<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
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 22-2919486
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
10 MOUNTAINVIEW ROAD
UPPER SADDLE RIVER, NJ 07458
(201) 258-8450
(201) 258-8445 FACSIMILE
(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.
10 MOUNTAINVIEW ROAD
UPPER SADDLE RIVER, NEW JERSEY 07458
(201) 258-8450
(201) 258-8445 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. PATRICK O'BRIEN, ESQ.
MORSE, ZELNICK, ROSE & LANDER, LLP ROPES & GRAY
450 PARK AVENUE ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10022 BOSTON, MASSACHUSETTS 02110
(212) 838-5030 (617) 951-7000
(212) 838-9190 FACSIMILE (617) 951-7050 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AGGREGATE PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share...... 3,220,000 $25.00 $80,500,000.00 $23,747.50
</TABLE>
(1) Includes 420,000 shares subject to an over-allotment option granted to the
underwriters.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act. The Proposed Maximum
Aggregate Price Per Share is estimated on the basis of the average of the
high and low trading prices for Professional Detailing, Inc.'s common stock
on December 14, 1999, as reported by the Nasdaq National Market.
------------------------
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>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED DECEMBER 16, 1999
2,800,000 SHARES
[LOGO]
PROFESSIONAL DETAILING, INC.
COMMON STOCK
------------------------
We are offering 1,399,312 shares and the selling stockholders are offering
1,400,688 shares.
------------------------
Our common stock is listed on the Nasdaq National Market under the symbol
"PDII." On December 15, 1999, the last reported sale price of our common stock
on the Nasdaq National Market was $25 5/8 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS PDI STOCKHOLDERS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total........................... $ $ $ $
</TABLE>
We and a selling stockholder have granted the underwriters the right to purchase
up to an additional 420,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER WILLIAM BLAIR & COMPANY
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 8
Special Note Regarding Forward-Looking
Statements.................................. 12
Use of Proceeds............................... 13
Price Range of Our Common Stock............... 13
Dividend Policy............................... 13
Capitalization................................ 14
Selected Consolidated Financial Data.......... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 17
<CAPTION>
PAGE
----
<S> <C>
Business...................................... 24
Management.................................... 31
Certain Transactions.......................... 36
Principal and Selling Stockholders............ 37
Description of Capital Stock.................. 38
Underwriters.................................. 40
Legal Matters................................. 41
Experts....................................... 41
Where You Can Find More Information About
Us.......................................... 42
Index to Consolidated Financial Statements.... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares and seeking offers
to buy shares only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the shares.
Unless indicated otherwise, the terms "us," "we," "our" and "PDI" used in
this prospectus refer to Professional Detailing, Inc. and its wholly-owned
subsidiaries, TVG, Inc. and ProtoCall, Inc.
Unless indicated otherwise, all industry statistics have been provided to
us by IMS America, a healthcare marketing information company.
Our corporate headquarters are located at 10 Mountainview Road, Upper
Saddle River, NJ 07458, and our telephone number is (201) 258-8450.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all the information that is important to you. For a more complete
understanding of our business and the shares offered by this prospectus, you
should read the entire prospectus, including the consolidated financial
statements and accompanying notes, and the risk factors.
PDI
We are a leading and rapidly growing contract sales organization, or CSO,
providing customized product detailing programs and other marketing and
promotional services, including professional communication and education
services and marketing research and consulting services, to the United States
pharmaceutical industry. We have achieved our leadership position in the CSO
industry based on 12 years of designing and executing programs for many of the
pharmaceutical industry's largest companies, including Abbott, Allergan, Astra-
Zeneca, Glaxo Wellcome, Novartis, Pfizer, Procter & Gamble, Rhone-Poulenc Rorer,
Hofmann LaRoche and Solvay. These programs have been designed to promote more
than 90 different products, including leading prescription medications as well
as over-the-counter, or OTC, products, to hospitals, pharmacies and physicians
in more than 30 different specialties.
