of the terms or
conditions of this Agreement shall be valid unless made by an instrument
in writing signed by both parties.
7
<PAGE>
10. COMPLIANCE WITH LAWS
The parties shall comply with all applicable international, federal,
state and local laws, regulations and ordinances as they relate to this
Agreement, including but not limited to, the regulations of the United
States Government, which are incorporated in this Agreement by this
reference as if set forth in full.
11. MISCELLANEOUS
11.1 Whenever this Agreement requires either party's approval, consent
or satisfaction, the response shall not be unreasonably or
arbitrarily withheld or delayed.
11.2 Section headings are included for convenience only and are not to
be used to construe or interpret this Agreement.
11.3 No delay, failure or waiver of either party's exercise or partial
exercise of any right or remedy under this Agreement shall operate
to limit, impair, preclude, cancel, waive or otherwise affect such
right or remedy.
11.4 If any provision of this Agreement is held invalid, illegal or
unenforceable, the validity, legality or unenforceability of the
remaining provisions shall in no way be affected or impaired
thereby.
11.5 This Agreement may be executed by the parties in one or more
counterparts, each of which when so executed shall be an original,
but all such counterparts shall constitute one and the same
instrument.
11.6 This Agreement is entered into and shall be governed by the
internal laws and not the -laws regarding conflicts of laws of the
State of Maryland.
11.7 The remedies under this Agreement shall be cumulative and not
exclusive, and the election of one remedy shall not preclude
pursuit of other remedies. Either party may seek any remedy
generally available under the governing law.
11.8 The parties each warrant, represent, covenant and agree that they
will not assign to perform any efforts under this Agreement any
individual who is an unauthorized alien under the Immigration
Reform and Control Act of 1986 or its implementing regulations.
Each party shall indemnify and hold harmless the other party and
its respective Associates from and against any and all
liabilities, damages, losses, claims or expenses (including
attorneys' fees) arising out of any breach by such party of this
Section. In the event any AD personnel or contractor working under
this Agreement, or other individual(s) providing
8
<PAGE>
Services to PRWW on behalf of AD under this Agreement, are
discovered to be unauthorized aliens, AD will irnmediately remove
such individuals from performing work and replace such individuals
with individuals who are not unauthorized aliens. In the event any
PRWW personnel or contractor working under this Agreement or other
individual(s) providing Services to AD on behalf of PRWW under
this Agreement, are discovered to be unauthorized aliens, PRWW
will immediately remove such individuals from performing work and
replace such individuals with individuals who are not unauthorized
aliens.
11.9 If either party's performance under this Agreement is interfered
with by reason of any circumstances beyond said party's reasonable
control, including without limitation, severe weather, fire,
explosion, A.C. power failure, acts of God, war, revolution, civil
commotion, or acts of public enemies, any law, order, regulation,
ordinance or requirement of any government or legal body or any
representative of any such government or legal body, labor unrest,
including without limitation, strikes, slow downs, picketing or
boycotts, then said party shall be excused from its performance on
a day-for-day basis to the extent of such interference.
11.10 Notices and other communications; shall be transmitted in writing
by certified U.S. Mail, postage prepaid, return receipt requested,
or by facsimile or by overnight courier, addressed to the parties
at the address first set forth above. Such notices and
communications shall be deemed effective four (4) days after the
date of mailing or upon receipt as evidenced by the U.S. Postal
Service return receipt cards, whichever is earlier, or upon
receipt if sent by facsimile or overnight courier.
12. ENTIRE AGREEMENT
This Agreement, with any other instrument, agreement or document
attached or referred to, which are incorporated by this reference
as though set forth in full, embodies the final, full and
exclusive statement of the agreement between AD and PRWW, and as
of its date supersedes all prior agreements, negotiations,
representations and proposals, written or oral, relating to the
Services. This Agreement shall not be construed to govern any
other transaction between AD and PRWW. Neither party shall be
bound or liable to any other party for any representation, promise
or inducement made by any agent or person in their employ relating
to the subject matter which is not embodied in this Agreement.
9
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is entered into as of June, 1998 by and
between Sublandlord and Subtenant, each as defined below in Section A.
A. THE PARTIES
Sublandlord's Name and Raytheon Engineers & Constructors, Inc.
type of entity: a Delaware Corporation
Sublandlord's Address 30 South 17th Street
for Notices: Philadelphia, PA 19103
ATT: Real Estate Operations Manager
Sublandlord's Payment Raytheon Engineers & Constructors, Inc.
Address: P.O. Box 8500 - S5450
Philadelphia, PA 19178
Subtenant's Name and Premier Research Worldwide, Ltd.
type of entity: a Delaware Corporation
Subtenant's Address 124 South 15th Street
for Notices prior to Philadelphia, PA 19102-3010
Commencement Date: ATT: Fred M. Powell
Subtenant's Address 30 South 17th Street
for Notices after Philadelphia, PA 19103
Commencement Date: ATT: Fred M. Powell
Prime Landlord's Name Takaji Kobayashi and Takeshi Shiratori, as
and type on entity trustees of Shuwa Trust of Philadelphia, a
Pennsylvania Business Trust
Prime Landlord's address c/o Shuwa Corporation of New York
for Notices 1330 Avenue of the Americas
New York, N.Y. 10019
<PAGE>
B. DEFINITIONS AND BASIC TERMS
The following definitions and basic terms shall have the indicated
meanings when used in this Lease:
0.1 Building: The building located on the land
bounded by Ludlow Street, 17th Street,
Ranstead Street and 18th Street,
Philadelphia, Pennsylvania.
0.2 Demised Premises: Entire 8th and 9th floors of Building
0.3 Property: The Building, the parcel of land upon
which the Building is situated and any
other improvements located thereon.
0.4 Subtenant's Rentable 58,156 rentable square feet
Square Feet:
0.5 Total Rentable Square
Feet in the Building: 587,637 rentable square feet
0.6 Subtenant's Proportionate
Share: 9.9% which is the percentage
obtained by dividing (i)
Subtenant's Rentable Square
Feet by (ii) the total Rentable
Square Feet in the Building.
0.7 Commencement Date: The Commencement Date is defined in
Section 2.1.
0.8 Term: Commencing on the Commencement
Date and ending at 5:00 PM on August
30, 2005 subject to adjustment and
earlier termination as provided in the
Prime Lease.
-2-
<PAGE>
0.9 Base Rent:
BASE RATE SCHEDULE
------------------
================================================================================
Base Rent/ Annual Monthly
Year Sq Foot Base Rent Base Rent
- --------------------------------------------------------------------------------
1st Lease year $13.00 $756,028 $63,002.33
commencing with
Commencement Date
- --------------------------------------------------------------------------------
2nd lease year $15.00 $872,340 $72,695.00
- --------------------------------------------------------------------------------
3rd lease year $18.00 $1,046,808 $87,234.00
- --------------------------------------------------------------------------------
4th lease year until $18.25 $1,061,347 $88,445.58
lease expiration
================================================================================
0.10 Additional Rent: Additional Rent is defined in Section
3.2.
0.11 Rental: Base Rent, Additional Rent and all other
sums that Subtenant may owe to
Sublandlord under this Sublease.
0.12 Security Deposit: See Section 4.
0.13 Expense Stop/
Base Year: Base Year: 1998
0.14 Tax Stop/
Base Year: Base Year: 1998
0.15 Permitted Use: General office use and no other (See
Section 6 for further clarification).
0.16 Tenant Improvement
Allowance: See Section 17.
0.17 Option to Renew None.
0.18 Option to Terminate None.
0.19 Option to Expand None
-3-
<PAGE>
PRELIMINARY STATEMENT
---------------------
Whereas, a Lease Agreement was entered into on June 13, 1973,
between Paul F. Hellmuth, Gorden E. Emerson, Jr., Robert C. Elder and John M.
Hines as Trustees for Middle City Trust, as landlord (hereinafter called "Prime
Landlord," including any successors and assigns), and Sublandlord, as tenant,
for a portion of rentable floor area, consisting of 393,014 square feet, in the
building known as 30 South 17th Street, Philadelphia, Pennsylvania (hereinafter
called the "Building"). The Building is set on a parcel of land in Philadelphia
bounded by Ludlow Street, 17th Street, Ranstead Street and 18th Street
(hereinafter called the "Property"). The Property is more fully described in the
Prime Lease.
Whereas, the Lease Agreement has been amended by written amendments
dated October 22, 1973; April 9, 1974; July 18, 1974; November 12, 1974; January
10, 1975; May 5, 1976; April 17, 1979; December 19, 1983; February 9, 1984 and
October 25, 1994. The aforesaid Lease Agreement of June 13, 1973, and the
amendments thereto are hereinafter referred to as the "Prime Lease," a true (but
expurgated as to financial terms) copy of which has been delivered to the
Subtenant, and Subtenant hereby acknowledges receipt of same.
Whereas, Subtenant desires to sublet from Sublandlord a portion of
the premises covered by the Prime Lease, for the term, the rent and upon and
subject to the covenants, agreements, terms, conditions, limitations, exceptions
and reservations herein contained.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties hereto for themselves, their successors
and assigns, hereby covenant and agree as follows:
1. Subleasing of Demised Premises.
1.1 Sublandlord hereby subleases to Subtenant, and Subtenant
hereby hires from Sublandlord the entire 8th and 9th floors of the Building
(which spaces are herein called the "Demised Premises"). For purposes of this
Sublease, the Demised Premises shall be deemed to contain 58,156 rentable
square feet.
1.2 Sublandlord shall make available to Subtenant four (4)
unreserved parking passes in the Building Parking Garage. Subtenant shall be
responsible to pay the monthly fee associated with the use of the parking
passes.
2. Term.
-4-
<PAGE>
2.1 Demised Term. The term ("Demised Term") of this Sublease
shall, commence on the earlier of (i) the date on which Subtenant, with
Sublandlord's approval, shall take possession of the Demised Premises for the
operation of its business therefrom, or (ii) November 1, 1998. The dates for the
commencement and expiration of the Demised Term are referred to in this
Sublease as the "Commencement Date" and the "Expiration Date", respectively.
