<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1998
REGISTRATION NO. 333-46321
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
PROFESSIONAL DETAILING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 22-3562897
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
599 MacArthur Boulevard
Mahwah, New Jersey 07430-2326
(201) 818-8450
(201) 818-8445 Facsimile
</TABLE>
(Address, including zip code, and telephone number, including area code, of
Registrant's executive offices)
CHARLES T. SALDARINI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROFESSIONAL DETAILING, INC.
599 MACARTHUR BOULEVARD
MAHWAH, NEW JERSEY 07430-2326
(201) 818-8450
(201) 818-8445 FACSIMILE
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
Copies to:
<TABLE>
<S> <C>
KENNETH S. ROSE, ESQ. KEITH F. HIGGINS, ESQ.
JOEL J. GOLDSCHMIDT, ESQ. ROPES & GRAY
MORSE, ZELNICK, ROSE & LANDER LLP ONE INTERNATIONAL PLACE
450 PARK AVENUE BOSTON, MASSACHUSETTS 02110
NEW YORK, NEW YORK 10022 (617) 951-7000
(212) 838-5030 (617) 951-7050 FACSIMILE
(212) 838-9190 FACSIMILE
</TABLE>
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the 'Securities Act'), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH 30, 1998
2,800,000 SHARES
Professional Detailing, Inc.
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $12.00 AND $14.00. SEE
'UNDERWRITERS' FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK FOR QUOTATION ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL 'PDII.'
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE 'RISK FACTORS'
BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
- ------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 420,000
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See 'Underwriters.'
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Ropes & Gray, counsel for the Underwriters. It is expected that delivery of
the Shares will be made on or about , 1998 at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
WILLIAM BLAIR & COMPANY
HAMBRECHT & QUIST
, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................................................................ 3
Summary Financial Data........................................................................ 5
Risk Factors.................................................................................. 7
Use of Proceeds............................................................................... 13
Dividend Policy............................................................................... 13
S Corporation Termination..................................................................... 13
Capitalization................................................................................ 14
Dilution...................................................................................... 15
Selected Financial Data....................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations......... 18
Business...................................................................................... 24
Management.................................................................................... 37
Certain Transactions.......................................................................... 43
Principal Shareholders........................................................................ 44
Description of Capital Stock.................................................................. 45
Shares Eligible for Future Sale............................................................... 47
Underwriters.................................................................................. 48
Legal Matters................................................................................. 49
Experts....................................................................................... 50
Additional Information........................................................................ 50
Special Note Regarding Forward-Looking Statements............................................. 50
Index to Financial Statements................................................................. F-1
</TABLE>
------------------------
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and an opinion thereon expressed by
independent accountants and quarterly reports for the first three quarters of
each fiscal year containing interim financial information.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITERS.'
------------------------
In this Prospectus, the term the 'Company' or 'PDI' includes Professional
Detailing, Inc., a Delaware corporation, and its predecessors. The Company's
corporate headquarters are located at 599 MacArthur Boulevard, Mahwah, New
Jersey 07430, and its telephone number is (201) 818-8450.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and the notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus has been adjusted to reflect a merger (the 'Merger') of
Professional Detailing, Inc., a New Jersey corporation, with and into
Professional Detailing, Inc., a Delaware corporation, immediately prior to the
effective date of the registration statement of which this Prospectus is a part.
Upon completion of the Merger, the shareholders of the New Jersey corporation
will own an aggregate of 7,464,562 shares of the Delaware corporation and all
outstanding options to purchase shares of the New Jersey corporation will be
converted into options to purchase shares of the Delaware corporation. All
references herein to industry financial and statistical information are based on
trade articles, industry reports and other sources that the Company believes to
be reliable, although there can be no assurance to that effect. Unless specified
to the contrary or the context clearly implies otherwise, all references herein
to the 'Company' or 'PDI' shall be deemed to include Professional Detailing,
Inc., a Delaware corporation, and its predecessors. Unless otherwise indicated,
the information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
The Company is a leading provider of comprehensive customized sales
solutions on an outsourced basis to the United States pharmaceutical industry.
The Company believes it has achieved this leadership position based on its 10
years of industry experience and its relationships with many of the
pharmaceutical industry's largest companies. Since inception, the Company has
designed customized product detailing programs for approximately 25 clients,
including Pfizer Inc., Astra Merck Inc., Glaxo Wellcome Inc. and Johnson &
Johnson. These programs have been designed to promote more than 70 different
products, including such leading prescription medications as
Prilosec(Registered), Wellbutrin(Registered) and Cardura(Registered), as well as
a number of over-the-counter ('OTC') products such as Bayer(Registered) Aspirin,
Pepcid AC(Registered) and Monistat 5(Registered), to hospitals, pharmacies and
physicians in approximately 20 different specialties. The Company's primary
objective is to enhance its leadership position in the growing contract sales
organization ('CSO') industry and to become the premier supplier of
comprehensive sales solutions to the pharmaceutical industry and other segments
of the healthcare market.
The Company has demonstrated strong internal growth, generated by securing
new business from leading pharmaceutical companies and by renewing and expanding
programs with existing clients. The Company believes that it is one of the
largest CSOs operating in the United States measured both by revenue and number
of sales representatives used in programs. Revenue and gross profit grew at
compound rates of 87.7% and 58.0%, respectively, between 1994 and 1997. The
number of sales representatives (both full-time and part-time) employed by the
Company has increased from 130 as of December 31, 1993 to 930 as of December 31,
1997. Over that same period, the Company's mix between part-time and full-time
representatives shifted from 100% part-time to 43% part-time. The Company has
also experienced a consistently high renewal rate among its clients. For
example, for the year ended December 31, 1997, approximately 86% of the
Company's revenue was generated from clients that had contributed to its 1996
revenue.
According to PMSI Scott-Levin Inc., a healthcare marketing information
company ('Scott-Levin'), United States pharmaceutical companies spent
approximately $5.0 billion on product detailing in 1997. The Company estimates
that product detailing, on average, represents approximately 60% of a
pharmaceutical company's total promotional spending. Product detailing involves
a face-to-face meeting between a sales representative and a targeted prescriber,
usually a physician identified because of his or her specialty or prescribing
patterns. Detailing generally occurs in physician offices and hospitals,
although conventions and trade association meetings may also provide an
appropriate forum. The sales representative is required to possess a high level
of product knowledge, as well as other technical and therapeutic expertise.
Product detailing involves a technical review of the product's legally
authorized indications and usage, role in disease treatment, mechanism of
action, side effects, dosing, drug interactions, cost and availability (i.e.,
the 'details').
The CSO industry provides outsourced physician detailing programs to
pharmaceutical, medical device and diagnostic companies. CSOs have evolved from
providing detailing support for OTC products into a full-service industry
handling some of the leading prescription pharmaceutical compounds. Since the
early 1990s, the United States pharmaceutical industry has increasingly used
CSOs to provide the detailing service required to introduce new products,
reintroduce older products, supplement existing sales efforts, raise promotional
barriers to entry for competitors and demonstrate the incremental sales impact
of detailing a particular product. While there is little available data
regarding the CSO industry, the Company believes that there are approximately
eight CSOs currently operating in the United States. The Company also believes
that 17 of the 50 largest pharmaceutical
3
<PAGE>
companies in the United States, measured by 1996 healthcare revenue, currently
use CSOs. Finally, the Company estimates that revenues for the CSO industry in
the United States increased from approximately $80 million in 1995 to $185
million in 1996 and $325 million in 1997.
The Company is engaged by its clients to design and implement product
detailing programs for both prescription and OTC pharmaceutical products. Such
programs typically include three phases: design, execution and assessment. In
the program design phase, the Company works with the client to understand needs,
define objectives, select targets and determine appropriate staffing. Program
execution involves recruiting, hiring, training and managing a sales force,
which performs detail calls promoting the particular client's pharmaceutical
products. Assessment, the last phase of the program, involves measurement of
sales force performance and program success relative to the goals and objectives
outlined in the program design phase.
The Company believes that because of the benefits of outsourcing,
pharmaceutical companies have made a strategic decision to continue to outsource
a significant portion of their sales and marketing activities. The Company
believes that the trend toward the increased use of CSOs by pharmaceutical
companies will continue due to the following industry dynamics: (i)
pharmaceutical companies will continue to expand their product portfolios and,
as a result, will need to add sales force capacity, (ii) pharmaceutical
companies will continue to face margin pressures and will seek to maintain
flexibility by converting fixed costs to variable costs, and (iii) the
availability of qualified CSOs will provide an incentive to pharmaceutical
companies to continue to outsource this function.
The Company believes that it is well positioned to benefit from these
growth opportunities. Through its 10 years of providing service to the United
States pharmaceutical industry, the Company has demonstrated that it is a
high-quality, results-oriented provider of detailing services. The Company
maintains a highly qualified sales force as a result of a rigorous recruiting
process and training programs that are comparable to those of the pharmaceutical
companies. The Company believes that one of its biggest competitive advantages
is its ability to provide customized solutions to its clients. Finally, as one
of the largest CSOs, the Company has achieved the size and demonstrated the
ability to perform large detailing programs and execute multiple programs
simultaneously.
In order to leverage its competitive advantages, PDI's growth strategy
emphasizes: (i) enhancing its leadership position in the growing CSO market by
maintaining its historic focus on high-quality contract sales services and by
continuing to build and invest in the Company's core competencies and
operations; (ii) expanding both its relationship with existing clients and its
selling efforts to capture new clients; (iii) offering additional promotional,
marketing and educational services and further developing its existing detailing
services; (iv) entering new geographic markets; and (v) investigating and
pursuing appropriate acquisitions of detailing or detailing-related companies.
The Company was incorporated under the laws of the state of Delaware on
February 10, 1998. The Company's predecessor was incorporated under the laws of
New Jersey on March 10, 1988. The Company's principal executive offices are
located at 599 MacArthur Boulevard, Mahwah, New Jersey 07430 and its telephone
number is (201) 818-8450.
THE OFFERING
<TABLE>
<S> <C>
Common Stock to be Offered.......................................... 2,800,000 Shares
Common Stock to be Outstanding after the Offering................... 10,264,562 Shares (1)
Use of Proceeds..................................................... Working capital for business
expansion purposes, investment
in infrastructure and other
general corporate purposes,
including potential
acquisitions. See 'Use of
Proceeds.'
Proposed Nasdaq National Market Symbol.............................. PDII
</TABLE>
- ------------------
(1) Excludes (i) 67,181 shares of Common Stock issuable upon the exercise of
stock options outstanding on December 31, 1997, at a weighted average
exercise price of $1.61 per share and (ii) 682,819 additional shares of
Common Stock reserved for future grants under the Company's 1998 Stock
Option Plan. The Company anticipates that, immediately following completion
of this Offering, it will grant options to its employees to purchase between
250,000 and 300,000 shares of Common Stock, exercisable at the initial
public offering price. See 'Management -- 1998 Stock Option Plan.'
4
<PAGE>
SUMMARY FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997(1)
------ ------ ------- ------- ------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue........................................ $8,226 $8,250 $18,398 $33,015 $54,542 $ 54,542
Program expenses............................... 4,886 5,339 15,427 26,886 43,057 43,057
------ ------ ------- ------- ------- --------------
Gross profit................................... 3,340 2,911 2,971 6,129 11,485 11,485
Compensation expense........................... 1,945 1,673 2,124 3,191 5,121 5,121
Bonus to majority shareholder(2)(3)............ 440 200 425 1,500 2,243 --
Stock grant expense(3)(4)...................... -- -- -- -- 4,470 4,470
Other general, selling and administrative
expenses..................................... 844 826 1,159 1,650 2,755 2,755
------ ------ ------- ------- ------- --------------
Total general, selling and administrative
expenses..................................... 3,229 2,699 3,708 6,341 14,589 12,346
------ ------ ------- ------- ------- --------------
Operating income (loss)(3)..................... 111 212 (737) (212) (3,104) (861)
Other income, net.............................. 17 16 70 98 155 155
------ ------ ------- ------- ------- --------------
Income (loss) before provision for (benefit
from) income taxes........................... 128 228 (667) (114) (2,949) (706)
Pro forma provision for (benefit from) income
taxes(5)..................................... 51 91 (121) -- -- --
------ ------ ------- ------- ------- --------------
Pro forma net income (loss)(5)................. $ 77 $ 137 $ (546) $ (114) $(2,949) $ (706)
------ ------ ------- ------- ------- --------------
------ ------ ------- ------- ------- --------------
Pro forma basic and diluted net income (loss)
per share(5)(6).............................. $ 0.01 $ 0.02 $ (0.07) $ (0.02) $ (0.40) $ (0.09)
------ ------ ------- ------- ------- --------------
------ ------ ------- ------- ------- --------------
Pro forma basic and diluted weighted average
number of shares outstanding(6).............. 7,465 7,465 7,465 7,465 7,465 7,465
------ ------ ------- ------- ------- --------------
------ ------ ------- ------- ------- --------------
OTHER OPERATING DATA:
Number of detail programs...................... 8 9 10 13 15
Number of clients.............................. 6 7 7 8 12
Average size of detail program................. $1,028 $ 917 $ 1,840 $ 2,540 $ 3,636
Number of sales representatives at end of
period:
Full-time.................................... -- -- -- 33 529
Part-time.................................... 130 134 419 691 401
Total........................................ 130 134 419 724 930
</TABLE>
- ------------------
(1) Pro forma 1997 data eliminates bonus to majority shareholder. The majority
shareholder has agreed to forego any such bonuses in future periods. See
footnotes 2 and 3 below.
(2) The Company has been treated as an S Corporation under subchapter S of the
Internal Revenue Code of 1986, as amended (the 'Code') since January 1, 1991
and under the corresponding provisions of the tax laws of the State of New
Jersey since January 1, 1994. Historically, as an S Corporation, the Company
made annual bonus payments to its majority shareholder based on the
Company's estimated profitability and working capital requirements. With the
exception of the estimated $3.2 million final distribution to be declared
immediately prior to the Offering, the Company does not expect to pay
bonuses in future periods. See footnote 7 below and 'Dividend Policy.'
(3) Bonus to majority shareholder and stock grant expense are non-recurring
charges. Exclusive of these non-recurring charges, the Company's operating
income for 1997, 1996, 1995, 1994 and 1993 would have been $3,609,000,
$1,288,000, ($312,000), $412,000 and $551,000, respectively.
(4) On January 1, 1997, the Company issued shares of its Common Stock to Charles
T. Saldarini, its current President and Chief Executive Officer. As a
result, prior to the Offering, Mr. Saldarini owns 15.0% of the Common Stock
outstanding. For financial accounting purposes, a non-recurring, non-cash
compensation expense was recorded in the first quarter of 1997. See
'Principal Shareholders,' 'Management,' 'Certain Transactions' and note 12
to the Company's Financial Statements.
(5) As an S Corporation, the Company has not been subject to Federal or New
Jersey corporate income taxes, other than a New Jersey state corporate
income tax of approximately 2%. Upon consummation of this Offering, the
Company will no longer be treated as an S Corporation, and, accordingly,
will be subject to Federal and state corporate income taxes. Pro forma
provision for (benefit from) income taxes, net income (loss) and basic and
diluted net income (loss) per share for all periods presented reflect a
provision for or benefit from income taxes as if the Company had been taxed
as a C Corporation for all periods.
(6) See note 3 to the Company's Financial Statements for a description of the
computation of pro forma basic and diluted net income (loss) per share and
basic and diluted weighted average number of shares outstanding.
5
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents........................................... $ 5,760 $ 5,084 $ 37,936
Working capital..................................................... 128 (547) 32,305
Total assets........................................................ 13,691 13,016 45,868
Total long-term debt................................................ -- -- --
Shareholders' equity (deficit)...................................... 676 -- 32,852
</TABLE>
- ------------------
(7) Pro forma data reflects the effect of the estimated $3.2 million final
distribution to the Company's existing shareholders immediately prior to the
consummation of this Offering. Such amount consists of shareholders' equity
as of December 31, 1997, approximately $676,000, and the earnings of
the Company from January 1, 1998 to the consummation of the Offering. Such
earnings are currently estimated to be $2.5 million. See 'Dividend Policy,'
'S Corporation Termination' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
(8) Adjusted to reflect the receipt of the net proceeds from the sale of the
shares offered hereby at an assumed initial public offering price of $13.00
per share and the pro forma effect of the estimated $3.2 million final
distribution to the Company's existing shareholders immediately prior to the
consummation of this Offering. See footnote 7 above, 'Dividend Policy,' 'S
Corporation Termination' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in evaluating an investment in the shares of Common Stock offered hereby.
DEPENDENCE ON THE PHARMACEUTICAL INDUSTRY
Substantially all of the Company's revenue to date has been generated from
providing product detailing services to pharmaceutical companies. Accordingly,
the Company's business, financial condition and results of operations are highly
dependent on sales and marketing expenditures by pharmaceutical companies for
the sale and distribution of pharmaceutical products. The Company has benefited
to date from the growing trend of pharmaceutical companies to outsource sales
and marketing programs to CSOs. There can be no assurance that this trend in
outsourcing will continue. The Company could be materially and adversely
affected by unfavorable developments in the pharmaceutical industry generally or
any reduction in expenditures for, or future outsourcing of, promotional,
marketing and sales activities by pharmaceutical companies or a shift in
marketing focus away from product detailing. Promotional, marketing and sales
expenditures by pharmaceutical companies have in the past been, and could in the
future be, negatively impacted by, among other things, governmental reform or
private market initiatives intended to reduce the cost of pharmaceutical
products or by governmental, medical association or pharmaceutical industry
initiatives designed to regulate the manner in which pharmaceutical companies
promote their products. Furthermore, the trend in the pharmaceutical industry
toward consolidation, by merger or otherwise, may result in a reduction in the
use of CSOs. A significant change in the direction of the outsourcing trend
generally, or a trend in the pharmaceutical industry not to use, or to reduce
the use of, outsourced marketing services, such as those provided by the
Company, would have a material adverse effect on the Company. See
'Business -- The CSO Industry.'
CUSTOMER CONCENTRATION
The Company's revenue and profitability are highly dependent on its
relationships with several large pharmaceutical companies. In 1995, the
Company's four largest clients accounted for approximately 42%, 17%, 15% and
10%, respectively, or a total of 84%, of its revenue. In 1996, the Company's
four largest clients accounted for approximately 30%, 21%, 17% and 16%,
respectively, or a total of 84%, of its revenue. In 1997, the Company's four
largest clients, Pfizer, Glaxo Wellcome, Astra Merck and Novartis, accounted for
approximately 25%, 22%, 19% and 10%, respectively, or a total of 76%, of its
revenue. The Company is likely to continue to experience a high degree of
concentration of business. Such concentration may become greater as a result of
consolidation within the pharmaceutical industry. The loss or significant
reduction of business from any significant customer, including as a result of
further consolidation in the pharmaceutical industry, could have a material
adverse effect on the Company's business and results of operations. See
'Business -- Clients and Contracts.'
LACK OF PROFITABILITY
For the years ended 1995, 1996 and 1997, the Company had net losses of
$667,000, $114,000 and $2,949,000, respectively. At December 31, 1997, the
Company had negative retained earnings of $3,416,000. While the Company's net
losses in 1995 and 1996 were primarily due to expenses incurred in connection
with the expansion of the Company's business and bonus payments to its majority
shareholder and the Company's negative retained earnings and net loss for 1997
were due to a non-cash, non-recurring compensation expense relating to stock
granted to the Company's President and Chief Executive Officer, Charles T.
Saldarini, in the first quarter of 1997, the Company must nonetheless continue
to replace and/or expand existing programs and obtain new clients in order to
achieve sustained profitability. There can be no assurance that the Company will
be able to continue to generate increased revenue or achieve profitable
operations. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
RISKS ASSOCIATED WITH THE NATURE OF CONTRACTS
The Company's contracts are generally for terms of six months to one year
and are subject to renewal upon expiration. In addition, a single contract may
account for a significant portion of the Company's total revenue. The Company's
contracts may be terminated by the client at any time for any reason. Also,
contracts typically contain significant penalties if the Company fails to meet
stated performance benchmarks. While the cancellation of certain of the
Company's contracts by a client without cause may result in the imposition of
penalties on such
7
<PAGE>
client, such penalties may not act as an adequate deterrent to the termination
of such contracts. In addition, there can be no assurance that such penalties
will offset the lost revenue or the costs incurred by the Company as a result of
any such termination. Furthermore, all of the Company's sales representatives
are employees rather than independent contractors. Accordingly, upon the
termination of a particular contract, unless the Company can immediately
transfer the sales force to a new program, it either must continue to compensate
those employees, without realizing any related revenue, or terminate their
employment. If the Company terminates their employment, it may incur significant
expenses relating to such termination, including the cost of recruiting and
hiring replacement sales personnel. Finally, substantially all of the Company's
contracts are fixed fee arrangements. Accordingly, if the Company underestimates
the costs associated with the services to be provided pursuant to a particular
contract, or if there are unanticipated increases in the Company's operating or
administrative expenses, the margins on a particular contract and the overall
profitability of the Company may be adversely affected. The failure to obtain
new contracts to replace expiring contracts, the cancellation or delay of an
existing contract, the failure to satisfy the minimum performance standards set
forth in a contract, the inability of the Company to transfer a sales force to a
new program upon the termination of program, or the underestimation of costs
associated with a particular contract could have a material adverse effect on
the Company's business and results of operations. See 'Business -- Clients and
Contracts.'
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's results of operations have been subject to quarterly
fluctuations. In the future, quarterly operating results may fluctuate as a
result of a number of factors, including the commencement, delay, cancellation
or completion of programs; the mix of services provided; the timing of start-up
expenses for new services; the accuracy of estimates of resources required for
ongoing programs; the timing and integration of acquisitions; changes in
regulations related to pharmaceutical companies; and general economic
conditions. The Company believes that quarterly comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, fluctuations in quarterly results
could affect the market price of the Common Stock in a manner unrelated to the
long term operating performance of the Company. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results.'
MANAGEMENT OF GROWTH
The Company has recently experienced rapid growth in the number of its
employees, the size of its programs and the scope of its operations. This growth
has placed and will continue to place a strain on operational, human and
financial resources. The Company's ability to manage such growth effectively
will depend upon its ability to enhance its management team and its ability to
attract and retain skilled employees. The Company's success will also depend on
the ability of its officers and key employees to continue to implement and
improve its operational, management information and financial control systems,
and to expand, train and manage its workforce. There can be no assurance that
the Company will be able to manage its growth effectively. Failure to manage
growth effectively could have a material adverse effect on the Company's
business and results of operations. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Business.'
POSSIBLE HEALTHCARE REFORM; IMPACT OF MANAGED HEALTHCARE PROGRAMS
Healthcare reform measures have been considered by Congress and other
Federal and state bodies during recent years. The intent of the proposals
generally has been to reduce healthcare costs and the growth of total healthcare
expenditures and expand healthcare coverage for the uninsured. Although
comprehensive healthcare reform has been considered, only limited proposals have
been enacted. Comprehensive healthcare reform may be considered again and
efforts to enact reform bills are likely to continue. Implementation of
government healthcare reform may adversely affect promotional and marketing
expenditures by pharmaceutical companies, which could decrease the business
opportunities available to the Company. The Company is unable to predict the
likelihood of such legislation or similar legislation being enacted into law or
the effects that any such legislation would have on its business, results of
operations and financial condition.
The primary trend in the United States healthcare industry is toward cost
containment. In recent years, managed care providers have been able to exercise
greater influence through managed treatment and hospitalization patterns, a
shift from reimbursement on a cost basis to per capita limits for patient
treatment and the use of formularies (lists of preapproved products that a
physician may prescribe). The increasing use of
8
<PAGE>
managed care, centralized purchasing decisions, consolidations among and
integration of healthcare providers are continuing to affect purchasing and
usage patterns in the healthcare system. Decisions regarding the use of
pharmaceutical products are increasingly being consolidated into group
purchasing organizations, regional integrated delivery systems and similar
organizations and are becoming more economically focused, with decision makers
taking into account the cost of the product and whether a product reduces the
cost of treatment. There can be no assurance the Company will not be adversely
affected by cost containment measures. Government or private initiatives to
further contain pharmaceutical pricing could have a material adverse effect on
the pharmaceutical industry, and thus on the Company. See 'Business -- The CSO
Industry.'
GOVERNMENT REGULATION
The healthcare industry is subject to extensive regulation. Various laws,
regulations and guidelines promulgated by government, industry and professional
bodies affect, among other matters, the provision, licensing, labeling,
marketing, promotion, sale and distribution of healthcare services and products,
including pharmaceutical products. It is possible that additional laws,
regulations and guidelines or changes in current laws, regulations or guidelines
may be adopted in the future. The failure of the Company or its clients to
comply with such laws, regulations and guidelines, or any change in applicable
laws, regulations and guidelines could, among other things, limit or prohibit
certain business activities of the Company or its clients, subject the Company
or its clients to adverse publicity, increase the cost of regulatory compliance
or subject the Company or its clients to monetary fines or other penalties. Such
actions could have a material adverse effect on the Company's business, results
of operations, and financial condition. See 'Business -- Government and Industry
Regulation.'
FRAUD AND ABUSE LAWS
The healthcare industry is subject to various Federal and state laws
pertaining to healthcare fraud and abuse including prohibitions on the payment
or acceptance of kickbacks or other remuneration in return for the purchase or
lease of products which are paid for by Medicare or Medicaid. Sanctions for
violating these laws include criminal penalties and civil sanctions, including
fines and penalties, and possible exclusion from Medicare, Medicaid and other
Federal healthcare programs. Although the Company believes its business
arrangements are outside the scope of such Federal and state fraud and abuse
laws, there can be no assurance that the Company's practices will not be
challenged under these laws in the future or that such a challenge would not
have a material adverse effect on the Company's business, financial condition
and results of operations. See 'Business -- Government Regulation.'
ABILITY TO ATTRACT AND RETAIN EXPERIENCED SALES REPRESENTATIVES
The success and growth of the Company's business depends upon its ability
to attract and retain qualified and experienced sales representatives. There is
intense competition for experienced pharmaceutical sales representatives and
there can be no assurance the Company will be able to continue to attract and
retain such qualified personnel. The Company's inability to attract and retain
qualified sales representatives would have a material adverse effect on the
Company's business and results of operations. See 'Business -- Program
Description.'
COMPETITION; INDUSTRY CONSOLIDATION
The Company primarily competes with in-house sales and marketing
departments of pharmaceutical companies, other CSOs and other third party
providers to the pharmaceutical industry, many of which possess substantially
greater capital, personnel and other resources than the Company. In addition to
the in-house sales forces of pharmaceutical companies, the Company's current
major competitors include CSOs such as Innovex Limited, a subsidiary of
Quintiles Transnational Corp., and the various sales and marketing affiliates of
Snyder Communications, Inc. As a result of competitive pressures, various sales
and marketing organizations providing services to the pharmaceutical industry
are consolidating and are becoming targets of global organizations. This trend
is likely to produce increased competition among CSOs for both clients and
acquisition candidates and increased competitive pressures on smaller providers.
If the trend in the pharmaceutical industry towards consolidation continues,
pharmaceutical companies may have excess in-house sales force capacity and may,
as a result, reduce or eliminate their use of CSOs. There are relatively few
barriers to entry into the CSO industry and there can be no assurance that, as
the CSO industry continues to evolve, additional competitors with greater
resources than the Company will not enter the industry or that the Company's
customers will not choose to conduct more of their sales services internally,
with other CSOs or with organizations that can provide a broader range of sales
and marketing services. Although the Company intends to monitor industry trends
and respond
9
<PAGE>
accordingly, there can be no assurance that the Company will be able to
anticipate and successfully respond to such trends. Increased competition may
lead to price and other forms of competition that may have a material adverse
effect on the Company's business and results of operations. See
'Business -- Competition.'
POTENTIAL LIABILITY
The Company is engaged in the business of detailing pharmaceutical
products. Such activities could expose the Company to risk of liability for
personal injury or death to persons using such products, although the Company
does not commercially market or sell the products to end-users. While the
Company has not been subject to any claims or incurred any liabilities due to
such claims, there can be no assurance that substantial claims or liabilities
will not arise in the future. The Company seeks to reduce its potential
liability through measures such as contractual indemnification provisions with
clients (the scope of which may vary from client to client, and the performances
of which are not secured) and reliance on insurance maintained by clients. The
Company, however, could also be held liable for errors and omissions of its
employees in connection with the services it performs that are outside the scope
of any indemnity. The Company could be materially and adversely affected if it
were required to pay damages or incur defense costs in connection with a claim
that is outside the scope of the indemnification agreements; if the indemnity,
although applicable, is not performed in accordance with its terms; or if the
Company's liability exceeds the amount of applicable insurance or indemnity. The
Company currently does not carry product liability insurance and is not insured
against the errors and omissions of its employees. See 'Business--Liability and
Insurance.'
DEPENDENCE ON KEY PERSONNEL
The Company depends on a number of key executives, including Charles T.
Saldarini, its President and Chief Executive Officer, and Steven K. Budd, its
Chief Operating Officer. The loss of the services of any of the Company's key
executives could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain
'key man' life insurance policies on any of its executives although it intends
to obtain a $5 million policy on the life of Charles T. Saldarini. There can be
no assurance that the Company will be able to obtain such insurance on terms
acceptable to the Company, if at all. See 'Management.'
CONTROL BY EXISTING SHAREHOLDER
Following completion of this Offering, assuming the Underwriters'
over-allotment option is not exercised, John P. Dugan, Chairman of the Board of
Directors of the Company, will beneficially own approximately 61.8% (or 59.4% if
the over-allotment option is exercised in full) of the Company's outstanding
Common Stock (excluding shares issuable upon the exercise of options). As a
result, Mr. Dugan will have the ability to determine the election of all of the
Company's directors, and to determine the outcome of most corporate actions
requiring shareholder approval, including the merger of the Company with or into
another company, the sale of all or substantially all of the Company's assets
and amendments to the Company's Certificate of Incorporation (the 'Certificate
of Incorporation'). In addition, Mr. Dugan will have the power to delay, defer
or prevent a change in control of the Company. See 'Principal Shareholders.'
ACQUISITION RISKS
As part of its business strategy, the Company will evaluate new acquisition
opportunities. Acquisitions involve numerous risks, including difficulties in
the assimilation of the operations and products or services of the acquired
companies, the expenses incurred in connection with the acquisition and
subsequent assimilation of operations and products or services, the diversion of
management's attention from other business concerns and the potential loss of
key employees of the acquired company. Acquisitions of companies outside the
United States also may involve the additional risks of assimilating differences
in international business practices and overcoming language differences as well
as the risks inherent in conducting international business, including exposure
to currency fluctuations, difficulties in complying with a variety of foreign
laws, unexpected changes in regulatory requirements, difficulties in staffing
and managing foreign operations and potentially adverse tax consequences. There
can be no assurance that the Company will successfully identify, complete or
integrate any future acquisitions, or that acquisitions, if completed, will
contribute favorably to the Company's operations and future financial condition.
The Company may also face increased competition for acquisition opportunities,
which may inhibit the Company's ability to consummate suitable acquisitions on
terms favorable to the Company. See 'Use of Proceeds' and 'Business -- Growth
Strategy.'
10
<PAGE>
UNSPECIFIED USE OF PROCEEDS
None of the net proceeds that the Company will receive from this Offering
have been designated for any specific purpose. As a consequence, the Company's
management will have broad discretion with respect to the use of such proceeds.
The principal purposes of the Offering are to obtain additional working capital
for business expansion purposes, investment in infrastructure, to facilitate the
Company's access to public equity markets and to enhance the Company's ability
to use its Common Stock as consideration for possible acquisitions and as a
means of attracting and retaining key employees. Net proceeds from this Offering
will also be available for general corporate purposes, including replenishment
of working capital used to make the final distribution to the Company's existing
shareholders. A portion of the net proceeds may also be used to acquire or
invest in complementary businesses, products or services; however, there are no
commitments or agreements with respect to any such transaction at the present
time. See 'Use of Proceeds,' 'Dividend Policy' and 'S Corporation Termination.'
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or, if one does develop, that it will be maintained.
The initial public offering price, which will be established by negotiations
between the Company and representatives of the Underwriters, may not be
indicative of prices that will prevail in the trading market for the Common
Stock. The market price of the Common Stock could be subject to wide
fluctuations in response to variations in operating results from quarter to
quarter, changes in earnings estimates by analysts, market conditions in the
industry and general economic conditions. Furthermore, the stock market has
experienced significant price and volume fluctuations unrelated to the operating
performance of particular companies. These market fluctuations may have an
adverse effect on the market price of the Common Stock. See 'Underwriters.'