We are one of the largest CSOs operating in the United States measured by
both revenue and number of sales representatives used in programs. From 1995
through 1998 consolidated revenue grew at a compound annual rate of 55.3% and
gross profits grew at a compound annual rate of 42.1%. Most of our revenue is
derived from designing and executing customized product detailing programs. From
1995 through 1998 revenue from product detailing programs grew at a compound
annual rate of 76.1% and gross profits from product detailing programs grew at a
compound annual rate of 98.1%. Also, during that period, the number of sales
representatives we employed grew from 134 to 1,385. As of November 30, 1999 we
employed 1,999 sales representatives, including 474 part-time sales
representatives. Whereas none of our sales representatives at January 1, 1995
were full-time employees, 76% of our sales representatives at November 30, 1999
were full-time employees.
Product detailing involves meeting face-to-face with targeted prescribers
to provide a technical review of the product being promoted. 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 services 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.
According to Scott-Levin Inc., a healthcare marketing information company,
United States pharmaceutical companies spent approximately $5.7 billion on
product detailing in 1998, which we estimate represented approximately 63% of
their total promotional spending. We estimate that revenues for the United
States CSO industry increased from approximately $80 million in 1995 to
$450 million in 1998 and will be approximately $700 million in 1999. We believe
that the CSO industry will continue to grow because of increasing unit sales of
pharmaceutical products and because pharmaceutical companies are focused on
maximizing their return on research and development expenditures, reducing fixed
costs and maintaining sales force flexibility.
COMPETITIVE STRENGTHS
Our competitive strengths include the following:
o Reputation as a high-quality, results-oriented provider of product
detailing programs. We believe that we are known in the pharmaceutical
industry as a high-quality, results-oriented provider of product
detailing services. This reputation is based on our "blue chip" client
base and our successes in executing product detailing programs.
o Ability to quickly and efficiently deploy a highly motivated sales
force. We have repeatedly demonstrated an ability to recruit, hire,
train and deploy large sales forces quickly. As an example, we recently
built a new 300-person sales force in four weeks.
3
<PAGE>
o Success in designing customized product detailing programs. Each program
that we design is customized to meet the particular needs of the client
relating to the product being promoted.
o Ability to manage multiple large and complex programs. Our experienced
and highly capable management team is adept at managing many programs
simultaneously. We also have an organizational structure that, we
believe, promotes speed and efficiency in designing and executing product
detailing programs.
GROWTH STRATEGY
Our primary objective is to enhance our leadership position in the growing
CSO industry and to become the premier supplier of product detailing programs
and other marketing and promotional services to the pharmaceutical industry. Our
growth strategy emphasizes:
o Strengthening and broadening our relationships with our existing
clients. We will continue to focus on expanding and broadening our
relationships with our existing clients.
o Expanding our selling efforts to capture new clients. We have recently
created a new business development team that is specifically focused on
generating business from pharmaceutical companies with which we do not
currently have relationships.
o Providing additional services to our clients. We are expanding the scope
and type of marketing and promotional services that we offer to our
clients both by developing new services internally and through
acquisitions.
o Pursuing strategic acquisitions. We continually explore opportunities to
acquire companies or businesses that may enhance our ability to provide
customized product detailing programs, expand the scope of our service
offerings, expand our client base or facilitate our entry into new
markets.
o Expanding into other segments of the pharmaceutical industry. In
particular, we believe that emerging pharmaceutical companies and
biotechnology companies present a significant growth opportunity.
o Entering new geographic markets. Currently, all of our business is in
the United States. We may seek to capitalize on opportunities that exist
in other geographic markets, particularly Europe.