2.2 Confirmation of Commencement Date. When a Commencement Date
has been established in accordance with subparagraph 2.1 hereof, Sublandlord and
Subtenant shall, at the request of either, execute an instrument in form
reasonably satisfactory to Sublandlord setting forth said Commencement Date.
2.3 Recordation. This Sublease shall not be filed for record
with the recorder's office of the county in which the Demised Premises are
located.
2.4 Notwithstanding the generality of the foregoing, in the
event that Sublandlord has not made the Premises available to Subtenant on or
before June 10, 1998 for Tenant to begin its Tenant Improvements (the "Outside
Date") for any reason other than Prime Landlord's failure to grant its consent
to this Sublease, then Subtenant shall thereafter have the option to terminate
this Sublease by written notice delivered to Sublandlord at any time prior to
the date that Sublandlord so makes the Premises available to Subtenant; and, in
the event Subtenant timely delivers such notice (time being of the essence),
this Sublease shall be deemed null and void, and Sublandlord shall thereupon
promptly return all prepaid rent and security to Subtenant whereupon all further
obligations of the parties hereto shall end.
3. Base Rent, Additional Rent and Escalation.
3.1 Subtenant shall pay to Sublandlord, commencing on the
Commencement Date, in currency which at the time of payment is legal tender for
public and private debts in the United States of America, the Base Rent, except
that the first full monthly installment due under this Sublease is being paid on
the signing of this Sublease. The Base Rent shall be payable in advance in
monthly payments on the first day of each month in accordance with Base Rent
Schedule set forth in Section B. 0.9., provided that the Base Rent shall be paid
on a pro-rata basis for any partial month at the beginning or end of the Term.
The Base Rent shall include all services called for in the Prime Lease such as
janitorial, security, HVAC and normal electricity for normal business operations
provided that Subtenant shall pay for any increases in the cost of such services
as provided in Section 3.2 below. If the Prime Landlord has the right to impose
additional charges with respect to the Demised Premises pursuant to Exhibit D,
Item VI of the Prime Lease, such electrical needs will be separately metered and
paid for by Subtenant. Except as may be otherwise expressly provided for herein,
Base Rent and all other amounts payable by Subtenant to Sublandlord under the
provisions of this Sublease shall be paid promptly when due, without notice or
demand therefor,
-5-
<PAGE>
and without deduction, abatement, counter-claim or set-off of any amount or for
any reason whatsoever. Base Rent and additional charges shall be paid to
Sublandlord at the address of Sublandlord set forth in the preamble of this
Sublease or to such other person and/or at such other address as Sublandlord may
from time to time designate by notice to Subtenant. No payment by Subtenant or
receipt by Sublandlord of any lesser amount than the amount stipulated to be
paid hereunder shall be deemed other than on account of the stipulated Base Rent
or additional charges; nor shall any endorsement or statement on any check or
letter be deemed an accord and satisfaction, and Sublandlord may accept any
check or payment without prejudice to Sublandlord's right to recover the balance
due or to pursue any other remedy available to Sublandlord.
3.2 In addition to its obligation to pay Base Rent, Subtenant
shall pay Subtenant's Proportionate Share of increases over the Base Year (as
defined below) in the Real Estate Tax Payment and Operating Expenses (as such
terms are defined or used in the Prime Lease) payable by Sublandlord with
respect to the Demised Premises ("Additional Rent") pursuant to the Prime Lease
except that for the purposes of this Agreement the Base Tax Year and the Base
Expense Year shall be calendar year 1998.
3.3 The sums for which Subtenant shall be liable pursuant to
subparagraph 3.3 above shall be deemed additional rent and shall be payable by
Subtenant to Sublandlord within thirty (30) days of the billing date. Such
billing shall be accompanied by copies of such bills as Sublessor shall have
received from Prime Landlord relating to such charges, and such supporting
documents and data as Prime Landlord shall have provided Sublandlord.
3.3.1 At any time during each Lease Year (which shall be a
calendar year unless otherwise defined in the Prime Lease), Sublandlord may
furnish to Subtenant a written statement or statements (an "Estimate
Statements") setting forth Sublandlord's reasonable estimate of the Operating
Expense Payment for such Lease Year (the "Estimated Payment"). Provided that an
Estimate Statement has been delivered to Subtenant fifteen (15) days prior to
such date, Subtenant shall pay to Sublandlord on the first day of each month an
amount equal to one-twelfth (1/12th) of the Estimated Payment for such Lease
Year. If Sublandlord furnishes an Estimate Statement for a Lease Year subsequent
to the commencement thereof, then (i) until the first day of the month following
the month in which the Estimate Statement is furnished to Subtenant, Subtenant
shall continue to pay to Sublandlord on the first day of each month an amount
equal to the monthly sum payable by Subtenant to Sublandlord with respect to the
next previous Lease Year; (ii) promptly after the Estimate Statement is
furnished to Subtenant, Sublandlord shall give notice to Subtenant stating
whether the amount previously paid by Subtenant to Sublandlord for the current
Lease Year was greater or less than the installments of the Estimated Payment to
be paid for the current Lease Year, and (a) if there shall be a deficiency,
Subtenant shall pay the amount
-6-
<PAGE>
thereof within fifteen (15) days after demand therefor, or (b) if there shall
have been an overpayment, Sublandlord shall credit against the next installments
of the Base Rent and payments of Additional Rent payable under this Sublease,
the amount of Subtenant's overpayment (or in the event that no additional Base
Rent is due Sublandlord shall pay said overpayment directly to Subtenant; and
(iii) on the first day of the month following the month in which the Estimate
Statement is furnished to Subtenant, and monthly thereafter throughout the
remainder of the Lease Year, Subtenant shall pay to Sublandlord an amount equal
to one-twelfth (1/12th) of the Operating Expense Payment shown on the Estimate
Statement. Any amount owing to Subtenant subsequent to the expiration or earlier
termination of the Term shall be paid to Subtenant within fifteen (115) business
days after a final determination has been made of the amount due to Subtenant.
Subtenant's obligation for the Operating Expense Payment shall commence as of
the Commencement Date. The Operating Expense Payment shall be prorated for any
partial Lease Years in which the Commencement Date shall occur and the Term
shall end.
3.3.2 Subtenant shall pay to Sublandlord any amounts owed
with respect to Real Estate Taxes pursuant to Section 3.2 above when Sublandlord
is required to pay such Real Estate Taxes to the Prime Landlord pursuant to
Section 2.6 of the Prime Lease. Subtenant's obligation for Real Estate Taxes
shall commence as of the Commencement Date. The Real Estate Tax Payment shall be
prorated for any partial Lease Years in which the Commencement Date shall occur
and the Term shall end.
3.3.3 Within 15 days after receipt from Prime Landlord,
Sublandlord shall furnish to Subtenant an annual statement or statements (the
"Annual Statements ") setting forth the items constituting the Operating
Expenses and/or Real Estate Taxes during such Lease Year, which Annual
Statements shall be prepared based upon and accompanied by the statement of
Operating Expenses and/or Real Estate Taxes received by Sublandlord from Prime
Landlord. If the Annual Statements shows that the Operating Expense Payment (or
other payments) for such Lease Year exceeded the Operating Expense Payment which
should have been paid for such Lease Year, Sublandlord shall credit against the
next installments of Base Rent and payments of Additional Rent payable under
this Sublease, the amount of such excess; if the Annual Statement for such Lease
Year shows that the Estimated Operating Expense Payment for such Lease Year was
less than the Operating Expense Payment (or other payments) which should have
been paid for such Lease Year, Subtenant shall pay the amount of such deficiency
within fifteen (15) days after receipt of the Annual Statement. Any amount
owing to Subtenant subsequent to the expiration or earlier termination of the
Term shall be paid to Subtenant within fifteen (15) days after delivery of the
final Annual Statement.
3.3.4 Each Annual Statement shall be conclusive and binding
upon Subtenant unless, within six (6) months after receipt thereof, Subtenant
shall
-7-
<PAGE>
notify Sublandlord that it disputes the correctness of the Annual Statement,
specifying in reasonable detail based on the information available to Subtenant
the manner in which the Annual Statement is claimed to be incorrect. If such
notice is sent, provided Subtenant shall pay to Sublandlord the amount shown to
be due to Sublandlord on the disputed Annual Statement, Sublandlord agrees to
use reasonable efforts to enforce its rights under the Lease to dispute the
correctness of the statements of Operating Expense and/or the Real Estate Taxes
delivered by Prime Landlord to Sublandlord the cost of which dispute shall be
equitably apportioned among Subtenant and such other subtenants of Sublandlord
at the Building who also request that Sublandlord dispute such statements.
Subtenant agrees to indemnify and hold Sublandlord harmless from and against any
and all claims, costs, expenses and liabilities in connection therewith,
including, without limitation, reasonable attorneys fees and disbursements. If
Prime Landlord shall revise the statements of Operating Expense Payment and/or
Real Estate Taxes disputed by Subtenant, Sublandlord shall deliver to Subtenant
a revised Annual Statement, and an appropriate payment or credit by Sublandlord,
or payment by Subtenant, as the case may be.
3.4 Anything to the contrary notwithstanding, if Subtenant shall
procure any additional services for the Demised Premises (such as those
contemplated by Section 4.1.2 of the Prime Lease) from Prime Landlord, Subtenant
shall pay for same at the rates charged therefor by Prime Landlord and shall
make such payment at the same time it pays the Base Rent to Prime Landlord or
Sublandlord as Sublandlord shall direct unless differently directed by the Prime
Landlord. Any sums payable pursuant to this subsection shall be deemed
Additional Rent and shall be collectible as such.
3.5 All Base Rent, Additional Rent and all other costs, charges
and sums payable by Subtenant hereunder (collectively, "Rental"), shall
constitute rent under this Sublease, and shall be payable to Sublandlord at its
address as set forth herein, unless Sublandlord shall otherwise so direct in
writing (or unless otherwise directed to the extent permitted by Section 3.4 by
the Prime Landlord.