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock of the Company in the
public market, or the prospect of such sales, could have a material adverse
effect on the market price of the Common Stock. Immediately following the
Offering, the Company will have outstanding 10,264,562 shares of Common Stock
(excluding 750,000 shares reserved for issuance under the Company's 1998 Stock
Option Plan, of which 67,181 are issuable upon exercise of outstanding options
granted to certain executives of the Company and between 250,000 to 300,000 will
be issuable upon exercise of options expected to be issued to other employees of
the Company immediately following completion of this Offering). The 2,800,000
shares of Common Stock offered hereby (3,220,000 if the Underwriters'
over-allotment option is exercised in full) will be eligible for public sale
without restriction under the Securities Act of 1933, as amended (the
'Securities Act') by persons other than 'affiliates' (as that term is defined in
Rule 144 under the Securities Act) of the Company. All of the remaining
7,464,562 shares of Common Stock outstanding will be 'restricted securities'
within the meaning of Rule 144 and may not be resold in the absence of
registration under the Securities Act or pursuant to exemptions from such
registration including, among others, the exemption provided by Rule 144 under
the Securities Act. All of the Company's executive officers and directors, who
beneficially own 7,464,562 shares of Common Stock and options to purchase 67,181
shares of Common Stock, have agreed that they will not, without the prior
written consent of Morgan Stanley & Co. Incorporated (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
shares of Common Stock or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus. The restrictions described in the preceding sentence do not
apply to transactions relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of the Offering.
Taking into consideration the effect of the 180-day 'lock-up' agreements
covering all of the restricted shares and options to purchase an additional
67,181 shares held by executive officers, such restricted shares will be
eligible for sale upon the expiration of the lock-up agreements, subject to the
provisions of Rule 144 or Rule 701 under the Securities Act.
The Company intends to register on Form S-8 under the Securities Act as
soon as practicable after the effective date of the Offering, 750,000 shares of
Common Stock issued or reserved for issuance under the
11
<PAGE>
Company's 1998 Stock Option Plan. This registration will be effective upon
filing. As of December 31, 1997, there were outstanding options for the purchase
of 67,181 shares of Common Stock and immediately following completion of this
Offering it is anticipated that the Company will grant options to purchase an
additional 250,000 to 300,000 shares of Common Stock. Shares registered and
issued pursuant to such registration statement will be freely tradable except to
the extent that the holders thereof are deemed to be 'affiliates' of the
Company, in which case the transferability of such shares will be subject to the
volume limitations set forth in Rule 144 under the Securities Act. See
'Management -- 1998 Stock Option Plan,' 'Description of Capital Stock,' 'Shares
Eligible for Future Sale' and 'Underwriting.'
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of shares of Common Stock pursuant to the Offering will
experience immediate and substantial dilution of the net tangible book value per
share of Common Stock from the initial public offering price. Assuming an
initial public offering price of $13.00 per share, purchasers in the Offering
will incur dilution of $9.81 per share. See 'Dilution.'
NO DIVIDENDS
Except for the estimated $3.2 million final distribution to its
shareholders immediately prior to the Offering (consisting of shareholders'
equity as of December 31, 1997 and the earnings of the Company from January 1,
1998 to the consummation of the Offering), the Company does not expect to
declare or pay any dividends in the foreseeable future. Instead, the Company
intends to retain all earnings, if any, in order to expand its operations. The
payment of dividends, if any, in the future is within the discretion of the
Company's Board of Directors and will depend upon the Company's earnings, if
any, its capital requirements and financial condition and other relevant
factors. See 'Dividend Policy' and 'S Corporation Termination.'
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
The Company's Board of Directors is authorized to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, such issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. In addition, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Certificate of Incorporation provides for a classified Board of
Directors and members of the Board of Directors may be removed only for cause
upon the affirmative vote of holders of at least a majority of the shares of
capital stock of the Company entitled to vote. Furthermore, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law (the 'DGCL'), which prohibits the Company from engaging in a
'business combination' with an 'interested stockholder' for a period of three
years after the date of the transaction in which such person first becomes an
'interested stockholder,' unless the business combination is approved in a
prescribed manner. The application of these provisions could have the effect of
delaying or preventing a change of control of the Company. Certain other
provisions of the Certificate of Incorporation could also have the effect of
delaying or preventing changes of control or management of the Company, which
could adversely affect the market price of the Company's Common Stock. See
'Description of Capital Stock. '
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,800,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $32.9 million (approximately $37.9 million if the Underwriters'
over-allotment option is exercised in full), after deducting the underwriting
discount and commissions and estimated offering expenses payable by the Company.
The principal purposes of the offering of shares by the Company are to obtain
additional working capital for business expansion purposes, investment in
infrastructure, to facilitate the Company's access to the public equity markets
and to enhance the Company's ability to use its Common Stock as consideration
for possible acquisitions and as a means of attracting and retaining key
employees. Net proceeds from this Offering will also be available for general
corporate purposes, including replenishment of working capital used to make the
final distribution to the Company's existing shareholders immediately prior to
this Offering. A portion of the net proceeds may also be used to acquire or
invest in complementary businesses, products or services; however, there are no
commitments or agreements with respect to any such transaction at the present
time. Pending use of the net proceeds for the above purposes, the Company
intends to invest such funds in short-term, interest-bearing, investment-grade
obligations. See 'Dividend Policy.'
DIVIDEND POLICY
The Company does not expect to declare or pay any cash or stock dividends
on its Common Stock in the foreseeable future and intends to retain future
earnings for the expansion of its business. Any future determination to pay cash
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's results of operations, financial
condition, contractual restrictions and such other factors deemed relevant by
the Board.
Historically, as an S Corporation, the Company has made special bonus
compensation payments to its shareholders based on its estimated profitability
and working capital requirements. Immediately prior to consummation of this
Offering, the Company will declare a final distribution, currently estimated to
be $3.2 million, to its existing shareholders. Such distribution consists of
shareholders' equity as of December 31, 1997, approximately $676,000, and the
earnings of the Company from January 1, 1998 to the consummation of this
Offering. Such earnings are currently estimated to be $2.5 million. Investors
purchasing Common Stock in this Offering will not receive any portion of such
distribution and the Company will not make any additional distributions of this
kind in the future. See 'Use of Proceeds' and 'S Corporation Termination.'
S CORPORATION TERMINATION
The Company has been treated as an S Corporation for Federal income tax
purposes since January 1, 1991 and for purposes of the tax laws of the State of
New Jersey since January 1, 1994. As a result, the income of the Company has
been taxed at the shareholder level. Concurrent with the completion of this
Offering, the Company's S Corporation election will be terminated and the
Company will be subject to Federal and state corporate income taxation as a C
Corporation.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997 and as adjusted to reflect (i) the sale by the Company of
2,800,000 shares of Common Stock in the Offering at an assumed initial public
offering price of $13.00 per share, after deducting underwriting discounts and
commissions and estimated expenses, and application of the estimated net
proceeds thereof and (ii) the estimated $3.2 million final distribution to the
Company's shareholders immediately prior to the Offering. This table should be
read in conjunction with the Company's audited Financial Statements, including
the notes thereto, which appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion........................ $ -- $ -- $--
-------- ------------ --------------
-------- ------------ --------------
Shareholders' equity:
Preferred shares, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding.............................. $ -- $ -- $--
Common shares, $.01 par value, 30,000,000 shares authorized;
7,464,562 issued and outstanding actual and pro forma;
10,264,562 issued and outstanding, as adjusted(3)............. -- -- 103
Additional paid-in capital....................................... 4,194 4,194 36,943
Retained earnings................................................ (3,416) (4,092) (4,092)
Deferred Compensation(4)......................................... (102) (102) (102)
-------- ------------ --------------
Total shareholders' equity....................................... 676 -- 32,852
-------- ------------ --------------
Total capitalization............................................... $ 676 $ -- $ 32,852
-------- ------------ --------------
-------- ------------ --------------
</TABLE>
- ------------------
(1) Pro forma data reflects the effect of the estimated $3.2 million final
distribution to the Company's existing shareholders immediately prior to
consummation of this Offering. Such amount consists of shareholders' equity
as of December 31, 1997, approximately $676,000, and the earnings of the
Company from January 1, 1998 to the consummation of this Offering. Such
earnings are currently estimated to be $2.5 million. See 'Dividend
Policy,' 'S Corporation Termination' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
(2) Pro forma, as adjusted reflects the effect of (i) the estimated $3.2 final
distribution to the Company's existing shareholders immediately prior to
this Offering and (ii) the receipt of the net proceeds from the sale of the
shares offered hereby at an assumed initial public offering price of $13.00
per share. See footnote 1 above, 'Dividend Policy,' 'S Corporation
Termination' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
(3) Excludes (i) 67,181 shares of Common Stock issuable upon exercise of stock
options outstanding on December 31, 1997 at a weighted average exercise
price of $1.61 per share and (ii) 682,819 additional shares of Common Stock
reserved for future grants under the Company's 1998 Stock Option Plan. The
Company anticipates that, immediately following consummation of the
Offering, it will grant options to its employees to purchase between 250,000
and 300,000 shares of Common Stock exercisable at the initial public
offering price. See 'Management -- 1998 Stock Option Plan.'
(4) Represents the difference between the exercise price of certain outstanding
unvested options and the appraised market value of the underlying stock at
the date of grant, which will be recorded as compensation charges, as such
options vest through the earlier of June 30, 2000 and two years from the
consummation of the Offering.
14
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of December
31, 1997 was approximately $.10 per share. Net tangible book value per share is
equal to the Company's total assets less its total liabilities, divided by the
shares of Common Stock outstanding as of December 31, 1997 assuming the exercise
of options outstanding on such date. After giving pro forma effect to the
estimated $3.2 million final distribution to the Company's existing shareholders
immediately prior to the Offering and the sale by the Company of 2,800,000
shares of Common Stock in the Offering at an assumed the initial public offering
price of $13.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company), the pro
forma, as adjusted net tangible book value of the Company at December 31, 1997
would have been approximately $33.0 million, or $3.19 per share. This represents
an immediate increase in net tangible book value of $3.18 per share to existing
shareholders of the Company and an immediate dilution of $9.81 per share to new
investors purchasing shares in this Offering.
The following table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................................ $ 13.00
Net tangible book value per share before the Offering............................. $0.10
Decrease attributable to final distribution(1).................................... (0.09 )
Increase in net tangible book value per share attributable to new investors....... 3.18
------
Pro forma, as adjusted net tangible book value per share after the Offering................ 3.19
-----------
Dilution per share to new investors(2)..................................................... $ 9.81
-----------
-----------
</TABLE>
- ------------------
(1) Reflects the effect of the estimated $3.2 final distribution to the
Company's existing shareholders immediately prior to this Offering. Such
amount consists of shareholders' equity as of December 31, 1997,
approximately $676,000, and the earnings of the Company from January 1, 1998
to consummation of the Offering. Such earnings are currently estimated to be
$2.5 million. See 'Dividend Policy,' 'S Corporation Termination' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(2) Dilution per share to new investors is determined by subtracting pro forma,
as adjusted net tangible book value per share after the Offering from the
initial public offering price per share.
The following table sets forth, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing shareholders
and to be paid by new investors, based on an assumed initial public offering
price of $13.00 per share and before deduction of underwriting discounts and
commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 7,531,743 72.9% $ 108,100 0.3% $ 0.01
New investors........................... 2,800,000 27.1% $36,400,000 99.7% $ 13.00
---------- ------- ----------- -------
Total.............................. 10,331,743 100.0% $36,508,100 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
In the event the Underwriters exercise the overallotment option in full,
the number of shares of Common Stock held by new investors will increase to
3,220,000 or 29.9% of the total number of shares of Common Stock outstanding
after this Offering.
The computations in the tables above assume the exercise of options to
acquire 67,181 shares of Common Stock outstanding at December 31, 1997 at a
weighted average exercise price of $1.61 per share by certain executives of the
Company. Such computations do not reflect 682,819 additional shares of Common
Stock reserved for future grants under the Company's 1998 Stock Option Plan. The
Company anticipates that, immediately following consummation of the Offering, it
will grant options to its employees to purchase between 250,000 and 300,000
shares of Common Stock exercisable at the initial public offering price. See
'Management -- 1998 Stock Option Plan.'
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the five years ended
December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from the
Company's Financial Statements and the notes thereto. Balance sheets at December
31, 1996 and 1997 and the statements of income, of shareholders' equity and of
cash flows for the three years ended December 31, 1995, 1996 and 1997 and notes
thereto appear elsewhere in this Prospectus and have been audited by Coopers &
Lybrand L.L.P., independent accountants. The selected financial data for the
years ended December 31, 1993 and 1994 have been derived from the Company's
unaudited Financial Statements which have been prepared by the Company in
accordance with generally accepted accounting principles and includes all
adjustments that management considers necessary for a fair presentation of the
data for such periods. The Company's unaudited Financial Statements for the
years ended December 31, 1993 and 1994 have not been included in this
Prospectus. The selected financial data set forth below should be read in
conjunction with, and are qualified by reference to 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Company's
audited Financial Statements and related notes appearing elsewhere in this
Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997 PRO FORMA
------ ------ ------- ------- ------- 1997(1)
-----------
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................. $8,226 $8,250 $18,398 $33,015 $54,542 $54,542
Program expenses.................................... 4,886 5,339 15,427 26,886 43,057 43,057
------ ------ ------- ------- ------- -----------
Gross profit........................................ 3,340 2,911 2,971 6,129 11,485 11,485
Compensation expense................................ 1,945 1,673 2,124 3,191 5,121 5,121
Bonus to majority shareholder(2)(3)................. 440 200 425 1,500 2,243 --
Stock grant expense(3)(4)........................... -- -- -- -- 4,470 4,470
Other general, selling and administrative
expenses.......................................... 844 826 1,159 1,650 2,755 2,755
------ ------ ------- ------- ------- -----------
Total general, selling and administrative
expenses.......................................... 3,229 2,699 3,708 6,341 14,589 12,346
------ ------ ------- ------- ------- -----------
Operating income (loss)(3).......................... 111 212 (737) (212) (3,104) (861)
Other income, net................................... 17 16 70 98 155 155
------ ------ ------- ------- ------- -----------
Income (loss) before provision for (benefit from)
income taxes...................................... 128 228 (667) (114) (2,949) (706)
Pro forma provision for (benefit from) income
taxes(5).......................................... 51 91 (121) -- -- --
------ ------ ------- ------- ------- -----------
Pro forma net income (loss)(5)...................... $ 77 $ 137 $ (546) $ (114) $(2,949) $ (706)
------ ------ ------- ------- ------- -----------
------ ------ ------- ------- ------- -----------
Pro forma basic and diluted net income (loss) per
share(5)(6)....................................... $ 0.01 $ 0.02 $ (0.07) $ (0.02) $ (0.40) $ (0.09)
------ ------ ------- ------- ------- -----------
------ ------ ------- ------- ------- -----------
Pro forma basic and diluted weighted average number
of shares outstanding(6).......................... 7,465 7,465 7,465 7,465 7,465 7,465
------ ------ ------- ------- ------- -----------
------ ------ ------- ------- ------- -----------
OTHER OPERATING DATA:
Number of detail programs........................... 8 9 10 13 15
Number of clients................................... 6 7 7 8 12
Average size of detail program...................... $1,028 $ 917 $ 1,840 $ 2,540 $ 3,636
Number of sales representatives at end of period:
Full-time......................................... -- -- -- 33 529
Part-time......................................... 130 134 419 691 401
Total............................................. 130 134 419 724 930
</TABLE>
See footnotes on following page
16
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......................................... $1,701 $ 611 $ 240 $2,403 $ 5,760
Working capital.................................................... (63) 130 (591) (873) 128
Total assets....................................................... 2,243 6,975 5,881 8,322 13,691
Total long-term debt............................................... -- -- -- -- --
Shareholders' equity (deficit)..................................... 76 304 (363) (478) 676
</TABLE>
- ------------------
(1) Pro forma 1997 data eliminates bonus to majority shareholder. The majority
shareholder has agreed to forego any such bonuses in future periods. See
footnotes 2 and 3 below.
(2) The Company has been treated as an S Corporation under subchapter S of the
Code since January 1, 1991 and under the corresponding provisions of the tax
laws of the State of New Jersey since January 1, 1994. Historically, as an S
Corporation, the Company made annual bonus payments to its majority
shareholder based on the Company's estimated profitability and working
capital requirements. With the exception of the estimated $3.2 million final
distribution to be declared immediately prior to the Offering, the Company
does not expect to pay bonuses in future periods. See 'Dividend Policy.'
(3) Bonus to majority shareholder and stock grant expense are non-recurring
charges. Exclusive of these non-recurring charges, the Company's operating
income for 1997, 1996, 1995, 1994 and 1993 would have been $3,609,000,
$1,288,000, ($312,000), $412,000 and $551,000, respectively.
(4) On January 1, 1997, the Company issued shares of its Common Stock to Charles
T. Saldarini, its current President and Chief Executive Officer. As a
result, prior to the Offering, Mr. Saldarini owns 15.0% of the Common Stock
outstanding. For financial accounting purposes, a non-recurring, non-cash
compensation expense was recorded in the first quarter of 1997. See
'Principal Shareholders,' 'Management,' 'Certain Transactions' and note 12
to the Company's Financial Statements.
(5) As an S Corporation, the Company has not been subject to Federal or New
Jersey corporate income taxes, other than a New Jersey state corporate
income tax of approximately 2%. Upon consummation of this Offering, the
Company will no longer be treated as an S Corporation, and, accordingly,
will be subject to Federal and state corporate income taxes. Pro forma
provision for (benefit from) income taxes, basic and diluted net income
(loss) and basic and diluted net income (loss) per share for all periods
presented reflect a provision for or benefit from income taxes as if the
Company had been taxed as a C Corporation for all periods.
(6) See note 3 to the Company's Financial Statements for a description of the
computation of pro forma net income (loss) per share and weighted average
number of shares outstanding.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Company's
Financial Statements and the notes thereto appearing elsewhere in this
Prospectus and contains trend analysis and other forward-looking statements that
involve substantial risks and uncertainties. The Company's actual results could
differ materially from those expressed or implied in the forward-looking
statements as a result of certain factors, including those set forth under 'Risk
Factors' and elsewhere in this Prospectus.
OVERVIEW
The Company is a leading provider of comprehensive customized solutions on
an outsourced basis to the United States pharmaceutical industry. The Company
believes it has achieved this leadership position based on its 10 years of
industry experience and its relationships with many of the pharmaceutical
industry's largest companies. Since inception, the Company has designed
customized product detailing programs for approximately 25 clients, including
Pfizer Inc., Astra Merck Inc., Glaxo Wellcome Inc. and Johnson & Johnson. Such
programs have been designed to promote more than 70 different products,
including such leading prescription medications as Prilosec(Registered),
Wellbutrin(Registered) and Cardura(Registered), as well as a number of
well-known OTC products such as Bayer(Registered) Aspirin, Pepcid AC(Registered)
and Monistat 5(Registered), to hospitals, pharmacies and physicians in
approximately 20 different specialties. The Company's primary objective is to
enhance its leadership position in the growing CSO industry and to become the
premier supplier of comprehensive sales solutions to the pharmaceutical industry
and other segments of the healthcare market.
The Company has demonstrated strong internal growth generated by securing
new business from leading pharmaceutical companies and by renewing and expanding
programs with existing clients. The Company believes that it is one of the
largest CSOs operating in the United States measured both by revenue and number
of sales representatives used in programs. Revenue increased from $8.3 million
in 1994 to $54.5 million in 1997, a compounded annual growth rate of
approximately 87.7%. Gross profit increased from $2.9 million in 1994 to $11.5
million in 1997, a compounded annual growth rate of 58.0%. In addition, the
number of sales representatives (part-time and full-time) employed by the
Company has increased from 130 as of December 31, 1993 to 930 as of December 31,
1997. Over that same period, the Company's mix between part-time and full-time
representatives shifted from 100% part-time to 43% part-time.
Historically, the Company has derived a significant portion of program
revenue from a limited number of major clients. In 1995, the Company's four
largest clients accounted for approximately 42%, 17%, 15% and 10%, respectively,
or a total 84%, of its revenue. In 1996, the Company's four largest clients
accounted for approximately 30%, 21%, 17% and 16%, respectively, or a total 84%,
of its revenue. In 1997, the Company's four largest clients accounted for
approximately 25%, 22%, 19% and 10%, respectively, or a total 76%, of its
revenue. Concentrations of business in the CSO industry are not uncommon and the
Company believes that pharmaceutical companies will continue to outsource larger
projects as the CSO industry grows and continues to demonstrate an ability to
successfully implement large programs. Accordingly, the Company is likely to
continue to experience significant client concentration in future periods.
The Company is engaged by its clients to design and implement product
detailing programs for both prescription and OTC pharmaceutical products. Given
the customized nature of its business, the Company utilizes a variety of
contract structures with its clients. Generally, contracts provide for a fee to
be paid based on the Company delivering a specified package of services.
Contracts typically include performance benchmarks, such as a minimum number of
sales representatives or a minimum number of calls. Under certain contracts, the
Company may be entitled to additional compensation based upon the success of the
program and/or subject to penalties for failing to meet stated performance
benchmarks. The Company typically receives a portion of its fee upon
commencement of a program to reflect the costs of implementing such program. In
addition, contracts typically provide that the Company is entitled to a fee for
each sales representative hired by the client during or at the conclusion of a
program.
The Company's contracts generally are for terms of six months to one year
and are subject to renewal upon expiration. In addition, a single contract may
account for a significant portion of the Company's total revenue. The Company's
contracts may be terminated by the client at any time for any reason. Also
contracts typically contain significant penalties if the Company fails to meet
stated performance benchmarks. While the cancellation of certain of the
Company's contracts by a client without cause may result in the imposition of
penalties on such
18
<PAGE>
client, such penalties may not act as an adequate deterrent to the termination
of any such contracts. In addition, there can be no assurance that such
penalties will offset the lost revenue or the costs incurred by the Company as a
result of any such termination. The loss or termination of one or more contracts
could have a material adverse effect on the Company's business and results of
operations. To date, no programs have been terminated for cause.
Generally, the Company recognizes revenue under the percentage of
completion method pursuant to which revenue is recorded as costs are incurred.
Revenue includes estimated earned fees or profits and is calculated based on the
relationship between direct program costs actually incurred, other than initial
direct program costs (as described below), and the estimated total of such
costs. Program costs consist of costs associated with the execution of a
detailing program. There are two significant categories of program costs:
personnel costs and initial direct program costs. Personnel costs, which
consititute the largest portion of program expenses, include all labor related
costs, such as salaries, bonuses, fringe benefits and payroll taxes for the
sales representatives and managers who are directly responsible for the
rendering of services in connection with a particular program. Initial direct
program costs are those costs associated with the recruitment and training of
the sales representatives in connection with a particular program, and are
deferred and recognized over the life of such program.
Estimated revenue and program costs are reviewed and revised periodically
throughout the life of each program. Any adjustment to a program's revenue
resulting from such revisions is recorded on a cumulative basis in the period in
which the revisions are made. In the period in which it is determined that a
loss will result from the performance of a program, or that the Company will
incur a penalty in connection with such program, the entire amount of the
estimated ultimate loss or penalty is charged against such program's revenue.
The Company manages program expenses by carefully establishing and monitoring
program budgets and timetables and by closely tracking staffing requirements for
programs in progress and anticipated programs. The status of each program in
progress is reviewed regularly by program managers and senior management to
ensure client satisfaction and to monitor performance relative to internal
financial and operating expectations. The number of sales representatives
assigned to a program varies according to the size, complexity, duration and
demands of the program.
General, selling and administrative expense include compensation expense,
bonus to majority shareholder, stock grant expense and other general, selling
and administrative expenses. Compensation expense consists primarily of salaries
and related fringe benefits for senior management and other administrative,
marketing, finance, information technology and human resources personnel who are
not directly involved with the execution of a particular program. Bonus to
majority shareholder reflects the cash bonus paid to the Company's majority
shareholder and Chairman of the Board, John P. Dugan. With the exception of the
final distribution declared immediately prior to the Offering, it is not
expected that the Company will pay bonuses to Mr. Dugan in any future periods.
See 'Dividend Policy.' Stock grant expense reflects the non-cash, non-recurring
charges related to the grant of 1,119,684 shares of Common Stock to the
Company's President and Chief Executive Officer, Charles T. Saldarini. As a
result, prior to the Offering, Mr. Saldarini owns 15.0% of the issued and
outstanding Common Stock of the Company. Finally, other general, selling and
administrative expenses include corporate overhead such as facilities costs,
depreciation and amortization expenses and professional services fees. The
Company plans to relocate to a new leased facility by the end of the second
quarter of 1998 to accommodate its growth. The Company anticipates increased
rent and certain one-time costs associated with such relocation. General,
selling and administrative expenses (excluding bonus to majority shareholder and
stock grant expense) as a percentage of revenue have generally declined as the
Company has spread its overhead expenses across its expanding revenue base. The
Company anticipates that general, selling and administrative expenses will
continue to decline as a percentage of revenue as its business grows, although
such expenses are expected to increase on an absolute basis.
Prior to 1995, no single program implemented by the Company required more
than 60 sales representatives. At the end of 1994, the Company entered into an
agreement for a program that required in excess of 150 sales representatives.
The Company believes that this represented the beginning of a trend in the
industry towards larger programs. In order to meet the demands of this program
and future programs, both in terms of increased number of sales representatives
and the additional administrative requirements attendant thereto, the Company
made a significant investment in hiring additional administrative and management
personnel for recruiting, hiring and improving its management information
systems. As a result of these additional expenditures, the Company recorded an
operating loss in 1995. The additional investment in infrastructure and
information technology, however, has enabled the Company to continue to pursue
larger contracts, which has accounted for a substantial
19
<PAGE>
portion of the Company's growth beginning in 1995. The Company will continue to
make such investments in future years to maintain its high standards of quality
and operating efficiency.
The Company has been treated as an S Corporation for Federal income tax
purposes since January 1, 1991 and for New Jersey state income tax purposes
since January 1, 1994. Accordingly, the Company's income has been taxed directly
at the shareholder level rather than at the corporate level. Concurrent with the
completion of this Offering, the Company's S Corporation election will terminate
and the Company will be subject to corporate income taxation as a C Corporation.
For each of the periods in which the Company was an S Corporation, the statement
of income data in the 'Selected Financial Data' table reflects a provision for
income taxes on a pro forma basis as if the Company had been taxed as a C
Corporation during such periods.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain statement
of operations data as a percentage of revenue. The trends illustrated in this
table may not be indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue............................................................... 100.0% 100.0% 100.0% 100.0%
Program expenses...................................................... 64.7 83.9 81.4 78.9
----- ----- ----- -----
Gross profit.......................................................... 35.3 16.1 18.6 21.1
Compensation expense.................................................. 20.3 11.5 9.7 9.4
Bonus to majority shareholder......................................... 2.4 2.3 4.5 4.1
Stock grant expense................................................... 0.0 0.0 0.0 8.2
Other general, selling and administrative expenses.................... 10.0 6.3 5.0 5.0
----- ----- ----- -----
Total general, selling and administrative expenses.................... 32.7 20.1 19.2 26.7
----- ----- ----- -----
Operating income (loss)............................................... 2.6 (4.0) (0.6) (5.6)
Other income, net..................................................... 0.2 0.4 0.3 0.3
----- ----- ----- -----
Income (loss) before provision for taxes.............................. 2.8 (3.6) (0.3) (5.3)
Pro forma provision for (benefit from) income taxes................... 1.1 (0.6) 0.0 0.0
----- ----- ----- -----
Pro forma net income (loss)........................................... 1.7% (3.0)% (0.3)% (5.3)%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenue. Revenue for 1997 was $54.5 million, an increase of 65.2% over
1996 revenue of $33.0 million. Revenue in 1997 was generated from 15 programs
for 12 clients while 1996 revenue was generated from 13 programs for eight
clients. Average program size increased to $3.6 in 1997 from $2.5 in 1996.
Approximately $46.9 million, or 86.0%, of 1997 revenue, was derived from seven
clients; those seven clients generated $31.0 million, or approximately 93.8%, of
1996 revenue.
Program expenses. Program expenses for 1997 were $43.1 million, an
increase of 60.1% over program expenses of $26.9 million for 1996. As a
percentage of revenue, program expenses decreased to 78.9% for 1997 from 81.4%
for 1996. This decrease was primarily attributable to the Company continuing to
realize efficiencies as a result of the investments in infrastructure and
process improvements which were implemented in 1995 and 1996.
Compensation expense. Compensation expense for 1997 was $5.1 million
compared to $3.2 million for 1996. This increase was due to an increase in the
number of management and administrative personnel in 1997 over the 1996 number
necessitated by the expansion of the Company's business. As a percentage of
revenue, compensation expense was 9.4% for 1997 compared to 9.7% for 1996.
Bonus to majority shareholder. Bonus to majority shareholder for 1997 was
$2.2 million compared to $1.5 million for 1996.
Stock grant expense. In the first quarter of 1997, the Company incurred
non-recurring, non-cash charges of $4.5 million related to stock issued to
Charles T. Saldarini, the Company's President and Chief Executive Officer.
Other general, selling and administrative expenses. Other general, selling
and administrative expenses were $2.8 million for 1997, an increase of 66.9%
over other general, selling and administrative expenses of
20
<PAGE>
$1.7 million for 1996. As a percentage of revenue, other general, selling and
administrative expenses were 5.0% for 1997 and 1996.
Operating loss. Loss from operations for 1997 was $3.1 million compared to
$212,000 for 1996. Before bonus to majority shareholder and stock grant expense,
operating income for 1997 was $3.6 million or 6.6% of revenue, compared to $1.3
million, or 3.9% of revenue, for 1996.
Other income, net. Other income, primarily net interest income, for 1997
was $155,000, an increase of 58.1% over other income of $98,000 for 1996, due to
the greater availability of funds for investment.
Pro forma net loss. Pro forma net loss for 1997 was $2.9 million compared
to a pro forma net loss of $114,000 for 1996. Pro forma net loss for both
periods assumes the Company was taxed for Federal and state income tax purposes
as a C Corporation, with no tax benefits assumed for the net operating losses in
1997 and 1996.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Revenue for 1996 was $33.0 million, an increase of 79.4% over
1995 revenue of $18.4 million. Revenue in 1996 was generated from 13 programs
for eight clients while 1995 revenue was generated from 10 programs for seven
clients. Average program size increased to $2.5 million in 1996 from $1.8
million in 1995. Substantially all of 1996 revenue, or 99.3%, was derived from
clients that accounted for $17.8 million, or 97.0%, of 1995 revenue.
Program expenses. Program expenses for 1996 were $26.9 million, an
increase of 74.3% over program expenses of $15.4 million for 1995. As a
percentage of revenue, however, program expenses decreased to 81.4% in 1996 from
83.9% in 1995. This decrease was primarily attributable to the Company beginning
to realize operating efficiencies as a result of the investments in
infrastructure and process improvement begun in 1995.
Compensation expense. Compensation expense in 1996 was $3.2 million
compared to $2.1 million in 1995. This increase was attributable to an increase
in the number of management and administrative personnel employed by the Company
in 1996 as compared to 1995 necessitated by the expansion of the Company's
business. As a percentage of revenue, compensation expense was 9.7% for 1996
compared to 11.5% for 1995.
Bonus to majority shareholder. Bonus to majority shareholder for 1996 was
$1.5 million compared to $425,000 for 1995.
Stock grant expense. There were no compensatory stock grants in 1996 or
1995.
Other general, selling and administrative expenses. Other general, selling
and administrative expenses were $1.7 million in 1996 compared to $1.2 million
in 1995, an increase of 42.4%. As a percentage of revenue, other general,
selling and administrative expenses were 5.0% in 1996 compared to 6.3% in 1995.
This percentage decline reflects the spreading of other selling, general and
administrative expenses across a larger revenue base.
Operating loss. Operating loss decreased to $212,000 in 1996 from $737,000
in 1995. Before bonus to majority shareholder, operating income in 1996 was $1.3
million compared to an operating loss of $312,000 in 1995.