RECENT DEVELOPMENTS
In May 1999 we acquired 100% of the capital stock of TVG in a merger
transaction. TVG provides brand marketing strategy, product profiling,
positioning, message development services, and a broad spectrum of promotional
and educational communications programs, including dinner meetings, symposia,
teleconferences and on-site hospital programs. In August 1999 we acquired
substantially all of the operating assets of ProtoCall, LLC, a leading provider
of syndicated contract sales services to the pharmaceutical industry. In a
syndicated product detailing program, a single sales representative details
non-competing products of multiple manufacturers during a meeting with a
targeted prescriber. The acquisition of the ProtoCall business adds a syndicated
sales force option to our product detail offerings, expanding the scope and
flexibility of the high-quality services that we can provide to our clients.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Common stock offered by:
<S> <C>
PDI..................................... 1,399,312 shares
Selling stockholders.................... 1,400,688 shares
---------
Total................................ 2,800,000 shares
=========
Common stock to be outstanding after this
offering................................ 13,371,223 shares
Over-allotment option..................... 210,000 shares of common stock to be sold by us and 210,000 shares of
common stock to be sold by a selling stockholder
Use of Proceeds........................... Working capital for expanding our business, investing in
infrastructure, acquiring other companies and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol............. PDII
</TABLE>
Common stock outstanding after this offering is calculated based on
11,971,911 shares outstanding as of November 30, 1999.
The total number of shares that will be outstanding after this offering
does not include:
o 434,729 shares issuable upon exercise of options outstanding at
November 30, 1999 having a weighted average exercise price of $15.42
per share; and
o 283,274 shares reserved for future grants under our stock option
plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth a summary of our audited consolidated
financial data. The data does not present all of our consolidated financial
information. Our summary consolidated financial data as of and for the years
ended December 31, 1996, 1997 and 1998 are derived from our audited consolidated
financial statements and the accompanying notes. Our summary consolidated
financial data as of and for the nine month periods ended September 30, 1998 and
1999 have been derived from our unaudited consolidated financial statements that
we have prepared in accordance with generally accepted accounting principles and
which, in our opinion, reflect all adjustments (consisting of only normal and
recurring accruals) necessary to present fairly our financial position and
results of operations for those periods. Interim results do not necessarily
indicate the results that you can expect for any other interim period or for the
full year. Our consolidated financial information reflects our acquisition of
TVG in May 1999, which was accounted for as a pooling of interests. You should
read this summary information together with our consolidated financial
statements and the notes to those statements and the "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that are included in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue...................................................... $49,090 $75,243 $119,421 $83,504 $130,074
Program expenses............................................. 35,738 55,854 87,840 59,542 98,679
------- ------- -------- ------- --------
Gross profit................................................. 13,352 19,389 31,581 23,962 31,395
Compensation expense......................................... 8,519 12,021 15,779 11,889 13,634
Bonus to majority stockholder................................ 1,500 2,243 -- -- --
Stock grant expense.......................................... -- 4,470 -- -- --
Other general, selling and administrative expenses........... 3,509 4,749 6,546 4,381 5,914
Acquisition and related expenses............................. -- -- -- -- 1,741
------- ------- -------- ------- --------
Total general, selling and administrative expenses........... 13,528 23,483 22,325 16,270 21,289
------- ------- -------- ------- --------
Operating income (loss)...................................... (176) (4,094) 9,256 7,692 10,106
Other income, net............................................ 275 376 2,273 1,410 2,505
------- ------- -------- ------- --------
Income (loss) before provision for income taxes.............. 99 (3,718) 11,529 9,102 12,611
Provision for income taxes................................... 208 126 1,691 969 5,063
------- ------- -------- ------- --------
Net income (loss)............................................ $ (109) $(3,844) $ 9,838 $ 8,133 $ 7,548
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Basic net income (loss) per share............................ $ (.01) $ (.44) $ .92 $ .79 $ .63
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Diluted net income (loss) per share.......................... $ (.01) $ (.44) $ .91 $ .78 $ .62
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Basic weighted average number of shares outstanding.......... 9,064 8,730 10,684 10,264 11,954
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Diluted weighted average number of shares outstanding........ 9,064 8,730 10,814 10,379 12,171
------- ------- -------- ------- --------
------- ------- -------- ------- --------
</TABLE>
6
<PAGE>
Both we and TVG were S corporations during a portion or all of the periods
presented and, therefore, were not subject to Federal corporate income taxes and
were not required to pay state income taxes at the regular corporate rates. The
following pro forma data assumes that, during the periods presented, we were
subject to Federal and state income taxes at the regular corporate tax rates.