3.6 If Subtenant shall fail to pay within ten (10) days after
due any installment of Rental, Subtenant shall pay to Sublandlord, in addition
to such installment of Rental, as a late charge and as Additional Rent, a sum
equal to interest at the Applicable Rate (hereinafter defined) per annum on the
amount unpaid, commencing from the date such payment was due to and including
the date of payment. The "Applicable Rate" shall be the rate equal to the lesser
of (a) two (2) percentage points above the then current rate publicly announced
by Citibank, N.A. or its successor as its "base rate" (or such other term as may
be used by Citibank, N.A. from time to time for the rate presently referred to
as its "base rate") or (b) the maximum rate permitted by applicable law.
3.7 Subtenant shall promptly pay the Rental as and when the same
shall become due and payable without set-off, offset or deduction of any kind
-8-
<PAGE>
whatsoever, except as expressly set forth herein, and, in the event of
Subtenant's failure to pay the same when due (subject to grace periods provided
herein), Sublandlord shall have all of the rights and remedies provided for
herein or at law or in equity, in the case of non-payment of rent. Upon the
request of Subtenant, Sublandlord shall reasonably consider taking action under
Section 8.8.2 of the Prime Lease provided that Subtenant shall, in addition to
any other indemnity provided for herein, fully indemnify and hold Sublandlord
harmless from any and all cost and expenses incurred by Sublandlord (including
reasonable attorney fees) in complying with Subtenant's request.
3.8 Sublandlord's failure during the Term to prepare and deliver
any statements or bills required to be delivered to Subtenant hereunder, or
Sublandlord's failure to make a demand under this Article 3 or under any other
provisions of this Sublease shall not in any way be deemed to be a waiver of, or
cause Sublandlord to forfeit or surrender its rights to collect any Rental which
may have become due pursuant to this Article 3 during the Term. Subtenant's
liability for Rentals due under this Article 3 accruing during the Term shall
survive the expiration or sooner termination of this Sublease.
3.9 Subtenant shall pay to Sublandlord, upon the execution of
this Sublease, the amount of Sixty Three Thousand Two Dollars and thirty three
cents ($63,002.33) representing a prepayment of the first month's rental due
under this Sublease.
4. SECURITY DEPOSIT.
4.1 On the date of execution of this Sublease by Subtenant,
Subtenant shall deposit with Sublandlord, as security for Subtenant's
obligations under this Sublease, a Letter of Credit (as hereinafter defined) or
equivalent credit instrument (the "Equivalent Credit Instrument," and,
collectively with Letter of Credit, the "Security Instrument") such as a
certificate of deposit issued in the name of the Sublandlord, in the amount of
Six Hundred Thousand Dollars ($600,000.00) (the "Security"). In the event that
Subtenant seeks to use an Equivalent Credit Instrument as security, such
Equivalent Credit Instrument shall (1) be issued by a bank acceptable to
Sublandlord in its sole discretion, (2) shall have a liquidity that is cash
equivalent as determined by Sublandlord in its sole discretion, and (3) at all
times be in the possession of Sublandlord. Sublandlord shall have the right to
draw upon such Security Instrument any number of times up to the aggregate
amount equal to the face value of such of Security Instrument following a
default by Subtenant beyond notice and any applicable cure period. In the event
that Subtenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of the Sublease, the Security Instrument
shall be returned to Subtenant promptly after the date fixed as the end of the
Term and delivery of the entire possession of the Premises to Sublandlord in the
condition required pursuant to the Sublease. In the event Sublandlord applies or
retains any
-9-
<PAGE>
portion or all of the Security Instrument deposited, Subtenant shall, within ten
(10) days following written demand therefor, pay to Sublandlord, with interest,
the amount so applied. Subtenant's failure to so pay such amount shall be deemed
a default by Subtenant in the payment of any installment of Base Rent.
4.2 The Letter of Credit shall be a clean, irrevocable, letter
of credit ("Letter of Credit") issued by any bank which is a member of
Philadelphia Clearing House Association (hereinafter referred to as the "Issuing
Bank"), which Letter of Credit shall have a term of not less than one (1) year,
be issued for the benefit of Sublandlord, be in the amount of the Security
during the period commencing on the date of such Letter of Credit as deposited
with Sublandlord and continuing through the Expiration Date. The Issuing Bank
shall pay to Sublandlord or its duly authorized representative in one
installment or in several partial installments an amount up to the face value of
the Letter of Credit upon presentment of the Letter of Credit and a sight draft
in the amount to be drawn and a letter signed by Sublandlord stating that
Sublandlord is entitled to draw upon the Letter of Credit in the amount
requested based on a default by Subtenant under the Sublease and, that any
applicable notice and cure period has expired. Subtenant shall provide a
replacement Letter of Credit no later than thirty (30) days prior to the
expiration of the then existing Letter of Credit. A failure by Subtenant to
provide a replacement Letter of Credit within the aforesaid period shall entitle
Sublandlord to draw the face amount under the then existing Letter of Credit and
shall constitute a default hereunder beyond any applicable cure period.
4.3 Any proceeds drawn by Sublandlord under a Security
Instrument shall be held by Sublandlord, to the extent that such proceeds are
not applied to the satisfaction of any of Subtenant's obligations under this
Sublease, as if the same were a cash security deposit.
4.4 Notwithstanding the foregoing, in the event that Subtenant
is not then in default of any term, condition or covenant of this Sublease, then
the Security may be periodically reduced beginning with the Commencement Date on
a straight line basis provided that the Security shall not be reduced to less
than Sixty Three Thousand Nine Hundred Ninety Two Dollars and thirty three cents
($63,992.33) at the expiration of the Term. Provided that Subtenant is not in
default under any of the terms or conditions of this Sublease, the balance of
the Security Instrument shall be released or returned to Subtenant within thirty
days after the expiration of the Term. All interest earned on the Certificate of
Deposit accrues to the benefit of the Subtenant.
5. Subordination to and Incorporation of the Lease.
5.1 This Sublease is in all respects subject and subordinate to
the terms and conditions of the Prime Lease (true and complete copies of which
have been furnished by Sublandlord to Subtenant), and to all matters to which
the Prime Lease are subject and subordinate. Subtenant shall indemnify
Sublandlord for, and shall hold it harmless from and against, any and all
losses, damages, penalties, liabilities, costs and
-10-
<PAGE>
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, which may be sustained or incurred by Sublandlord by reason of
Subtenant's failure to keep, observe or perform any of the terms, provisions,
covenants, conditions and obligations on Sublandlord's part to be kept, observed
or performed under the Prime Lease with respect to the Demised Premises to the
extent same shall have been incorporated herein, or otherwise arising out of or
with respect to Subtenant's use and occupancy of the Demised Premises from and
after the Commencement Date. Sublandlord shall promptly provide Subtenant with a
copy of any notice it receives from Prime Landlord with respect to any alleged
breach and the same opportunity permitted by the Prime Lease to cure such breach
provided that the time to cure shall in no event extend beyond the date that
Sublandlord must effectuate any cure. Sublandlord shall indemnify Subtenant for,
and shall hold it harmless from and against, any and all losses, damages,
penalties, liabilities, costs and expenses, including, without limitation,
reasonable attorneys fees and disbursements, which may be sustained or incurred
by Subtenant by reason of Sublandlord's failure to keep, observe or perform any
of the terms, provisions, covenants, conditions and obligations on Sublandlord's
part to be kept, observed or performed under the Prime Lease.
5.2 Except as otherwise expressly provided in, or otherwise
inconsistent with, this Sublease, or to the extent not applicable to the
Demised Premises, the terms, provisions, covenants, stipulations, conditions,
rights, obligations, remedies and agreements contained in the Prime Lease
including but not limited to Sections 2.2 (first sentence only), 2.7 (as amended
by the Seventh and Eighth Lease Amendments), 2.8, 2.9, 3.3, 3.4 (first
paragraph), 3.6, 4.1.1, 4.1.2, 4.1.3, 4.1.5, 4.1.6, 4.1.7, 4.2, Article 5,
Article 6, Article 7, Article 8, Article 9 and Section 1 of the Ninth Lease
Amendment and Sections 6(e) and 6(f) of the Tenth Lease Amendment are
incorporated in this Sublease by reference, and are made a part hereof as if
herein set forth at length, Sublandlord being substituted for the "Landlord"
under the Prime Lease, Subtenant being substituted for the "Tenant" under the
Prime Lease, and Demised Premises being substituted for "Premises" under the
Prime Sublease except that the following provisions of the Lease shall be deemed
deleted therefrom and shall have no force and effect as between Sublandlord and
Subtenant: Article 1, Sections 2.1, 2.2 (except for the first grammatical
paragraph), 2.4, 2.5, 2.6, 2.10, 3.1, 3.2, 3.4 (second paragraph), 3.6, 4.1.4.
5.6, 5.7 (except that with respect to Sections 5.6 & 5.7 Subtenant shall have
all of the obligations to the Prime Landlord set forth therein) and Sections 3,
4 and 5 of the Tenth Amendment.
6. Use: Quiet Enjoyment
6.1 Subtenant shall use and occupy the Demised Premises for
general office use and for no other purpose provided that general office use
shall include a clinical testing laboratory but in no event shall any outpatient
or inpatient testing, treatment or services be permitted nor shall animal
testing or research be permitted.
-11-
<PAGE>
6.2 Subtenant shall not permit the occupancy of any space in the
Building or Demised Premises for a use causing an unusually high degree of
traffic through or abuse of the lobby, elevators or common use areas in excess
of normal use for a first-class office building, or causing unusual
concentration of persons in the lobby, elevators or common areas, or resulting
in commotion, noise or generally disagreeable activities or conditions, or
employing or engaged in activities which result in a denser use of space than
customary in office buildings of the contemplated character of the Building
provided that a clinical testing laboratory shall not be deemed a generally
disagreeable activity.
6.3 As long as Subtenant shall pay the Rental due hereunder and
shall duly perform all the terms, covenants and conditions of this Sublease on
its part to be performed and observed, Subtenant shall peaceably and quietly
have, hold and enjoy the Demised Premises during the Term hereof, subject to
the provisions of this Sublease.
6.4 Sublandlord will not restrict Subtenant's access to the
Demised Premises on a 24 hour seven day a week basis provided that nothing
herein shall affect the rights of the Prime Landlord under the Prime Lease.
7. Covenants with Respect to the Lease.
7.1 Subtenant shall not do anything that would constitute a
default under the Prime Lease or omit to do anything that Subtenant is obligated
to do under the terms of this Sublease so as to cause there to be a default
under the Prime Lease.