Other income, net. Other income, primarily net interest income, was
$98,000 in 1996, an increase of 40.1% over other income of $70,000 in 1995, due
to the greater availability of funds for investment.
Pro forma net loss. Pro forma net loss for the year ended December 31,
1996 was $114,000 compared to $546,000 for the prior year. Pro forma net loss
for both periods assumes the Company was taxed for Federal and state income tax
purposes as a C Corporation, with no tax benefits assumed for the net operating
loss in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of funds has been cash flow from operations.
Contracts generally provide for advance payments which typically fund the
initial costs of a program. To date, the Company's cash flow has been sufficient
to provide funds for working capital and capital expenditures.
The Company has a $500,000 line of credit (the 'Credit Line') from a
commercial bank under which interest only is payable monthly on the outstanding
balance at a floating rate equal to 1% above the prime rate of interest as
published from time to time by The Wall Street Journal. In addition, the Company
has a $1 million line of credit, the proceeds of which are to be used
exclusively for capital expenditures (the 'CAPEX Line'). The CAPEX Line expires
October 30, 1998 and bears interest payable monthly at a floating rate equal to
0.75% above the prime rate of interest. Upon expiration, any outstanding balance
is payable in 60 equal monthly installments of principal and interest computed
at the rate of 0.75% above the prime rate on the date of
21
<PAGE>
conversion. The Credit Line and the CAPEX Line will be secured by a lien on all
of the assets of the Company and will be personally guaranteed by John P. Dugan,
the Company's majority shareholder and Chairman of the Board. The notes
evidencing the Credit Line and the CAPEX Line and the related security
agreements will contain covenants, representations and other provisions
customarily found in commercial loan documentation.
As of December 31, 1997, the Company had cash and cash equivalents of $5.8
million and working capital of $128,000. In addition, the Company paid a cash
bonus aggregating $2.2 million to its majority shareholder John P. Dugan in
1997. Immediately prior to this Offering, the Company anticipates that it will
distribute approximately $3.2 million to its existing shareholders. See
'Dividend Policy.'
For the year ended December 31, 1997, the Company generated $3.4 million of
net cash from operating activities as compared to $2.8 million of net cash
generated during the prior year. The increase in cash flow occurred despite the
loss generated from operations due to the positive effect of non-cash expenses
for depreciation and the stock grant to Charles T. Saldarini. In January 1997,
the Company issued shares of its Common Stock to its President and Chief
Executive Officer, Charles T. Saldarini. As a result, prior to the Offering, Mr.
Saldarini owns 15% of the outstanding shares of Common Stock. Such issuance
resulted in non-recurring, non-cash charges for the first quarter of 1997 in the
amount of $4.5 million.
For the years ended December 31, 1997 and 1996, net cash used in investing
activities was $94,000 and $641,000, respectively. The primary use of cash in
both years was for investment in computer equipment in connection with the
expansion of the Company's business and in connection with advances to Boomer &
Son, Inc., a corporation that prior to 1998 was wholly-owned by John P. Dugan,
the Company's Chairman of the Board. See 'Certain Transactions.'
Net cash provided by financing activities was $79,000 in 1997 as a result
of a $100,000 equipment loan provided by a commercial financial institution, net
of repayments. The Company expects to repay the balance of this loan in 1998.
There were no financing activities in 1996 or 1995.
The Company has budgeted approximately $1.2 million for capital
expenditures in 1998, to be funded through cash generated from operations and
the CAPEX Line. During 1997, the Company's capital expenditures were $290,000.
Where the Company bills clients for services before they have been
completed, billed amounts are recorded as billings in excess of costs, or
deferred revenue, and are recorded as income when earned. When services are
performed in advance of billing, the value of such services is recorded as
unbilled costs and accrued profits. As of December 31, 1997 and 1996, the
Company had $6.1 million and $3.9 million, respectively, of deferred revenue and
$5.0 million and $2.4 million, respectively, of unbilled costs and accrued
profits. Substantially all deferred and unbilled costs and accrued profits are
earned or billed, as the case may be, within 12 months of the end of the
respective period.
The Company has entered into a new lease and plans to relocate its
headquarters by the end of the second quarter of 1998. Total base rent payable
over the 66 month term of this new lease is approximately $3.1 million, which is
a substantial increase over the rent the Company has historically paid under its
existing lease.
The Company believes that the net proceeds from the sale of the Common
Stock offered hereby, together with cash flows from operations and existing cash
balances will be sufficient to meet its working capital and capital expenditure
requirements for the foreseeable future.
QUARTERLY RESULTS
The Company's results of operations have been and are expected to be
subject to quarterly revenue fluctuations. Such fluctuations result from a
number of factors including, among other things, the timing of commencement,
completion or cancellation of major programs. In the future, revenue may
fluctuate as a result of such factors and a number of additional factors,
including delays or costs associated with acquisitions, government regulatory
initiatives and conditions in the healthcare industry generally. The Company
believes that because of such fluctuations, quarterly comparisons of its
financial results cannot be relied upon as an indication of future performance.
The following table sets forth unaudited quarterly operating results for
the eight quarters ended December 31, 1997. The Company believes that this
unaudited information has been prepared on the same basis as the annual
Financial Statements and includes all adjustments consisting only of normal,
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the Company's Financial
Statements and notes thereto included elsewhere in this Prospectus.
22
<PAGE>
QUARTERLY STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ $ 5,370 $7,289 $ 9,351 $ 11,005 $10,775 $ 12,501 $14,703
Program expenses............... 4,316 5,963 7,539 9,068 8,612 10,053 11,651
--------- -------- ------ ------------ --------- -------- -------------
Gross profit................... 1,054 1,326 1,812 1,937 2,163 2,448 3,052
Compensation expense........... 700 762 872 857 1,303 1,218 1,261
Bonus to majority
shareholder(1)............... 375 375 375 375 561 561 561
Stock grant expense(2)......... -- -- -- -- 4,470 -- --
Other general, selling and
administrative expenses...... 328 317 365 640 681 638 743
--------- -------- ------ ------------ --------- -------- -------------
Total general, selling and
administrative expenses...... 1,403 1,454 1,612 1,872 7,015 2,417 2,565
--------- -------- ------ ------------ --------- -------- -------------
Operating income (loss)........ (349) (128) 200 65 (4,852) 31 487
Other income................... -- 9 16 73 11 38 61
--------- -------- ------ ------------ --------- -------- -------------
Net income (loss).............. $ (349) $ (119) $ 216 $ 138 $(4,841) $ 69 $ 548
--------- -------- ------ ------------ --------- -------- -------------
--------- -------- ------ ------------ --------- -------- -------------
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Revenue........................ $ 16,563
Program expenses............... 12,741
------------
Gross profit................... 3,822
Compensation expense........... 1,339
Bonus to majority
shareholder(1)............... 560
Stock grant expense(2)......... --
Other general, selling and
administrative expenses...... 693
------------
Total general, selling and
administrative expenses...... 2,592
------------
Operating income (loss)........ 1,230
Other income................... 45
------------
Net income (loss).............. $ 1,275
------------
------------
</TABLE>
- ------------------
(1) Historically, as an S Corporation, the Company has made annual bonus
payments to its majority shareholder based on its estimated profitability
and working capital requirements. With the exception of the distribution to
be declared immediately prior to the Offering, the Company does not expect
to pay such bonuses in future periods. See 'Dividend Policy.'
(2) On January 1, 1997, the Company issued shares of its Common Stock to Charles
T. Saldarini, its current President and Chief Executive Officer. As a
result, prior to the Offering, Mr. Saldarini owns 15.0% of the Common Stock
outstanding. For financial accounting purposes, a non-recurring, non-cash
compensation expense was charged in the first quarter of 1997. See
'Principal Shareholders,' 'Management,' 'Certain Transactions' and note 12
to the Company's Financial Statements.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board ('FASB')
which were not required to be adopted at December 31, 1997, include the
following Statements of Financial Accounting Standards ('SFAS'):
SFAS No. 130, Reporting Comprehensive Income, was issued in June 1997 and
is effective for fiscal years beginning after December 15, 1997. This
pronouncement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The Company will adopt this pronouncement in 1998 and does not expect its
implementation will have a material effect on the Company's Financial Statements
as currently presented.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, was also issued in June 1997 and is effective for fiscal periods
beginning after December 15, 1997. This pronouncement establishes the way in
which publicly held business enterprises report information about operating
segments in annual financial statements and interim reports to shareholders. As
the Company operates in a single business segment the implementation of this
standard is not expected to significantly impact the Company's Financial
Statements as currently presented.
YEAR 2000 ISSUE
The Company is reviewing its computer programs and systems to ensure that
the programs and systems will function properly and be Year 2000 compliant. The
Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems. The estimated cost of
these efforts are not expected to be material to the Company's financial
position or any year's results of operations, although there can be no assurance
to this effect. In addition, the Year 2000 problem may impact other entities
with which the Company transacts business, and the Company cannot predict the
effect of the Year 2000 problem on such entities.
23
<PAGE>
BUSINESS
INTRODUCTION
The Company is a leading provider of comprehensive customized sales
solutions on an outsourced basis to the United States pharmaceutical industry.
The Company believes it has achieved this leadership position based on its 10
years of industry experience and its relationships with many of the
pharmaceutical industry's largest companies. Since inception, the Company has
designed customized product detailing programs for approximately 25 clients,
including Pfizer Inc., Astra Merck Inc., Glaxo Wellcome Inc. and Johnson &
Johnson. These programs have been designed to promote more than 70 different
products, including such leading prescription medications as
Prilosec(Registered), Wellbutrin(Registered) and Cardura(Registered), as well as
a number of OTC products such as Bayer(Registered) Aspirin, Pepcid
AC(Registered) and Monistat 5(Registered), to hospitals, pharmacies and
physicians in approximately 20 different specialties. The Company's primary
objective is to enhance its leadership position in the growing CSO industry and
to become the premier supplier of comprehensive sales solutions to the
pharmaceutical industry and other segments of the healthcare market.
The Company is engaged by its clients on a contractual basis to design and
implement product detailing programs for both prescription and OTC
pharmaceutical products. Such programs typically include three phases: design,
execution and assessment. In the program design phase, the Company works with
the client to understand needs, define objectives, select targets and determine
appropriate staffing. Program execution involves recruiting, hiring, training
and managing a sales force, which performs detail calls promoting the particular
client's pharmaceutical products. Assessment, the last phase of the program,
involves measurement of sales force performance and program success relative to
the goals and objectives outlined in the program design phase.
The Company has demonstrated strong internal growth generated by securing
new business from leading pharmaceutical companies and renewing and expanding
programs with existing clients. The Company believes that it is one of the
largest CSOs operating in the United States measured both by revenue and total
number of sales representatives used in programs. Revenue and gross profit grew
at compound annual rates of 87.7% and 58.0% respectively, between 1994 and 1997.
The number of sales representatives (both full-time and part-time) employed by
the Company has increased from 130 as of December 31, 1993 to 930 as of December
31, 1997. Over that same period, the Company's mix between part-time and
full-time representatives shifted from 100% part-time to 43% part-time. The
Company has also experienced a consistently high renewal rate among its clients.
For example, for 1997, approximately 86% of the Company's revenue was generated
from clients that had contributed to the Company's 1996 revenue.
The Company believes that because of the benefits of outsourcing,
pharmaceutical companies have made a strategic decision to continue to outsource
a significant portion of their sales and marketing activities. The Company
further believes that the trend toward the increased use of CSOs by
pharmaceutical companies will continue due to the following industry dynamics:
(i) pharmaceutical companies will continue to expand their product portfolios
and as a result will need to add sales force capacity, (ii) pharmaceutical
companies will continue to face margin pressures and will seek to maintain
flexibility by converting fixed costs to variable costs, and (iii) the
availability of qualified CSOs will provide an incentive to pharmaceutical
companies to continue to outsource this function.
The Company believes that it is well positioned to benefit from these
growth opportunities. Through its 10 years of providing service to the United
States pharmaceutical industry, the Company has demonstrated that it is a
high-quality, results-oriented provider of detailing services. In addition, the
Company maintains a highly qualified sales force as a result of a rigorous
recruiting process and training programs that are comparable to those of the
pharmaceutical companies. The Company also believes that one of its biggest
competitive advantages is its ability to provide customized solutions to its
clients. Finally, as one of the largest CSOs, the Company has achieved the size
and demonstrated the ability to perform large detailing programs and execute
several programs simultaneously.
In order to leverage its competitive advantages, PDI's growth strategy
emphasizes: (i) enhancing its leadership position in the growing CSO market by
maintaining its historic focus on high-quality contract sales services and by
continuing to build and invest in the Company's core competencies and
operations; (ii) expanding both its relationship with existing clients and its
selling efforts to capture new clients; (iii) offering
24
<PAGE>
additional promotional, marketing and educational services and further
developing its existing detailing services; (iv) entering new geographic
markets; and (v) investigating and pursuing appropriate acquisitions of
detailing or detailing-related companies.
PRODUCT DETAILING
Pharmaceutical companies incur substantial expenses in connection with
their sales and marketing activities. The Company estimates, based on industry
data, that in 1997 pharmaceutical companies in the United States expended
approximately $7.7 billion on promotional activities, including product
detailing, event spending, journal advertising, and, more recently,
direct-to-consumer advertising. The primary targets of this promotional activity
are persons making product selection decisions, including physicians and others
legally authorized to prescribe or dispense drug therapies. The Company
estimates that, on average, product detailing represents approximately 60% of a
pharmaceutical company's total promotional spending. According to Scott-Levin,
pharmaceutical companies in the United States spent approximately $5.0 billion
on product detailing in 1997.
The Company believes that product detailing is a highly effective means of
influencing the prescribing patterns of the targeted prescribers and, therefore,
it is the most commonly employed strategy to promote pharmaceutical products.
Product detailing involves face-to-face meetings between a sales representative
and a targeted prescriber. The target of a product detail is usually a physician
identified because of his or her specialty or prescribing patterns. However,
other legally authorized prescribers -- such as nurse practitioners, physician
assistants or pharmacists -- may also be targets for detailing. Detailing
generally occurs in physician offices and hospitals, although conventions and
trade association meetings may also provide an appropriate forum. The sales
representative is required to possess a high level of product knowledge, as well
as other technical and therapeutic expertise. The interaction itself involves a
technical review of the product's legally authorized indications and usage, role
in disease treatment, mechanism of action, side effects, dosing, drug
interactions, cost and availability (i.e., the 'details'). The sales
representative and the targeted prescriber will also typically discuss the types
of patients best suited for the particular product and how and when such
patients will best benefit from the product's use. Competitive products and
their relative strengths and weaknesses in contrast to the product being
detailed may also be discussed.
Product detailing takes place in the context of a personal sales call
during which a sales representative typically will detail one to three products.
The amount of time devoted to each product detailed during a call depends upon
that product's detail position ('slot') within the call. A call may last as long
as eight to ten minutes or may be as short as one to two minutes, depending upon
a number of factors, principally the target prescriber's availability. Product
detailing typically takes place in selling cycles of four to eight weeks, during
which period the sales representative will attempt to call each targeted
prescriber in his or her geographic territory at least once. A single program
may have three to 12 cycles. The repeat interactions between the sales
representative and the targeted prescriber are intended to establish trust
between the sales representative and the targeted prescriber, influence the
prescribing pattern of the physician, obtain market share for new products,
maintain market share for existing products and build barriers to entry against
competing products.
THE CSO INDUSTRY
OVERVIEW
The CSO industry provides outsourced physician detailing programs to
pharmaceutical, medical device and diagnostic companies. CSOs have evolved from
providing detailing support for OTC products into a full-service industry
handling some of the leading ethical pharmaceutical compounds. Since the early
1990's, the pharmaceutical industry in the United States has increasingly used
CSOs to provide the detailing service required to introduce new products,
reintroduce older products, supplement existing sales efforts, raise promotional
barriers to entry for competitors and demonstrate the incremental sales impact
of detailing a particular product. While there is little available data
regarding the CSO industry, the Company believes that there are approximately
eight CSOs currently operating in the United States. The Company also believes
that only 17 of the 50 largest pharmaceutical companies in the United States,
measured by healthcare revenue, currently use CSOs. Finally, the Company
estimates that contract revenues for the CSO industry in the United States
increased from approximately $80 million in 1995 to $185 million in 1996 and
$325 million in 1997.
25
<PAGE>
The CSO industry emerged in the 1980's in the United Kingdom, where
regulatory and cost containment pressure, the Company believes, led
pharmaceutical companies to search for a more efficient method of promoting new
and existing products. Pharmaceutical companies discovered that CSOs were an
effective tool for shifting high fixed costs to variable costs by enabling them
to outsource their sales and marketing activities as a supplement to their own
internal sales efforts. The Company believes that similar regulatory and cost
containment dynamics have, and will continue, to shape the demand for contract
sales services in the United States. In response to cost and margin pressures
brought on by managed care in the early 1990's, the pharmaceutical companies in
the United States reduced the size of their internal sales forces. According to
Med Ad News, a leading medical advertising and communications trade publication,
since 1994 pharmaceutical companies have expanded their internal sales forces.
The Company estimates that at the end of 1997, the largest 50 pharmaceutical
companies in the United States employed approximately 50,000 full-time sales
representatives, a 19% increase since 1994. During this period the number of
sales representatives utilized by CSOs in the United States has also increased
from approximately 1,100 as of December 31, 1994 to approximately 6,300 at the
end of 1997. At the end of 1994, 1995, 1996 and 1997 the Company estimates that
the number of sales representatives utilized by the CSO industry in the United
States represented approximately 2.6%, 4.3%, 7.6% and 11.2%, respectively, of
the combined number of CSO and in-house pharmaceutical sales representatives
utilized by such pharmaceutical companies in those years. In addition, during
this period, the Company believes that the portion of full-time sales
representatives employed or used by the CSO industry has increased.
TRENDS AFFECTING GROWTH
The Company believes that because of the benefits of outsourcing,
pharmaceutical companies have made a strategic decision to continue to outsource
a significant portion of their sales and marketing activities. The Company
believes that the trend toward the increased use of CSOs by pharmaceutical
companies will continue because of the following industry dynamics:
Expanding product portfolios. The Company believes that the ability of
pharmaceutical companies to remain competitive and profitable depends upon their
ability to introduce new drugs. According to Pharmaceutical Research and
Manufacturers of America, an industry trade group ('PhRMA'), the United States
pharmaceutical industry spent $18.9 billion on research and development in 1997,
an increase of 11.8% over 1996 research and development expenditure of $16.9
billion. In addition, in 1996, the United States Food and Drug Administration
(the 'FDA') approved for sale 131 new drugs and drug indications. In 1994, 1995,
1996 and 1997, the FDA approved 22, 28, 53 and 39 new molecular entities,
respectively, as a result of its expedited review and approval procedures. As a
result, the pharmaceutical industry will require additional sales force capacity
that, the Company believes, will increase the demand for CSO services.
Margin pressures. The potential for implementation of national healthcare
reform in the early 1990s and the growing influence of managed care and
healthcare cost containment initiatives throughout the 1990s has created
pressure to reduce the rate of price increases for pharmaceutical products.
According to IMS America, a healthcare marketing information company ('IMS'),
prices for prescription products rose, on average, only 2.5% in 1997, 1.6% in
1996, and 1.9% in 1995. These pressures have forced the pharmaceutical industry
to focus on increasing unit growth while reducing fixed operating costs. CSOs
provide the support necessary to increase unit growth while converting high
fixed costs to variable costs.
Increased use of drug therapies. The amount spent on prescription drugs
and the number of prescriptions filled has been steadily increasing. According
to IMS, in 1997 approximately $94.0 billion was spent on prescription drugs
compared to approximately $85.3 billion in 1996 and $77.4 billion in 1995. In
addition, according to IMS, approximately 2.5 billion prescriptions were filled
in 1997 compared to 2.4 billion in 1996 and 2.3 billion in 1995. The Company
believes that this trend toward increased use of drug therapies will continue as
it is attributable to a number of factors that are not expected to change over
the near term, including the expedited FDA review process, an aging population,
an expanded portfolio of pharmaceutical products, the efficacy of drug therapy
and the lower cost of drug therapy relative to hospitalization and medical
procedures. As managed care programs have proliferated, an increasing number of
consumers benefit from low co-pay arrangements with respect to prescription
drugs. As a result, consumers consider prescription medication a less expensive,
relatively
26
<PAGE>
non-invasive alternative for treating illness and are increasingly likely to
comply with their drug therapies. As the use of drug therapies increases, so
does the importance of product detailing.
Importance of flexibility. Pharmaceutical companies are outsourcing a
variety of their activities in order to maximize flexibility and reduce fixed
costs. The desire to maximize flexibility and reduce fixed costs is a major
factor in the increasing utilization of CSOs. Flexibility and adaptability in
sales and marketing are crucial for balancing cost containment pressures against
pricing pressure and expanded research and development expenditures. CSOs
enhance flexibility by maximizing the ability of pharmaceutical companies to
deploy their human resources more efficiently. Similarly, by using CSOs, it is
possible to convert the high fixed cost of building, training, deploying and
maintaining a sales force (i.e., salaries and other employee-related costs) into
a variable cost.
Availability of qualified CSOs; ability to demonstrate success. The
Company believes that the pharmaceutical industry will continue to utilize CSOs
as the CSO industry further demonstrates its ability to quickly mobilize trained
professional sales forces capable of supplementing the work and replicating the
results of the internal sales forces of the pharmaceutical companies. In
addition, the recent development of sophisticated prescription tracking systems
and advances in information technology have enabled pharmaceutical companies to
measure the impact of product detailing on sales and to assess the efficacy of
both internal and third party sales forces in ways that were not possible a few
years ago. Consequently, the Company believes that CSOs are becoming an
increasingly important resource advantage in the overall marketing and sales
efforts of pharmaceutical companies.
Need to maximize return on investment. The pharmaceutical industry is
characterized by intense competition, due, in part, to an increasing number of
products. In addition, as a result of managed care, government initiatives to
reduce healthcare costs and market forces, the pharmaceutical industry is
experiencing lower margins and increased pressure to contain price increases. To
maximize and deliver acceptable returns on investment (mostly in the form of
research and development expenditures), pharmaceutical companies must ensure
that their products are fully supported by sales and marketing efforts during
their entire life cycles. As the effective lives of drugs are threatened by
patent expirations and competition from new compounds, pharmaceutical companies
employ various strategies, including outsourcing sales efforts, to enable
products to achieve their maximum sales potential.
In addition, the Company believes that other sectors of the healthcare
industry will contribute to the growth of CSOs. For example, the United States
biotechnology industry has grown rapidly in the last decade and is developing
significant numbers of new therapies that are now entering clinical trials.
Generally, these companies do not have the internal resources to market and sell
their products. Accordingly, the Company believes that, as biotechnology
products receive the necessary regulatory approvals, this industry will be
looking to outsource various functions, particularly sales and marketing.
COMPANY'S COMPETITIVE ADVANTAGES
The Company believes that a significant market opportunity exists for CSOs
that can provide high-quality sales solutions across a variety of sales,
marketing and therapeutic applications and that have demonstrated a willingness
and ability to respond to the particular needs of clients.
Reputation for quality. Virtually every program designed by the Company
has met or exceeded the goals established at the beginning of the program. The
Company believes that these results have earned it a reputation in the industry
as a high-quality, results-oriented provider of detailing services. The
Company's success is illustrated by its long-standing relationship with such
'blue chip' clients as Pfizer, Astra Merck, Glaxo Wellcome and Johnson &
Johnson.
High-quality sales force. The Company's overall commitment to quality is
evidenced by its recruiting, hiring and training processes. The Company believes
that its recruiting and hiring process is one of the most comprehensive,
challenging, rigorous, selective and professional processes in the industry and
that its training programs are comparable to those designed by pharmaceutical
companies to train their internal sales forces. The Company offers its sales
representatives a compensation package that it believes is competitive with
compensation packages that the major pharmaceutical companies offer to their own
sales forces. Many of the Company's competitors use independent contractors as
sales representatives who are compensated based on the
27
<PAGE>
number of calls or on an hourly basis. All of the Company's personnel, including
sales representatives, managers and recruiting coordinators, are employees
rather than independent contractors. The Company believes that its treatment of
its sales representatives as employees and its compensation system are important
factors in its ability to attract and retain talented sales personnel. The
Company has found that a base salary and incentive bonus compensation package is
best suited for a results-oriented program and for achieving program objectives,
while a per call or hourly compensation structure emphasizes the number of
details rather than the quality of the detailing effort.
Ability to design customized solutions. The Company believes that its
ability to innovate and to provide a dedicated, vertically integrated sales
force custom-designed to meet the specific needs of a client is a principal
competitive advantage. Such customization includes the size, profile (i.e.,
part-time versus full-time), experience, training, geographic deployment and
allocation of the sales force against the targeted prescribers and the number of
calls for each targeted prescriber, the particular compensation package for the
sales force and field and database management support, such as in-house
territory mapping, physician satisfaction surveys, call reporting services and
regulatory compliance services. In particular, the Company believes that its
ability to provide full-time, part-time or a combination of full-time and
part-time sales representatives, constitutes a competitive advantage. Finally,
the Company's management and data information systems enable it to provide its
clients with information and services most of its competitors cannot, and thus
reduces the time and expense its clients would otherwise have to devote to a
product detailing program.
Size and infrastructure. The Company believes that its size,
organizational structure and overall resources enable it to implement multiple
programs simultaneously and to implement large programs that smaller CSOs may be
precluded from executing. The Company has made substantial investments in all of
its personnel and management information systems in order to be able to
successfully implement a variety of large and small programs simultaneously.
GROWTH STRATEGY
The Company's objective is to enhance its leadership position in the
growing CSO industry and to become the premier supplier of comprehensive
customized sales solutions to the pharmaceutical industry and other segments of
the healthcare market. The following are the principal elements of the Company's
growth strategy:
Enhance leadership position in growing CSO industry. The Company believes
that its leadership position in the growing CSO industry is a result of its
competitive advantages. The Company is committed to maintaining its position as
a leader and innovator in the growing CSO industry by further developing its
core competencies -- recruiting, hiring and training, sales management,
information and data management, human resources and financial management. As
the CSO market expands, the Company is well positioned to sustain its growth.
Strengthen relationships with existing clients. Leveraging the past
success of its programs, the Company will actively seek to expand and renew
existing programs with existing clients and seek to capture new programs from
its existing clients by identifying new opportunities with such clients.
Expand client base. The Company believes that a significant opportunity
exists among pharmaceutical companies that do not currently utilize CSOs. The
Company has provided services to 11 of the 50 largest pharmaceutical companies
in the United States, measured by healthcare revenues. The Company believes that
33 of such companies do not currently use any CSOs. The Company will seek to
expand its client base by targeting pharmaceutical companies that are not
currently clients and which have attractive product portfolios. In addition,
future initiatives may focus on other sectors of the healthcare market that
could benefit from the Company's services, such as biotechnology companies and
medical device manufacturers.
Provide additional services. As a leading provider of physician detailing
programs, the Company believes that it has an established platform from which to
offer complementary promotional and marketing services to its clients. The
Company will leverage its core competencies to further develop its specialized
sales forces to meet the needs of its clients.
28
<PAGE>
Enter new geographic markets. The Company will look for opportunities to
provide promotional services in markets outside the United States. This
expansion may be in the form of strategic joint ventures or acquisitions or by
building a presence using the Company's own internal resources.
Pursue strategic acquisitions. The Company intends to explore strategic
acquisitions in complementary and existing business areas. The Company believes
that by acquiring other CSOs and/or sales and marketing companies it may be able
to accelerate the development of a broader array of services or expand existing
services more efficiently and rapidly than developing these service capabilities
internally. In addition, the Company may pursue acquisitions in order to enter
new markets, where it currently has no presence.
PROGRAM DESCRIPTION
The Company's customized detailing programs typically contain three basic
elements: design, execution and assessment. In the program design phase, the
Company undertakes to understand the needs and objectives of the client,
identifies, defines and ranks the proposed target audience and determines
appropriate staffing. In the program execution phase, the Company recruits,
hires, trains and manages the sales force. Finally, in the program assessment
phase, the Company measures the performance of the sales force and the success
of the program relative to the goals and objectives of the program. While each
program relies on the same basic core competencies, programs are custom-designed
to provide significant strategic advantages to the client by taking into account
the geographic, marketing and scheduling needs of the client, the product itself
and the profile of the target audience.
PROGRAM DESIGN
Prior to entering into a contract and usually in response to a request for
a proposal, the Company sets forth the details of a program in a comprehensive
proposal. The purpose of the proposal is to create an overall approach to the
program, which helps the Company establish a 'plan of action' for launch and
subsequent implementation. Among other things, the Company will use the proposal
to clarify the goals of the program and to analyze any data supplied by the
client in connection with its request. For example, as part of its pre-program
assessment, the Company will analyze the target physician list provided by the
client, which can include the names of 100,000 or more physicians, for the
purpose of targeting the most productive physicians in the most efficient
manner. The Company ranks the targeted prescribers based on statistical data
such as number of prescriptions written, prior coverage for the product and for
the general pharmaceutical class to which such product belongs, as well as the
product and class history among the proposed audience. The proposal incorporates
the Company's recommendations regarding territory mapping and the allocation of
sales representatives and sales managers within such territories. This results
in more efficient use of sales representatives, better target audience
penetration, reduced sales force turnover and, ultimately, maximum impact on
sales. This process is also instrumental in structuring compensatory
arrangements and payment terms.
Staffing requirements. In the program design phase, the Company identifies
the assets to be committed to the program (i.e., divisional managers, district
managers, field managers and sales representatives), the profile of the sales
representatives (i.e., part-time and full-time), training requirements, the
deployment of the sales force in terms of geography, the number of details per
call and the number of times each target will be called over a defined period of
time ('call-back frequency'). In determining staffing requirements, the Company
takes into account a number of considerations, including the preferences of the
client, the size of the individual territories, the number of targeted
physicians in a given territory, the call-back frequency and the cost
effectiveness of a full-time or part-time representative. The Company believes
that its ability to provide both full-time and part-time sales representatives
is important to providing its clients with a customized sales force able to meet
the goals of the sales program in a cost effective manner.
Deployment strategy. In the program design phase, the Company performs
'territory mapping'-- i.e., a plan to deploy the sales force over the geographic
region in which the targeted prescribers are located. The Company analyzes the
physician target list for the purpose of grouping the targets according to
selected criteria. The Company believes that its mapping and territory
deployment analysis gives it a competitive advantage over other CSOs in pricing
contracts and ensuring the success of the program.
29
<PAGE>
Return on investment models. The goal of any program is to maximize
results from the promotional dollars spent by the client. Accordingly, in
connection with its pre-program assessment and analysis, the Company develops a
Return on Investment ('ROI') model for the program. The model can be used to
establish goals for the program and enables clients to clearly quantify the
value of the services provided by the Company. The ROI model has the ability to
project program effectiveness in incremental net sales, and may ultimately be a
key factor in demonstrating why a program should be renewed or expanded. The ROI
model is based on a confidential set of data and is considered proprietary by
the Company.
PROGRAM EXECUTION
The Company believes that its ability to recruit quickly on a national
basis, the quality of its training programs, the experience of its management
and its data and management information systems provide clients with a highly
effective sales force designed to meet a program's needs.
Recruiting and hiring. Recruiting and hiring the best qualified sales
personnel quickly is vital to ensure positive program results and minimize
turnover. The Company maintains a disciplined and efficient recruiting process
that is managed by a National Manager of Recruiting overseeing a staff of 10,
including five regional Recruiting Managers. This structure facilitates
recruiting on a region by region basis, thus saving time and money.
The Company has developed a multi-step recruiting and hiring process that
it believes is comprehensive, rigorous, selective and professional. The Company
maintains a database of resumes of qualified, potential sales representatives.
The Company has also developed a relationship with a national recruiting firm in
the healthcare field and maintains an extensive referral system. Placing
advertisements in local publications through the services of a single source
provides cost and process control over the Company's recruitment efforts. The
recruiting and hiring process includes preliminary screening procedures,
background checks where required by the client, reference checks, drug testing
and a rigorous interview process during which candidates are required to sit for
multiple interviews with different sales managers. Typically, one to three
percent of the initial applicants screened in connection with a program are
hired. The result is an experienced, highly-qualified and motivated sales force.