PRO FORMA DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income (loss) before pro forma provision for income
taxes................................................. $ 99 $(3,718) $ 11,529 $ 9,102 $ 12,611
Pro forma provision for income taxes.................... 40 -- 4,611 3,641 5,741
------- ------- -------- ------- --------
Pro forma net income (loss)............................. $ 59 $(3,718) $ 6,918 $ 5,461 $ 6,870
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Pro forma basic net income (loss) per share............. $ .01 $ (.43) $ .65 $ .53 $ .57
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Pro forma diluted net income (loss) per share........... $ .01 $ (.43) $ .64 $ .53 $ .56
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Basic weighted average number of shares outstanding..... 9,064 8,730 10,684 10,264 11,954
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Diluted weighted average number of shares outstanding... 9,064 8,730 10,814 10,379 12,171
------- ------- -------- ------- --------
------- ------- -------- ------- --------
</TABLE>
The following table sets forth operating data relating to our product
detailing programs.
OTHER OPERATING DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Number of detail programs............................................................ 13 15 20
Number of detail clients............................................................. 8 12 13
Average size of detail program (000's)............................................... $2,539 $3,645 $5,054
Number of sales representatives used in detail programs at end of period:
Full-time.......................................................................... 33 529 1,143
Part-time.......................................................................... 691 401 242
------ ------ ------
Total......................................................................... 724 930 1,385
------ ------ ------
------ ------ ------
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
The following as adjusted balance sheet data as of September 30, 1999 gives
effect to our receipt of the estimated net proceeds from the issuance and sale
of 1,399,312 shares of common stock offered by us in this offering at an assumed
offering price of $25.625 per share, after deducting the estimated underwriting
discounts and commissions and other offering expenses we will pay, as well as
the repayment of a $1.4 million loan by our president and chief executive
officer, Charles T. Saldarini.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................. $58,266 $ 92,739
Working capital........................................................................... 50,151 84,624
Total assets.............................................................................. 87,122 121,595
Total long-term debt...................................................................... -- --
Stockholders' equity...................................................................... 57,719 92,192
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the following risks, which are not listed in
order of priority, before making an investment decision. The risks described
below are not the only ones that we face. Our business, operating results or
financial condition could be materially adversely affected by any of these
risks. The trading price of our common stock could decline due to any of these
risks and you may lose all or part of your investment. You should also refer to
the other information included in this prospectus.
IF THE PHARMACEUTICAL INDUSTRY DOES NOT CONTINUE TO USE, OR FAILS TO INCREASE
ITS USE OF, THIRD PARTY SERVICE ORGANIZATIONS TO MARKET AND PROMOTE ITS
PRODUCTS, OUR BUSINESS WOULD BE SERIOUSLY HARMED.
We generate substantially all of our revenue from providing product
detailing services to pharmaceutical companies. We have benefited from the
growing trend of pharmaceutical companies to outsource marketing and promotional
programs. We cannot be certain that this trend will continue. For example, the
growth in outsourcing is driven, in part, by the growth in the number of
pharmaceutical products developed over the last few years. However, recently
there has been a decrease in the number of new ethical compounds coming to
market. If this trend continues, pharmaceutical companies may reduce their
outsourcing programs. 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 we provide, would have
a material adverse effect on our business.
A DECREASE IN MARKETING OR PROMOTIONAL EXPENDITURES BY THE PHARMACEUTICAL
INDUSTRY AS A RESULT OF PRIVATE INITIATIVES, GOVERNMENT REFORM OR OTHERWISE,
COULD HAVE AN ADVERSE AFFECT ON OUR BUSINESS.