7.2 The time limits set forth in the Prime Lease for the giving
of notices, making demands, performance of any act, condition or covenant, or
the exercise of any right, remedy or option, are changed for the purpose of this
Sublease, by lengthening or shortening the same in each instance, as
appropriate, so that notices may be given, demands made, or any act, condition
or covenant performed, or any right, remedy or option hereunder exercised, by
Sublandlord or Subtenant, as the case may be (and each party covenants that it
will do so) within five (5) days prior to the expiration of the time limit,
taking into account the maximum grace period, if any, relating thereto contained
in the Prime Lease. Each party shall promptly deliver to the other party copies
of all notices, requests or demands which relate to the Demised Premises or the
use or occupancy thereof after receipt of same.
7.3 Compliance with Laws. Subtenant shall at all times fully
comply with all applicable laws, ordinances, rules and regulations of all
governmental authorities ("Applicable Laws") with respect to its occupancy of
the Demised Premises and the operation of its business conducted therein. At
the request of Sublandlord,
-12-
<PAGE>
Subtenant shall deliver copies of all permits, certificates and licenses
evidencing Subtenants compliance with all Applicable Laws.
8. Services and Repairs.
8.1 Notwithstanding anything to the contrary contained in this
Sublease or in the Prime Lease, Sublandlord shall not be required to provide any
of the services that Prime Landlord has agreed to provide, whether specified in
the Prime Lease or required by law, or furnish the electricity to the Demised
Premises that Prime Landlord has agreed to furnish pursuant to the Prime Lease
(or required by law), or make any of the repairs or restorations that Prime
Landlord has agreed to make pursuant to the Prime Lease (or required by law), or
comply with any laws or requirements of any governmental authorities with
respect to the Demised Premises, or take any other action that Prime Landlord
has agreed to provide, furnish, make, comply with, or take or, cause to be
provided, furnished, made, complied with or taken under the Prime Lease, but
Sublandlord agrees to use all diligent efforts as approved by Subtenant, at
Subtenant's sole cost and expense, to obtain the same from Prime Landlord
(provided, however, that Sublandlord shall not be obligated to use such efforts
or take any action which might give rise to a default under the Prime Lease),
and Subtenant shall rely upon, and look solely to, Prime Landlord for the
provision, furnishing or making thereof or compliance therewith. If Prime
Landlord shall default in the performance of any of its obligations under the
Prime Lease, including its obligation to comply with environmental and other
laws, Sublandlord shall, upon request and at the expense of Subtenant, timely
institute and diligently prosecute any action or proceedings which Subtenant, in
its reasonable judgment, deems meritorious, in order to have Prime Landlord make
such repairs, furnish such electricity, provide such services or comply with any
other obligation of Prime Landlord under the Prime Lease or as required by law.
Subtenant shall indemnify and hold harmless Sublandlord from and against any and
all such claims arising from or in connection with such request, action or
proceeding unless resulting from an negligent act or omission of Sublandlord.
This indemnity and hold harmless agreement shall include indemnity from and
against any and all liability, fines, suits, demands, costs and expenses of any
kind or nature, including, without limitation, reasonable attorneys' fees and
disbursements, incurred in connection with any such claim, action or proceeding
brought thereon. Subtenant shall not make any claim against Sublandlord for any
damage which may arise, nor shall Subtenant's obligations hereunder be
diminished, by reason of (i) the failure of Prime Landlord to keep, observe or
perform any of its obligations pursuant to the Prime Lease unless such failure
is due to Sublandlord's negligence or misconduct, or (ii) the acts or omissions
of Prime Landlord, its agents, contractors, servants, employees, invitees or
licensees. Sublandlord shall not be responsible for any failure or interruption,
for any reason whatsoever, of the services or facilities that may be appurtenant
to or supplied at the Building by the Prime Landlord or otherwise, including,
without limitation, heat, air conditioning, water, electricity, elevator service
and cleaning service, if any; and no failure to furnish, or interruption of, any
such services or facilities shall give rise to any
-13-
<PAGE>
(x) abatement, diminution or reduction of Subtenant's obligations under this
Sublease, (y) constructive eviction, whether in whole or in part, or (z)
liability on the part of the Sublandlord. The provisions of this Section 8 shall
survive the expiration or earlier termination of the Term hereof.
Notwithstanding anything herein to the contrary, if and to the
extent that Sublandlord obtains an abatement or reduction in rent under the
terms of the Prime Lease due to Prime Landlord's failure to deliver essential
services to the Premises, then Subtenant shall be entitled to a corresponding
abatement or reduction of rent under this Sublease.
9. Consents.
9.1 Sublandlord agrees that whenever its consent or approval is
required hereunder, or where something must be done to Sublandlord's
satisfaction, it shall not unreasonably withhold or delay such consent or
approval; provided, however, that whenever the consent or approval of Prime
Landlord or the lessor under a superior lease, or the mortgagee under a
mortgage, as the case may be, is also required pursuant to the terms of the
Prime Lease, if Prime Landlord or the lessor under a superior lease, or the
mortgagee under a mortgage shall withhold its consent or approval for any reason
whatsoever, Sublandlord shall not be deemed to be acting unreasonably if it
shall also withhold its consent or approval. However, Sublandlord shall
reasonably cooperate with Subtenant in obtaining such consent or approval. If
Prime Landlord shall withhold its consent or approval in connection with this
Sublease or the Demised Premises in any instance where, under the Prime Lease,
the consent or approval of Prime Landlord may not be unreasonably withheld,
Sublandlord, upon the request and at the expense of Subtenant, shall either (i)
timely institute and diligently prosecute any action or proceeding which
Subtenant, in its reasonable judgment, deems meritorious, in order to dispute
such action by Prime Landlord at the sole cost and expense of Subtenant, or (ii)
permit Subtenant, to the extent allowable under the Prime Lease, to institute
and prosecute such action or proceeding against Prime Landlord provided that
Subtenant shall keep Sublandlord informed of its actions and shall not take any
action which might give rise to a default under the Prime Lease.
9.2 If Subtenant shall request Sublandlord's consent and
Sublandlord has agreed, under the terms of this Sublease, that neither its
consent nor its approval shall be unreasonably withheld, and Sublandlord shall
fail or refuse to give such consent or approval, and Subtenant shall dispute the
reasonableness of Sublandlord's refusal to give its consent or approval, such
dispute shall be finally determined by a court of competent jurisdiction. In the
event that any action or proceeding is brought to enforce any term, covenant or
condition of this Sublease on the part of Sublandlord or Subtenant, the party
ultimately prevailing in such litigation shall be entitled to costs of such
litigation and to reasonable attorneys fees to be fixed by the court in such
action or proceeding, including any appeal or appeals therefrom.
-14-
<PAGE>
10. Termination of Lease. If the Prime Lease is terminated by
Prime Landlord pursuant to the terms thereof with respect to all or any portion
of the Demised Premises prior to the Expiration Date for any reason whatsoever,
including, without limitation, by reason of casualty or condemnation, this
Sublease shall thereupon terminate with respect to any corresponding portion of
the Demised Premises, and (unless such termination of the Prime Lease shall be
as a result of Sublandlord's default thereunder or a voluntary surrender of the
Demised Premises, other than a surrender of the Demised Premises permitted
under the Prime Lease with respect to a termination of the Prime Lease by reason
of casualty to or condemnation of the Demised Premises or the Building)
Sublandlord shall not be liable to Subtenant by reason thereof. In the event of
such termination, Sublandlord shall return to Subtenant that portion of the
Rental paid in advance by Subtenant with respect to such portion of the Demised
Premises, if any, prorated as of the date of such termination together with the
Letter of Credit.
11. Sublease, Not Assignment. Notwithstanding anything contained
herein, this Sublease shall be deemed to be a sublease of the Demised Premises
and not an assignment, in whole or in part, of Sublandlord's interest in the
Prime Lease.
12. Damage, Destruction, Fire and Other Casualty; Condemnation.
In the event that 50% or more of the Demised Premises is destroyed by fire or
other casualty such that Subtenant cannot use the Demised Premises for a period
of at least six consecutive months then either Sublandlord or Subtenant upon
thirty days written notice shall have the right to terminate this Sublease. In
the event of said fire or other casualty, rent shall abate in proportion to the
percentage of the Demised Premises Subtenant is unable to occupy.
13. No Waivers. Failure by Sublandlord in any instance to insist
upon the strict performance of any one or more of the obligations of Subtenant
under this Sublease, or to exercise any election herein contained, shall in no
manner be or be deemed to be a waiver by Sublandlord of any of Subtenant's
defaults or breaches hereunder or of any of Sublandlord's rights and remedies by
reason of such defaults or breaches, or a waiver or relinquishment for the
future of the requirement of strict performance of any and all of Subtenant's
obligations hereunder. Further, no payment by Subtenant or receipt by
Sublandlord of a lesser amount than the correct amount or manner of payment of
Rental due hereunder shall be deemed to be other than a payment on account, or
any letter accompanying any check or payment be deemed to effect or evidence an
accord and satisfaction, and Sublandlord may accept any checks or payments as
made without prejudice to Sublandlord's right to recover the balance or pursue
any other remedy in this Sublease or otherwise provided at law or equity.
14. Notices. Any notice, statement, demand, consent, approval,
advance or other communication required or permitted to be given, rendered or
made by either
-15-
<PAGE>
party to the other, pursuant to this Sublease or pursuant to any applicable law
or requirement of public authority (collectively, "communications") shall be in
writing and shall be deemed to have been properly given, rendered or made only
if sent by personal delivery, receipted by the party to whom addressed, or
certified mail, return receipt requested, posted in a United States post office
station in the continental United States, or by reputable overnight delivery
service, addressed to Sublandlord or Subtenant at their address first above
written. All such communications shall be deemed to have been given, rendered or
made when delivered and receipted by the party to whom addressed, in the case of
personal delivery, or three (3) business days after the day so mailed or one (1)
business day after overnight delivery service. Either party may, by notice as
aforesaid, designate a different address or addresses for communications
intended for it.