All of the Company's field sales personnel, including sales
representatives, managers and recruiting coordinators, are employees rather than
independent contractors. In addition, the Company offers its sales
representatives a compensation package that it believes is competitive with
compensation packages offered by the major pharmaceutical companies. The
compensation package offered by the Company includes a base salary and
performance-based incentives that relate to the specific goals of the program,
as well as fringe benefits, including a car allowance and, for full-time sales
representatives, health insurance coverage. The Company believes that its
treatment of its sales representatives as employees and its compensation system
are important factors in its ability to attract and retain talented sales
personnel. The Company has found that a base salary and incentive bonus
compensation package is best suited for a results-oriented program and for
achieving program objectives, while a per call or hourly compensation structure
emphasizes the number of details rather than the quality of the detailing
effort. In addition, treating its sales representatives as employees enhances
the Company's ability to direct and manage the daily activities of its field
force and integrate with its clients' sales teams. It also allows the Company to
provide career advancement opportunities -- a powerful motivational tool.
Training. The Company's Training and Development Department consists of a
National Training and Development Manager, a Director of Sales, Training and
Development and six dedicated Training Managers. In connection with each
program, the Company undertakes the training of the district managers and the
sales representatives with respect to the products being detailed. The training
programs are designed jointly by the Company and the client and are comparable
to the training programs employed by the client for its own internal sales
force. The client will either participate with the Company in the training, or
train the Company's managers who will then implement the training program. Each
sales representative is required to complete one to two weeks of home study and
attend a three day to three week training seminar. Typically, training involves
written material as well as seminars and other presentations which all sales
representatives are required to attend. All training programs dedicate time to
workshops and interactive role playing. The Company's sales representatives use
the same manuals and materials and must pass the same product knowledge tests as
the client's in-house sales
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representatives. In-field training continues at the local level as determined by
the National Sales Manager of the program.
Sales management. The Company's sales programs are supervised by two Vice
Presidents who report to the Chief Operating Officer. Each Vice President
manages four to six programs and is responsible for the overall execution of
each program, including the performance of the entire sales force
(representatives and managers), monitoring the product sales generated and
client satisfaction. Each program has a dedicated National Sales Manager, field
managers (Division and District Managers) and sales representatives. A National
Sales Manager may also have several Regional Managers reporting to him. Programs
may also have one or more dedicated program trainers. Division Managers
(full-time) and District Managers (part-time) are responsible for the direct
supervision of the field sales representatives. A Division Manager normally
manages ten to twelve representatives, while a District Manager usually manages
six to eight.
PROGRAM ASSESSMENT
Data and information management and reporting. The Company's database
management group and call reporting center monitor each program. The operations
area handles hundreds of thousands of detail call reports per year, producing
all related reports for the sales teams, management and the client. This
comprehensive operations support frees up client and management resources that
would otherwise be burdened. Each sales representative is required to file call
activity reports on a daily basis. The reports reflect the sales
representative's activities since his last report including the number of calls,
the number of details as well as a confirmation signature from the target
prescriber. To date, the Company's call reporting system has been a paper based
system. However, the Company has recently instituted a program whereby certain
sales representatives will be given palm top computers. This program will
facilitate the submission of call activity reports and reduce the time required
to produce management reports.
The Company has developed several management tools to maximize the
effectiveness of its sales forces. These management tools can be used to track
the overall effectiveness of the program as well as the performance of
individual sales representatives. One such tool is the Integrated Sales and
Activity Report ('ISA'), which allows the sales representatives to tailor
strategies and to evaluate the effectiveness of their sales efforts. The ISA is
generally produced bi-monthly and compares the current period to the prior
period. The report can be customized to reflect progress made toward a specific
goal or target for purposes of evaluating a program.
Physician satisfaction surveys. In connection with each program, the
Company develops a program-specific physician satisfaction survey ('PSS'). The
PSS is periodically sent out to selected members of the target audience,
depending on the size of the program. The PSS solicits comments on a variety of
topics relating to the call, including the professionalism of the sales
representative and current prescribing patterns. Finally, the survey asks the
physician to confirm his signature. These surveys are an indispensable tool,
both for determining the effectiveness of the program designed by the Company
and assessing the performance of the Company's sales force.
Product sample tracking. Federal laws and regulations require that
detailed records be kept concerning the distribution of pharmaceutical product
samples. These record keeping requirements are the responsibility of the
manufacturer. The Company has developed a sample tracking system that it
believes complies with such laws and regulations. As part of its services, the
Company performs this function on the client's behalf.
Quantitative analysis. At the conclusion of each program the Company
prepares a case study for the client that documents the results of the program
relative to the goals established at the outset of the program as well as the
ROI.
SPECIALIZED DETAILING FORCES AND SERVICES
In addition to the traditional, custom-designed, client-dedicated,
long-term (one year or longer) detailing sales force program, the Company has
developed specialized detailing forces and services, described below, to address
varying needs of the pharmaceutical industry. While these services do not
currently represent a material portion of the Company's business, they are
considered important to the Company's future growth.
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Strike Force. Strike Force is a sales force designed for fast roll-out and
short time frames (six months or less). Strike Force is generally used in
situations where the client requires short-term detailing support and faster
penetration of the target audience. Examples of applications for Strike Force
include seasonal brands, new product launches, conversion from prescription to
OTC and gaps in product coverage. For example, Strike Force was used by one
client to launch a new formulation of its children's cough and cold product. The
main objective was to increase pediatrician awareness and recommendations during
the cough and cold season.
Share Force. Share Force is a sales force designed to detail up to three
products from the same or different manufacturers to the same target audience.
The Share Force program offers clients flexibility in terms of pricing
(depending on the slotting) and program length, as well as access to
pre-targeted high volume prescribers. The Company assembles a sales team
targeted at a fixed list of physicians within a specialty that it believes to
represent a high volume prescribing audience. These physicians are selected and
profiled through the use of prescription data to ensure that they represent the
most productive physicians (in terms of prescriptions written) within multiple
therapeutic categories. Fees are determined by the detail position, or priority,
given to a particular product (known as 'slotting'). The Company has commenced
marketing Share Force but has not yet deployed any such force.
Staffing Services. The Company acts as a recruiting and placement agency,
using its skills in recruiting and hiring to help a client build its own
internal sales force. The Company performs all screening, checking, testing and
interviewing functions and then refers the most qualified candidates to the
client for final approval. The Company typically receives a fee for each sales
representative hired by the client.
Sales Force Build. Sales Force Build is a variation on Staffing Services.
The Company assembles a customized, client-dedicated sales force, designed at
the outset of a program with the specific intent that the client will hire the
sales representatives either at the conclusion of the program or at a
pre-determined time. In addition to the program fees, the Company receives a
placement fee for those sales representatives hired by the client.
Convention Plus. The Company provides custom-designed teams for trade show
and convention management support. Instead of staffing conventions with its own
sales representatives, which results in lost sales calls, the client engages the
Company to manage every aspect of the convention including registration, set-up,
staffing and reporting. The team can be built exclusively for one client or
shared by several clients.
CLIENTS AND CONTRACTS
CLIENTS
The Company believes that its relationships with its clients, which include
many of the largest pharmaceutical companies in the United States, are among its
most important strategic assets and competitive advantages. The Company has
enjoyed long-standing relationships with many of these clients, and a high
percentage of its clients either renew their programs or enter into new
contracts with the Company for new programs. The Company believes that the
quality and stability of its client base promotes the consistency of its core
business and that the scope and complexity of its clients' marketing needs
present opportunities for expansion into new areas. There can be no assurance,
however, that the Company's clients will continue to renew or expand their
relationship with the Company.
During 1997, the Company executed 15 detailing programs for 12 clients. In
1997, Pfizer, Glaxo Wellcome, Astra Merck and Novartis accounted for 25%, 22%,
19% and 10%, respectively, of the Company's revenue. Collectively, these four
clients accounted for approximately 76% of the Company's revenue. The loss of
any one of the foregoing clients could have a material adverse impact on the
Company's business. In 1996, Pfizer, Astra Merck, Novartis and Johnson & Johnson
each accounted for 10% or more of the Company's revenue. Collectively, these
clients accounted for approximately 84% of the Company's revenue. In 1995, one
program accounted for more than 42% of the Company's revenue and three other
programs each accounted for 10% or more of the Company's revenue. Collectively,
these four programs represented approximately 84% of the Company's revenue. In
1994, two programs each accounted for more than 30% of the Company's revenue and
another program accounted for 10% or more of the Company's revenue. Together,
the three programs represented approximately 83% of the Company's revenue.
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CONTRACTS
Given the customized nature of the Company's business, it utilizes a
variety of contract structures with its clients. Generally, contracts provide
for a fee to be paid based on the Company delivering a specified package of
services. Contracts typically include performance benchmarks, such as a minimum
number of sales representatives or a minimum number of calls. The Company
typically receives a portion of its fee upon commencement of the program to
reflect the costs of implementing such program. In addition, contracts typically
provide that the Company is entitled to a fee for each sales representative
hired by the client during or at the conclusion of a program. In certain
instances, the Company may be entitled to additional compensation based upon the
success of the program and/or subject to penalties for failing to meet stated
performance benchmarks. The Company has failed to meet the contractual
performance benchmarks with respect to only one contract. This failure, which
occurred in 1996, resulted in the payment by the Company of a penalty that
represented less than 4% of the total fees payable to the Company under such
contract. Subsequently, the client renewed this contract for two additional
one-year terms and expanded the program in each term.
The Company's contracts generally are for terms of six months to one year
and are subject to renewal upon expiration. However, the Company's contracts are
terminable by the client for any reason upon 30 to 90 days notice. The Company's
contracts typically provide for termination payments by the client upon a
termination without cause. While the cancellation of certain of the Company's
contracts by a client without cause may result in the imposition of penalties on
such client, such penalties may not act as an adequate deterrent to the
termination of any such contracts. In addition, there can be no assurance that
such penalties will offset the lost revenue or the costs incurred by the Company
as a result of such termination. The loss or termination of a large contract or
the loss of multiple contracts could adversely affect the Company's future
revenue and profitability. Contracts may also be terminated for cause if the
Company fails to meet stated performance benchmarks. To date, no programs have
been terminated for cause. Since January 1, 1993, three programs have been
terminated by clients prematurely without cause. None of these terminations
resulted in a loss with respect to the program and in two of such cases the
Company received a termination payment.
The Company's contracts typically contain cross-indemnification provisions
between the Company and its client. The client will usually indemnify the
Company against product liability and related claims arising from the sale of
the product and the Company indemnifies the clients with respect to the errors
and omissions of the Company's sales representatives in the course of their
detailing activities. To date, the Company has not asserted, nor has there been
asserted against the Company, any claim for indemnification pursuant to a
contract.
MARKETING AND BUSINESS DEVELOPMENT
Most of the Company's revenue is derived from renewals and extensions of
existing programs and new programs with existing clients. The Company derives
new business from responses to 'requests for proposals' from pharmaceutical
companies that the Company believes are the result of its promotional and
advertising efforts. Recently, the Company has increasingly engaged in proactive
efforts to generate more business from new and prospective clients. The Company
has implemented a sales process that is designed to leverage its results-
oriented image through case studies, references, ROI models and comprehensive
proposals. The Company also has implemented an enhanced marketing and new
business development process for the purpose of improving its ability to secure
more contracts both within the pharmaceutical industry and in other healthcare
markets. This new business development process relies on the use of a dedicated
sales and marketing team.
The Company seeks to promote awareness of its capabilities to senior level
executives, product managers and sales managers of both its existing and
potential clients so that when situations arise where additional product
detailing services are needed, those prospects are already aware of the Company
and its image as a high-quality, results-oriented firm. In order to build and
sustain awareness of its services, a combination of trade journal advertising,
mailings, and a public relations campaign are utilized. The Company advertises
in publications such as Pharmaceutical Executive and Med Ad News. The marketing
department maintains a proprietary mailing list of over 3,000 pharmaceutical
industry personnel including CEOs, vice presidents and marketing, sales and
product managers. In addition to its ongoing monthly mailings, the Company also
conducts specialized mailings in response to contacts received from specific
companies or about specific developments within the industry. The
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public relations campaign also involves interviews in trade journals and other
publications and speaking engagements for the Company's executives.
COMPETITION
The primary competitive factor affecting contract sales services is the
ability to quickly hire, train, deploy and manage qualified sales
representatives to implement simultaneously several large product detailing
programs. The Company also competes with other CSOs on the basis of such factors
as its reputation, quality of its services, experience of management,
performance record, customer satisfaction, ability to respond to specific client
needs, integration skills and price. The Company believes it competes favorably
with respect to each of these factors.
The Company primarily competes with in-house sales and marketing
departments of pharmaceutical companies, other CSOs and other third party
providers to the pharmaceutical industry, many of which possess substantially
greater capital, personnel and other resources than the Company. In addition to
the in-house sales forces of pharmaceutical companies, the Company's current
major competitors include CSOs such as Innovex Limited, a subsidiary of
Quintiles Transnational Corp., and the various sales and marketing affiliates of
Snyder Communications, Inc. As a result of competitive pressures, various sales
and marketing organizations providing services to the pharmaceutical industry
are consolidating and are becoming targets of global organizations. This trend
is likely to produce increased competition among CSOs for both clients and
acquisition candidates and increased competitive pressures on smaller providers.
If the trend in the pharmaceutical industry towards consolidation continues,
pharmaceutical companies may have excess in-house sales force capacity and may,
as a result, reduce or eliminate their use of CSOs. There are relatively few
barriers to entry into the CSO industry and there can be no assurance that, as
the CSO industry continues to evolve, additional competitors with greater
resources than the Company will not enter the industry or that the Company's
customers will not choose to conduct more of their sales services internally,
with other CSOs or with organizations that can provide a broader range of sales
and marketing services. Although the Company intends to monitor industry trends
and respond accordingly, there can be no assurance that the Company will be able
to anticipate and successfully respond to such trends. Increased competition may
lead to price and other forms of competition that may have a material adverse
effect on the Company's business and results of operations.
GOVERNMENT AND INDUSTRY REGULATION
The healthcare industry is subject to extensive regulation. Various laws,
regulations and guidelines promulgated by government, industry and professional
bodies affect, among other matters, the provision, licensing, labeling,
marketing, promotion, sale and reimbursement of healthcare services and
products, including pharmaceutical products. It is also possible that additional
or amended laws, regulations or guidelines could be adopted in the future.
The pharmaceutical industry is subject to extensive federal regulation and
oversight by the FDA. For instance, the Federal Food, Drug and Cosmetic Act, as
supplemented by various other statutes, regulates, among other matters, the
approval, labeling, advertising, promotion, sale and distribution of drugs,
including the practice of providing product samples to physicians. Under this
statute, the FDA asserts its authority to regulate all promotional activities
involving prescription drugs. In addition, the sale or distribution of
pharmaceuticals may also be subject to the Federal Trade Commission Act
('FTCA'). Finally, the Prescription Drug Marketing Act ('PDMA') regulates the
ability of pharmaceutical companies to provide physicians with free samples of
their products. Essentially, the PDMA requires extensive record keeping and
labeling of such samples for tracing purposes. Accordingly, the business of the
Company and its clients, to the extent such business involves promotion and
marketing of pharmaceutical products, are subject to the extensive regulation
governing the pharmaceutical industry, and there can be no assurance that the
Company will not be subject to increased regulatory scrutiny in the future.
In addition, some of the services that the Company may provide in the
future are affected by various guidelines promulgated by industry and
professional organizations. For example, certain ethical guidelines promulgated
by the American Medical Association ('AMA') govern, among other matters, the
receipt by physicians of gifts from health-related entities. These guidelines
govern the honoraria, and other items of pecuniary value, which AMA member
physicians may receive, directly or indirectly, from pharmaceutical
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<PAGE>
companies. Similar guidelines and policies have been adopted by other
professional and industry organizations, such as PhRMA.
The healthcare industry is subject to federal and state laws pertaining to
healthcare fraud and abuse. In particular, certain federal and state laws
prohibit manufacturers, suppliers and providers from offering or giving or
receiving kickbacks or other remuneration in connection with ordering or
recommending purchase or rental of healthcare items and services. The federal
anti-kickback statute provides both civil and criminal penalties for, among
other things, offering or paying any remuneration to induce someone to refer
patients to, or to purchase, lease, or order (or arrange for or recommend the
purchase, lease, or order of), any item or service for which payment may be made
by Medicare or certain federally-funded state healthcare programs (e.g.,
Medicaid). This statute also prohibits soliciting or receiving any remuneration
in exchange for engaging in any of these activities. The prohibition applies
whether the remuneration is provided directly or indirectly, overtly or
covertly, in cash or in kind. Violations of the law can result in numerous
sanctions, including criminal fines, imprisonment, and exclusion from
participation in the Medicare and Medicaid programs.
Several states also have referral, fee splitting and other similar laws
that may restrict the payment or receipt of remuneration in connection with the
purchase or rental of medical equipment and supplies. State laws vary in scope
and have been infrequently interpreted by courts and regulatory agencies, but
may apply to all healthcare items or services, regardless of whether Medicare or
Medicaid funds are involved.
In addition, the Company is subject to the rules and regulations
promulgated by the Equal Employment Opportunity Commission and similar state
entities which govern its recruiting and hiring practices and its relationship
with its employees.
The failure of the Company or its clients to comply with, or any change in,
the applicable regulatory requirements or professional organization or industry
guidelines could, among other things, limit or prohibit the Company or its
clients from conducting certain business activities, subject the Company or its
clients to adverse publicity, increase the costs of regulatory compliance or
subject the Company or its clients to monetary fines or other penalties. Any
such actions could have a material adverse affect on the Company.
LIABILITY AND INSURANCE
Liability Insurance. Participants in the healthcare industry are subject
to lawsuits alleging malpractice, product liability and other legal theories,
many of which can involve large claims and significant legal costs. As a
provider of product detailing services to the pharmaceutical industry, the
Company is subject to the risk of being named as a party in such lawsuits. As a
result of its contract sales services, the Company believes that it may become
involved in litigation regarding the products distributed by its personnel, with
the attendant risks of significant legal costs, substantial damage awards and
adverse publicity. Even if such claims ultimately prove to be without merit,
defending against them can result in adverse publicity, diversion of
management's time and attention and substantial expenses, which could have a
material adverse effect on the Company.
The Company maintains general liability insurance, which it believes to be
adequate in amount and coverage for the current size and scope of its operations
although there can be no assurance of that fact. However, the policies
maintained by the Company do not insure it against the errors and omissions of
its employees. The Company may seek increased insurance coverage as well as
insurance for the errors and omissions of its employees in connection with
expanding its service offerings, although the Company has not experienced
difficulty in obtaining insurance coverage in the past, there can be no
assurance that the Company will obtain increased or additional insurance
coverage on acceptable terms or at all. In addition, although the Company's
clients may indemnify the Company for the client's negligent conduct, such
indemnification may not be adequate in light of all of the potential litigation
risks facing the Company. In addition, the Company is often required to
indemnify its clients in the event of the Company's negligence. The Company,
therefore, could be held responsible for losses incurred in connection with the
performance of its services or otherwise and could incur substantial costs in
connection with legal proceedings associated with the performance of its
services or the pharmaceutical products with respect to which it provides
services.
Employment Practice Liability Insurance. The success of the Company's
business is dependent on its ability to field a high-quality sales force
relatively quickly. As part of its recruiting and hiring process, the
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Company conducts a thorough screening process, drug testing and rigorous
interviews. In addition, the Company must continually evaluate its personnel
and, when necessary, terminate some of its employees with or without cause.
Accordingly, the Company is subject to lawsuits relating to wrongful
termination, discrimination and harassment. The Company has obtained employment
practice liability insurance, which insures the Company against claims made by
employees or former employees relating to their employment, i.e., wrongful
termination, sexual harassment, etc. To date, the Company has not made any
claims under this policy. There can be no assurance, however, that the coverage
maintained by the Company will be sufficient to cover all future claims or will
continue to be available in adequate amounts or at a reasonable cost. The
Company could be materially and adversely affected if it were required to pay
damages or incur defense costs in connection with a claim by an employee that is
outside the scope of coverage of such policy.
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation incidental to its
business. The Company is not currently a party to any pending litigation which,
if decided adversely to the Company, would have a material adverse effect on the
business, financial condition or results of operations of the Company and the
Company is not aware of any material threatened litigation.
FACILITIES AND EMPLOYEES
The Company's corporate headquarters are currently located in Mahwah, New
Jersey, in approximately 11,000 square feet of space occupied under a lease
which expires on April 29, 1998. The Company has entered into a new lease for
approximately 27,000 square feet in Upper Saddle River, New Jersey. The new
lease is to take effect on May 1, 1998 and is for a term of 66 months with an
option to extend for an additional five years. In addition, the Company has a
right of first offer with respect to additional space as it becomes available.
Total base rent payable during the term of the new lease is approximately $3.1
million. Additional rent is payable with respect to increases in certain
operating costs over base year amounts.
As of December 31, 1997, the Company had approximately 1,100 employees. The
Company has approximately 70 people working at its headquarters in Mahwah, New
Jersey, 930 sales representatives, and 100 field sales managers. The Company is
not party to a collective bargaining agreement with a labor union and considers
its relations with its employees to be good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and principal position, of
the Directors, Director Nominees, executive officers and key employees of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
John P. Dugan(1)(2)................. 62 Chairman of the Board of Directors and Director of Strategic Planning
Charles T. Saldarini................ 34 President, Chief Executive Officer and Director
Bernard C. Boyle.................... 53 Chief Financial Officer, Executive Vice President, Secretary and
Treasurer
Steven K. Budd...................... 41 Chief Operating Officer and Executive Vice President
Robert Wynne........................ 47 Vice President -- Account Sales
Cherie Aldana....................... 50 Vice President -- Human Resources
John M. Pietruski(2)................ 64 Director Nominee
Jan Martens Vecsi(2)................ 53 Director Nominee
Gerald J. Mossinghoff(1)............ 62 Director Nominee
</TABLE>
- ------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John P. Dugan is the founder and Chairman of the Board of Directors of the
Company and Director of Strategic Planning. He served as its President from
inception until January 1995 and as its Chief Executive Officer from inception
until November 1997. In 1972, Mr. Dugan founded Dugan Communications, a medical
advertising agency that later became known as Dugan Farley Communications
Associates Inc. ('DFC') and served as its President until 1990. In 1990 Mr.
Dugan acquired sole control of the Company, which was then a wholly-owned
subsidiary of DFC. Mr. Dugan was a founder and served as the President of the
Medical Advertising Agency Association from 1983 to 1984. Mr. Dugan also served
on the Board of Directors of the Pharmaceutical Advertising Council (now known
as the Healthcare Marketing Communications Council, Inc.) and was its President
from 1985 to 1986. Mr. Dugan received an M.B.A. from Boston University in 1964.
Charles T. Saldarini is the President and Chief Executive Officer of the
Company and a Director. Mr. Saldarini became President in January 1995 and Chief
Executive Officer in November 1997. Prior to January 1995 Mr. Saldarini was
Chief Operating Officer of the Company. Mr. Saldarini joined the Company in 1987
as a sales manager. Mr. Saldarini received an A.B. in political science from
Syracuse University in 1985.
Bernard C. Boyle has served as the Company's Executive Vice President and
Chief Financial Officer since March 1997 when he joined the Company. In 1990,
Mr. Boyle founded BCB Awareness, Inc., a firm that provided management advisory
services to the Company, among others, and served as its President until March
1997. During that period he was also a partner in Boyle & Palazzolo, Partners,
an accounting firm that also provided services to the Company. From 1982 through
1990 he served as Controller and then Chief Financial Officer and Treasurer of
William Douglas McAdams, Inc., an advertising agency. From 1966 through 1971,
Mr. Boyle was employed by the national accounting firm of Coopers & Lybrand
L.L.P. as supervisor/senior audit staff. Mr. Boyle received a B.B.A. in
Accounting from Manhattan College in 1965 and an M.B.A. in Corporate Finance
from New York University in 1972.
Steven K. Budd served the Company as a consultant from December 1995 to
April 1996 when he joined as Vice President -- Account Group Sales. He became
Executive Vice-President in July 1997 and Chief Operating Officer in January
1998. Prior to joining the Company, from April through December 1995, Mr. Budd
was an independent consultant. From January 1994 through April 1995, Mr. Budd
was employed by Innovex, Inc., a competing CSO, as a Director of New Business
Development. From 1989 through December 1993, Mr. Budd was employed by
Professional Detailing Network ('PDN'), a competing CSO, as a Vice President
with responsibility for building sales teams and developing marketing
strategies. Mr. Budd received a B.A. in History and Education from Susquehanna
University in 1978.
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Robert Wynne joined the Company in August 1990 as a Regional Sales Manager
based in Chicago, Illinois. He currently serves as Vice President -- Account
Sales, a position he has held since December 1994. From 1984 through 1990, Mr.
Wynne was employed by Carnation Nutritional Products Co. and the McNeil Consumer
Products Company, Professional Division, an affiliate of Johnson & Johnson, as a
sales representative and trainer. Mr. Wynne received a B.S. in Secondary
Education from the University of Minnesota in 1972 and an M.S. in Management of
Human Resources from National College of Education in 1985.
Cherie Aldana joined the Company in 1988. Initially, she was employed as
Accounting Manager responsible for financial, payroll, benefits and personnel.
In 1990 she was promoted to Director of Human Resources and in January 1996 to
Vice President -- Human Resources. Ms. Aldana received a B.S. in Accounting from
York College in 1972 and has received certification as a Professional of Human
Resources from the Human Resources Certification Institute, a division of the
Society of Human Resource Management.
Gerald J. Mossinghoff has been nominated to become a director of the
Company immediately upon consummation of this Offering. Mr. Mossinghoff is a
former Assistant Secretary of Commerce and Commissioner of Patents and
Trademarks of the Department of Commerce (1981 to 1985) and served as President
of Pharmaceutical Research and Manufacturers of America from 1985 to 1996. Since
1997 he has been Senior Counsel to the law firm of Oblon, Spivak, McClelland,
Maier and Newstadt of Arlington, Virginia. Mr. Mossinghoff has been a visiting
professor of Intellectual Property Law at the George Washington University Law
School since 1997 and Adjunct Professor of Law at George Mason University School
of Law since 1997. Mr. Mossinghoff served as United States Ambassador to the
Diplomatic Conference on the Revision of the Paris Convention from 1982 to 1985
and as Chairman of the General Assembly of the United Nations World Intellectual
Property Organization from 1983 to 1985. He is also a former Deputy General
Counsel of the National Aeronautics and Space Administration (1976 to 1981). Mr.
Mossinghoff received an Electrical Engineering degree from St. Louis University
in 1957 and a Juris Doctor degree with Honors from the George Washington
University Law School in 1961. He is a member of the Order of the Coif and is a
Fellow in the National Academy of Public Administration. He is the recipient of
many honors, including NASA's Distinguished Service Medal and the Secretary of
Commerce Award for Distinguished Public Service.
John M. Pietruski has been nominated to become a director of the Company
immediately upon consummation of this Offering. Since 1990 Mr. Pietruski has
been the Chairman of the Board of Texas Biotechnology Corp., a pharmaceutical
research and development company. He is a retired Chairman of the Board and
Chief Executive Officer of Sterling Drug Inc. With Sterling Drug Inc. from 1977
to his retirement in 1988, he also held the positions of Executive Vice
President, President and Chief Operating Officer. Mr. Pietruski is a member of
the Boards of Directors of Hershey Foods Corporation, GPU, Inc., Lincoln
National Corporation and McKesson Corporation. Mr. Pietruski graduated Phi Beta
Kappa with a B.S. in Business Administration with honors from Rutgers University
in 1954 and currently serves as a regent of Concordia College.
Jan Martens Vecsi has been nominated to become a director of the Company
immediately upon consummation of this Offering. Ms. Vecsi is the sister-in-law
of John P. Dugan, the Chairman of the Board of the Company. Ms. Vecsi was
employed by Citibank, N.A. from 1967 through 1996 when she retired. Starting in
1986 she served as the Senior Human Resources Officer and Vice President of the
Citibank Private Bank. Ms. Vecsi received a B.A. in Psychology and Elementary
Education from Immaculata College in 1965.
The Board of Directors of the Company is divided into three classes as
nearly equal in number as possible. Each year the shareholders will elect the
members of one of the three classes to a three-year term of office. Ms. Vecsi
serves in the class whose term expires in 1999; Messrs. Saldarini and Pietruski
serve in the class whose term expires in 2000; and Messrs. Dugan and Mossinghoff
serve in the class whose term expires in 2001.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee reviews the scope and results of the audit and other
services provided by the Company's independent accountants and internal controls
of the Company. The Compensation Committee is responsible for the approval of
compensation arrangements for officers of the Company and the review of the
Company's compensation plans and policies.
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EXECUTIVE COMPENSATION
Summary Compensation. The following table presents certain information
concerning compensation paid or accrued for services rendered to the Company in
all capacities during the year ended December 31, 1997, for the Chief Executive
Officer and the other four executive officers of the Company whose aggregate
annual base salary and bonus for 1997 exceeded $100,000 (collectively, the
'Named Executive Officers').
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES OF
------------------------------------ COMMON
OTHER STOCK
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ---------------------------------------------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
John P. Dugan
Chairman of the Board and Former Chief
Executive Officer(1)........................ $125,000 -- $ 26,441 -- $2,243,000(1)
Charles T. Saldarini
President and Chief Executive Officer....... $120,000 $237,000(2) $ 9,724 -- $4,050,000(3)
Steven K. Budd
Chief Operating Officer and
Executive Vice President.................... $112,613 $ 48,000 $ 8,396 39,189 --
Bernard C. Boyle
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer..................... $105,000(4) $ 18,000 $ 1,155 27,992 --
Robert Wynne
Vice President--Account Sales............... $111,000 $ 55,000 $ 11,729 -- --
</TABLE>
- ------------------
(1) Mr. Dugan was the Chief Executive Officer of the Company until November
1997. All other compensation represents the bonus payment to Mr. Dugan as
the majority shareholder of the Company. Such compensation was based on the
Company's estimated profitability and working capital requirements. As the
Company will no longer qualify as an S Corporation after the Offering, it is
not expected that Mr. Dugan will receive bonus payments in future periods
after the Offering.
(2) Reflects a bonus paid to Mr. Saldarini, President and Chief Executive
Officer and a minority shareholder of the Company. In addition to his share
of the final distribution in connection with the termination of the
Company's S Corporation status, in the future Mr. Saldarini, as President
and Chief Executive Officer, may receive cash bonuses as determined by the
Compensation Committee.
(3) Represents the value of Common Stock issued to Mr. Saldarini in January 1997
as reported by the Company for financial accounting purposes.
(4) Mr. Boyle joined the Company in March 1997. $15,000 of his salary represents
amounts paid to Mr. Boyle's consulting company prior to the commencement of
his employment.
Option Grants. The following table sets forth certain information regarding
options granted by the Company to the Named Executive Officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SHARES GRANTED TO PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------------
NAME GRANTED (#)(1) YEAR ($/SHARE) DATE 0% 5% ($) 10% ($)
---- -------------- ---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Dugan............. -- -- -- -- -- -- --
Charles T. Saldarini...... -- -- -- -- -- -- --
Steven K. Budd............ 39,189 58.3% $ 1.61 12/31/05 $ 78,770 $156,984 $271,414
Bernard C. Boyle.......... 27,992 41.7% $ 1.61 12/31/05 $ 56,264 $110,857 $190,101
Robert Wynne.............. -- -- -- -- -- -- --
</TABLE>
(footnotes on next page)
39
<PAGE>
- ------------------
(1) The options vest with respect to one-third of the shares of Common Stock
covered by the options on the earlier of June 30, 1998 or the date on which
this Offering is completed (the 'Initial Vesting Date') and one-third will
vest on each of the first and second anniversary of the Initial Vesting
Date.
(2) Potential realizable values are net of exercise price but before taxes, and
are based on the assumption that the Common Stock of the Company appreciates
at the annual rate shown (compounded annually) from the date of grant until
the expiration date of the respective options. These numbers are calculated
based on Securities and Exchange Commission requirements and do not
reflect the Company's projection or estimate of future stock price growth.
Actual gains, if any, on stock option exercises are dependent on the
future financial performance of the Company, overall market conditions and
the option holder's continued employment through the vesting period. This
table does not take into account any appreciation in the price of the
Common Stock from the date of grant to the date of this Prospectus.