Our business, financial condition and results of operations depend on
marketing and promotional expenditures by pharmaceutical companies for their
products. Because we generate substantially all of our revenue from product
detailing programs, unfavorable developments in the pharmaceutical industry
could adversely affect our business. These developments could include reductions
in expenditures for marketing and promotional activities or a shift in marketing
focus away from product detailing. Promotional, marketing and sales expenditures
by pharmaceutical companies could also be negatively impacted by government
reform or private market initiatives intended to reduce the cost of
pharmaceutical products or by government, medical association or pharmaceutical
industry initiatives designed to regulate the manner in which pharmaceutical
companies promote their products.
MOST OF OUR REVENUE IS DERIVED FROM A LIMITED NUMBER OF CLIENTS, THE LOSS OF ANY
ONE OF WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
Our revenue and profitability are highly dependent on our relationships
with a limited number of large pharmaceutical companies. In 1995, our four
largest clients accounted for approximately 27%, 11%, 8% and 7%, respectively,
or a total of 53% of our revenue. In 1996, our four largest clients accounted
for approximately 22%, 19%, 12% and 12%, respectively, or a total of 65%, of our
revenue. In 1997, our four largest clients accounted for approximately 20%, 20%,
16% and 9%, respectively, or a total of 65%, of our revenue. In 1998, our four
largest clients accounted for approximately 27%, 26%, 21% and 6%, respectively,
or a total of 80%, of our revenue. For the nine months ended September 30, 1999,
our four largest clients accounted for approximately 81% of our revenue. We are
likely to continue to experience a high degree of client concentration,
particularly if there is further consolidation within the pharmaceutical
industry. The loss or a significant reduction of business from any of our major
clients could have a material adverse effect on our business and results of
operations.
OUR CONTRACTS ARE SHORT-TERM AGREEMENTS AND ARE SUBJECT TO CANCELLATION AT ANY
TIME, WHICH MAY RESULT IN LOST REVENUE AND ADDITIONAL COSTS AND EXPENSES.
Our contracts are generally for a term of one year and may be terminated by
the client at any time for any reason. The termination of a contract by one of
our major clients would not only result in lost revenue, but may cause us to
incur additional costs and expenses. For example, all of our sales
representatives are employees rather than independent contractors. Accordingly,
upon termination of a contract, unless we can immediately transfer the related
sales force to a new program, we either must continue to compensate those
employees, without
8
<PAGE>
realizing any related revenue, or terminate their employment. If we terminate
their employment, we may incur significant expenses relating to their
termination.
WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS AND PERFORMANCE-BASED CONTRACTS.
Substantially all of our contracts are fixed fee arrangements. We also
enter into some contracts in which a portion of our fees are contingent on
meeting performance objectives. Finally, we are exploring the possibility of
entering into contracts under which we may share the costs of a detailing
program with the client in exchange for a contingent fee based on the future
sales of the product being promoted or some other performance based criteria.
Accordingly, if we underestimate the costs associated with the services to be
provided under a particular contract, or if there are unanticipated increases in
our operating or administrative expenses, or if we fail to meet certain
performance objectives, or if we incorrectly assess the market potential of a
particular product, the margins on that contract and our overall profitability
may be adversely affected.
OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY VARY WHICH MAY CAUSE THE PRICE
OF OUR COMMON STOCK TO FLUCTUATE.
Our quarterly operating results may vary as a result of a number of
factors, including:
o the commencement, delay, cancellation or completion of programs;
o the mix of services provided;
o the timing and amount of expenses for implementing new programs and
services;
o the accuracy of estimates of resources required for ongoing programs;
o uncertainty related to compensation based on achieving performance
benchmarks;
o the timing and integration of acquisitions;
o changes in regulations related to pharmaceutical companies; and
o general economic conditions.
In addition, generally, we recognize revenue as services are performed,
while program costs, other than training costs, are expensed as incurred. As a
result, during the first two to three months of a new contract, we may incur
substantial expenses associated with staffing that new program without
recognizing any revenue under that contract. This could have an adverse impact
on our operating results and the price of our common stock for the quarters in
which these expenses are incurred.