15. Broker. Each party hereto covenants, warrants and represents
to the other party that it has had no dealings, conversations or negotiations
with any broker other than Cushman & Wakefield and Preferred Real Estate
Advisors, Inc. (the "Brokers") concerning the execution and delivery of this
Sublease. Each party hereto agrees to indemnify and hold harmless the other
party against and from any claims for any brokerage commissions and all costs,
expenses and liabilities in connection therewith, including, without limitation,
reasonable attorneys' fees and disbursements, arising out of its respective
representations and warranties contained in this Section 15 being untrue.
Sublandlord shall pay any brokerage commissions due to the Brokers pursuant to a
separate agreement between Sublandlord and the Brokers. The provisions of this
Section 15 shall survive the expiration or earlier termination of the Term
hereof.
16. Renovation of the Demised Premises.
16.1 Subtenant Finish Architect/Subtenant Finish
Contractor.
16.1.1 Subtenant shall retain the services of a
qualified and experienced Subtenant finish architect (the "Subtenant Finish
Architect") and other consultants as shall be reasonably necessary for the
purposes of planning, designing and administering the design and construction of
the Demised Premises for Subtenant occupancy. The Subtenant Finish Architect
shall be responsible for the development, completion and submission of certain
design and construction documentation for Subtenant's, Sublandlord's and Prime
Landlord's review and approval as set forth herein.
16.1.2 Subtenant shall retain the services of a
qualified and experienced Subtenant finish general contractor (the "Subtenant
Finish Contractor") and such other specialty contractors as shall be reasonably
necessary for the purpose of constructing Subtenant finish work. The selection
of the Subtenant Finish Contractor
-16-
<PAGE>
by Subtenant shall be subject to the approval of Sublandlord, which approval
shall not be unreasonably withheld or delayed.
16.2 Determination of Subtenant's Space Requirement Program.
Subtenant Finish Architect shall determine Subtenant's Space Requirement
Program.
16.2.1 Based upon the requirements of Subtenant's Space
Requirement Program, the Subtenant Finish Architect shall develop and submit to
Subtenant and Sublandlord "Subtenant's Test Fit Plan", which shall generally
indicate the functional and organizational relationships of the Demised
Premises, the location and size of said Demised Premises, all demising
partitions, interior walls and doors, the location and configuration of office
areas, the layout of typical furniture and other special conditions and
requirements of Subtenant's space.
16.2.2 Upon completion of Subtenant's Test Fit Plan,
the Subtenant Finish Architect shall deliver copies of the completed Subtenant's
Test Fit Plan to Subtenant and two (2) copies to Sublandlord. Sublandlord shall
have one week to approve or reject Subtenant's Test Fit Plan.
16.3 Preparation and Approval of Subtenant Construction
Documents.
16.3.1 Subtenant shall authorize the preparation of
Subtenant Construction Documents which documents shall be completed and
delivered to Sublandlord. The Subtenant Construction Documents shall consist of
one set of architectural drawings signed and sealed by a registered Pennsylvania
architect. In addition, one set of signed and sealed engineered mechanical,
electrical and plumbing drawings will be required if necessary. Sublandlord
shall review and approve or reject the Subtenant Construction Documents within
one week of submission to Sublandlord.
16.3.2 Neither review nor approval by Sublandlord of
any of the Subtenant Construction Documents shall constitute a representation or
warranty by Sublandlord that such Subtenant Construction Documents either (i)
are complete or suitable for their intended purpose or (ii) comply with
applicable laws, ordinances, codes and regulations, it being expressly agreed by
Subtenant that Sublandlord assumes no responsibility or liability whatsoever to
Subtenant or to any other person or entity for such completeness, suitability or
compliance.
16.4 Construction of Subtenant Finish Work. Immediately
following the approval of Subtenant Construction Documents Subtenant shall cause
the Demised Premises to be improved and completed, in a good and workmanlike
manner and in accordance with Subtenant Construction Documents and in accordance
with all applicable laws.
-17-
<PAGE>
16.5 Except as expressly set forth in this Agreement,
Subtenant acknowledges and agrees that Sublandlord has not made, does not make
and specifically negates and disclaims any representations, warranties,
promises, covenants, agreements or guaranties of any kind or character
whatsoever, whether express or implied, oral or written, past, present or
future, of, as to, concerning or with respect to: (a) the nature, quality or
condition of the Demised Premises, (b) the suitability of the Demised Premises
for any and all activities and uses which Subtenant may conduct thereon, (d) the
compliance of or by the Demised Premises or its operation with any laws, rules,
ordinances or regulations of any applicable governmental authority or body, (e)
the manner or quality of the construction or materials, if any, incorporated
into the Demised Premises, (f) the manner, quality, state of repair or lack of
repair of the Demised Premises, or (h) compliance with any Environmental Laws or
any pollution or land use laws, rules, regulations, orders or requirements,
including the existence in or on the Demised Premises of Hazardous Materials,
(i) any other matter with respect to the Demised Premises. Additionally, unless
expressly set forth herein, no person acting on behalf of Sublandlord is
authorized to make, and by execution hereof of Subtenant acknowledges that no
person has made, any representation, agreement, statement, warranty, guaranty or
promise regarding the Demised Premises or the transaction contemplated herein;
and no such representation, warranty, agreement, guaranty, statement or promise
if any, made by any person acting on behalf of Sublandlord will be valid or
binding upon Sublandlord. Subtenant further acknowledges and agrees that having
been given the opportunity to inspect the Demised Premises, Subtenant is relying
solely on its own investigation of the Demised Premises and not on any
information provided or to be provided by Sublandlord except as expressly set
forth in this Agreement, and agrees to accept the Demised Premises at the
Commencement Date and waive all objections or claims against Sublandlord
(including, but not limited to, any right or claim of contribution) arising from
or related to the Demised Premises or to any Hazardous Materials on the
Demised Premises. Sublandlord shall not be liable or bound in any manner by any
oral or written statement, representation or information pertaining to the
Demised Premises furnished by any real estate broker, contractor, agent,
employee, servant or other.
16.6 Notwithstanding anything in this Section 16 to the
contrary, Prime Landlord will need to review and approve the plans for
Subtenant's Finish Work prior to the commencement of any construction, all in
accordance with the provisions of the Prime Lease. Any unreasonable delay
occasioned by Prime Landlord's review and approval process shall extend the
Commencement Date set forth in Section 2.1. Sublandlord shall solicit the
required consents from the Prime Landlord with the cooperation of Subtenant as
required.
16.7 Mailroom Monorail System. Subtenant acknowledges that
Sublandlord has previously installed a mailroom monorail between several floors
located in the core area of the Building. Sublandlord reserves the right at any
time to
-18-
<PAGE>
enter the Demised Premises to access the mailroom monorail area for repair or
maintenance to the mailroom monorail system or the shaft and Subtenant shall not
restrict or obstruct in any way Sublandlord's access to the area marked by cross
hatching on the attached Exhibit _________.
16.8 Waiver of Mechanic's Lien. Prior to commencing any
construction, Subtenant shall obtain from the Subtenant Finish Contractor a
Waiver of Mechanic's Lien in recordable form.
17. Tenant Improvement Allowance. Sublandlord shall make
available to Subtenant an improvement allowance of Nine Hundred Ninety Eight
Thousand Six Hundred Fifty Two Dollars ($998,652.00). Subtenant may use this
improvement allowance to offset construction costs for the Tenant Finish Work.
In the event that the total Tenant Improvement Allowance is not utilized at the
end of construction, then Subtenant shall have the right to either credit any
unutilized allowance against the Base Rent next due, or to apply any unused
allowance to supplement any other allowance category. Said Tenant Improvement
Allowance shall be paid to Subtenant or Subtenant's contractors within thirty
(30) days after Sublandlord is provided with evidence of paid invoices
representing the work in the case of payment made to Subtenant or partial of
final lien waivers in the case of payments made directly to contractors.
18. Consent of Prime Landlord to this Sublease. Subtenant hereby
acknowledges and agrees that this Sublease is subject to and conditioned upon
Sublandlord obtaining the written consent (the "Consent") of Prime Landlord as
provided in the Lease. Promptly following the execution and delivery hereof,
Sublandlord shall submit this Sublease to Prime Landlord. Subtenant hereby
agrees that it shall cooperate in good faith with Sublandlord and shall comply
with any reasonable requests made of Subtenant by Sublandlord or Prime Landlord
in the procurement of the Consent. In no event shall Sublandlord or Subtenant be
obligated to make any payment to Prime Landlord in order to obtain the Consent
or the consent to any provision hereof, other than as expressly set forth in the
Lease. In the event that Prime Landlord shall not have executed and delivered
the Consent within thirty (30) days after the date of this Sublease, or in the
event that Prime Landlord objects to this Sublease then either party shall have
the right to cancel this Sublease by written notice given to the other at any
time thereafter prior to the execution and delivery of the Consent, and with the
giving of such notice this Sublease shall be deemed canceled and of no further
force or effect and neither party shall have any liability or obligation to the
other in respect thereof, except for any obligations or liabilities which have
accrued prior to such cancellation. In the event that this Sublease is canceled
by reason of Prime Landlord's objection or failure to consent, Subtenant hereby
agrees to vacate the Demised Premises upon 24 hours written notice to do so.
19. Assignment, Subletting and Mortgaging.
-19-
<PAGE>
19.1 Subtenant shall not assign, sell, transfer (whether by
operation or law or otherwise), pledge, mortgage or otherwise encumber this
Sublease or any portion of its interest in the Demised Premises, nor sublet all
or any portion of the Demised Premises or permit any other person or entity to
use or occupy all or any portion of the Demised Premises, without the prior
written consent of Sublandlord and Prime Landlord. Upon the request of
Subtenant, Sublandlord, at Subtenant's sole cost and expense, shall request the
consent of the Prime Landlord and cooperate with Subtenant in obtaining any
consent.
19.2 Notwithstanding the above, Subtenant shall have the right
to assign this sublease in its entirety or to sublease all or any portion of the
Demised Premises without the consent of Sublandlord to: (i) a successor to all
of Subtenant's businesses if such succession takes place by merger or
consolidation, reorganization, active legislation or other, or (ii) any
affiliate or subsidiary of Subtenant ("Permitted Transferee").