Option Exercises and Year-End Option Values. The following table provides
information with respect to options exercised by the Named Executive Officers
during 1997 and the number and value of unexercised options held by the Named
Executive Officers as of December 31, 1997.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
YEAR-END (#) YEAR-END ($)(1)
SHARES ACQUIRED VALUE REALIZED --------------------------------- ----------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- --------------- --------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Dugan............. -- -- -- -- -- --
Charles T. Saldarini...... -- -- -- -- -- --
Steven K. Budd............ -- -- -- 39,189 -- $ 446,363
Bernard C. Boyle.......... -- -- -- 27,992 -- $ 318,829
Robert Wynne.............. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) For the purposes of this calculation, value is based upon the difference
between the exercise price of the options, $1.61 per share, and an assumed
initial public offering price $13.00 per share.
EMPLOYMENT CONTRACTS
In January 1998, the Company entered into an agreement with John P. Dugan
providing for his appointment as Chairman of the Board and Director of Strategic
Planning. The Agreement provides for an annual salary of $125,000 and no cash
bonuses and for participation in all executive benefit plans.
As of April 1, 1998, the Company will enter into an employment agreement
with Charles T. Saldarini providing for his employment, as President and Chief
Executive Officer for a term expiring on February 28, 2003 subject to automatic
one-year renewals unless either party gives written notice 180 days prior to the
end of the then current term of the agreement. The agreement will provide for an
annual base salary of $275,000 and for participation in all executive benefit
plans. The agreement will also provide that Mr. Saldarini will be entitled to
bonus and incentive compensation awards as determined by the Company. Further,
the agreement will provide, among other things, that, if his employment is
terminated without cause (as defined) or if Mr. Saldarini terminates his
employment for good reason (as defined), the Company will pay him an amount
equal to the salary which would have been payable to him over the unexpired
current term of his employment agreement.
As of March 1, 1998, the Company has also entered into employment
agreements with each of Messrs. Boyle and Budd, providing for their respective
employment, as Chief Financial Officer and Chief Operating Officer, Mr. Boyle's
agreement terminates on December 31, 2000 and Mr. Budd's agreement terminates on
March 31, 2001. Each agreement is subject to automatic one-year renewals unless
either party gives written notice 180 days prior to the end of the then current
term of the agreement. The agreements provide for an annual base salary of
$165,000 for Mr. Boyle and $178,605 for Mr. Budd and for their participation in
all executive benefit plans. The agreement also provides that Messrs. Boyle and
Budd are entitled to bonusand incentive compensation awards as determined by the
Company. Each agreement also provides, among other things, that, if employment
is terminated by the Company without cause (as defined) or by the executive for
good reason (as defined), the Company will pay the employee an amount equal to
the salary which would have been payable over the current unexpired term of the
employment agreement.
40
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to this Offering, the Company has had no separate Compensation
Committee or other committee performing equivalent functions. As a result,
compensation matters were performed by the Board of Directors or senior
management. None of the Directors expected to serve on the Compensation
Committee is an employee of the Company, and neither the Chief Executive Officer
nor any other executive officer will serve on the Compensation Committee. No
Director or executive officer of the company is a Director or executive officer
of any other corporation that has a director or executive officer who is also a
Director of the Company.
1998 STOCK OPTION PLAN
In order to attract and retain persons necessary for the success of the
Company, the Company will adopt its 1998 Stock Option Plan (the 'Plan')
reserving for issuance up to 750,000 shares of its Common Stock, pursuant to
which officers, directors and key employees of the Company and consultants to
the Company are eligible to receive incentive and/or non-qualified stock
options. The Plan, which has a term of ten years from the date of its adoption,
will be administered by the Board of Directors or a committee designated by the
Board of Directors. The selection of participants, allotment of shares,
determination of price and other conditions relating to the purchase of options
will be determined by the Board of Directors, or a committee thereof, in its
sole discretion. Incentive stock options granted under the Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the Plan
to a shareholder owning more than 10% of the outstanding Common Stock may not
exceed five years and its exercise price may not be less than 110% of the fair
market value of the Common Stock on the date of the grant. Upon completion of
the Offering, options for an aggregate of 67,181 shares, exercisable at a price
of $1.61 per share during a nine-year period, granted to Bernard C. Boyle and
Steven K. Budd, will be outstanding under the Plan. These options are
exercisable for one-third of the shares covered thereby as of the earlier of
June 30, 1998 or the completion of this Offering and for an additional one-third
of the shares covered thereby in each of the next two years. No other options
have been granted or exercised under the Plan. However, immediately after the
completion of the Offering, the Company intends to grant incentive stock options
to up to 200 employees covering between 250,000 and 300,000 shares of Common
Stock. Such options will, generally, vest over three years and will be
exercisable at the initial public offering price. Options for 7,500 shares will
be granted to each of the Company's three outside directors upon their taking
office immediately following the closing of the Offering.
COMPENSATION OF DIRECTORS
Each non-employee member of the Board of Directors will receive an annual
director's fee of $8,000, payable quarterly in arrears, plus $1,000 for each
meeting attended in person and $150 for each meeting attended telephonically and
reimbursement for travel costs and other out-of-pocket expenses incurred in
attending each Directors' meeting. In addition, committee members will receive
$200 for each committee meeting attended in person and $100 for each committee
meeting attended telephonically. Additionally, pursuant to the Plan, each
non-employeeDirector upon election to the Board will receive options to purchase
7,500 shares of Common Stock exercisable at the fair market value on the date of
grant. These options will vest one-third on the date of grant and one-third at
the end of each subsequent year of service on the Board. In addition, each
outside Director will receive options to purchase an additional 3,750 shares of
Common Stock on the date of the Company's annual stockholders' meeting. Such
options will have an exercise price equal to the fair market value of the Common
Stock on the date of grant and will vest one-third upon grant and one-third on
each of the first and second anniversary of the date of grant. See '-- 1998
Stock Option Plan.'
401(K) PLAN
The Company maintains a retirement plan (the '401(k) Plan') intended to
qualify under Sections 401(a) and 401(k) of the Code. The 401(k) Plan is a
defined contribution plan that covers employees of the Company at least 21 years
of age, who have been employed by the Company for at least one year. Employees
may contribute up to 15% of their annual wages (subject to an annual limit
prescribed by the Code) as pre-tax salary deferral contributions. Effective
January 1, 1997, the Company committed to make mandatory contributions to the
401(k) Plan to match employee contributions up to a maximum of 2% of each
participating employee's annual wages. The Company's contribution to the 401(k)
Plan for 1997 was approximately $172,000.
41
<PAGE>
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their shareholders for monetary
damages for breach of directors' fiduciary duty of care. The Company's
Certificate of Incorporation limits the liability of directors of the Company to
the Company or its shareholders to the fullest extent permitted by Delaware law.
See 'Description of Capital Stock -- Certain Provisions of the Company's
Certificate of Incorporation and Bylaws.'
The Company's Certificate of Incorporation provides mandatory
indemnification rights to any officer or Director of the Company who, by reason
of the fact that he or she is an officer or Director of the Company, is involved
in a legal proceeding of any nature. Such indemnification rights include
reimbursement for expenses incurred by such officer or Director in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of the DGCL. Insofar as indemnification for liabilities under the
Securities Act may be provided to officers and Directors or persons controlling
the Company, the Company has been informed that in the opinion of the Securities
and Exchange Commission (the 'Commission'), such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
There is no pending litigation or proceeding involving a Director, officer,
employee or agent of the Company in which indemnification by the Company will be
required or permitted. The Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
42
<PAGE>
CERTAIN TRANSACTIONS
During 1997, Boomer & Son, Inc. ('B&S'), a corporation which, prior to 1998
waswholly-owned by John P. Dugan, the Company's Chairman of the Board, provided
advertisement production and placement services to the Company. John P. Dugan
is not actively involved in B&S's business; however, John P. Dugan's son,
Thomas Dugan, is active in B&S. The Company purchased advertising in the amount
of $1.6 million through B&S at stated advertising rates set by the periodicals
and publications in which advertisements were placed. B&S received a commission
from the publications for its placement services. In addition, in 1997 B&S
repaid approximately $196,000 of advances made to it by the Company in 1996. At
December 31, 1997 the net amount due from B&S was approximately $27,000. See
note 8 to the Company's Financial Statements. The Company anticipates that this
amount will be repaid prior to the Offering.
At the end of 1997 John P. Dugan transferred his interest in B&S to his
son, Thomas Dugan, and daughter-in-law, Kathleen Dugan. The Company and B&S
propose to enter into an agreement pursuant to which B&S will continue to place
advertising on behalf of the Company with various media. As of February 1, 1998
the total amount of advertising placed by B&S on behalf of the Company in 1998
was approximately $180,000. The Company believes that the amounts paid to B&S
were no less favorable than would be available in an arms-length negotiated
transaction with an unaffiliated entity. See note 8 to the Company's Financial
Statements.
The Company and Charles T. Saldarini, the Company's President and Chief
Executive Officer, entered into an employment agreement as of January 1, 1997,
which provided for, among other things, a grant of shares of Common Stock to Mr.
Saldarini. As a result of such grant, Mr. Saldarini owns 15.0% of the
outstanding shares of Common Stock immediately prior to the Offering. In
connection with such grant, the Company incurred a non-cash, non-recurring
expense of $4.5 million for financial reporting purposes.
Peter Dugan, the son of John P. Dugan, the Company's Chairman of the Board,
is employed by the Company as Director of New Business Development. In 1997
Peter Dugan received $90,160 in compensation from the Company.
The Company has been subject to taxation under Subchapter S of the Code
since January 1, 1991 and under the corresponding provisions of the tax laws of
the State of New Jersey since January 1, 1994. As a result, the net income of
the Company, for Federal and New Jersey state income tax purposes, has been
reported by and taxable directly to the Company's shareholders rather than to
the Company. In 1996, the Company paid approximately $1.5 million to John P.
Dugan, its then Chief Executive Officer and sole shareholder, as bonus
compensation. In 1997, the Company paid an aggregate of approximately $2.5
million of bonus compensation to John P. Dugan and Mr. Saldarini, its Chairman
of the Board and its Chief Executive Officer and President, respectively, and
collectively, owners of all of the Company's Common Stock. The Company's S
Corporation tax status will terminate upon the consummation of this Offering.
Immediately prior to this Offering, the Company will make a final cash
distribution to its existing shareholders reflecting stockholders' equity as
of such date, currently estimated to be $3.2 million. This payment represents
the shareholders' equity in the Company prior to the conversion date. In
connection with this Offering, John P. Dugan and Charles T. Saldarini have
agreed to indemnify and hold harmless the Company with respect to certain taxes
relating to the Company's status as an S Corporation and the termination of such
status.
On March 31, 1998 the Company will loan $1.1 million to its President and
Chief Executive Officer, Charles T. Saldarini. The proceeds of this loan are
intended to be used by Mr. Saldarini to pay income taxes relating to his receipt
of shares of Common Stock. Such loan is for a term of 3 years, bears interest at
a rate equal to 5.29% per annum payable quarterly in arrears and is secured by a
pledge of the shares of Common Stock held by Mr. Saldarini.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of Common Stock as of March 27, 1998 and
as adjusted to reflect the sale of the shares offered hereby, by (i) each person
known to the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock, (ii) each Director and Director Nominee of
the Company, (iii) each Named Executive Officer and (iv) all Directors, Director
Nominees and Named Executive Officers of the Company as a group. Except as
otherwise indicated, the persons or entities listed below have sole voting and
investment power with respect to all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF SHARES ---------------------------------
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) BEFORE OFFERING AFTER OFFERING
- ------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
John P. Dugan............................................... 6,344,878 85.0% 61.8%
Charles T. Saldarini........................................ 1,119,684 15.0% 10.9%
Steven K. Budd.............................................. 13,063(3) * *
Bernard C. Boyle............................................ 9,331(3) * *
John M. Pietruski........................................... 2,500(3) -- *
Jan Martens Vecsi........................................... 2,500(3) -- *
Gerald J. Mossinghoff....................................... 2,500(3) -- *
All Officers, Directors and Director Nominees as a group (9
persons).................................................. 7,494,456(4) 100.0% 72.8%
</TABLE>
- ------------------
* Less than 1%.
(1) The addresses of Messrs. Dugan and Saldarini are c/o the Company, 599
MacArthur Boulevard, Mahwah, New Jersey 07430-2326.
(2) Pursuant to the rules of the Commission, shares of the Company's Common
Stock that a person has the right to acquire within 60 days of the date
hereof pursuant to the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage ownership of such
person but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Represents shares issuable pursuant to options exercisable within 60
days of the date hereof.
(4) Includes 29,894 shares issuable pursuant to options exercisable within
60 days of the date hereof.
All of the shares of Common Stock set forth in the above table are subject
to agreements prohibiting the sale, assignment or transfer for 180 days from the
date of this Prospectus without the prior written consent of Morgan Stanley &
Co. Incorporated. See 'Underwriting.'
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value of $.01 per share ('Common Stock'), and 5,000,000 shares
of Preferred Stock, par value of $.01 per share ('Preferred Stock'). Upon
completion of the Offering, there will be 10,264,562 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding. As of December 31,
1997, there were outstanding 7,464,562 shares of Common Stock held of record by
two stockholders. In addition, upon completion of the Offering, options to
purchase 67,181 shares of Common Stock will be outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the
preferences that may be applicable to any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive dividends as and when declared
by the Board of Directors out of funds legally available for dividends, and, in
the event of liquidation, dissolution or winding up of the Company, to share
ratably in all assets remaining after the payment of liabilities. The Common
Stock has no preemptive, conversion or other subscription rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized to issue the undesignated Preferred
Stock in one or more series, to determine the powers, preferences and rights,
and the qualifications, limitations or restrictions, granted to or imposed upon
any wholly unissued series of undesignated Preferred Stock, and to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by the shareholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect the voting and other
rights of the holders of Common Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation limits the liability of
directors of the Company to the fullest extent permitted under Section 102(b)(7)
of the DGCL. To this end, no director of the Company will be liable to the
Company or to its shareholders for monetary damages for breach of fiduciary duty
as a director, except for liability for (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) any willful or negligent payment of an unlawful dividend, stock purchase,
or redemption or (iv) any transaction from which the director derived an
improper personal benefit.
The Certificate of Incorporation provides that the Board of Directors
consist of three classes of directors serving for staggered three-year terms. As
a result, one-third of the Company's Board of Directors will be elected each
year. In accordance with the DGCL, directors serving on classified boards of
directors may only be removed from office for cause. The Certificate of
Incorporation provides that shareholders may take such action only by the
affirmative vote of at least 66 2/3% of the voting stock outstanding.
The Company's Bylaws provide that only the Board of Directors may call a
special meeting of shareholders and that shareholders must follow an advance
notification procedure for certain shareholder nominations of candidates and for
certain other shareholder business to be conducted at the annual meeting. These
provisions could, under certain circumstances, operate to delay, defer or
prevent a change in control of the Company.
These provisions could delay or frustrate the removal of incumbent
directors or a change in control of the Company. The provisions also could
discourage, impede or prevent a merger, tender offer or proxy contest, even if
such event would be favorable to the interests of shareholders.
SECTION 203 OF THE DGCL
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the DGCL which restricts certain business
combinations between the Company and an 'interested stockholder' (in general, a
shareholder owning 15% or more of the Company's outstanding voting stock) or its
45
<PAGE>
affiliates or associates for a period of three years following the date on which
the shareholder becomes an 'interested stockholder.' The restrictions do not
apply if (i) the corporation has elected in its certificate of incorporation not
to be governed by the Delaware anti-takeover law (the Company has not made such
an election), (ii) prior to a person qualifying as an 'interested stockholder,'
the Board of Directors approves either the business combination or the
transaction which would cause such individual to become an 'interested
stockholder,' (iii) upon consummation of the transaction in which any person
becomes an 'interested stockholder,' such person owns at least 85% of the voting
stock of the Company outstanding at the time the transaction commences
(excluding shares owned by certain employee stock ownership plans and persons
who are both directors and officers of the Company) or (iv) on or subsequent to
the date on which a person becomes an 'interested stockholder,' the business
combination is both approved by the Board of Directors and authorized at an
annual or special meeting of the Company's shareholders, without written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock not owned by the 'interested stockholder.'
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
Common Stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices. See 'Risk Factors -- Shares
Eligible for Future Sale.'
Upon completion of the Offering, the Company will have 10,264,562 shares of
Common Stock outstanding assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the 2,800,000 shares offered hereby (3,220,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradable without
restrictions or further registration under the Securities Act, except for any
shares purchased by 'affiliates' of the Company, as that term is defined in Rule
144 under the Securities Act ('Affiliates'), which will be subject to the resale
limitations imposed by Rule 144, as described below. The remaining 7,464,562
shares of Common Stock held by existing shareholders are 'restricted securities'
within the meaning of Rule 144 and may not be resold in the absence of
registration under the Securities Act or pursuant to exemptions from such
registration including, among others, the exemption provided by Rule 144 under
the Securities Act ('Restricted Shares'). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act, which
rules are summarized below.
All of the Company's executive officers and directors, who beneficially own
7,464,562 shares of Common Stock and options to purchase 67,181 shares of Common
Stock, have agreed that they will not, without the prior written consent of
Morgan Stanley & Co. Incorporated (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend or otherwise transfer
or dispose of, directly or indirectly any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock, or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, for a period of 180 days after the date of this Prospectus.
The restrictions described in the preceding sentence do not apply to
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Offering. As a result of
such contractual restrictions and the provisions of Rule 144 and 701, the
Restricted Shares will be available for sale in the public market as follows:
(i) no such shares will be eligible for immediate sale on the date of this
Prospectus; and (ii) all of such shares will be eligible for sale upon
expiration of the lock-up agreements 180 days after the date of this Prospectus,
subject to the volume limitations and other conditions of Rule 144 described
below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) whose restricted securities have been outstanding for at least
one year, including a person who may be deemed an 'affiliate' of the Company,
may only sell a number of shares within any three-month period which does not
exceed the greater of (i) one percent of the then outstanding shares of the
Company's Common Stock (approximately 102,646 shares after the Offering, 106,846
if the over-allotment option is exercised in full) or (ii) the average weekly
trading volume in the Company's Common Stock in the four calendar weeks
immediately preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. A person who is not an affiliate
of the issuer, has not been an affiliate within three months prior to the sale
and has owned the restricted securities for at least two years is entitled to
sell such shares under Rule 144(k) without regard to any of the limitations
described above.
Beginning 90 days after the date of this Prospectus, certain shares issued
or issuable upon the exercise of options granted by the Company prior to the
date of this Prospectus will also be eligible for sale in the public market
pursuant to Rule 701 under the Act. In general, Rule 701 permits resales of
shares issued pursuant to certain compensatory benefit plans and contracts
commencing 90 days after the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, in reliance
upon Rule 144, but without compliance with certain restrictions of Rule 144,
including the holding period requirements. The Company has granted options
covering 67,181 shares of Common Stock which have not been exercised and
47
<PAGE>
which become exercisable at various times in the future. Any shares of Common
Stock issued upon the exercise of these options will be eligible for sale
pursuant to Rule 701.
The Company intends to file a registration statement under the Securities
Act covering 750,000 shares of Common Stock reserved for issuance under the 1998
Stock Option Plan. Such registration statement is expected to be filed and
become effective as soon as practicable after the effective date of this
Offering. Accordingly, shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to Affiliates, be available
for sale in the open market unless such shares are subject to vesting
restrictions with the Company. As of December 31, 1997, there were outstanding
options for the purchase of 67,181 shares of Common Stock and immediately
following completion of this Offering it is anticipated that the Company will
grant options to purchase an additional 250,000 to 300,000 shares of Common
Stock.
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the 'Underwriting Agreement'), the Underwriters named
below (the 'Underwriters'), for whom Morgan Stanley & Co. Incorporated, William
Blair & Company, L.L.C. and Hambrecht & Quist LLC are serving as Representatives
(the 'Representatives'), have severally agreed to purchase, and the Company has
agreed to sell to the Underwriters, severally, the respective number of shares
of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated......................................................
William Blair & Company, L.L.C.........................................................
Hambrecht & Quist LLC..................................................................
---------
Total.................................................................................. 2,800,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price which represents a concession
not in excess of $ a share under the public offering price. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ a share to
other Underwriters or to certain other dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Underwriters.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of the Prospectus, to purchase up to 420,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the Underwriters hereby.
48
<PAGE>
See 'Shares Eligible for Future Sale' for a description of certain
arrangements by which all of the Company's executive officers and directors, who
beneficially own 7,464,562 shares of Common Stock and options to purchase 67,181
shares of Common Stock, have agreed not to sell or otherwise dispose of Common
Stock or convertible securities of the Company for up to 180 days after the date
of this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. The Company has agreed in the Underwriting Agreement that it will
not, directly or indirectly, without the prior written consent of Morgan Stanley
& Co. Incorporated, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of any shares of Common Stock or
any securities convertible into or exchangeable for Common Stock, for a period
of 180 days after the date of this Prospectus. The preceding sentence does not
apply to the issuance by the Company of shares of Common Stock upon the exercise
of an option or warrant or the conversion of a security outstanding on the date
of the Underwriting Agreement of which the Underwriters have been advised in
writing.
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price up to 140,000 shares offered hereby for
officers, directors, employees and certain other persons associated with the
Company. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the total number of shares
of Common Stock offered hereby to accounts over which they exercise
discretionary authority.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Application has been made to list the Common Stock for quotation on the
Nasdaq National Market under the symbol 'PDII.'
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
cease any of these activities at any time.
PRICE OF THE OFFERING
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general; revenue, earnings and
certain other financial and operating information of the Company in recent
periods; and certain ratios, market prices of securities and certain financial
operating information of companies engaged in activities similar to those of the
Company. The estimated initial public offering price range set forth on the
cover page of this Prospectus is subject to change as a result of market
conditions or other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New
York 10022 and for the Underwriters by Ropes & Gray, One International Place,
Boston, Massachusetts 02110. Certain matters relating to rules and regulations
49
<PAGE>
promulgated by the FDA and other regulatory matters will be passed upon for the
Company by Farkas & Manelli, P.L.L.C., 1233 20th Street, N.W. Suite 700,
Washington, D.C. 20036-2396.
EXPERTS
The balance sheets as of December 31, 1997 and 1996 and the statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 1997 included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 under the Securities Act,
with respect to the Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus, which is part of the
Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the Registration Statement. For further information
pertaining to the Company and the Common Stock, reference is made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents or provisions of any documents
referred to herein are not necessarily complete, and in each instance where a
copy of the document has been filed as an exhibit to the Registration Statement,
reference is made to the exhibit so filed. The Registration Statement may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of the Registration Statement may be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at such address, and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. In addition, registration statements and certain other filings made with
the Commission through its Electronic Data Gathering, Analysis and Retrieval
('EDGAR') system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein under 'Prospectus Summary,' 'Risk
Factors,' 'Summary Financial Data,' 'Selected Financial Data,' 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' including, without limitation, those concerning (i) the Company's
strategy, (ii) the Company's expansion plans and (iii) the Company's capital
expenditures contain forward-looking statements (within the meaning of Section
27A of the Securities Act) concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under 'Risk
Factors.' The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROFESSIONAL DETAILING, INC.:
Report of Independent Accountants..................................................................... F-2
Balance Sheets........................................................................................ F-3
Statements of Operations.............................................................................. F-4
Statements of Cash Flows.............................................................................. F-5
Statements of Shareholders' Equity.................................................................... F-6
Notes to Financial Statements......................................................................... F-7
</TABLE>
F-1
<PAGE>
After the merger discussed in Note 2 to the Financial Statements is effected, we
will be in a position to render the following report.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
February 3, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
------------------------
To the Stockholders and
Board of Directors of Professional Detailing, Inc.:
We have audited the accompanying balance sheets of Professional Detailing,
Inc. as of December 31, 1997 and 1996, and the related statements of operations,
cash flows and shareholders' equity for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the finanicial 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 Professional Detailing, Inc.
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Parsippany, New Jersey
February 3, 1998, except as
to the information presented
in Note 2, for which the date
is .
F-2
<PAGE>
PROFESSIONAL DETAILING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
PRO FORMA
1996 1997 1997
---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents............................................ $2,403,011 $ 5,759,918 $ 5,084,197
Contract Payments Receivable......................................... 3,037,566 2,073,356 2,073,356
Unbilled Costs and Accrued Profits on Contracts in Progress.......... 2,372,518 4,986,454 4,986,454
Receivable from Affiliate, net....................................... 84,327 27,161 27,161
Other Current Assets................................................. 30,000 297,032 297,032
---------- ----------- -----------
Total Current Assets............................................ 7,927,422 13,143,921 12,468,200
Net Property, Plant & Equipment:................................... 395,062 547,377 547,377
---------- ----------- -----------
Total Assets......................................................... $8,322,484 $13,691,298 $13,015,577
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable..................................................... $ 608,895 $ 473,832 $ 473,832
Note Payable......................................................... -- 68,365 68,365
Accrued Incentives................................................... 2,905,506 2,806,839 2,806,839
Accrued Salaries and Wages........................................... 896,202 1,417,789 1,417,789
Unearned Contract Revenue............................................ 3,925,853 6,131,322 6,131,322
Other Accrued Expenses............................................... 463,754 2,117,330 2,117,330
---------- ----------- -----------
Total Current Liabilities....................................... 8,800,210 13,015,477 13,015,477
---------- ----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $.01 par value; 30,000,000 shares authorized; shares
issued and outstanding, 1996 - 7,464,562; 1997 - 7,464,562......... 100 100 100
Additional Paid-In Capital........................................... -- 4,193,852 101,822
Retained Deficit..................................................... (467,486) (3,416,309) --
Deferred Compensation................................................ -- (101,822) (101,822)
Shareholder Loan..................................................... (10,340) -- --
---------- ----------- -----------
Total Shareholders' Equity (Deficit)............................ (477,726) 675,821 100
---------- ----------- -----------
Total Liabilities & Equity........................................... $8,322,484 $13,691,298 $13,015,577
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
PROFESSIONAL DETAILING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue............................................................. $18,398,554 $33,014,960 $54,541,818
Program Expenses, including related party amounts of $0, $671,810
and $1,564,606 for the periods ended December 31, 1995, 1996 and
1997, respectively................................................ 15,427,428 26,886,445 43,057,196
----------- ----------- -----------
Gross Profit........................................................ 2,971,126 6,128,515 11,484,622
Compensation Expense................................................ 2,124,470 3,190,984 5,120,969
Bonus to Majority Shareholder....................................... 425,000 1,500,000 2,243,000
Stock Grant Expense................................................. -- -- 4,470,000
Other General, Selling & Administrative Expenses.................... 1,158,475 1,650,049 2,754,522
----------- ----------- -----------
Total General, Selling & Administrative Expenses.................... 3,707,945 6,341,033 14,588,491
----------- ----------- -----------
Operating Loss...................................................... (736,819) (212,518) (3,103,869)
Other Income, Net................................................... 69,981 98,072 155,046
----------- ----------- -----------
Net Loss............................................................ $ (666,838) $ (114,446) $(2,948,823)
----------- ----------- -----------
----------- ----------- -----------
Pro Forma Data (unaudited) (see note 3)
Net Loss, as reported............................................. (666,838) (114,446) (2,948,823)
Pro Forma Income Tax Benefit........................................ 120,969 -- --
----------- ----------- -----------
Pro Forma Net Loss.................................................. $ (545,869) $ (114,446) $(2,948,823)
----------- ----------- -----------
----------- ----------- -----------
Pro Forma Basic Net Loss Per Share.................................. $ (0.07) $ (0.02) $ (0.40)
----------- ----------- -----------
----------- ----------- -----------
Pro Forma Diluted Net Loss Per Share................................ $ (0.07) $ (0.02) $ (0.40)
----------- ----------- -----------
----------- ----------- -----------
Pro Forma Basic and Diluted Weighted Average Number of Shares
Outstanding....................................................... 7,464,562 7,464,562 7,464,562
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
PROFESSIONAL DETAILING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss From Operations.............................................. $ (666,838) $ (114,446) $(2,948,823)
Adjustments to reconcile net loss to net cash provided by/(used
in) operating activities:
Depreciation................................................... 85,040 104,531 137,852
Non-Cash Compensation Expense -- Stock Grant to Officer........ -- -- 4,050,000
Non-Cash Compensation Expense -- Stock Options................. -- -- 42,030
Other changes in assets and liabilities:
(Increase) decrease in contract payments receivable............ 2,779,325 (188,033) 964,210
(Increase) decrease in unbilled costs.......................... (2,138,421) 138,271 (2,613,936)
(Increase) decrease in other current assets.................... 136,354 22,253 (267,032)
Increase (decrease) in trade accounts payable.................. 538,152 55,743 (135,063)
Increase in accrued liabilities................................ 825,228 2,522,659 422,920
Increase (decrease) in unearned contract revenue............... (1,721,519) (382,536) 2,205,469
Increase (decrease) in payable to affiliate.................... -- 284,877 (138,859)
Increase (decrease) in other current liabilities............... (68,947) 360,107 1,653,576
----------- ---------- -----------
Net Cash Provided By/(Used In) Operating Activities................... (231,626) 2,803,426 3,372,344
----------- ---------- -----------
CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES
Purchase of equipment.......................................... (139,415) (271,503) (290,167)
Advances to affiliate.......................................... -- (369,204) --
Repayments of advances from affiliate.......................... -- -- 196,025
----------- ---------- -----------
Net Cash Provided By/(Used In) Investing Activities................... (139,415) (640,707) (94,142)
----------- ---------- -----------
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Proceeds from issuance of note payable.............................. -- -- 100,000
Payments on note payable............................................ -- -- (31,635)
Repayment of shareholder loan....................................... -- -- 10,340
----------- ---------- -----------
Net Cash Provided By/(Used In) Financing Activities................... -- -- 78,705
----------- ---------- -----------
Net Increase/(Decrease) In Cash And Cash Equivalents.................. (371,041) 2,162,719 3,356,907
Cash And Cash Equivalents -- Beginning 611,333 240,292 2,403,011
----------- ---------- -----------
Cash And Cash Equivalents -- Ending $ 240,292 $2,403,011 $ 5,759,918
----------- ---------- -----------
----------- ---------- -----------
Cash Paid for Interest................................................ -- -- $ 7,179
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
PROFESSIONAL DETAILING, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL
OUTSTANDING DEFERRED SHAREHOLDER PAID IN RETAINED
SHARES AMOUNT COMPENSATION LOAN CAPITAL EARNINGS/(DEFICIT)
----------- ------ ------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1994........ 7,464,562 $100 -- (10,340) -- 313,798
Net loss for the year ended December
31, 1995.......................... -- -- -- -- -- (666,838)
----------- ------ ------------ ----------- ---------- ------------------
Balance -- December 31, 1995........ 7,464,562 $100 $ -- $ (10,340) $ -- $ (353,040)
Net loss for the year ended December
31, 1996.......................... -- -- -- -- -- (114,446)
----------- ------ ------------ ----------- ---------- ------------------
Balance -- December 31, 1996........ 7,464,562 100 -- (10,340) -- (467,486)
Stock Grant......................... -- -- -- -- 4,050,000 --
Deferred Compensation-Stock
Options........................... -- -- (101,822) -- 143,852 --
Repayment of shareholder loan....... -- -- -- 10,340 -- --
Net loss for the year ended December
31, 1997.......................... -- -- -- -- -- (2,948,823)
----------- ------ ------------ ----------- ---------- ------------------
Balance -- December 31, 1997........ 7,464,562 $100 $ (101,822) $ 0 $4,193,852 $ (3,416,309)
----------- ------ ------------ ----------- ---------- ------------------
----------- ------ ------------ ----------- ---------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Professional Detailing, Inc. (the 'Company') is a leading provider of
comprehensive customized sales solutions on an outsourced basis to the United
States pharmaceutical industry.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates. Significant estimates include revenue
and costs associated with the contracts, which are used for purposes of applying
the percentage-of-completion method.
Revenue Recognition
Revenue is earned primarily by performing services under contracts with
clients and is recognized under the percentage of completion method. Revenue
includes estimated fees or profits to be earned pursuant to contracts calculated
on the basis of the relationship between program costs, excluding initial direct
program costs, and total estimated program costs, excluding initial direct
program costs. There are two significant categories of program costs: (i)
initial direct program costs, which are associated with the recruitment and
formal training of the sales representatives and managers so that they are
qualified to properly render the services specified in the contracts and (ii)
personnel costs, which are salaries and related fringe benefits for the
representatives and managers who are responsible for the direct performance of
the activities specified in the contracts. Initial direct costs associated with
the recruitment and training of representatives are deferred and recognized over
the life of the corresponding contracts.