We believe that quarterly comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. Fluctuations in quarterly results could adversely affect the market
price of our common stock in a manner unrelated to our long term operating
performance.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND OUR FAILURE TO ADDRESS COMPETITIVE
DEVELOPMENTS PROMPTLY WILL LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET
SHARE.
Traditionally, our primary competitors were the in-house sales and
marketing departments of pharmaceutical companies and other CSOs, such as
Innovex, a subsidiary of Quintiles Transnational, the various sales and
marketing affiliates of Ventiv Health (formerly, Snyder Communications) and
Nelson Professional Sales, a division of Nelson Communications, Inc. However,
there are relatively few barriers to entry in the CSO industry and, as the CSO
industry continues to evolve, new competitors are likely to emerge. For example,
recently, two major wholesale drug distributors have begun to provide product
detailing services. Many of our current and potential competitors are larger
than we are and have substantially greater capital, personnel and other
resources than we have. Increased competition may lead to price and other forms
of competition that could have a material adverse effect on our market share,
business and results of operations.
As a result of competitive pressures, various organizations providing
services to the pharmaceutical industry are consolidating and are becoming
targets of global organizations. This trend is likely to produce increased
competition for clients. In addition, if the trend in the pharmaceutical
industry towards consolidation continues, pharmaceutical companies may have
excess in-house sales force capacity and they may, as a result, reduce or
9
<PAGE>
eliminate their use of CSOs or choose to award their product detailing and other
marketing and promotional programs to organizations that can provide a broader
range of services. Although we intend to monitor industry trends and respond
appropriately, we may not be able to anticipate and successfully respond to such
trends.
OUR BUSINESS WILL SUFFER IF WE FAIL TO ATTRACT AND RETAIN EXPERIENCED SALES
REPRESENTATIVES.
The success and growth of our business depends on our ability to attract
and retain qualified and experienced pharmaceutical sales representatives. There
is intense competition for experienced pharmaceutical sales representatives from
competing CSOs and pharmaceutical companies. On occasion our clients have hired
the sales representatives that we trained to detail its products. We cannot be
certain that we can continue to attract and retain qualified personnel. If we
cannot attract, retain and motivate qualified sales personnel, we will not be
able to expand our business and our ability to perform under our existing
contracts will be impaired.
OUR BUSINESS WILL SUFFER IF WE LOSE CERTAIN KEY MANAGEMENT PERSONNEL.
The success of our business also depends on our ability to attract, retain
and motivate qualified senior management, financial and administrative personnel
who are in high demand and who often have multiple employment options.
Currently, we depend on a number of our senior executives, including Charles T.
Saldarini, our president and chief executive officer; Steven K. Budd, our chief
operating officer; and Bernard C. Boyle, our chief financial officer. The loss
of the services of any one or more of these executives could have a material
adverse effect on our business, financial condition and results of operations.
Except for a $5 million key-man life insurance policy on the life of
Mr. Saldarini and a $3 million policy on the life of Mr. Budd, we do not
maintain and do not contemplate obtaining insurance policies on any of our
employees.
GOVERNMENT OR PRIVATE INITIATIVES TO REDUCE HEALTHCARE COSTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE PHARMACEUTICAL INDUSTRY AND ON US.
The primary trend in the United States healthcare industry is toward cost
containment. Comprehensive government healthcare reform intended to reduce
healthcare costs, the growth of total healthcare expenditures and expand
healthcare coverage for the uninsured have been proposed in the past and may be
considered again in the near future. Implementation of government healthcare
reform may adversely affect promotional and marketing expenditures by
pharmaceutical companies, which could decrease the business opportunities
available to us. In addition, the increasing use of 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. Significant cost
containment initiatives adopted by government or private entities could have a
material adverse effect on our business.