19.3 If Subtenant desires at any time to assign this Sublease,
or sublet all or any portion of the Demised Premises, (except with respect to
transfers permitted pursuant to Section 19.2 above) Subtenant shall comply with
the following terms and conditions:
19.3.1 Subtenant shall first notify Sublandlord at least
sixty (60) days prior to the proposed effective date of the assignment or
sublease, in writing, of its desire to do so and shall submit in writing to
Landlord: (1) the name of the proposed subtenant or assignee, (2) the nature of
the proposed subtenant's or assignee's business to be carried on in the
Demised Premises, (3) the terms and conditions of the proposed sublease or
assignment, and (4) financial statements for the two most recent completed
fiscal years of the proposed Subtenant or assignee, and a bank reference.
Thereafter, Subtenant shall furnish such supplemental information as Sublandlord
may reasonably request concerning the proposed Subtenant or assignee. At any
time within fifteen (15) days after Sublandlord's receipt of the information
specified above, Sublandlord may by written notice to Subtenant elect to (1)
consent to the sublease or assignment, or (2) disapprove of the sublease or
assignment, said consent not to be unreasonably withheld or delayed. If
Sublandlord consents to the sublease or assignment within the fifteen (15) day
period, Subtenant may thereafter enter into such assignment or sublease of the
Demised Premises, or a portion thereof, upon the terms and conditions and as of
the effective date set forth in the information furnished by Subtenant to
Sublandlord, provided that nothing herein shall detract from Subtenant's
requirement to obtain Prime Landlord's consent to any sublease or assignment.
19.3.2 Notwithstanding Sublandlord having granted its
consent to any assignment or subleasing, prior to the effective date of any
assignment
-20-
<PAGE>
or commencement date of any sublease, Sublandlord shall be furnished with a copy
of the fully executed sublease or assignment of the sublease agreement.
19.3.3 No sublease of the Demised Premises or portion
thereof, or assignment of this sublease, shall be for a period of less than one
(1) year nor shall any sublease extend beyond the expiration date of the term of
this sublease.
19.3.4 Notwithstanding any other provision of this
Sublease, Subtenant may not enter into any sublease, license, concession or
other agreement for use, occupancy or utilization of space in the Demised
Premises which provides for a rental or other payment for such use, occupancy or
utilization based in whole or in part on the net income or profits derived by
any person from the property leased, occupied or utilized, or which would
require the payment of any consideration which would not fall within the
definition of "rents from real property" as that term is defined in Section
856(d) of the Internal Revenue Code of 1986, as amended.
19.4 Subtenant shall pay to Sublandlord as additional rent,
within five (5) business days following the due dates of such sums (after
subtracting therefrom the expenses of subletting including advertising,
brokerage commission, legal fees and alteration expenses) Fifty percent (50%) of
the amount by which (a) the rent payable by such assignee, sublessee or
sublessees to Subtenant, throughout the term exceeds the rent otherwise payable
by Subtenant to Sublandlord under this sublease; plus (b) fifty percent (50%) of
all other consideration payable for the assignment or sublease of this Sublease
for the area assigned or sublet, computed on the basis of an average rent per
rentable square foot of area assigned or sublet. The foregoing is a freely
negotiated arrangement between Sublandlord and Subtenant, respecting the
allocation of appreciated rentals. This covenant shall survive the expiration of
the term of this sublease.
19.5 Any notice by Subtenant to Sublandlord pursuant to this
Section 19 of a proposed assignment or subletting, shall be accompanied by
payment of Five Hundred Dollars ($500.00) as a non-refundable fee for
Sublandlord's time and the processing of Subtenant's request for Sublandlord's
consent. In addition to said fee, Subtenant shall reimburse Sublandlord for
reasonable attorneys' fees incurred by Sublandlord in connection with such
review and the preparation of documents in connection therewith.
19.6 Each permitted assignee, transferee or sublessee other than
Sublandlord shall assume and be deemed to have assumed this sublease and shall
remain liable jointly and severally with Subtenant for the payment of the rent
and for the due performance or satisfaction of all of the provisions, covenants,
conditions and agreements herein contained on Subtenant's part to be performed
or satisfied. No permitted assignment or sublease shall be binding on
Sublandlord unless such assignee, sublessee or Subtenant shall deliver to
Sublandlord a counterpart of such
-21-
<PAGE>
assignment or sublease which contains a covenant of assumption by the assignee
or sublessee, but the failure or refusal of the assignee or sublessee to execute
such instrument of assumption shall not release or discharge the assignee or
sublessee from its liability set forth above.
19.7 If this Sublease be assigned, or if the Demised Premises of
any part thereof be sublet (whether or not Sublandlord, and Prime Landlord shall
have consented thereto), Sublandlord, after default by Subtenant in its
obligations hereunder, may collect rent from the assignee or subtenant and apply
the amount collected to the Rental herein reserved, but no such assignment or
subletting shall be deemed the acceptance of the assignee or subtenant as a
tenant, or a release of Subtenant from the further performance and observance by
Subtenant of the covenants, obligations and agreements on the part of Subtenant
to be performed or observed herein. The consent by Sublandlord and Prime
Landlord to an assignment, sale, pledge, transfer, mortgage or subletting shall
not in any way be construed to relieve Subtenant from obtaining the express
consent in writing, to the extent required by this Sublease or the Prime Lease
or Prime Sublease, of Sublandlord and Prime Landlord and Landlord to any further
assignment, sale, pledge, transfer, mortgage or subletting.
19.8 If Subtenant is a partnership, the admission of new
Partners (hereinafter defined), the retirement, death, withdrawal, incompetency
or bankruptcy of any Partner, or the reallocation of partnership interests among
the Partners shall not constitute an assignment of this Sublease requiring the
prior consent of Sublandlord. The reorganization of Subtenant into a
professional corporation if Subtenant is a partnership, or the reorganization of
Subtenant from a professional corporation into a partnership, shall not
constitute an assignment of this Sublease requiring the prior consent of
Sublandlord, provided that (i) immediately following such reorganization the
Partners of Subtenant shall be not less than ninety percent (90%) of those
Partners existing immediately prior to such reorganization and (ii) any Partner
of Subtenant immediately prior to-such reorganization who is not a Partner of
Subtenant immediately after such reorganization shall be released from liability
under this Sublease only to the extent permitted by and in accordance with the
provisions of Section 19.2 hereof. Any such reorganization either at one time or
over a twelve (12) month period shall be considered the same reorganization. If
Subtenant shall become a professional corporation, each individual shareholder
in Subtenant and each attorney-employee of a professional corporation which is a
shareholder in Subtenant shall have the same personal liability as such
individual or attorney-employee would have under this Sublease if Subtenant were
a partnership and such individual or attorney-employee were a Partner of
Subtenant. Upon the request of Sublandlord, each such individual or
attorney-employee shall execute an agreement confirming such personal liability.
A "Partner" shall be any partner of Subtenant or any attorney-employee of a
professional corporation which is a partner of Subtenant and any shareholder of
Subtenant if Subtenant shall become a professional corporation.
-22-
<PAGE>
19.9 Except as set forth above, either a transfer (including the
issuance of treasury stock or the creation and issuance of new stock) of a
controlling interest in the shares of Subtenant (if Subtenant is a corporation,
other than a professional corporation, or trust) or a transfer of a majority of
the total interest in Subtenant (if Subtenant is a partnership) at any one time
or over a period of time through a series of transfers, shall be deemed an
assignment of this Sublease and shall be subject to all of the provisions of
this Agreement, including, without limitation, the requirements that Subtenant
obtain Sublandlord's prior consent thereto. The transfer of shares of Subtenant
(if Subtenant is a corporation or trust) for purposes of this Section shall not
include the sale of shares by persons other than those deemed "insiders" within
the meaning of the Securities Exchange Act of 1934, as amended, which sale is
effected through the "over-the-counter market" or through any recognized stock
exchange.
20. Insurance. Subtenant shall obtain and keep in full force and
effect during the term of the Sublease, at its own cost and expense,
comprehensive public liability and property damage insurance with a broad form
contractual liability endorsement with a minimum limit of liability of
$3,000,000 for injury or death and damages to any one person, of $3,000,000 for
injury or death arising out of one occurrence, and $3,000,000 for damage to
property, naming Sublandlord and Subtenant as insureds against any and all
claims for personal injury, death or property damage occurring in, upon,
adjacent to, or connected with the Subleased Demised Premises or any part
thereof. Said insurance is to be written in form reasonably satisfactory to
Sublandlord by good and solvent insurance companies of recognized standing,
admitted to do business in the State of Pennsylvania which shall be reasonably
satisfactory to Sublandlord. Subtenant shall pay all premiums and charges
therefor and upon failure to do so Sublandlord may, but shall not be obligated
to, make such payments, in which event Subtenant agrees to pay the amount
thereof to Sublandlord on demand. Such policies shall contain a provision that
no act or omission of Subtenant will affect or limit the obligation of the
insurance company to pay the amount of any loss sustained and shall be
noncancellable except upon thirty (30) days advance written notice to
Sublandlord. In the event Subtenant shall fail to obtain such insurance,
Sublandlord may, but shall not be obligated to, obtain the same, in which event
the amount of the premium paid shall be paid by Subtenant to Sublandlord upon
demand.