Estimated revenue and costs are reviewed and revised periodically
throughout the lives of the contracts, with adjustment to profits resulting from
such revisions being recorded on a cumulative basis in the period in which the
revisions are made. In the period in which it is determined that a loss results
from the performance of a contract, the entire amount of the estimated ultimate
loss is charged against income.
The Company's contracts generally are for terms of six months to one year
and are subject to renewal upon expiration. In addition, a single contract may
account for a significant portion of the Company's total revenue. The Company's
contracts may be terminated by the client at any time for any reason. Also,
contracts typically contain significant penalties if the Company fails to meet
stated performance benchmarks. While the cancellation of certain of the
Company's contracts by a client without cause may result in the imposition of
penalties on such client, such penalties may not act as an adequate deterrent to
the termination of any such contracts. In addition, there can be no assurance
that such penalties will offset the lost revenue or the costs incurred by the
Company as a result of any such termination. The loss or termination of one or
more contracts could have a material adverse affect on the Company's business
and results of operations. To date, no programs have been terminated for cause.
Fair Value of Financial Instruments
The book values of cash and cash equivalents, contract payments receivable,
accounts payable and other financial instruments approximate their fair values
principally because of the short-term maturities of these instruments. The fair
value of the Company's note payable is estimated based on the current rates
offered to the Company for debt of similar terms and maturities. Under this
method, the fair value of the Company's note payable was not significantly
different than the book value of December 31, 1997.
F-7
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Unbilled Costs and Accrued Profits and Unearned Contract Revenue
In general, contractual provisions including predetermined payment
schedules, the achievement of contract milestones or submission of appropriate
billing detail establish prerequisites for billings. Unbilled costs and accrued
profits arise when services have been rendered but clients have not been billed.
These amounts are classified as a current asset. Normally, the clients agree to
pay the Company a portion of the fee due under a contract in advance of
performance of services because of large recruiting and employee development
costs associated with the beginning of a contract. The excess of amounts billed
over revenue recognized represents unearned contract revenue, which is
classified as a current liability.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash accounts and
Certificates of Deposit with a maturity of three months or less at the date of
purchase.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The estimated useful
lives of asset classifications are seven years for furniture and fixtures and
five years for office equipment and computer equipment. Depreciation is computed
using the straight-line method, and the cost of leasehold improvements is
amortized over the shorter of the estimated service lives or the terms of the
related leases. Repairs and maintenance are charged to expense as incurred. Upon
disposition, the asset and related accumulated depreciation are relieved and any
gains or losses are reflected in operations.
Stock-Based Compensation
Statement of Financial Accounting Standard No. 123, 'Accounting for
Stock-Based Compensation' allows companies a choice of measuring employee
stock-based compensation expense based on the fair value method of accounting or
based upon the intrinsic value approach under APB Opinion No. 25. The Company
has elected to measure compensation expense based upon the intrinsic value
approach under APB Opinion No. 25.
Advertising
The Company recognizes advertising costs as incurred. The total amounts
charged to advertising expense were $242,408, $87,104 and $159,206 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Income Taxes
The Company elected to be taxed under Subchapter S of the Internal Revenue
Code of 1986, as amended effective January 1, 1991 and under the corresponding
provisions of the laws of the State of New Jersey effective January 1, 1994.
Consequently, the Company has not been subject to Federal or New Jersey state
income taxes, other than a New Jersey corporate income tax of approximately 2%.
2. ANTICIPATED MERGER (UNAUDITED)
In connection with a contemplated initial public offering (the 'IPO'), the
Company will reincorporate in Delaware. To effect such reincorporation,
Professional Detailing, Inc., a New Jersey corporation (the 'New Jersey Entity')
will merge with and into Professional Detailing, Inc., a Delaware corporation
(the 'Delaware Entity'). As a result of the merger, the existing shareholders
will own 7,464,562 shares of the Delaware Entity's common stock which shares
will constitute all of the issued and outstanding shares of common stock of the
Delaware Entity prior to the IPO. In addition, outstanding option to purchase
common stock of the New Jersey Entity will be converted into 67,181 options to
purchase shares of common stock of the Delaware Entity at a
F-8
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ANTICIPATED MERGER--(CONTINUED)
$1.61 per share. The conversion of shares and options related to the anticipated
merger has been retroactively reflected in the Company's financial statements.
3. PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE (UNAUDITED)
Pro forma basic and diluted net loss per share was calculated based on the
requirements of Statement of Financial Accounting Standards ('SFAS') No. 128,
'Earnings Per Share.'
At December 31, 1997, outstanding options to purchase 67,181 shares of
common stock with an exercise price of $1.61 per share could potentially dilute
basic earnings per share in the future but have not been included in the
computation of pro forma diluted net loss per share because to do so would have
been antidilutive for the periods presented. As a result, basic and diluted
earnings per share were equivalent for the periods presented.
4. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
-------- ----------
<S> <C> <C>
Furniture and fixtures........................................................ $ 38,175 $ 81,759
Office equipment.............................................................. 176,366 217,796
Computer equipment............................................................ 600,200 805,353
Leasehold improvements........................................................ 18,693 18,693
-------- ----------
Total Property, Plant and Equipment........................................... 833,434 1,123,601
Less accumulated depreciation and amortization................................ 438,372 576,224
-------- ----------
Property, Plant and Equipment, net............................................ $395,062 $ 547,377
-------- ----------
-------- ----------
</TABLE>
5. OPERATING LEASES
The Company leases facilities and certain equipment under agreements
classified as operating leases. Lease expense under these agreements for the
twelve months ended December 31, 1995, 1996 and 1997 were $139,070, $165,020 and
$182,353, respectively. The Company's facilities lease expires on April 29,
1998. The Company has entered into a new lease to take effect May 1, 1998 for a
term of 66 months with an option to extend for an additional five years.
The following is a schedule by year of the future minimum lease payments as
of December 31, 1997 required under these agreements:
<TABLE>
<S> <C>
1998...................................................................................... $ 368,506
1999...................................................................................... 581,954
2000...................................................................................... 558,075
2001...................................................................................... 550,688
2002...................................................................................... 550,687
Thereafter................................................................................ 525,656
------------
Total..................................................................................... $ 3,135,566
------------
------------
</TABLE>
6. SIGNIFICANT CUSTOMERS
During 1995, 1996 and 1997, the Company had several significant customers
for which it provided services under specific contractual arrangements. The
following sets forth the revenue generated by customers who accounted for more
than 10% of the Company's revenue during each of the periods presented.
F-9
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SIGNIFICANT CUSTOMERS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
CUSTOMERS 1995 1996 1997
- ---------- ---------- ---------- -----------
<S> <C> <C> <C>
A $7,736,949 $9,878,375 $13,501,927
B * * 12,253,147
C 3,073,356 5,456,868 10,543,052
D 1,861,630 5,389,530 *
E * 6,925,230 *
F 2,758,620 * *
</TABLE>
- ------------------
* Less than 10% of revenue.
At December 31, 1996 and 1997, these customers represented 98.3% and 79.5%,
respectively, of outstanding receivables and unbilled services. The loss of any
one of the foregoing customers could have a material adverse effect on the
Company's financial position, results of operations or cash flows.
7. BORROWINGS
On January 7, 1997, the Company entered into a $100,000 note payable
agreement with a commercial bank with an interest rate of 8.25% maturing on
January 7, 2000. The note is collateralized by all present and future assets of
the Company and a personal guarantee by the majority shareholder. Payments of
$3,145, including principal and interest, are payable monthly. In addition the
Company has a $500,000 line of credit from the bank under which interest would
be payable monthly on the outstanding balance at a floating rate equal to 1%
above the prime rate. The Company has also obtained a commitment from the bank
for a $1 million line of credit, the proceeds of which are to be used
exclusively for capital expenditures. This line would be for a term of nine
months and would bear interest payable monthly at a floating rate equal to 0.75%
above the prime rate. At the end of the nine months, any outstanding balance
would be payable in 60 equal monthly installments of principal and interest
computed at a rate of 0.75% above the prime rate on the date of conversion.
As of December 31, 1997, the Company has not drawn on either line. Both
lines are secured collateralized by a lien on all of the assets of the Company
and the personal guaranty of the Company's majority shareholder. In addition, if
the Company were to draw on such lines, it could be subject to certain
restrictive financial covenants and other customary provisions found in
commercial loan documentation. Committment fees associated with the lines are
immaterial.
8. RELATED PARTY TRANSACTIONS
In 1996 and 1997, the Company purchased certain print advertising for
initial recruitment of representatives through a company that was wholly-owned
by the Company's majority shareholder. Additionally, the Company also provided
administrative services to this affiliate. The net amounts charged to the
Company for these purchases amounted to $671,810 and $1,564,606 for the years
ended December 31, 1996 and 1997. As of December 31, 1996 and 1997, the amounts
payable to affiliate totaled $284,877 and $146,018, respectively. The Company
also made advances to this affiliate in 1996. As of December 31, 1996 and 1997,
the amounts due the Company as a result of these advances were $369,204 and
$173,179, respectively.
9. LOAN TO SHAREHOLDER
As of December 31, 1996 and 1995, the Company had loans of $10,340 to its
then sole shareholder. Such loans were repaid in 1997.
F-10
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. RETIREMENT PLANS
In 1995, 1996 and 1997, the Company provided its employees with a qualified
profit sharing plan with 401(k) features. The Company made contributions of
$58,667, $99,917 and $172,310 to this plan for the years ended December 31,
1995, 1996 and 1997, respectively.
Effective January 1, 1997, the Company has committed to make mandatory
contributions to the 401(k) plan. This commitment requires contributions from
the Company each year equal to 100% of the amount contributed by each employee
up to 2% of the employee's wages. Any additional contribution to the plan is at
the discretion of the Company.
11. COMMITTMENTS AND CONTINGENCIES
The Company is engaged in the business of detailing pharmaceutical
products. Such activities could expose the Company to risk of liability for
personal injury or death to persons using such products, although the Company
does not commercially market or sell the products to end users. While the
Company has not been subject to any claims or incurred any liabilities due to
such claims, there can be no assurance that substantial claims or liabilities
will not arise in the future. The Company seeks to reduce its potential
liability through measures such as contractual indemnification provisions with
clients (the scope of which may vary from client to client, and the performances
of which are not secured) and reliance on insurance maintained by clients. The
Company could, however, also be held liable for errors and omissions of its
employees in connection with the services it performs that are outside the scope
of any indemnity. The Company could be materially and adversely affected if it
were required to pay damages or incur defense costs in connection with a claim
that is outside the scope of the indemnification agreements; if the indemnity,
although applicable, is not performed in accordance with its terms; or if the
Company's liability exceeds the amount of applicable insurance or indemnity. The
Company currently does not carry product liability insurance and is not insured
against the errors and omissions of its employees.
From time to time the Company is involved in litigation incidental to its
business. The Company is not currently a party to any pending litigation which,
if decided adversely to the Company, would have a material adverse effect on the
business, financial condition or results of operations of the Company and the
Company is not aware of any material threatened litigation.
12. STOCK GRANT
In January of 1997, the Company issued 1,119,684 shares of its common stock
to its President and Chief Operating Officer. As a result, Mr. Saldarini owned
15.0% of the Company's outstanding shares of common stock at that time (taking
into account the issuance of such shares).
This grant of stock was in consideration of services performed on behalf of
the Company. The value of the shares, as determined by Hempstead & Co.
Incorporated, independent valuation experts, was $4,050,000. Such valuation was
prepared utilizing standard valuation techniques used to value businesses
including discounted cash flow and comparable transactions. The Company has
recognized $4,470,000 in compensation and related expenses in the first quarter
of 1997. Such related expenses include a reserve for taxes which the Company may
incur in connection with such grant.
13. STOCK OPTION PLAN
Effective in January of 1997, the Company adopted its 1997 Stock Option
Plan (the 'Plan'). A total of 74,646 shares of common stock have been reserved
for issuance under the Plan. Pursuant to the Plan, the Company may grant
incentive stock options and nonqualified options to eligible officers, directors
and key employees and consultants of the Company. The selection of participants,
allotment of shares, determination of price and other conditions relating to the
granting of options is currently determined by the Company's
F-11
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. STOCK OPTION PLAN--(CONTINUED)
shareholders. As of December 31, 1997 there were 7,465 shares remaining in the
Plan which were available for future grants.
Options granted under the Plan, once vested, are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not less
than 100% of the fair market value of the common stock on the date of grant,
unless otherwise determined by the Company's shareholders.
During 1997, there were two grants of stock options to officers of the
Company, one in January for 39,189 shares at an exercise price of $1.61 and one
in March for 27,992 shares at an exercise price of $1.61. Both grants expire on
December 31, 2005. In connection with the grant of such options, the Company
will amortize $143,852 of compensation expense over the expected vesting period.
The options are expected to vest as follows: one-third shall be exercisable on
the earlier of June 30, 1998 or the date of the initial public offering (the
'Initial Exercise Date'), another third shall become exercisable on the first
anniversary of the Initial Exercise Date and the final third become exercisable
on the second anniversary of the Initial Exercise Date. As of December 31, 1997,
none of the options were exercisable as the public offering had not yet taken
place and $42,030 of compensation expense has been recognized. The
weighted-average remaining contractual life of the outstanding options was 8.0
years. The weighted average grant price was $1.61. There were no options granted
for any period prior to January 1, 1997.
Had compensation cost for the Company's stock option grants been determined
for awards consistent with the fair value approach of Statement of Financial
Accounting Standard No. 123, 'Accounting for Stock Based Compensation,' which
requires recognition of compensation cost ratably over the vesting period of the
underlying instruments, the Company's pro forma net loss and pro forma basic and
diluted loss per share would have been adjusted to the amounts indicated below:
<TABLE>
<CAPTION>
1997
------------
<S> <C>
Pro forma Net loss--As reported......................................................... (2,948,823)
Pro forma Net loss--As adjusted......................................................... (2,999,105)
Pro forma Basic and Diluted Loss Per Share--as reported................................. (0.40)
Pro forma Basic and Diluted Loss Per Share--as adjusted................................. (0.40)
</TABLE>
Compensation cost for the determination of Net loss--As adjusted and
related per share amounts were estimated using a minimum value approach with an
option pricing model and the following assumptions (i) risk free interest rate
6.27%, (ii) expected life 5 years, (iii) expected dividends--0. The fair value
of options granted during 1997 was $172,169.
14. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Provision For (Benefit From) Income Tax
The accompanying financial statements reflect a provision/benefit for
income taxes on a pro forma basis as if the Company were subject to Federal and
New Jersey state income taxes as a taxable corporate entity throughout the years
presented. The pro forma income tax provision is based upon the statutory rates
in effect for C Corporations during the periods presented.
Certain events, including the public offering of the Company's common
stock, will automatically terminate the Company's S Corporation status, thereby
subjecting future income to Federal and New Jersey state income taxes. Due to
temporary differences in the recognition of revenue and expenses, income for
financial reporting purposes has exceeded income for income tax purposes.
Accordingly, the application of the provisions of SFAS No. 109, 'Accounting for
Income Taxes' will result in the recognition of a net deferred tax liability
(and a corresponding one-time charge to expense) in the period in which the
initial public offering occurs. If the S Corporation status had been terminated
as of December 31, 1997, this amount would have been immaterial.
F-12
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. PRO FORMA INFORMATION (UNAUDITED)--(CONTINUED)
Pro Forma Balance Sheet
The December 31, 1997 pro forma balance sheet as set forth herein reflects
the estimated distribution as of December 31, 1997 of $675,721 to the Company's
shareholders immediately prior to the public offering. Such distribution is
assumed to be funded by the Company's cash on hand as if distribution was made
on December 31, 1997.
15. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. This pronouncement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company will adopt this
pronouncement in 1998 and does not expect its implementation will have a
material effect on the Company's financial statements as currently presented.
Statement of Financial Accounting Standards No. 131, Disclosures About
Segments of an Enterprise and Related Information, was also issued in June 1997
and is effective for fiscal periods beginning after December 15, 1997. This
pronouncement establishes the way in which publicly held business enterprises
report information about operating segments in annual financial statements and
interim reports to stockholders. As the Company operates in a single business
segment the implementation of this standard is not expected to significantly
impact the Company's financial statements as currently presented.
16. SUBSEQUENT EVENT (UNAUDITED)
The Company intends to loan $1.1 million to its President and Chief
Executive Officer, Charles T. Saldarini at the end of March, 1998. The proceeds
of this loan are intended to be used by Mr. Saldarini to pay income taxes
relating to his receipt of shares of Common Stock. Such loan is for a term of 3
years, bears interest at a rate equal to 5.29% per annum payable quarterly in
arrears and is secured by a pledge of the shares of Common Stock held by Mr.
Saldarini.
F-13
<PAGE>
[LOGO]
PROFESSIONAL DETAILING, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the Securities
being registered hereunder, other than underwriting discounts and commissions,
are estimated below.
<TABLE>
<S> <C>
SEC registration fee...................................................................... $ 13,570
NASD filing fee........................................................................... 4,640
Nasdaq National Market listing fee........................................................ 43,333
Printing and engraving costs.............................................................. *
Accounting fees and expenses.............................................................. *
Legal fees and expenses................................................................... *
State securities law fees and expenses including fees of counsel.......................... *
Transfer Agent and Registrar fees and expenses............................................ 3,500
Miscellaneous............................................................................. *
----------
Total................................................................................ $1,000,000
----------
----------
</TABLE>
- ------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended (the 'Securities Act').
The Registrant's Certificate of Incorporation and By-Laws provide that the
Registrant shall indemnify its directors to the full extent permitted by the
General corporation Law of the State of Delaware (the 'DGCL') and may indemnify
its officers and employees to such extent, except that the Registrant shall not
be obligated to indemnify any such person with respect to proceedings, claims or
actions initiated or brought voluntarily by any such person and not by way of
defense, or for any amounts paid in settlement of an action indemnified against
by the Registrant without the prior written consent of the Registrant. The
Registrant intends to enter into indemnity agreements with each of its
directors. These agreements may require the Registrant, among other things, to
indemnify such directors against certain liabilities that may arise by reason of
their status or service as directors, and to advance expenses to them as they
are incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' liability insurance if available on reasonable terms.
In addition, the Registrant's Certificate of Incorporation provides that a
director of the Registrant shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of his or her fiduciary duty as
director, except for liability (i) for any breach of the directors' duty or
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which are intentional misconduct or a knowing violation of law,
(iii) for willful or negligent conduct in paying dividends or repurchasing stock
out of any other lawfully available funds or (iv) for any transaction from which
the director derives an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company issued the following unregistered
securities:
On January 1, 1997 the Company issued shares of its Common Stock
representing 15% of the total number of shares then outstanding to its then
President and Chief Operating Officer, Charles T. Saldarini.
On January 2, 1997 the Company granted options to acquire 39,189 shares of
Common Stock to its Chief Operating Officer, Steven K. Budd. Such options are
exercisable at $1.61 per share.
II-1
<PAGE>
On March 1, 1997 the Company granted options to acquire 27,992 shares of
Common Stock to Bernard C. Boyle, its Chief Financial Officer. Such options are
exercisable at $1.61 per share.
None of the transactions described above involved a public offering of the
Registrant's securities and all were exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) thereof and by reason of
Regulation D under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C>
1.1 Form of Underwriting Agreement(1)
2.1 Form of Plan of Merger between Professional Detailing, Inc., a New Jersey corporation, and
Professional Detailing Inc., a Delaware corporation
3.1 Certificate of Incorporation of Professional Detailing, Inc.(1)
3.2 By-Laws of Professional Detailing, Inc.(1)
4.1 Specimen Certificate Representing the Common Stock
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of 1998 Stock Option Plan
10.2 Office Lease between IB Brell, L.P. (Landlord) and Professional Detailing, Inc. (Tenant) and
amendment thereto(1)
10.3 Form of Employment Agreement between the Company and Charles T. Saldarini
10.4 Agreement between the Company and John P. Dugan
10.5 Form of Employment Agreement between the Company and Steven K. Budd
10.6. Form of Employment Agreement between the Company and Bernard C. Boyle
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
23.3 Consent of Farkas & Manelli, P.L.L.C.(1)
24 Power of Attorney(1)
27 Financial Data Schedule
99.1 Consent of Director Nominee (John M. Pietruski)(1)
99.2 Consent of Director Nominee (Jan Martens Vecsi)(1)
99.3 Consent of Director Nominee (Gerald J. Mossinghoff)(1)
99.4 Consent of Hempstead & Company
</TABLE>
- ------------------
(1) Previously filed
II-2
<PAGE>
ITEM 17. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement No.
333-46321 to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Mahwah, State of New Jersey, on the 27th day of March,
1998.
PROFESSIONAL DETAILING, INC.
By: /s/ Charles T. Saldarini
-----------------------------
Charles T. Saldarini,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement No. 333-46321 has been signed by
the following persons in the capacities indicated and on the 27th day of March,
1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN P. DUGAN Chairman of the Board of Directors
- -------------------------------
John P. Dugan
/s/ CHARLES T. SALDARINI President, Chief Executive Officer and Director
- -------------------------------
Charles T. Saldarini
/s/ BERNARD C. BOYLE Chief Financial Officer (principal accounting and
- ------------------------------- financial officer)
Bernard C. Boyle
</TABLE>
II-4
<PAGE>
After the merger discussed in Note 2 to the Financial Statements is
effected, we will be in a position to render the following consent.
/s/ COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
March 27, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 3, 1998, except as to the information presented in
Note 2, for which the date is ________ on our audits of the Financial Statements
of Professional Detailing, Inc. We also consent to the references to our firm
under the caption 'Experts' and 'Selected Financial Data.'
Parsippany, New Jersey
March , 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement(1)
2.1 -- Form of Plan of Merger between Professional Detailing, Inc., a New Jersey corporation, and
Professional Detailing Inc., a Delaware corporation
3.1 -- Certificate of Incorporation of Professional Detailing, Inc.(1)
3.2 -- By-Laws of Professional Detailing, Inc.(1)
4.1 -- Specimen Certificate Representing the Common Stock
5.1 -- Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 -- Form of 1998 Stock Option Plan
10.2 -- Office Lease between IB Brell, L.P. (Landlord) and Professional Detailing, Inc. (Tenant) and
amendment thereto(1)
10.3 -- Form of Employment Agreement between the Company and Charles T. Saldarini
10.4 -- Agreement between the Company and John P. Dugan
10.5 -- Form of Employment Agreement between the Company and Steven K. Budd
10.6 -- Form of Employment Agreement between the Company and Bernard C. Boyle
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
23.3 -- Consent of Farkas & Manelli, P.L.L.C.(1)
24 -- Power of Attorney(1)
27 -- Financial Data Schedule
99.1 -- Consent of Director Nominee (John M. Pietruski)(1)
99.2 -- Consent of Director Nominee (Jan Martens Vecsi)(1)
99.3 -- Consent of Director Nominee (Gerald J. Mossinghoff)(1)
99.4 -- Consent of Hempstead & Company
</TABLE>
- ------------------
(1) Previously filed
<PAGE>
PLAN OF MERGER
OF
PROFESSIONAL DETAILING, INC.
[a New Jersey Corporation]
AND
PROFESSIONAL DETAILING, INC.
[a Delaware Corporation]
PLAN OF MERGER approved on 1998, by Professional Detailing,
Inc, a business corporation organized under the laws of the State of
New Jersey, the merging corporation ("PDI-NJ"), and by its Board of Directors on
said date, and approved on , 1998 by Professional Detailing, Inc., a business
corporation organized under the laws of the State of Delaware, the surviving
corporation ("PDI-Del"), and by its Board of Directors on said date.
1. PDI-NJ and PDI-Del shall, pursuant to the provisions of the New
Jersey Business Corporation Act and the provisions of the laws of the
jurisdiction of organization of PDI-Del, be merged with and into a single
corporation, to wit, PDI-Del, which shall be the surviving corporation upon the
effective date of the merger and which is sometimes hereinafter referred to as
the "surviving corporation", and which shall continue to exist as said surviving
corporation under its present name pursuant to the provisions of the laws of the
jurisdiction of its organization. The separate existence of PDI-NJ, which is
sometimes hereinafter referred to as the "terminating corporation", shall cease
upon the effective date of the merger in accordance with the provisions of the
New Jersey Business Corporation Act.
2. The certificate of incorporation of the surviving corporation upon
the effective date of the merger in the jurisdiction of its organization shall
be the certificate of incorporation of said surviving corporation; and said
certificate of incorporation shall continue in full force and effect until
amended and changed in the manner prescribed by the provisions of the laws of
the jurisdiction of organization of the surviving corporation.
3. The by-laws of the surviving corporation upon the effective date of
the merger in the jurisdiction of its organization will be the by-laws of said
surviving corporation and will continue in full force and effect until changed,
altered, or amended as therein provided and in the manner prescribed by the
provisions of the laws of the jurisdiction of its organization.
4. The directors and officers in office of the surviving corporation
upon the effective date of the merger in the jurisdiction of its organization
shall be the members of the
<PAGE>
first Board of Directors and the first officers of the surviving corporation,
all of whom shall hold their directorships and offices until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the by-laws of the surviving corporation.
5. Each issued share of the terminating corporation shall, upon the
effective date of the merger, be converted into share[s] of the surviving
corporation. The issued shares of the surviving corporation shall not be
converted in any manner, but each said share which is issued as of the effective
date of the merger shall continue to represent one issued share of the surviving
corporation.
6. The Plan of Merger herein made and approved shall be submitted to
the shareholders of the terminating corporation for their approval or rejection
in the manner prescribed by the provisions of the New Jersey Business
Corporation Act, and the merger of the terminating corporation with and into the
surviving corporation shall be authorized in the manner prescribed by the laws
of the jurisdiction of organization of the surviving corporation.
7. In the event that the Plan of Merger shall have been approved by the
shareholders entitled to vote of the terminating corporation in the manner
prescribed by the provisions of the New Jersey Business Corporation Act, and in
the event that the merger of the terminating corporation with and into the
surviving corporation shall have been duly authorized in compliance with the
laws of the jurisdiction of organization of the surviving corporation, the
terminating corporation and the surviving corporation hereby stipulate that they
will cause to be executed and filed and/or recorded any document or documents
prescribed by the laws of the State of New Jersey and of the State of Delaware,
and that they will cause to be performed all necessary acts therein and
elsewhere to effectuate the merger.
8. PDI-NJ shall be merged into PDI-Del and the corporate existence of
PDI-NJ shall continue under the name PDI-Del and PDI-Del shall be the owner,
without other transfer, of all of the rights and property of PDI-NJ and PDI-Del
shall become subject to all of the debts and liabilities of PDI-NJ in the same
manner as if PDI-Del had itself incurred them.
9. The Board of Directors and the proper officers of the terminating
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Plan of Merger or of the merger
herein provided for.
10. Notwithstanding the approval of the Plan of Merger by the
shareholders entitled to vote of the terminating corporation and the
authorization of the merger upon behalf of the surviving corporation, the merger
herein provided for may be abandoned at any time prior to the effective date
thereof in the State of New Jersey in the event that the proposed public
offering by PDI-Del of shares of its common stock is not consummated by June 30,
1998.
2
<PAGE>
CERTIFICATE OF MERGER
OF
PROFESSIONAL DETAILING, INC.
[a New Jersey Corporation]
AND
PROFESSIONAL DETAILING, INC.
[a Delaware Corporation]
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
(i) Professional Detailing, Inc., which is incorporated under
the laws of the State of New Jersey ("PDI-NJ"); and
(ii) Professional Detailing, Inc., which is incorporated under
the laws of the State of Delaware ("PDI-Del").
2. Plan of Merger has been approved, adopted, certified, executed, and
acknowledged by each of the aforesaid constituent corporations in accordance
with the provisions of subsection (c) of Section 252 of the Delaware General
Corporation Law, to wit, by PDI-NJ in accordance with the laws of the State of
New Jersey and by PDI-Del in the same manner as is provided in Section 251 of
the Delaware General Corporation Law.
3. The name of the surviving corporation in the merger herein certified
is Professional Detailing, Inc., a Delaware corporation, which will continue its
existence as said surviving corporation under its present name upon the
effective date of said merger pursuant to the provisions of the Delaware General
Corporation Law.
4. The Certificate of Incorporation of PDI-Del, as now in force and
effect, shall continue to be the Certificate of Incorporation of said surviving
corporation until amended and changed pursuant to the provisions of the Delaware
General Corporation Law.
5. The executed Plan of Merger between the aforesaid constituent
corporations is on file at the principal place of business of the aforesaid
surviving corporation, the address of which is as follows:
599 MacArthur Boulevard
3
<PAGE>
Mahwah, New Jersey 07430
6. A copy of the aforesaid Plan of Merger will be furnished by the
aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of PDI-NJ consists of 2,500 shares
without par value.
8. The merger of PDI-NJ with and into PDI-Del shall be effective
immediately upon the filing of this Certificate of Merger.
Executed on this day of , 1998
PROFESSIONAL DETAILING, INC.
a Delaware Corporation
By:
-------------------------------------
President and Chief Executive Officer
4
<PAGE>
CERTIFICATE OF MERGER
OF
PROFESSIONAL DETAILING, INC.
[a New Jersey Corporation]
AND
PROFESSIONAL DETAILING, INC.
[a Delaware Corporation]
To the Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:10-7 of the New Jersey Business
Corporation Act, it is hereby certified that:
FIRST: The names of the merging corporations are Professional
Detailing, Inc., which is a business corporation organized under the laws of the
State of New Jersey ("PDI-NJ"), and Professional Detailing, Inc., which is a
business corporation organized under the laws of the State of Delaware
("PDI-Del"). PDI-NJ will be the merging corporation and PDI-Del will be the
surviving corporation.
SECOND: Annexed hereto and made a part hereof is the Plan of Merger for
merging PDI-NJ with and into PDI-Del as approved by the Board of Directors of
each of said corporations.
THIRD: The number of shares of PDI-NJ which were entitled to vote at
the time of the approval of the Plan of Merger by its shareholders is 100, all
of which are of one class. The number of shares of PDI-Del which were entitled
to vote at the time of the approval of the Plan of Merger by its shareholders is
100, all of which are of one class.
All of the shareholders entitled to vote of each of the aforesaid
corporations approved the Plan of Merger pursuant to their written consents
without meetings of shareholders; and the number of shares represented by each
such consent is 100. The date of said consents and approval was ____________,
1998.
FOURTH: The applicable provisions of the laws of the jurisdiction of
organization of PDI-Del relating to the merger of PDI-NJ with and into PDI-Del
have been complied with or will have been complied with upon compliance with any
of the filing and recording requirements thereof.
5
<PAGE>
FIFTH: PDI-Del hereby agrees that it may be served with process in the
State of New Jersey in any proceeding for the enforcement of any obligation of
PDI-NJ or any obligation of PDI-Del for which it is previously amenable to suit
in the State of New Jersey and in any proceeding for the enforcement of the
rights of a dissenting shareholder of PDI-NJ against PDI-Del.
PDI-Del hereby irrevocably appoints the Secretary of State of the State
of New Jersey as its agent to accept service of process in any such proceeding
and designates the following post office address within the State of New Jersey
to which said Secretary of State shall mail a copy of the process in such
proceeding:
599 MacArthur Boulevard
Mahwah, New Jersey 07430
PDI-Del hereby agrees that it will promptly pay to the dissenting
shareholders of PDI-NJ the amount, if any, to which they are entitled under the
provisions of the New Jersey Business Corporation Act with respect to the rights
of dissenting shareholders.
SIXTH: PDI-Del will continue its existence as the surviving corporation
under its present name pursuant to the provisions of the laws of the
jurisdiction of its organization.
SEVENTH: The merger of PDI-NJ with and into PDI-Del shall be effective
immediately upon the filing of this Certificate of Merger.
Executed on this day of , 1998.
PROFESSIONAL DETAILING, INC.,
a New Jersey corporation
By:
------------------------------------
Signer's Name: Charles T. Saldarini
Signer's Capacity: President
PROFESSIONAL DETAILING, INC.,
a Delaware corporation
By:
------------------------------------
Signer's Name: Charles T. Saldarini
Signer's Capacity: President
<PAGE>
PROFESSIONAL DETAILING, INC.