OUR FAILURE, OR THAT OF OUR CLIENTS, TO COMPLY WITH APPLICABLE HEALTHCARE
REGULATIONS COULD LIMIT, PROHIBIT OR OTHERWISE ADVERSELY IMPACT OUR BUSINESS
ACTIVITIES.
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. In particular, 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 that are paid for by Medicare or Medicaid. Sanctions for violating
these laws include civil and criminal fines and penalties and possible exclusion
from Medicare, Medicaid and other Federal healthcare programs. Although we
believe our current business arrangements do not violate these Federal and state
fraud and abuse laws, we cannot be certain that our business practices will not
be challenged under these laws in the future or that a challenge would not have
a material adverse effect on our business, financial condition and results of
operations. Our failure, or the failure of our clients, to comply with these
laws, regulations and guidelines, or any change in these laws, regulations and
guidelines may, among other things, limit or prohibit our business activities or
those of our clients, subject us or our clients to adverse publicity, increase
the cost of regulatory compliance or subject us or our clients to monetary fines
or other penalties.
10
<PAGE>
THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING NEW BUSINESSES COULD
IMPEDE OUR FUTURE GROWTH AND ADVERSELY AFFECT OUR COMPETITIVENESS.
As part of our growth strategy, we constantly evaluate new acquisition
opportunities. Acquisitions involve numerous risks and uncertainties, including:
o the difficulty of identifying appropriate acquisition candidates;
o the difficulty integrating the operations and products and services of
the acquired companies;
o the expenses incurred in connection with the acquisition and subsequent
integration of operations and products and services;
o the impairment of relationships with employees, customers or vendors as a
result of changes in management and ownership;
o the diversion of management's attention from other business concerns; and
o the potential loss of key employees or customers of the acquired company.
Acquisitions of companies outside the United States also may involve the
following additional risks:
o assimilating differences in international business practices;
o overcoming language differences;
o exposure to currency fluctuations;
o difficulties in complying with a variety of foreign laws;
o unexpected changes in regulatory requirements;
o difficulties in staffing and managing foreign operations; and
o potentially adverse tax consequences.
We may be unable to successfully identify, complete or integrate any future
acquisitions, and acquisitions that we complete may not contribute favorably to
our operations and future financial condition. We may also face increased
competition for acquisition opportunities, which may inhibit our ability to
consummate suitable acquisitions on favorable terms.
OUR MAJOR STOCKHOLDER WILL CONTINUE TO HAVE EFFECTIVE CONTROL OF US AFTER THIS
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL THAT
STOCKHOLDERS MAY BELIEVE WILL IMPROVE MANAGEMENT.
Following completion of this offering, John P. Dugan, our chairman, will
beneficially own approximately 40.0% (or 37.8% if the over-allotment option is
exercised in full) of our outstanding common stock (excluding shares issuable
upon the exercise of options). As a result, Mr. Dugan will be able to exercise
substantial control over the election of all of our directors, and to determine
the outcome of most corporate actions requiring stockholder approval, including
a merger with or into another company, the sale of all or substantially all of
our assets and amendments to our certificate of incorporation.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
Our certificate of incorporation and bylaws include certain provisions,
such as three classes of directors, which are intended to enhance the likelihood
of continuity and stability in the composition of our board of directors. These
provisions may render the removal of our directors and management more difficult
and adversely affect the price of our common stock. In addition, our certificate
of incorporation authorizes the issuance of "blank check" preferred stock. This
provision could have the effect of delaying, deterring or preventing a future
takeover or a change in control, unless the takeover or change in control is
approved by our board of directors, even though the transaction might offer our
stockholders an opportunity to sell their shares at a price above the current
market price.
11
<PAGE>
THE MARKET PRICE OF OUR COMMON STOCK IS, AND MAY CONTINUE TO BE, VOLATILE, WHICH
COULD RESULT IN LOSSES FOR INVESTORS PURCHASING OUR SHARES.