21. Partnerships If Subtenant is a partnership (or is comprised of
two (2) or more persons, individually or as co-partners of a partnership or
joint venture) or if Subtenant's interest in this Sublease shall be assigned to
a partnership (or two (2) or more persons individually or as co-partners of a
partnership or joint venture) or to a professional corporation pursuant to
Section 19 hereof (any such partnership, professional corporation and such
persons are referred to in this Article as "Partnership Subtenant"), then (i)
the liability of each of the parties comprising Partnership Subtenant shall be
joint and several, (ii) each of the parties comprising Partnership Subtenant
hereby consents in advance to, and agrees to be bound by, any written instrument
which may hereafter be executed by Subtenant, changing, modifying or discharging
this
-23-
<PAGE>
Sublease, in whole or in part, or surrendering all or any part of the Demised
Premises to Sublandlord, and by any notices, demands, requests or other
communications which may hereafter be given by Partnership Subtenant or by any
of the parties comprising Partnership Subtenant, (iii) any bills, statements,
notices, demands, requests or other communications given or rendered to or by a
Partner of Partnership Subtenant shall be binding upon Partnership Subtenant,
(iv) if any individual Partner of Partnership Subtenant is or becomes an
attorney-employee of a professional corporation, such individual shall have the
same personal liability under this Sublease as such individual would have if he
and not the professional corporation were a Partner of Partnership Subtenant,
and such individual, upon the request of Sublandlord, shall execute an agreement
confirming such personal liability, (v) if Partnership Subtenant shall admit new
Partners, all of such new Partners shall, by their admission to Partnership
Subtenant, be deemed to have assumed joint and several liability for the
performance of all of the terms, covenants and conditions of this Sublease on
Partnership Subtenant's part to be observed and performed, and (vi) Partnership
Subtenant shall give prompt notice to Sublandlord of the admission of any new
Partners and the death, retirement, withdrawal, incompetency or bankruptcy of
any Partner, and, upon demand of Sublandlord, shall cause each such new Partner
to execute and deliver to Sublandlord an agreement in form satisfactory to
Sublandlord, wherein each such new Partner shall assume joint and several
liability for the performance of all the terms, covenants and conditions of this
Sublease on Subtenant's part to be observed and performed (but neither
Sublandlord's failure to request any such agreement nor the failure of any such
new Partner to execute or deliver any such agreement to Sublandlord shall
vitiate the provisions of this Section 21).
22. Default
22.1 In additional to the remedies set forth in the Prime Lease,
in the event of a default by Subtenant under the terms or conditions of this
Sublease, Subtenant hereby agrees to the Confession of Judgment provisions set
forth below:
THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OR AUTHORITY FOR AN ATTORNEY (OR A
CLERK OF COURT OR A PROTHONOTARY) TO CONFESS JUDGMENT AGAINST TENANT. SINCE THIS
PARAGRAPH REQUIRES TENANT TO WAIVE IMPORTANT DUE-PROCESS RIGHTS AND OTHER
CONSTITUTIONAL RIGHTS, SUBTENANT AND SUBLANDLORD AGREE THAT IT IS APPROPRIATE
FOR SUBTENANT TO PROVIDE A SPECIAL ACKNOWLEDGMENT THAT SUBTENANT WAIVES THOSE
RIGHTS KNOWINGLY AND VOLUNTARILY. IN MAKING THIS SPECIAL ACKNOWLEDGMENT,
SUBTENANT EXPRESSLY, KNOWINGLY AND VOLUNTARILY MAKES THE FOLLOWING
REPRESENTATIONS, ACKNOWLEDGMENTS, AND ASSURANCES (IN WHICH "YOU" SHALL MEAN
SUBTENANT OR, IF APPROPRIATE SUBTENANT'S HEIRS, SUCCESSORS AND/OR ASSIGNS):
-24-
<PAGE>
(I) YOU HAVE DISCUSSED WITH YOUR OWN LEGAL COUNSEL THE CONSEQUENCES OF
GRANTING THE WARRANTS OR POWERS OF ATTORNEY IN THE SUBLEASE (OR YOU HAVE
WILLFULLY AND KNOWINGLY ELECTED NOT TO HAVE SUCH A DISCUSSION WITH AN ATTORNEY
WHO REPRESENTS YOU).
(II) YOU UNDERSTAND THE CONSEQUENCES OF GRANTING SUCH WARRANTS OR POWERS OF
ATTORNEY, INCLUDING BUT NOT LIMITED TO THE FACT THAT YOU ARE THEREBY WAIVING
IMPORTANT RIGHTS THAT YOU WOULD OTHERWISE HAVE UNDER THE CONSTITUTIONS OF THE
UNITED STATES OF AMERICA AND OF THE COMMONWEALTH OF PENNSYLVANIA.
(III) YOU UNDERSTAND THAT AMONG THE RIGHTS YOU WILL WAIVE BY GRANTING SUCH
WARRANTS OR POWERS OF ATTORNEY ARE: (A) THE RIGHT TO RECEIVE PRIOR NOTICE OF
PROCEEDINGS TO ENFORCE SUCH A JUDGMENT BY HAVING A SHERIFF OR MARSHAL EVICT YOU
FROM THE LEASEHOLD SPACE, AND (B) THE RIGHT TO HAVE A HEARING CONDUCTED BEFORE
YOU ARE DEPRIVED OR YOUR PROPERTY AS A RESULT OF SUCH ENFORCEMENT PROCEEDINGS.
(IV) NO ONE HAS EXERCISED ANY FORCE OR MADE ANY THREATS OR TAKEN ANY ACTS
THAT HAVE DEPRIVED YOU OF YOUR FREE WILL IN DECIDING WHETHER TO GRANT SUCH A
WARRANT OF ATTORNEY.
(V) YOU UNDERSTAND THAT SUBLANDLORD AND ITS ATTORNEYS AND AGENTS ARE
RELYING UPON YOUR ASSURANCE THAT THESE ACKNOWLEDGMENTS AND REPRESENTATIONS ARE
TRUE.
-25-
<PAGE>
CONFESSION OF JUDGMENT
----------------------
1. Warrant and Power of Attorney to Confess Judgment in Ejectment. When
this Sublease and the Term thereof or Subtenant's right to possession of the
Demised Premises shall have been terminated on account of any Event of Default
by Subtenant hereunder, and also when the Term hereby created shall have
expired, it shall be lawful for any attorney to appear as attorney for
Subtenant, as well as for all persons claiming by, through or under Subtenant,
and to sign an agreement for entering in any competent court an amicable action
in ejectment against Subtenant and all persons claiming by, through or under
Subtenant and therein confess judgment for the recovery by Sublandlord of
possession of the Demised Premises. This Sublease shall be his sufficient
warrant, whereupon, if Sublandlord so desires, a writ of possession may issue
forthwith, without any prior writ or proceedings whatsoever. If for any reason
after such action shall have been commenced the same shall be determined and the
possession of the Demised Premises hereby demised remain in or be restored to
Subtenant, Sublandlord shall have the right for the same default and upon any
subsequent defaults, or upon the termination of this Sublease, to bring one or
more further amicable action or actions as hereinbefore set forth to recover the
possession of said Demised Premises and confess judgment for the recovery of
possession of the Demised Premises as hereinbefore provided.
2. Release. Subtenant hereby unconditionally and forever releases and
waives (i) all rights that Subtenant would otherwise have to object to,
interfere with, attack, seek to strike or open, or seek to stay the aforesaid
entry of judgment or judgments and/or the aforesaid issuance and consummation of
execution or executions thereon, (ii) any and all errors heretofore or hereafter
committed by Sublandlord in connection with this Sublease and/or in connection
with Sublandlord's enforcement of its rights under this paragraph, (iii)
inquisition and condemnation of any property seized or levied upon by virtue of
such execution, and (iv) any exemptions to which Subtenant would otherwise be
entitled under any statute, law, ordinance, regulation or rule of law.
4. Affidavit of Default. In any amicable action brought hereon, or other
action brought pursuant to the foregoing warrants and powers of attorney (to
confess judgment herein), Sublandlord shall cause to be filed in such action an
affidavit made by it or someone acting for it, setting forth the facts necessary
to authorize the entry of judgment, of which facts such affidavit shall be prima
facie evidence, and if a true copy of this Sublease (and of the truth of the
copy such affidavit shall be sufficient evidence) shall be filed in such suit,
action or actions, it shall not be necessary to file the original as a warrant
of attorney, any rule of court, custom or practice to the contrary
notwithstanding.
-26-
<PAGE>
23. Holding Over. In the event Subtenant holds over after the expiration of
the term of this Lease, then, in addition to any other rights or remedies
Sublandlord may have as provided in the Prime Lease, Subtenant shall indemnify,
protect, defend and hold harmless Sublandlord, from and against any and all
claims, suits, demands, liability, damages and expenses, including direct and
consequential damages sustained by Sublandlord, together with reasonable
attorneys' fees and costs, if any, arising from or in connection with
Subtenant's failure to vacate the Demised Premises at the termination or sooner
expiration of the term of this Sublease.
24. Non-Disturbance Agreement. Upon Subtenant's request, Sublandlord will
use reasonable efforts to assist Subtenant in obtaining a Non-Disturbance
Agreement from the current lender on the property provided that: (i) the failure
of Subtenant to obtain such a Non-Disturbance Agreement shall not give Subtenant
the right to terminate this Sublease and provided further that Sublandlord shall
not be required to make any payments to the Prime Landlord or the current lender
to obtain such Non-Disturbance Agreement nor shall Sublandlord be required to
make any concessions with respect to the Prime Lease.
25. Miscellaneous.
25.1 This Sublease contains the entire agreement between the parties
and all prior negotiations and agreements are merged in this Sublease. Any
agreement hereafter made shall be ineffective to change, modify or discharge
this Sublease in whole or in part unless such agreement is in writing and signed
by the parties hereto. No provision of this Sublease shall be deemed to have
been waived by Sublandlord or Subtenant unless such waiver be in writing and
signed by Sublandlord or Subtenant, as the case may be. The covenants and
agreements contained in this Sublease shall bind and inure to the benefit of
Sublandlord and Subtenant and their respective permitted successors and assigns.
25.2 In the event that any provision of this Sublease shall be held to
be invalid or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions of this Sublease shall be unaffected
thereby.
25.3 The paragraph headings appearing herein are for purpose of
convenience only and are not deemed to be a part of this Sublease.
25.4 Capitalized terms used herein shall have the same meanings as are
ascribed to them in the Prime Sublease, unless otherwise expressly defined
herein.
25.5 This Sublease shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Pennsylvania.
-27-
<PAGE>
25.6 This Sublease is offered to Subtenant for signature with the
express understanding and agreement that this Sublease shall not be binding upon
Sublandlord unless and until Sublandlord shall have executed and delivered a
fully executed copy of this Sublease to Subtenant.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
of Sublease as of the day and year first above written.
Witness: Raytheon Engineers & Constructors, Inc.
By:
- ------------------------------ -----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Witness: Premier Research Worldwide, Ltd.