PD
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 74312N 10 7
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT __________________________________________ is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.01
PER SHARE OF PROFESSIONAL DETAILING, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
_______________________________ ______________________________
TREASURER PRESIDENT
[SEAL: PROFESSIONAL DETAILING, INC. CORPORATE SEAL 1998 DELAWARE *]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
PROFESSIONAL DETAILING, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof of the Corporation and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to
the Corporation or the Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________________ Custodian __________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------
| |
| |
| |
-------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ____________________
- -------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
___________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF MORSE, ZELNICK, ROSE & LANDER]
, 1998
------------------
Professional Detailing, Inc.
599 MacArthur Boulevard
Mahwah, New Jersey 07430
Dear Sirs:
We have acted as counsel to Professional Detailing, Inc., a Delaware
corporation (the "Company") in connection with the preparation of a registration
statement on Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), to register the offering by the Company of (a) _________ shares of
common stock, par value $.01 per share (the "Common Stock") and the offering of
an additional _______ shares if the over-allotment option is exercised in full
and (b) any additional shares of Common Stock issued pursuant to Rule 462(b) of
the Act.
In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the other exhibits to the Registration
Statement and such other records, documents, statutes and decisions as we have
deemed relevant in rendering this opinion. Based upon the foregoing, we are of
the opinion that:
Each share of Common Stock being offered has been duly and validly
authorized for issuance and when issued as contemplated by the Registration
Statement will be legally issued, fully paid and non-assessable.
<PAGE>
, 1998
- ------------------
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
Exhibit 10.1
PROFESSIONAL DETAILING, INC.
1998 STOCK OPTION PLAN
----------------------
1. Purpose; Types of Awards; Construction.
The purpose of the Professional Detailing, Inc. 1998 Stock
Option Plan (the "Plan") is to align the interests of officers, other key
employees, consultants and non-employee directors of Professional Detailing,
Inc. (the "Company") and its subsidiaries with those of the stockholders of the
Company, to afford an incentive to such officers, employees, consultants and
directors to continue as such, to increase their efforts on behalf of the
Company and to promote the success of the Company's business. To further such
purposes, the Committee may grant options to purchase shares of the Company's
common stock. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Securities Exchange Act of 1934 and of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted in a manner consistent with the requirements thereof, as now or
hereafter construed, interpreted and applied by regulations, rulings and cases.
2. Definitions.
As used in this Plan, the following words and phrases shall
have the meanings indicated below:
(a) "Agreement" shall mean a written agreement
entered into between the Company and an Optionee in connection with an award
under the Plan.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Cause" when used in connection with the
termination of an Optionee's employment by the Company or the cessation of an
Optionee's service as a consultant or a member of the Board, shall mean (i) the
conviction of the Optionee for the commission of a felony, (ii) the willful and
continued failure by the Optionee substantially to perform his duties and
obligations to the Company or a Subsidiary (other than any such failure
resulting from his incapacity due to physical or mental illness), or (iii) the
willful engaging by the Optionee in misconduct that is demonstrably injurious to
the Company or a Subsidiary. For purposes of this Section 2(c), no act, or
failure to act, on an Optionee's part shall be considered "willful" unless done,
or omitted to be done, by the Optionee in bad faith and without reasonable
belief that his action or omission was in the best interest of the Company. The
Committee shall determine whether a termination of employment is for Cause for
purposes of the Plan.
<PAGE>
(d) "Change in Control" shall mean the occurrence of
the event set forth in any of the following paragraphs:
(i) any Person (as defined below) is or
becomes the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its subsidiaries) representing
50% or more of the combined voting power of the Company's then outstanding
securities; or
(ii) the following individuals cease for any
reason to constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new director
(other than a director whose initial assumption of office is in connection with
an actual or threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was previously
so approved or recommended; or
(iii) there is consummated a merger or
consolidation of the Company or a direct or indirect subsidiary thereof with any
other corporation, other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or any
parent thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 50% of the combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately after such merger
or consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its subsidiaries) representing
50% or more of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve
a plan of complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition by
the Company of all or substantially all of the Company's assets to an entity, at
least 50% of the combined voting power of the voting securities of which are
owned by Persons in substantially the same proportions as their ownership of the
Company immediately prior to such sale.
2
<PAGE>
For purposes of this Section 2(d), "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof, except that such term shall not include (i)
the Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(f) "Committee" shall mean a committee established by
the Board to administer the Plan.
(g) "Common Stock" shall mean shares of common stock,
par value $0.01 per share, of the Company.
(h) "Company" shall mean Professional Detailing,
Inc., a corporation organized under the laws of the State of Delaware, or any
successor corporation.
(i) "Disability" shall mean an Optionee's inability
to perform his duties with the Company or on the Board by reason of any
medically determinable physical or mental impairment, as determined by a
physician selected by the Optionee and acceptable to the Company.
(j) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time, and as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
(k) "Fair Market Value" per share as of a particular
date shall mean (i) if the shares of Common Stock are then listed on a national
securities exchange, the closing sales price per share of Common Stock on the
national securities exchange on which the Common Stock is principally traded for
the last preceding date on which there was a sale of such Common Stock on such
exchange, or (ii) if the shares of Common Stock are then traded in an
over-the-counter market, the closing bid price for the shares of Common Stock in
such over-the-counter market for the last preceding date on which there was a
sale of such Common Stock in such market, or (iii) if the shares of Common Stock
are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee, in its sole discretion,
shall determine.
(l) "Incentive Stock Option" shall mean any option
intended to be and designated as an incentive stock option within the meaning of
Section 422 of the Code.
(m) "Non-employee Director" shall mean a member of
the Board who is not an employee of the Company.
3
<PAGE>
(n) "Nonqualified Option" shall mean an Option that
is not an Incentive Stock Option.
(o) "Option" shall mean the right, granted hereunder,
to purchase shares of Common Stock. Options granted by the Committee pursuant to
the Plan may constitute either Incentive Stock Options or Nonqualified Stock
Options.
(p) "Optionee" shall mean a person who receives a
grant of an Option.
(q) "Option Price" shall mean the exercise price of
the shares of Common Stock covered by an Option.
(r) "Parent" shall mean any company (other than the
Company) in an unbroken chain of companies ending with the Company if, at the
time of granting an Option, each of the companies other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other companies in such chain.
(s) "Plan" shall mean this Professional Detailing,
Inc. 1998 Stock Option Plan.
(t) "Retirement" shall mean the retirement of an
Optionee in accordance with the terms of any tax-qualified retirement plan
maintained by the Company or a Subsidiary in which the Optionee participates. If
the Optionee is not a participant in such a plan, such term shall mean the
termination of the Optionee's employment or cessation of the Optionee's service
as a member of the Board, other than by reason of death, Disability or Cause on
or after attainment of the age of 65.
(u) "Rule 16b-3" shall mean Rule 16b-3, as from time
to time in effect, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, including any successor to such Rule.
(v) "Subsidiary" shall mean any company (other than
the Company) in an unbroken chain of companies beginning with the Company if, at
the time of granting an Option, each of the companies other than the last
company in the unbroken chain owns stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
companies in such chain.
(w) "Ten Percent Stockholder" shall mean an Optionee
who, at the time an Incentive Stock Option is granted, owns (or is deemed to own
pursuant to the attribution rules of Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary.
4
<PAGE>
3. Administration.
The Plan shall be administered by the Committee, the members
of which shall, except as may otherwise be determined by the Board, be
"non-employee directors" under Rule 16b-3 and "outside directors" under Section
162(m) of the Code.
The Committee shall have the authority in its discretion,
subject to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Options; to determine which Options shall constitute Incentive Stock
Options and which Options shall constitute Nonqualified Stock Options; to
determine the purchase price of the shares of Common Stock covered by each
Option; to determine the persons to whom, and the time or times at which awards
shall be granted; to determine the number of shares to be covered by each award;
to interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Agreements
(which need not be identical) and to cancel or suspend awards, as necessary; and
to make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Committee may delegate to one or more of its members or to
one or more agents such administrative duties as it may deem advisable,
including delegating to one or more of the Company's management employees the
authority to grant Options to employees who are not "insiders" for purposes of
Section 16 of the Exchange Act and who are not "covered employees" for purposes
of Section 162(m) of the Code, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have under
the Plan. The Board shall have sole authority, unless expressly delegated to the
Committee, to grant Options to Non-employee Directors. All decisions,
determination and interpretations of the Committee shall be final and binding on
all Optionees of any awards under this Plan.
The Board shall have the authority to fill all vacancies,
however caused, in the Committee. The Board may from time to time appoint
additional members to the Committee, and may at any time remove one or more
Committee members. One member of the Committee shall be selected by the Board as
chairman. The Committee shall hold its meetings at such times and places as it
shall deem advisable. All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at a meeting or by written consent. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business as
it shall deem advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
award granted hereunder.
5
<PAGE>
4. Eligibility.
Awards may be granted to officers and other key employees of
and consultants to the Company, and its Subsidiaries, including officers and
directors who are employees, and to Non-employee Directors. In determining the
persons to whom awards shall be granted and the number of shares to be covered
by each award, the Committee shall take into account the duties of the
respective persons, their present and potential contributions to the success of
the Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
5. Stock.
The maximum number of shares of Common Stock reserved for the
grant of awards under the Plan shall be 750,000, subject to adjustment as
provided in Section 9 hereof. Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or may be required
by the Company.
If any outstanding award under the Plan should for any reason
expire, be canceled or be forfeited without having been exercised in full, the
shares of Common Stock allocable to the unexercised, canceled or terminated
portion of such award shall (unless the Plan shall have been terminated) become
available for subsequent grants of awards under the Plan.
6. Terms and Conditions of Options.
Each Option granted pursuant to the Plan shall be evidenced by
an Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve, which Agreement shall comply with and
be subject to the following terms and conditions, unless otherwise specifically
provided in such Option Agreement:
(a) Number of Shares. Each Option Agreement shall
state the number of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall
specifically state that the Option constitutes an Incentive Stock Option or a
Nonqualified Stock Option.
(c) Option Price. Each Option Agreement shall state
the Option Price, which shall not be less than one hundred percent (100%) of the
Fair Market Value of the shares of Common Stock covered by the Option on the
date of grant unless, with respect to Nonqualified Stock Options, otherwise
determined by the Committee. The Option Price shall be subject to adjustment as
provided in Section 9 hereof. The date as of which the Committee adopts a
resolution expressly granting an Option shall be considered the day on which
such Option is granted, unless such resolution specifies a different date.
6
<PAGE>
(d) Medium and Time of Payment. The Option Price
shall be paid in full, at the time of exercise, in cash or in shares of Common
Stock then owned by the Optionee having a Fair Market Value equal to such Option
Price or in a combination of cash and Common Stock or, unless the Committee
shall determine otherwise, by a cashless exercise procedure through a
broker-dealer.
(e) Exercise Schedule and Period of Options. Each
Option Agreement shall provide the exercise schedule for the Option as
determined by the Committee; provided, however, that, the Committee shall have
the authority to accelerate the exercisability of any outstanding Option at such
time and under such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be ten (10) years from the date of the
grant of the Option unless otherwise determined by the Committee; provided,
however, that, in the case of an Incentive Stock Option, such exercise period
shall not exceed ten (10) years from the date of grant of such Option. The
exercise period shall be subject to earlier termination as provided in Sections
6(f) and 6(g) hereof. An Option may be exercised, as to any or all full shares
of Common Stock as to which the Option has become exercisable, by written notice
delivered in person or by mail to the Secretary of the Company, specifying the
number of shares of Common Stock with respect to which the Option is being
exercised. Notwithstanding any other provision of this Plan, no Option granted
hereunder may be exercised prior to the consummation of an underwritten public
offering of the Company's securities where the gross proceeds from such offering
are in excess of $25 million.
(f) Termination. Except as provided in this Section
6(f) and in Section 6(g) hereof, an Option may not be exercised unless (i) with
respect to an Optionee who is an employee of the Company, the Optionee is then
in the employ of the Company or a Subsidiary (or a company or a Parent or
Subsidiary company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies), and unless the
Optionee has remained continuously so employed since the date of grant of the
Option and (ii) with respect to an Optionee who is a Non-employee Director, the
Optionee is then serving as a member of the Board or as a member of a board of
directors of a company or a Parent or Subsidiary company of such company issuing
or assuming the Option. In the event that the employment of an Optionee shall
terminate or the service of an Optionee as a member of the Board shall cease
(other than by reason of death, Disability, Retirement or Cause), all Options of
such Optionee that are exercisable at the time of such termination may, unless
earlier terminated in accordance with their terms, be exercised within ninety
(90) days after the date of such termination or service (or such different
period as the Committee shall prescribe).
(g) Death, Disability or Retirement of Optionee. If
an Optionee shall die while employed by the Company or a Subsidiary or serving
as a member of the Board, or within ninety (90) days after the date of
termination of such Optionee's employment or cessation of such Optionee's
service (or within such different period as the Committee may have provided
pursuant to Section 6(f) hereof), or if the Optionee's employment shall
terminate or service shall cease by reason of Disability or Retirement, all
Options theretofore granted to such Optionee (to the extent otherwise
exercisable) may, unless earlier terminated in accordance with their terms, be
exercised by the Optionee or by his beneficiary, at any time
7
<PAGE>
within one year after the death, Disability or Retirement of the Optionee (or
such different period as the Committee shall prescribe). In the event that an
Option granted hereunder shall be exercised by the legal representatives of a
deceased or former Optionee, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof of
the right of such legal representative to exercise such Option. Unless otherwise
determined by the Committee, Options not otherwise exercisable on the date of
termination of employment shall be forfeited as of such date.
(h) Other Provisions. The Option Agreements
evidencing awards under the Plan shall contain such other terms and conditions
not inconsistent with the Plan as the Committee may determine, including
penalties for the commission of competitive acts and a provision providing that
no option may be exercised prior to the consummation of an underwritten initial
public offering of the Company's securities pursuant to a registration statement
filed pursuant to the Securities Act of 1933, as amended.
7. Non Discretionary Grants.
Each director of the Company, other than a director who is an
officer, employee or beneficial owner of 10% or more of the Company's Common
Stock (or an officer, director, employee or affiliate thereof), upon first
taking office shall be granted options for 7,500 shares of Common Stock. Options
covering 2,500 shares shall be exercisable immediately and Options covering
2,500 shares shall be exercisable at the end of each subsequent year of service
on the Board. In addition, each such director will be granted Options for an
additional 3,750 shares of Common Stock on the date of the Company's annual
stockholders' meeting. Options covering 1,250 shares shall be exercisable
immediately and Options covering 1,250 shares shall be exercisable on each of
the first and second anniversary of the date of grant. The exercise price of all
Options granted pursuant to this Section 7 shall be the fair market value of a
share of Common Stock on the date of grant.
8. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to
constitute Nonqualified Stock Options and shall be subject only to the general
terms and conditions specified in Section 6 hereof.
9. Incentive Stock Options.
Options granted pursuant to this Section 9 are intended to
constitute Incentive Stock Options and shall be subject to the following special
terms and conditions, in addition to the general terms and conditions specified
in Section 6 hereof. An Incentive Stock Option may not be granted to a
Non-employee Director or a consultant to the Company.
(a) Value of Shares. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the shares
of Common Stock with respect to which Incentive Stock Options granted under this
Plan and all other option plans of
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<PAGE>
any subsidiary become exercisable for the first time by each Optionee during any
calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an
Incentive Stock Option granted to a Ten Percent Stockholder, (i) the Option
Price shall not be less than one hundred ten percent (110%) of the Fair Market
Value of the shares of Common Stock on the date of grant of such Incentive Stock
Option, and (ii) the exercise period shall not exceed five (5) years from the
date of grant of such Incentive Stock Option.
10. Effect of Certain Changes.
(a) In the event of any extraordinary dividend, stock
dividend, recapitalization, merger, consolidation, stock split, warrant or
rights issuance, or combination or exchange of such shares, or other similar
transactions, each of the number of shares of Common Stock available for awards,
the number of such shares covered by outstanding awards, and the price per share
of Options, as appropriate, shall be equitably adjusted by the Committee to
reflect such event and preserve the value of such awards; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated.
(b) Upon the occurrence of a Change in Control, each
Option granted under the Plan and then outstanding but not yet exercisable shall
thereupon become fully exercisable.
11. Surrender and Exchange of Awards.
The Committee may permit the voluntary surrender of all or a
portion of any Option granted under the Plan or any option granted under any
other plan, program or arrangement of the Company or any Subsidiary
("Surrendered Option"), to be conditioned upon the granting to the Optionee of a
new Option for the same number of shares of Common Stock as the Surrendered
Option, or may require such voluntary surrender as a condition precedent to a
grant of a new Option to such Optionee. Subject to the provisions of the Plan,
such new Option may be an Incentive Stock Option or a Nonqualified Stock Option,
and shall be exercisable at the price, during such period and on such other
terms and conditions as are specified by the Committee at the time the new
Option is granted.
12. Period During Which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time
within a period of ten (10) years from the date the Plan is adopted by the
Board, or the date the Plan is approved by the shareholders of the Company,
whichever is earlier, unless the Board shall terminate the Plan at an earlier
date.
13. Nontransferability of Awards.
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Except as otherwise determined by the Committee, awards
granted under the Plan shall not be transferable otherwise than by will or by
the laws of descent and distribution, and awards may be exercised or otherwise
realized, during the lifetime of the Optionee, only by the Optionee or by his
guardian or legal representative.
14. Approval of Shareholders.
The Plan shall take effect upon its adoption by the Board and
shall terminate on the tenth anniversary of such date, but the Plan (and any
grants of awards made prior to the shareholder approval mentioned herein) shall
be subject to the approval of Company's shareholders, which approval must occur
within twelve months of the date the Plan is adopted by the Board.
15. Agreement by Optionee Regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise
of a Nonqualified Stock Option (a "Tax Event"), each Optionee who is not a
Non-employee Director shall agree that no later than the date of the Tax Event,
such Optionee will pay to the Company or make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld upon the Tax Event. Alternatively, the Committee
may provide that such an Optionee may elect, to the extent permitted or required
by law, to have the Company deduct federal, state and local taxes of any kind
required by law to be withheld upon the Tax Event from any payment of any kind
due the Optionee. The withholding obligation may be satisfied by the withholding
or delivery of Common Stock. Any decision made by the Committee under this
Section 15 shall be made in its sole discretion.
16. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend,
terminate, modify or amend the Plan; provided, however, that, unless otherwise
determined by the Board, an amendment that requires stockholder approval in
order for the Plan to continue to comply with Rule 16b-3, Section 162(m) of the
Code or any other law, regulation or stock exchange requirement shall not be
effective unless approved by the requisite vote of stockholders. Except as
provided in Section 10 (a) hereof, no suspension, termination, modification or
amendment of the Plan may adversely affect any award previously granted, unless
the written consent of the Optionee is obtained.
17. Rights as a Shareholder.
An Optionee or a transferee of an award shall have no rights
as a shareholder with respect to any shares covered by the award until the date
of the issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distribution of other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 10(a) hereof.
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18. No Rights to Employment or Service as a Director.
Nothing in the Plan or in any award granted or Agreement
entered into pursuant hereto shall confer upon any Optionee the right to
continue in the employ of the Company or any Subsidiary or as a member of the
Board or to be entitled to any remuneration or benefits not set forth in the
Plan or such Agreement or to interfere with or limit in any way the right of the
Company or any such Subsidiary to terminate such Optionee's employment or
service. Awards granted under the Plan shall not be affected by any change in
duties or position of an employee Optionee as long as such Optionee continues to
be employed by the Company or any Subsidiary.
19. Beneficiary.
An Optionee may file with the Committee a written designation
of a beneficiary on such form as may be prescribed by the Committee and may,
from time to time, amend or revoke such designation. If no designated
beneficiary survives the Optionee, the executor or administrator of the
Optionee's estate shall be deemed to be the Optionee's beneficiary.
20. Governing Law.
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware.
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Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day
of March, 1998, by and among PROFESSIONAL DETAILING, INC., a New Jersey
corporation ("PDI-NJ"), PROFESSIONAL DETAILING, INC., a Delaware corporation
("PDI-Del"), both having their principal place of business at 599 MacArthur
Blvd., Mahwah, New Jersey 07450, on the one hand, and CHARLES T. SALDARINI,
residing at 15 Hopper Court, Mahwah, New Jersey 07430 (the "Executive"), on the
other. PDI-NJ and PDI-Del are collectively referred to herein as the "Company".
WITNESSETH:
-----------
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as President and Chief Executive Officer ("CEO") of the Company;
and
WHEREAS, the parties desire by this Agreement to set forth the terms
and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties. The Company hereby employs the Executive as
President and CEO on the terms and conditions provided in this Agreement and
Executive agrees to accept such employment subject to the terms and conditions
of this Agreement. The Executive shall be the senior executive officer of the
Company, shall perform the duties and responsibilities as are
<PAGE>
customary for the officer of a corporation in such positions, and shall perform
such other duties and responsibilities as are reasonably determined from time to
time by the Board of Directors of the Company (the "Board"). The Executive shall
report to and be supervised by the Board. The Executive shall be based at the
Company's offices in Mahwah, New Jersey or such other place that shall
constitute the Company's headquarters and, except for business travel incident
to his employment under this Agreement, the Company agrees the Executive shall
not be required to relocate.
2. Term. The term of this Agreement shall commence on March 1, 1998
(the "Commencement Date"), and shall terminate on February 28, 2003, unless
extended or earlier terminated in accordance with the terms of this Agreement
(the "Termination Date"). Such term of employment is herein sometimes referred
to as the "Employment Term". The Employment Term shall be extended for
successive one year periods unless either party notifies the other in writing at
least 180 days before the Termination Date or any anniversary of the Termination
Date, as the case may be, that he or it chooses not to extend the Employment
Term.
3. Compensation. As compensation for performing the services required
by this Agreement, and during the term of this Agreement, the Executive shall be
compensated as follows:
(a) Base Compensation. The Company shall pay to the Executive
an annual salary ("Base Compensation") of $275,000, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive may be entitled to such increases in Base
Compensation with
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<PAGE>
respect to each calendar year during the term of this Agreement, as shall be
determined by the Board, in its sole and absolute discretion, based on periodic
reviews of the Executive's performance .
(b) Incentive Compensation. In addition to Base Compensation,
the Executive may be entitled to receive additional compensation ("Incentive
Compensation") in the discretion of the Board. The Incentive Compensation shall
be pursuant to short-term and/or long-term incentive compensation programs which
may be established by the Board. For purposes of this Agreement, the Executive's
"Pro Rata Share" of Incentive Compensation for any calendar of the Company shall
be a fraction whose numerator shall be equal to the number of months (or parts
of months) during which the Executive was actually employed by the Company
during any such calendar year and whose denominator shall be the total number of
months in such calendar year.
4. Employee Benefits. During the Employment Term and subject to the
limitations set forth in this Section 4, the Executive and his eligible
dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be entitled to
the normal and customary amount of paid vacation provided to senior executive
officers of the Company, but in no event less than 20 days during each 12 month
period, beginning on the Effective Date of this Agreement. Any vacation days
that are not taken in a given 12 month period shall not accrue or carry-over
from year to year. Upon any termination of this Agreement for any reason
whatsoever, accrued and unused vacation for the year in which this Agreement
terminates will be paid to the Executive within 10 days of such termination
based on his annual rate of Base Compensation in
3
<PAGE>
effect on the date of such termination. In addition, the Executive may be
granted leaves of absence with or without pay for such valid and legitimate
reasons as the Board in its sole and absolute discretion may determine, and is
entitled to the same sick leave and holidays provided to other senior executive
officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the Employment Term, in order
to facilitate the performance of the Executive's duties hereunder, and otherwise
for the convenience of the Company, the Company shall provide the Executive with
an automobile, or shall reimburse the Executive for the cost of leasing an
automobile (provided that the lease payments with respect to such automobile
shall not exceed $1,000 per month) and shall pay or reimburse Executive (upon
presentation of vouchers or receipts) for the reasonable cost of all
maintenance, insurance, repairs, gas and other expenses related to such
automobile.
7. Indemnification. The Company shall (and is hereby obligated to)
indemnify (including advance payment of expenses, which such expenses shall
include, without limitation, attorneys' fees) the Executive for all actions
taken by Executive as an officer of the Company or the failure of Executive to
take any action in each and every situation where the Company is obligated to
make such indemnification pursuant to applicable law and the relevant portions
of the Company's Certificate of Incorporation and By-Laws.
4
<PAGE>
8. Termination and Termination Benefits.
(a) Termination by the Company.
(i) For Cause. Notwithstanding any provision
contained herein, the Company may terminate this Agreement at any time during
the Employment Term for "cause". For purposes of this subsection 8(a)(i),
"cause" shall mean (1) the continuing willful failure by the Executive to
substantially perform his duties hereunder for any reason other than total or
partial incapacity due to physical or mental illness, (2) gross negligence or
gross malfeasance on the part of the Executive in the performance of his duties
hereunder that causes material harm to the Company, and (3) the conviction of
the Executive, by a court of competent jurisdiction, of a felony or other
serious crime involving moral turpitude. Termination pursuant to this subsection
8(a)(i) shall be effective immediately upon giving the Executive written notice
thereof stating the reason or reasons therefor with respect to clauses (2) and
(3) above, and 15 days after written notice thereof from the Company to the
Executive specifying the acts or omissions constituting the failure and
requesting that they be remedied with respect to clause (1) above, but only if
the Executive has not cured such failure within such 15 day period. In the event
of a termination pursuant to this subsection 8(a)(i), the Executive shall be
entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination and it is also the
intention and agreement of the Company that Executive shall not be deprived by
reason of termination for cause of any payments, options or benefits which have
been vested or have been earned or to which Executive is entitled as of the
effective date of such termination.
(ii) Disability. If due to illness, physical or
mental disability, or other incapacity, the Executive shall fail, for a total of
any six consecutive months ("Disability"), to
5
<PAGE>
substantially perform the principal duties required by this Agreement, the
Company may terminate this Agreement upon 30 days' written notice to the
Executive. In such event, the Executive shall be (1) paid his Base Compensation
until the Termination Date and his Pro Rata Share of any Incentive Compensation
to which he would have been entitled for the year in which such termination
occurs, and (2) provided with employee benefits pursuant to Section 4, to the
extent available, for the remainder of the Employment Term; provided, however,
that any compensation to be paid to the Executive pursuant to this subsection
8(a)(ii) shall be offset against any payments received by the Executive pursuant
to any policy of disability insurance the premiums of which are paid for by the
Company.
(b) Termination by the Executive. The Executive may terminate
this Agreement at any time during the Employment Term for "good reason" upon 60
days' written notice to the Company (during which period the Executive shall, if
requested in writing by the Company, continue to perform his duties as specified
under this Agreement). "Good reason" shall mean: (1) if the Executive's
employment is terminated by the Company without "cause" (as such term is defined
in subsection 8(a)(i) above); (2) the Company's failure to make any of the
payments or provide any of the benefits to the Executive under this Agreement;
(3) the Company's material breach of any provision of this Agreement; (4) a
material reduction in the Executive's responsibilities (provided, however, "good
reason" shall not include a reduction in Executive's responsibilities if such
reduction is a result of Executive's failure to perform his duties in a manner
reasonably satisfactory to the Company); or (5) a material reduction in the
Executive's Base Compensation (other than a pro rata reduction in Base
Compensation applicable to all senior executives of the Company); provided,
however, that the Company has not cured, or commenced to cure, such failure or
breach within the aforementioned 60 day period.
6
<PAGE>
(c) Termination Compensation. In the event of a termination of
this Agreement by the Executive for "good reason" pursuant to subsection 8(b)
above, the Executive shall be paid (1) his Base Compensation up to the effective
date of such termination; (2) his full share of any Incentive Compensation
payable to him for the year in which the termination occurs; and (3) a lump sum
payment (hereinafter "Termination Compensation") to the Executive equal to 100%
of the average cash compensation (including Base Compensation and Incentive
Compensation) paid to the Executive in the two calendar years immediately
preceding the calendar year in which the termination occurs. Payment of
Termination Compensation to the Executive shall occur no later than 14 days
following the effective date of the Executive's termination. For purposes of
this subsection 8(c), the date of termination of the Executive's employment
shall be date on which the Executive ceases to perform services for the Company.
(d) Stock Options and Other Benefits. In the event that the
Executive is terminated for reasons other than for "cause" or in the event the
Executive terminates this Agreement for "good reason", any stock options then
held by the Executive and/or any other benefits subject to specified vesting
criteria, shall immediately vest in the Executive; provided, however, all stock
options then held by the Executive and/or any other benefits subject to
specified vesting criteria shall expire and/or terminate 90 days after the date
this Agreement is terminated pursuant to subsections 8(a)(i) or 8(b). The
Company agrees to take such steps and to execute such documents as shall be
necessary to effectuate the foregoing.
(e) Death Benefit. Notwithstanding any other provision of this
Agreement, this Agreement shall terminate on the date of the Executive's death.
In such event the Company shall continue to pay Executive's Base Salary to his
wife, if she survives him, or, if she does not survive him, in equal shares to
his children who survive him, through the end of the third month following
7
<PAGE>
the month in which such death occurs. In addition, the Company shall pay to
Executive's wife, if she survives him, or, if she does not survive him, in equal
shares to his children who survive him, the Pro Rata Share of any Incentive
Compensation which Executive would have been entitled to for the year in which
such death occurs.
(f) No Mitigation. The Executive shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All advertising, promotional, sales, suppliers,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or at or after the termination of the Executive's employment,
the Executive shall immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the term of this
Agreement and for a period of one year after termination of the Executive's
employment with the Company for any reason, the Executive shall not, directly or
indirectly, solicit, induce, encourage or attempt to influence any client,
customer, employee, consultant, independent contractor, salesman or supplier
8
<PAGE>
of the Company to cease to do business or terminate his employment with the
Company, and shall not engage in (as a principal, partner, director, officer,
agent, employee, consultant or otherwise) or be financially interested in any
business competing with the Company anywhere in the United States, including,
but not limited to, in the case of the state of California, the counties listed
on Annex A attached hereto. Nothing contained in this Section 10 shall prevent
the Executive from holding for investment not more than five percent (5%) of any
class of equity securities of a company whose securities are publicly traded or
from engaging in any activities that are not in competition with the business
activities of the Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above unless such
material has become otherwise publicly available.
(c) Saving Clause. If the period of time or the area specified
in subsection (a) above should be adjudged unreasonable in any proceeding, then
the period of time shall be reduced by such number of months or the area shall
be reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If the Executive violates any of the restrictions contained in the
foregoing subsection (a), the restrictive period shall not run in favor of the
Executive from the time of the commencement of any such violation until such
time as such violation shall be cured by the Executive to the satisfaction of
Company.
11. Executive's Representation and Warranties. Executive represents and
warrants that he has the full right and authority to enter into this Agreement
and fully perform his obligations
9
<PAGE>
hereunder, that he is not subject to any non-competition agreement other than
with the Company, and that his past, present and anticipated future activities
have not and will not infringe on the proprietary rights of others. Executive
further represents and warrants that he is not obligated under any contract
(including, but not limited to, licenses, covenants or commitments of any
nature) or other agreement or subject to any judgment, decree or order of any
court or administrative agency which would conflict with his obligation to use
his best efforts to perform his duties hereunder or which would conflict with
the Company's business and operations as presently conducted or proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as officer and employee by Executive will
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument to which
Executive is currently a party.
12. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of
10
<PAGE>
such party to require performance of that provision or to exercise any right,
power, or remedy hereunder, and any waiver by any party of any breach of any
provision of this Agreement shall not be construed as a waiver of any continuing
or succeeding breach of such provision, a waiver of the provision itself, or a
waiver of any right, power, or remedy under this Agreement. No notice to or
demand on any party in any case shall, of itself, entitle such party to other or
further notice or demand in similar or other circumstances.
(d) Power and Authority. The Company represents and warrants
to the Executive that it has the requisite corporate power to enter into this
Agreement and perform the terms hereof; that the execution, delivery and
performance of this Agreement by it has been duly authorized by all appropriate
corporate action; and that this Agreement represents the valid and legally
binding obligation of the Company and is enforceable against it in accordance
with its terms.