By: /s/ Fred M. Powell
- ------------------------------ -----------------------------------
Name: Fred M. Powell
-----------------------------------
Title: Chief Financial Officer
-----------------------------------
ACKNOWLEDGMENT OF SUBTENANT
---------------------------
Subtenant hereby acknowledges again its consent to the following provisions
of Section 22 of the Sublease as follows:
1. Warrant and Power of Attorney to Confess Judgment in Ejectment. When this
Sublease and the Term thereof or Subtenant's right to possession of the
Demised Premises shall have been terminated on account of any Event of Default
by Subtenant hereunder, and also when the Term hereby created shall have
expired, it shall be lawful for any attorney to appear as attorney for
Subtenant, as well as for all persons claiming by, through or under Subtenant,
and to sign an agreement for entering in any competent court an amicable action
in ejectment against Subtenant and all persons claiming by, through or under
Subtenant and therein confess judgment for the recovery by Sublandlord of
possession of the Demised Premises. This Sublease shall be his
-28-
<PAGE>
sufficient warrant, whereupon, if Sublandlord so desires, a writ of possession
may issue forthwith, without any prior writ or proceedings whatsoever. If for
any reason after such action shall have been commenced the same shall be
determined and the possession of the Demised Premises hereby demised remain in
or be restored to Subtenant, Sublandlord shall have the right for the same
default and upon any subsequent defaults, or upon the termination of this
Sublease, to bring one or more further amicable action or actions as
hereinbefore set forth to recover the possession of said Demised Premises and
confess judgment for the recovery of possession of the Demised Premises as
hereinbefore provided.
3. Release. Subtenant hereby unconditionally and forever releases and
waives (i) all rights that Subtenant would otherwise have to object to,
interfere with, attack, seek to strike or open, or seek to stay the aforesaid
entry of judgment or judgments and/or the aforesaid issuance and consummation of
execution or executions thereon, (ii) any and all errors heretofore or hereafter
committed by Landlord in connection with this Sublease and/or in connection with
Sublandlord's enforcement of its rights under this paragraph and (iii) any
exemptions to which Subtenant would otherwise be entitled under any statute,
law, ordinance, regulation or rule of law.
4. Affidavit of Default. In any amicable action brought hereon, or other
action brought pursuant to the foregoing warrants and powers of attorney (to
confess judgment herein), Sublandlord shall cause to be filed in such action an
affidavit made by it or someone acting for it, setting forth the facts necessary
to authorize the entry of judgment, of which facts such affidavit shall be prima
facie evidence, and if a true copy of this Sublease (and of the truth of the
copy such affidavit shall be sufficient evidence) shall be filed in such suit,
action or actions, it shall not be necessary to file the original as a warrant
of attorney, any rule of court, custom or practice to the contrary
notwithstanding.
Witness: Premier Research Worldwide, Ltd.
By: /s/ Fred M. Powell
- ----------------------------- -----------------------------
Name: Fred M. Powell
-----------------------------
Title: Chief Financial Officer
-----------------------------
-29-
<PAGE>
CONSENT TO SUBLEASE
Shuwa Investments Corporation
515 South Flower Street, Suite 1270
Los Angeles, California 90071-2205
Telephone (213) 489-2757 / Telefax (213) 489-2762
June ____, 1998
Raytheon Engineers & Constructors, Inc.
30 South 17th Street
Philadelphia, Pennsylvania 19103
Re: Building: 30 South 17th Street
Sublet Premises: Entire 8th and 9th Floors
Date of Prime Lease: June 13, 1973 as amended
Date of Sublease: June ____, 1998
Landlord: Shuwa Trust of Philadelphia, a Pennsylvania
Business Trust
Prime Lessee: Raytheon Engineers & Constructors, Inc.
Sublessee: Premier Research Worldwide, Ltd.
Gentlemen:
Pursuant to the terms of your Lease Agreement ("Prime Lease") covering the
above captioned Sublet Premises, as said Prime Lease may have been amended to
the date hereof, you have requested our consent to a sublease (dated as
described in the above caption) to the above captioned Sublessee, a copy of
which sublease is annexed hereto and made a part hereof and is hereinafter
referred to as the "Sublease".
We hereby grant our consent to the Sublease upon the following express
terms and conditions:
1. The Sublease is subject and subordinate to the Prime Lease and to all of
its terms, covenants, conditions, provisions and agreements.
2. Neither the Sublease nor this consent thereto shall:
(a) release or discharge you from any liability, whether past, present
or future, under the Prime Lease;
(b) operate as a consent or approval by us to or of any of the terms,
covenants, conditions, provisions or agreement of the Sublease and we shall not
be bound thereby;
(c) be construed to modify, waive or affect any of the terms, covenants,
conditions, provisions or agreements of the Prime Lease, or to waive any breach
thereof,
<PAGE>
or any of our rights as Landlord thereunder, or to enlarge or increase our
obligations as Landlord thereunder; or
(d) be construed as a consent by us to any further subletting either by
you or by the Sublessee or to any assignment by you of the Prime Lease or
assignment by the Sublessee of the Sublease, whether or not the Sublease
purports to permit the same and, without limiting the generality of the
foregoing, both you and the Sublessee agree that the Sublessee has no right
whatsoever to assign, mortgage or encumber the Sublease nor to sublet any
portion of the Sublet Premises or permit any portion of the Sublet Premises to
be used or occupied by any other party.
3. In the event of your default under the provisions of the Prime Lease,
the rent due from the Sublessee under the Sublease shall be deemed assigned to
us and we shall have the right, under such default, at any time at any option,
to give notice of such assignment to the Sublessee. We shall credit you with any
rent received by us under such assignment but the acceptance of any payment on
account of rent from the Sublessee as the result of any such default shall in no
manner whatsoever be deemed an attornment by the Sublessee to us in the absence
of a specific written agreement signed by us to such an effect, or serve to
release you from any liability under the terms, covenants, conditions,
provisions or agreements under the Prime Lease.
Notwithstanding the foregoing, any payment other than rent from the
Sublessee directly to us, regardless of the circumstances or reasons therefore,
shall in no manner whatsoever be deemed an attornment by the Sublessee to us in
the absence of a specific written agreement signed by us to such an effect.
4. Prime Lessee and Sublessee agree and acknowledge that Landlord's consent
herein shall not create or be deemed to be the basis of creating any covenant,
representation or warranty, express or implied (including, without limitation,
any covenant of quiet enjoyment), on the part of Landlord with respect to the
terms of the Sublease, Sublessee's, use and enjoyment of the Sublet Premises, or
any other matter arising out of or in connection with the Sublease.
5. The term of the Sublease shall expire and come to an end on its natural
expiration date or any premature termination date thereof or concurrently with
the natural expiration date or any premature termination of the Prime Lease for
any reason whatsoever (including, without limitation, any termination by mutual
consent or other right, now or hereafter agreed to by Landlord or Prime Lessee,
or by operation of law or at Landlord's option in the event of a material
default by Prime Lessee).
6. This consent is not assignable, nor shall this consent be a consent to
any amendment, or modification of the Sublease, without Landlord's prior written
consent.
7. You and the Sublessee covenant and agree that, under no circumstances
shall we be liable for any brokerage commission or other charge or expense in
connection with the Sublease and you and the Sublessee agree to indemnify us
against same and against any cost or expense (including, but not limited to,
attorneys' fees) incurred by us in resisting any claim for any such brokerage
commission.
8. You and Sublessee understand and acknowledge that Landlord's consent
hereto is not a consent to any improvement or alteration work being performed in
the Sublet Premises, that Landlord's consent must be separately sought if and to
the extent provided in the Prime Lease and will not necessarily be given, and
that if such consent is
-2-
<PAGE>
given the same will be subject to you and Sublessee signing Landlord's standard
form of Agreement with respect to work being performed by persons other than
Landlord.
9. Landlord's consent herein shall not constitute any agreement,
representation, warranty or verification that the Sublease is in compliance with
the Prime Lease.
10. Landlord hereby confirms that the letter from Landlord's building
manager attached hereto as Exhibit 1, accurately states the policy that tenants
of the Building have 24 hour access to their premises, provided that such access
may be subject to interruptions caused by the performance of repairs and
alterations or force majeure events.
The execution of a copy of this consent by you (as Prime Lessee) and by the
Sublessee shall indicate your joint and several confirmation of the foregoing
conditions and of your agreement to be bound thereby and shall constitute
Sublessee's acknowledgment that it has received a copy of the Prime Lease (with
principal economic terms omitted) from you.
Very truly yours,
LANDLORD:
SHUWA TRUST OF PHILADELPHIA,
a Pennsylvania Business Trust
By: /s/ Takaji Kobayashi
-------------------------------
Takaji Kobayashi
Its: Trustee
-3-
<PAGE>
CONFIRMED AND AGREED:
PRIME LESSEE:
RAYTHEON ENGINEERS & CONTRACTORS, INC.
a Delaware Corporation
By:
---------------------------------
Name:
-------------------------------
[Print Name]
Its:
--------------------------------
CONFIRMED AND AGREED:
SUBLESSEE:
PREMIER RESEARCH WORLDWIDE, LTD.
a Delaware Corporation
By: /s/ Fred M. Powell
---------------------------------
Name: Fred M. Powell
-------------------------------
[Print Name]
Its: Chief Financial Officer
--------------------------------
-4-
<PAGE>
Exhibit 21.1
Subsidiaries of Registrant
Name Jurisdiction of Organization
- --------------------------------------------------------------------------------
Premier Research Worldwide, Ltd. United Kingdom
- --------------------------------------------------------------------------------
Premier Research Investment Corporation Delaware
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statement File No. 333-26471.
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 10,822
<SECURITIES> 5,668
<RECEIVABLES> 10,666
<ALLOWANCES> (243)
<INVENTORY> 0
<CURRENT-ASSETS> 29,248
<PP&E> 11,710
<DEPRECIATION> (7,600)
<TOTAL-ASSETS> 40,172
<CURRENT-LIABILITIES> 9,231
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 30,869
<TOTAL-LIABILITY-AND-EQUITY> 40,172
<SALES> 0
<TOTAL-REVENUES> 31,807
<CGS> 0
<TOTAL-COSTS> 13,847
<OTHER-EXPENSES> 17,771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,012)
<INCOME-PRETAX> 1,201
<INCOME-TAX> 480
<INCOME-CONTINUING> 721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 721
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