(e) Burden and Benefit; Survival. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal and legal representatives, successors and assigns. In
addition to, and not in limitation of anything contained in this Agreement, it
is expressly understood and agreed that the Company's obligation to pay
Termination Compensation as set forth herein shall survive any termination of
this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New Jersey. Headings and
titles herein are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
(g) Notices. All notices called for under this Agreement shall
be in writing and shall be deemed given upon receipt if delivered personally or
by confirmed facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested),
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<PAGE>
postage prepaid, to the parties at their respective addresses (or at such other
address for a party as shall be specified by like notice; provided that notices
of a change of address shall be effective only upon receipt thereof) as set
forth in the preamble to this Agreement or to any other address or addressee as
any party entitled to receive notice under this Agreement shall designate, from
time to time, to others in the manner provided in this subsection 11(g) for the
service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
THIS AGREEEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN
PARTICULAR, PARAGRAPH 10 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING
THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY
REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT,
YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND
TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING
AND SIGNIFICANCE OF ALL OF ITS
12
<PAGE>
PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING
YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT, AND THAT YOU ARE
FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
------------------------------------
CHARLES T. SALDARINI
PROFESSIONAL DETAILING, INC.
a New Jersey corporation
By:
---------------------------------
John P. Dugan
Chairman of the Board
PROFESSIONAL DETAILING, INC.
a Delaware corporation
By:
---------------------------------
John P. Dugan
Chairman of the Board
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Exhibit 10.4
[LETTERHEAD OF PROFESSIONAL DETAILING INC.]
Mr. John P. Dugan
Otterkill Road
P.O. Box 54
Mountainville, N.Y. 10953
Re: 1998 Compensation
Dear Mr. Dugan,
Please be advised that your total 1998 and future years compensation will
consist of a salary of $125,000 plus fringe benefits and expense reimbursements
consistent with past practices. 1998 and future years' compensation will not
include any bonus compensation.
Very truly yours,
Professional Detailing Inc.
By: /s/ Charles T. Saldarini
----------------------------
Charles T. Saldarini
President
AGREED TO AND ACCEPTED:
/s/ John P. Dugan
- -----------------------
JOHN P. DUGAN
Dated:
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day
of March, 1998, by and among PROFESSIONAL DETAILING, INC., a New Jersey
corporation ("PDI-NJ"), PROFESSIONAL DETAILING, INC., a Delaware corporation
("PDI-Del"), both having their principal place of business at 599 MacArthur
Blvd., Mahwah, New Jersey 07450, on the one hand, and STEVEN K. BUDD, residing
at 1333 Lexington Drive, Yardley, Pennsylvania 19067 (the "Executive"), on the
other. PDI-NJ and PDI-Del are collectively referred to herein as the "Company".
WITNESSETH:
-----------
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Chief Operating Officer ("COO") and Executive Vice-President of
the Company; and
WHEREAS, the parties desire by this Agreement to set forth the terms
and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties. The Company hereby employs the Executive as
COO and Executive Vice-President on the terms and conditions provided in this
Agreement and Executive agrees to accept such employment subject to the terms
and conditions of this Agreement. The Executive shall be responsible for
management of the day-to-day operations of the Company, shall
1
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perform the duties and responsibilities as are customary for the officer of a
corporation in such positions, and shall perform such other duties and
responsibilities as are reasonably determined from time to time by the Chief
Executive Officer of the Company. The Executive shall report to and be
supervised by the Company's Chief Executive Officer. The Executive shall be
based at the Company's offices in Mahwah, New Jersey or such other place that
shall constitute the Company's headquarters and, except for business travel
incident to his employment under this Agreement, the Company agrees the
Executive shall not be required to relocate.
2. Term. The term of this Agreement shall commence on March 1, 1998
(the "Commencement Date"), and shall terminate on March 31, 2001, unless
extended or earlier terminated in accordance with the terms of this Agreement
(the "Termination Date"). Such term of employment is herein sometimes referred
to as the "Employment Term". The Employment Term shall be extended for
successive one year periods unless either party notifies the other in writing at
least 180 days before the Termination Date, or any anniversary of the
Termination Date, as the case may be, that he or it chooses not to extend the
Employment Term.
3. Compensation. As compensation for performing the services required
by this Agreement, and during the term of this Agreement, the Executive shall be
compensated as follows:
(a) Base Compensation. The Company shall pay to the Executive
an annual salary ("Base Compensation") of $178,605, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive may be entitled to such increases in Base
Compensation with respect to each calendar year during the term of this
Agreement, as shall be determined by the
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Company, in its sole and absolute discretion, based on periodic reviews of the
Executive's performance .
(b) Incentive Compensation. In addition to Base Compensation,
the Executive may be entitled to receive additional compensation ("Incentive
Compensation") in the discretion of the Company. The Incentive Compensation
shall be pursuant to short-term and/or long-term incentive compensation programs
which may be established by the Company. For purposes of this Agreement, the
Executive's "Pro Rata Share" of Incentive Compensation for any calendar of the
Company shall be a fraction whose numerator shall be equal to the number of
months (or parts of months) during which the Executive was actually employed by
the Company during any such calendar year and whose denominator shall be the
total number of months in such calendar year.
4. Employee Benefits. During the Employment Term and subject to the
limitations set forth in this Section 4, the Executive and his eligible
dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be entitled to
the normal and customary amount of paid vacation provided to senior executive
officers of the Company, but in no event less than 20 days during each 12 month
period, beginning on the Effective Date of this Agreement. Any vacation days
that are not taken in a given 12 month period shall not accrue or carry-over
from year to year. Upon any termination of this Agreement for any reason
whatsoever, accrued and unused vacation for the year in which this Agreement
terminates will be paid to the Executive within 10 days of such termination
based on his annual rate of Base Compensation in
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effect on the date of such termination. In addition, the Executive may be
granted leaves of absence with or without pay for such valid and legitimate
reasons as the Company in its sole and absolute discretion may determine, and is
entitled to the same sick leave and holidays provided to other senior executive
officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the Employment Term, in order
to facilitate the performance of the Executive's duties hereunder, and otherwise
for the convenience of the Company, the Company shall provide the Executive with
an automobile, or shall reimburse the Executive for the cost of leasing an
automobile (provided that the lease payments with respect to such automobile
shall not exceed $1,000 per month) and shall pay or reimburse Executive (upon
presentation of vouchers or receipts) for the reasonable cost of all
maintenance, insurance, repairs, gas and other expenses related to such
automobile.
7. Indemnification. The Company shall (and is hereby obligated to)
indemnify (including advance payment of expenses, which such expenses shall
include, without limitation, attorneys' fees) the Executive for all actions
taken by Executive as an officer of the Company or the failure of Executive to
take any action in each and every situation where the Company is obligated to
make such indemnification pursuant to applicable law and the relevant portions
of the Company's Certificate of Incorporation and By-Laws.
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8. Termination and Termination Benefits.
(a) Termination by the Company.
(i) For Cause. Notwithstanding any provision
contained herein, the Company may terminate this Agreement at any time during
the Employment Term for "cause". For purposes of this subsection 8(a)(i),
"cause" shall mean (1) the continuing willful failure by the Executive to
substantially perform his duties hereunder for any reason other than total or
partial incapacity due to physical or mental illness, (2) gross negligence or
gross malfeasance on the part of the Executive in the performance of his duties
hereunder that causes material harm to the Company, and (3) the conviction of
the Executive, by a court of competent jurisdiction, of a felony or other
serious crime involving moral turpitude. Termination pursuant to this subsection
8(a)(i) shall be effective immediately upon giving the Executive written notice
thereof stating the reason or reasons therefor with respect to clauses (2) and
(3) above, and 15 days after written notice thereof from the Company to the
Executive specifying the acts or omissions constituting the failure and
requesting that they be remedied with respect to clause (1) above, but only if
the Executive has not cured such failure within such 15 day period. In the event
of a termination pursuant to this subsection 8(a)(i), the Executive shall be
entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination and it is also the
intention and agreement of the Company that Executive shall not be deprived by
reason of termination for cause of any payments, options or benefits which have
been vested or have been earned or to which Executive is entitled as of the
effective date of such termination.
(ii) Disability. If due to illness, physical or
mental disability, or other incapacity, the Executive shall fail, for a total of
any six consecutive months ("Disability"), to
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substantially perform the principal duties required by this Agreement, the
Company may terminate this Agreement upon 30 days' written notice to the
Executive. In such event, the Executive shall be (1) paid his Base Compensation
until the Termination Date and his Pro Rata Share of any Incentive Compensation
to which he would have been entitled for the year in which such termination
occurs, and (2) provided with employee benefits pursuant to Section 4, to the
extent available, for the remainder of the Employment Term; provided, however,
that any compensation to be paid to the Executive pursuant to this subsection
8(a)(ii) shall be offset against any payments received by the Executive pursuant
to any policy of disability insurance the premiums of which are paid for by the
Company.
(b) Termination by the Executive. The Executive may terminate
this Agreement at any time during the Employment Term for "good reason" upon 60
days' written notice to the Company (during which period the Executive shall, if
requested in writing by the Company, continue to perform his duties as specified
under this Agreement). "Good reason" shall mean: (1) if the Executive's
employment is terminated by the Company without "cause" (as such term is defined
in subsection 8(a)(i) above); (2) the Company's failure to make any of the
payments or provide any of the benefits to the Executive under this Agreement;
(3) the Company's material breach of any provision of this Agreement; (4) a
reduction in the Executive's responsibilities (provided, however, "good reason"
shall not include a reduction in Executive's responsibilities if such reduction
is a result of Executive's failure to perform his duties in a manner reasonably
satisfactory to the Company); or (5) a reduction in the Executive's Base
Compensation (other than a pro rata reduction in Base Compensation applicable to
all senior executives of the Company); provided, however, that the Company has
not cured, or commenced to cure, such failure or breach within the
aforementioned 60 day period.
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(c) Termination Compensation. In the event of a termination of
this Agreement by the Executive for "good reason" pursuant to subsection 8(b)
above, the Executive shall be paid (1) his Base Compensation up to the effective
date of such termination; (2) his full share of any Incentive Compensation
payable to him for the year in which the termination occurs; and (3) a lump sum
payment (hereinafter "Termination Compensation") to the Executive equal to 100%
of the average cash compensation (including Base Compensation and Incentive
Compensation) paid to the Executive in the two calendar years immediately
preceding the calendar year in which the termination occurs. Payment of
Termination Compensation to the Executive shall occur no later than 14 days
following the effective date of the Executive's termination. For purposes of
this subsection 8(c), the date of termination of the Executive's employment
shall be date on which the Executive ceases to perform services for the Company.
(d) Stock Options and Other Benefits. In the event that the
Executive is terminated for reasons other than for "cause" or in the event the
Executive terminates this Agreement for "good reason", any stock options then
held by the Executive and/or any other benefits subject to specified vesting
criteria, shall immediately vest in the Executive; provided, however, all stock
options then held by the Executive and/or any other benefits subject to
specified vesting criteria shall expire and/or terminate 90 days after the date
this Agreement is terminated pursuant to subsections 8(a)(i) or 8(b). The
Company agrees to take such steps and to execute such documents as shall be
necessary to effectuate the foregoing.
(e) Death Benefit. Notwithstanding any other provision of this
Agreement, this Agreement shall terminate on the date of the Executive's death.
In such event the Company shall continue to pay Executive's Base Salary to his
wife, if she survives him, or, if she does not survive him, in equal shares to
his children who survive him, through the end of the third month following
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the month in which such death occurs. In addition, the Company shall pay to
Executive's wife, if she survives him, or, if she does not survive him, in equal
shares to his children who survive him, the Pro Rata Share of any Incentive
Compensation to which Executive would have been entitled for the year in which
such death occurs.
(f) No Mitigation. The Executive shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All advertising, promotional, sales, suppliers,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or at or after the termination of the Executive's employment,
the Executive shall immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the term of this
Agreement and for a period of one year after termination of the Executive's
employment with the Company for any reason, the Executive shall not, directly or
indirectly, solicit, induce, encourage or attempt to influence any client,
customer, employee, consultant, independent contractor, salesman or supplier
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of the Company to cease to do business or terminate his employment with the
Company, and shall not engage in (as a principal, partner, director, officer,
agent, employee, consultant or otherwise) or be financially interested in any
business competing with the Company anywhere in the United States, including,
but not limited to, in the case of the state of California, the counties listed
on Annex A attached hereto. Nothing contained in this Section 10 shall prevent
the Executive from holding for investment not more than five percent (5%) of any
class of equity securities of a company whose securities are publicly traded or
from engaging in any activities that are not in competition with the business
activities of the Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above unless such
material has become otherwise publicly available.
(c) Saving Clause. If the period of time or the area specified
in subsection (a) above should be adjudged unreasonable in any proceeding, then
the period of time shall be reduced by such number of months or the area shall
be reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If the Executive violates any of the restrictions contained in the
foregoing subsection (a), the restrictive period shall not run in favor of the
Executive from the time of the commencement of any such violation until such
time as such violation shall be cured by the Executive to the satisfaction of
Company.
11. Executive's Representation and Warranties. Executive represents and
warrants that he has the full right and authority to enter into this Agreement
and fully perform his obligations
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hereunder, that he is not subject to any non-competition agreement other than
with the Company, and that his past, present and anticipated future activities
have not and will not infringe on the proprietary rights of others. Executive
further represents and warrants that he is not obligated under any contract
(including, but not limited to, licenses, covenants or commitments of any
nature) or other agreement or subject to any judgment, decree or order of any
court or administrative agency which would conflict with his obligation to use
his best efforts to perform his duties hereunder or which would conflict with
the Company's business and operations as presently conducted or proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as officer and employee by Executive will
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument to which
Executive is currently a party.
12. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of
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such party to require performance of that provision or to exercise any right,
power, or remedy hereunder, and any waiver by any party of any breach of any
provision of this Agreement shall not be construed as a waiver of any continuing
or succeeding breach of such provision, a waiver of the provision itself, or a
waiver of any right, power, or remedy under this Agreement. No notice to or
demand on any party in any case shall, of itself, entitle such party to other or
further notice or demand in similar or other circumstances.
(d) Power and Authority. The Company represents and warrants
to the Executive that it has the requisite corporate power to enter into this
Agreement and perform the terms hereof; that the execution, delivery and
performance of this Agreement by it has been duly authorized by all appropriate
corporate action; and that this Agreement represents the valid and legally
binding obligation of the Company and is enforceable against it in accordance
with its terms.
(e) Burden and Benefit; Survival. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal and legal representatives, successors and assigns. In
addition to, and not in limitation of anything contained in this Agreement, it
is expressly understood and agreed that the Company's obligation to pay
Termination Compensation as set forth herein shall survive any termination of
this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New Jersey. Headings and
titles herein are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
(g) Notices. All notices called for under this Agreement shall
be in writing and shall be deemed given upon receipt if delivered personally or
by confirmed facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested),
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postage prepaid, to the parties at their respective addresses (or at such other
address for a party as shall be specified by like notice; provided that notices
of a change of address shall be effective only upon receipt thereof) as set
forth in the preamble to this Agreement or to any other address or addressee as
any party entitled to receive notice under this Agreement shall designate, from
time to time, to others in the manner provided in this subsection 11(g) for the
service of Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
THIS AGREEEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN
PARTICULAR, PARAGRAPH 10 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING
THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY
REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT,
YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND
TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING
AND SIGNIFICANCE OF ALL OF ITS
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PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING
YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT, AND THAT YOU ARE
FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
------------------------------------
STEVEN K. BUDD
PROFESSIONAL DETAILING, INC.,
a New Jersey corporation
By:
--------------------------------
Charles T. Saldarini
Chief Executive Officer
PROFESSIONAL DETAILING, INC.,
a Delaware corporation
By:
--------------------------------
Charles T. Saldarini
Chief Executive Officer
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Exhibit 10.6
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day
of March, 1998, by and among PROFESSIONAL DETAILING, INC., a New Jersey
corporation ("PDI-NJ"), PROFESSIONAL DETAILING, INC., a Delaware corporation
("PDI-Del"), both having their principal place of business at 599 MacArthur
Blvd., Mahwah, New Jersey 07450, on the one hand, and BERNARD C. BOYLE, residing
at 60 Oak Road, Briarcliff Manor, New York 10510 (the "Executive"), on the
other. PDI-NJ and PDI-Del are collectively referred to herein as the "Company".
WITNESSETH:
-----------
WHEREAS, the Company believes that it would benefit from the
application of the Executive's particular and unique skill, experience and
background to the management and operation of the Company, and wishes to employ
the Executive as Chief Financial Officer ("CFO"), Executive Vice-President,
Secretary and Treasurer of the Company; and
WHEREAS, the parties desire by this Agreement to set forth the terms
and conditions of the employment relationship between the Company and the
Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties. The Company hereby employs the Executive as
CFO, Executive Vice-President, Secretary and Treasurer on the terms and
conditions provided in this Agreement and Executive agrees to accept such
employment subject to the terms and conditions of this Agreement. The Executive
shall be responsible for management of the financial operations,
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shall perform the duties and responsibilities as are customary for the officer
of a corporation in such positions, and shall perform such other duties and
responsibilities as are reasonably determined from time to time by the Chief
Executive Officer of the Company. The Executive shall report to and be
supervised by the Company's Chief Executive Officer. The Executive shall be
based at the Company's offices in Mahwah, New Jersey or such other place that
shall constitute the Company's headquarters and, except for business travel
incident to his employment under this Agreement, the Company agrees the
Executive shall not be required to relocate.
2. Term. The term of this Agreement shall commence on March 1, 1998
(the "Commencement Date"), and shall terminate on December 31, 2000, unless
extended or earlier terminated in accordance with the terms of this Agreement
(the "Termination Date"). Such term of employment is herein sometimes referred
to as the "Employment Term". The Employment Term shall be extended for
successive one year periods unless either party notifies the other in writing at
least 180 days before the Termination Date, or any anniversary of the
Termination Date, as the case may be, that he or it chooses not to extend the
Employment Term.
3. Compensation. As compensation for performing the services required
by this Agreement, and during the term of this Agreement, the Executive shall be
compensated as follows:
(a) Base Compensation. The Company shall pay to the Executive
an annual salary ("Base Compensation") of $165,000, payable in equal
installments pursuant to the Company's customary payroll procedures in effect
for its executive personnel at the time of payment, but in no event less
frequently than monthly, subject to withholding for applicable federal, state,
and local taxes. The Executive may be entitled to such increases in Base
Compensation with respect to each calendar year during the term of this
Agreement, as shall be determined by the
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Company, in its sole and absolute discretion, based on periodic reviews of the
Executive's performance .
(b) Incentive Compensation. In addition to Base Compensation,
the Executive may be entitled to receive additional compensation ("Incentive
Compensation") in the discretion of the Company. The Incentive Compensation
shall be pursuant to short-term and/or long-term incentive compensation programs
which may be established by the Company. For purposes of this Agreement, the
Executive's "Pro Rata Share" of Incentive Compensation for any calendar of the
Company shall be a fraction whose numerator shall be equal to the number of
months (or parts of months) during which the Executive was actually employed by
the Company during any such calendar year and whose denominator shall be the
total number of months in such calendar year.
4. Employee Benefits. During the Employment Term and subject to the
limitations set forth in this Section 4, the Executive and his eligible
dependents shall have the right to participate in any retirement plans
(qualified and non-qualified), pension, insurance, health, disability or other
benefit plan or program that has been or is hereafter adopted by the Company (or
in which the Company participates), according to the terms of such plan or
program, on terms no less favorable than the most favorable terms granted to
senior executives of the Company.
5. Vacation and Leaves of Absence. The Executive shall be entitled to
the normal and customary amount of paid vacation provided to senior executive
officers of the Company, but in no event less than 20 days during each 12 month
period, beginning on the Effective Date of this Agreement. Any vacation days
that are not taken in a given 12 month period shall not accrue or carry-over
from year to year. Upon any termination of this Agreement for any reason
whatsoever, accrued and unused vacation for the year in which this Agreement
terminates will be paid to the Executive within 10 days of such termination
based on his annual rate of Base Compensation in
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effect on the date of such termination. In addition, the Executive may be
granted leaves of absence with or without pay for such valid and legitimate
reasons as the Company in its sole and absolute discretion may determine, and is
entitled to the same sick leave and holidays provided to other senior executive
officers of the Company.
6. Expenses.
(a) Business Expenses. The Executive shall be promptly
reimbursed against presentation of vouchers or receipts for all reasonable and
necessary expenses incurred by him in connection with the performance of
business-related duties.
(b) Automobile Expense. During the Employment Term, in order
to facilitate the performance of the Executive's duties hereunder, and otherwise
for the convenience of the Company, the Company shall provide the Executive with
an automobile, or shall reimburse the Executive for the cost of leasing an
automobile (provided that the lease payments with respect to such automobile
shall not exceed $1,000 per month) and shall pay or reimburse Executive (upon
presentation of vouchers or receipts) for the reasonable cost of all
maintenance, insurance, repairs, gas and other expenses related to such
automobile.
7. Indemnification. The Company shall (and is hereby obligated to)
indemnify (including advance payment of expenses, which such expenses shall
include, without limitation, attorneys' fees) the Executive for all actions
taken by Executive as an officer of the Company or the failure of Executive to
take any action in each and every situation where the Company is obligated to
make such indemnification pursuant to applicable law and the relevant portions
of the Company's Certificate of Incorporation and By-Laws.
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8. Termination and Termination Benefits.
(a) Termination by the Company.
(i) For Cause. Notwithstanding any provision
contained herein, the Company may terminate this Agreement at any time during
the Employment Term for "cause". For purposes of this subsection 8(a)(i),
"cause" shall mean (1) the continuing willful failure by the Executive to
substantially perform his duties hereunder for any reason other than total or
partial incapacity due to physical or mental illness, (2) gross negligence or
gross malfeasance on the part of the Executive in the performance of his duties
hereunder that causes material harm to the Company, and (3) the conviction of
the Executive, by a court of competent jurisdiction, of a felony or other
serious crime involving moral turpitude. Termination pursuant to this subsection
8(a)(i) shall be effective immediately upon giving the Executive written notice
thereof stating the reason or reasons therefor with respect to clauses (2) and
(3) above, and 15 days after written notice thereof from the Company to the
Executive specifying the acts or omissions constituting the failure and
requesting that they be remedied with respect to clause (1) above, but only if
the Executive has not cured such failure within such 15 day period. In the event
of a termination pursuant to this subsection 8(a)(i), the Executive shall be
entitled to payment of his Base Compensation and the benefits pursuant to
Section 4 hereof up to the effective date of such termination and it is also the
intention and agreement of the Company that Executive shall not be deprived by
reason of termination for cause of any payments, options or benefits which have
been vested or have been earned or to which Executive is entitled as of the
effective date of such termination.
(ii) Disability. If due to illness, physical or
mental disability, or other incapacity, the Executive shall fail, for a total of
any six consecutive months ("Disability"), to
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substantially perform the principal duties required by this Agreement, the
Company may terminate this Agreement upon 30 days' written notice to the
Executive. In such event, the Executive shall be (1) paid his Base Compensation
until the Termination Date and his Pro Rata Share of any Incentive Compensation
to which he would have been entitled for the year in which such termination
occurs, and (2) provided with employee benefits pursuant to Section 4, to the
extent available, for the remainder of the Employment Term; provided, however,
that any compensation to be paid to the Executive pursuant to this subsection
8(a)(ii) shall be offset against any payments received by the Executive pursuant
to any policy of disability insurance the premiums of which are paid for by the
Company.
(b) Termination by the Executive. The Executive may terminate
this Agreement at any time during the Employment Term for "good reason" upon 60
days' written notice to the Company (during which period the Executive shall, if
requested in writing by the Company, continue to perform his duties as specified
under this Agreement). "Good reason" shall mean: (1) if the Executive's
employment is terminated by the Company without "cause" (as such term is defined
in subsection 8(a)(i) above); (2) the Company's failure to make any of the
payments or provide any of the benefits to the Executive under this Agreement;
(3) the Company's material breach of any provision of this Agreement; (4) a
reduction in the Executive's responsibilities (provided, however, "good reason"
shall not include a reduction in Executive's responsibilities if such reduction
is a result of Executive's failure to perform his duties in a manner reasonably
satisfactory to the Company); or (5) a reduction in the Executive's Base
Compensation (other than a pro rata reduction in Base Compensation applicable to
all senior executives of the Company); provided, however, that the Company has
not cured, or commenced to cure, such failure or breach within the
aforementioned 60 day period.
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(c) Termination Compensation. In the event of a termination of
this Agreement by the Executive for "good reason" pursuant to subsection 8(b)
above, the Executive shall be paid (1) his Base Compensation up to the effective
date of such termination; (2) his full share of any Incentive Compensation
payable to him for the year in which the termination occurs; and (3) a lump sum
payment (hereinafter "Termination Compensation") to the Executive equal to 100%
of the average cash compensation (including Base Compensation and Incentive
Compensation) paid to the Executive in the two calendar years immediately
preceding the calendar year in which the termination occurs. Payment of
Termination Compensation to the Executive shall occur no later than 14 days
following the effective date of the Executive's termination. For purposes of
this subsection 8(c), the date of termination of the Executive's employment
shall be date on which the Executive ceases to perform services for the Company.
(d) Stock Options and Other Benefits. In the event that the
Executive is terminated for reasons other than for "cause" or in the event the
Executive terminates this Agreement for "good reason", any stock options then
held by the Executive and/or any other benefits subject to specified vesting
criteria, shall immediately vest in the Executive; provided, however, all stock
options then held by the Executive and/or any other benefits subject to
specified vesting criteria shall expire and/or terminate 90 days after the date
this Agreement is terminated pursuant to subsections 8(a)(i) or 8(b). The
Company agrees to take such steps and to execute such documents as shall be
necessary to effectuate the foregoing.
(e) Death Benefit. Notwithstanding any other provision of this
Agreement, this Agreement shall terminate on the date of the Executive's death.
In such event the Company shall continue to pay Executive's Base Salary to his
wife, if she survives him, or, if she does not survive him, in equal shares to
his children who survive him, through the end of the third month following
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the month in which such death occurs. In addition, the Company shall pay to
Executive's wife, if she survives him, or, if she does not survive him, in equal
shares to his children who survive him, the Pro Rata Share of any Incentive
Compensation to which Executive would have been entitled for the year in which
such death occurs.
(f) No Mitigation. The Executive shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise, nor shall the amount of any payment or benefit provided
in this Agreement be reduced by any compensation or benefit earned by the
Executive after termination of his employment.
9. Company Property. All advertising, promotional, sales, suppliers,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or at or after the termination of the Executive's employment,
the Executive shall immediately deliver the same to the Company.
10. Covenant Not To Compete.
(a) No Solicitation or Competition. During the term of this
Agreement and for a period of one year after termination of the Executive's
employment with the Company for any reason, the Executive shall not, directly or
indirectly, solicit, induce, encourage or attempt to influence any client,
customer, employee, consultant, independent contractor, salesman or supplier of
the Company to cease to do business or terminate his employment with the
Company, and shall
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not engage in (as a principal, partner, director, officer, agent, employee,
consultant or otherwise) or be financially interested in any business competing
with the Company anywhere in the United States, including, but not limited to,
in the case of the state of California, the counties listed on Annex A attached
hereto. Nothing contained in this Section 10 shall prevent the Executive from
holding for investment not more than five percent (5%) of any class of equity
securities of a company whose securities are publicly traded or from engaging in
any activities that are not in competition with the business activities of the
Company.
(b) Confidentiality of Company Property. During the
effectiveness of this Agreement and at all times thereafter, the Executive shall
not use for his personal benefit, or disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm, association or company
other than the Company, any material referred to in Section 9 above unless such
material has become otherwise publicly available.
(c) Saving Clause. If the period of time or the area specified
in subsection (a) above should be adjudged unreasonable in any proceeding, then
the period of time shall be reduced by such number of months or the area shall
be reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If the Executive violates any of the restrictions contained in the
foregoing subsection (a), the restrictive period shall not run in favor of the
Executive from the time of the commencement of any such violation until such
time as such violation shall be cured by the Executive to the satisfaction of
Company.
11. Executive's Representation and Warranties. Executive represents and
warrants that he has the full right and authority to enter into this Agreement
and fully perform his obligations hereunder, that he is not subject to any
non-competition agreement other than with the Company,
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and that his past, present and anticipated future activities have not and will
not infringe on the proprietary rights of others. Executive further represents
and warrants that he is not obligated under any contract (including, but not
limited to, licenses, covenants or commitments of any nature) or other agreement
or subject to any judgment, decree or order of any court or administrative
agency which would conflict with his obligation to use his best efforts to
perform his duties hereunder or which would conflict with the Company's business
and operations as presently conducted or proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as officer and employee by Executive will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument to which Executive is currently a party.
12. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy
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hereunder, and any waiver by any party of any breach of any provision of this
Agreement shall not be construed as a waiver of any continuing or succeeding
breach of such provision, a waiver of the provision itself, or a waiver of any
right, power, or remedy under this Agreement. No notice to or demand on any
party in any case shall, of itself, entitle such party to other or further
notice or demand in similar or other circumstances.
(d) Power and Authority. The Company represents and warrants
to the Executive that it has the requisite corporate power to enter into this
Agreement and perform the terms hereof; that the execution, delivery and
performance of this Agreement by it has been duly authorized by all appropriate
corporate action; and that this Agreement represents the valid and legally
binding obligation of the Company and is enforceable against it in accordance
with its terms.
(e) Burden and Benefit; Survival. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal and legal representatives, successors and assigns. In
addition to, and not in limitation of anything contained in this Agreement, it
is expressly understood and agreed that the Company's obligation to pay
Termination Compensation as set forth herein shall survive any termination of
this Agreement.
(f) Governing Law; Headings. This Agreement and its
construction, performance, and enforceability shall be governed by, and
construed in accordance with, the laws of the State of New Jersey. Headings and
titles herein are included solely for convenience and shall not affect, or be
used in connection with, the interpretation of this Agreement.
(g) Notices. All notices called for under this Agreement shall
be in writing and shall be deemed given upon receipt if delivered personally or
by confirmed facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at their respective addresses (or at such other address for a party as
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shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof) as set forth in the preamble to
this Agreement or to any other address or addressee as any party entitled to
receive notice under this Agreement shall designate, from time to time, to
others in the manner provided in this subsection 11(g) for the service of
Notices.
Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; provided, however, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day next
following such day. Any notice sent by facsimile transmission shall be deemed to
have been given and received on the business day next following the day of
transmission.
(h) Number of Days. In computing the number of days for
purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
THIS AGREEEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR EMPLOYMENT. IN
PARTICULAR, PARAGRAPH 10 AFFECTS YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING
THE TERMINATION OF THIS AGREEMENT. YOU SHOULD SEEK ADVICE FROM YOUR ATTORNEY
REGARDING ANY MATTER RELATING TO THIS AGREEMENT. BY EXECUTING THIS AGREEMENT,
YOU ARE AFFIRMING THAT YOU HAVE HAD THE OPPORTUNITY TO REVIEW THIS AGREEMENT AND
TO CONSULT WITH YOUR ATTORNEY IF YOU SO DESIRED, THAT YOU UNDERSTAND THE MEANING
AND SIGNIFICANCE OF ALL OF ITS
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PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING
YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT, AND THAT YOU ARE
FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
--------------------------------
BERNARD C. BOYLE
PROFESSIONAL DETAILING, INC.
a New Jersey corporation
By:
----------------------------
Charles T. Saldarini
Chief Executive Officer
PROFESSIONAL DETAILING, INC.
a New Delaware corporation
By:
----------------------------
Charles T. Saldarini
Chief Executive Officer
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After the merger discussed in Note 2 to the Financial Statements is
effected, we will be in a position to render the following consent.
/s/ COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
March 27, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 3, 1998, except as to the information presented in
Note 2, for which the date is ________ on our audits of the Financial Statements
of Professional Detailing, Inc. We also consent to the references to our firm
under the caption 'Experts' and 'Selected Financial Data'.
Parsippany, New Jersey
March , 1998
<PAGE>
Exhibit 99.4
CONSENT
The undersigned, hereby consents to the use of its name in the
Registration Statement filed by Professional Detailing, Inc. pursuant to the
Securities Act of 1933, as amended as having prepared a valuation analysis of
Professional Detailing, Inc.
HEMPSTEAD & CO.
By: /s/ J. Mark Penny
------------------------
Name: J. Mark Penny
Title: Managing Director
Date: 3/27/98