The market price of our common stock has fluctuated and is likely to
continue to fluctuate in the future. In addition, the stock market in general,
and many companies in our sector in particular, have experienced wide
fluctuations that may or may not be related to their operating performance. In
addition to the risks described above, the following factors could affect the
market price of our common stock:
o announcements of new services or service enhancements or acquisitions by
our competitors;
o technological innovations by our competitors;
o changes in earnings estimates or buy/sell recommendations by analysts;
o the operating and stock price performance of comparable companies;
o future sales of common stock by us or our major stockholders to the
public; and
o general economic and market conditions or market conditions specific to
particular industries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will" and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of operations
or of our financial position or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
stockholders. However, there may be events in the future that we are not able to
accurately predict or control. The factors listed above in the section captioned
"Risk Factors," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, results of
operations, financial position and the price of our common stock.
12
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 1,399,312 shares of
common stock offered by us in this offering will be approximately $33.0 million
($38.1 million if the underwriter's over-allotment option is exercised in full)
assuming a public offering price of $25.625 per share and after deducting the
estimated underwriting discounts and commissions and other offering expenses to
be paid by us. In addition, our president and chief executive officer, Charles
T. Saldarini, will repay the entire amount of an outstanding loan, in the amount
of $1.4 million, due to us with the proceeds he receives from his sale of shares
in this offering. We intend to use the net proceeds and the proceeds from the
repayment of the loan for working capital and general corporate purposes,
including acquisitions, to fund the further expansion of our business. We will
not receive any of the proceeds from the sale of shares by the selling
stockholders.
Pending utilization of the net proceeds of the offering, we intend to
invest the proceeds in short-term, interest-bearing, investment grade
obligations.
PRICE RANGE OF OUR COMMON STOCK
Our common stock is quoted on the Nasdaq Stock Market under the symbol
"PDII." The following table sets forth, for each of the periods indicated, the
high and low closing sale prices per share as reported on the Nasdaq National
Market since trading commenced on May 19, 1998.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1998
Second quarter.................................................................. $27.875 $19.250
Third quarter................................................................... 28.000 17.000
Fourth quarter.................................................................. 28.250 20.750
1999
First quarter................................................................... 36.000 23.375
Second quarter.................................................................. 32.000 22.750
Third quarter................................................................... 33.875 24.750
Fourth quarter (through December 15, 1999)...................................... 31.625 24.875
</TABLE>
For a recent closing sale price of our common stock, please see the cover
page of this prospectus.
DIVIDEND POLICY
We have not paid any dividends and do not intend to pay any dividends in
the future. Future earnings, if any, will be used to finance the future growth
of our business. Future dividends, if any, will be determined by our board of
directors.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on an actual basis and on an as adjusted basis after giving effect to our
receipt of the estimated net proceeds from the sale of 1,399,312 shares of
common stock offered by us in this offering at an assumed offering price of
$25.625 per share and after deducting the estimated underwriting discounts and
commissions and other offering expenses to be paid by us, as well as the
repayment of a $1.4 million loan by our president and chief executive officer,
Charles T. Saldarini. You should read the information in this table together
with the "Use of Proceeds," "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections of this prospectus and our financial statements and the
accompanying notes included in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion............................................ $ -- $ --
------- -------
------- -------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued
and outstanding............................................................ $ -- $ --
Common stock, $.01 par value, 30,000,000 shares authorized; 11,970,831 issued
and outstanding; 13,370,143 issued and outstanding, as adjusted............ 120 134
Additional paid-in capital.................................................... 47,219 80,250
Retained earnings............................................................. 11,774 11,774
Accumulated other comprehensive income........................................ 56 56
Deferred compensation......................................................... (22) (22)
Loan to officer............................................................... (1,428) --
------- -------
Total stockholders' equity................................................. 57,719 92,192
------- -------
Total capitalization..................................................... $57,719 $92,192
------- -------
------- -------
</TABLE>
The total number of shares outstanding after this offering do not include:
o 420,000 shares to be issued in the event the underwriters'
over-allotment option is exercised in full;
o 434,729 shares issuable upon exercise of outstanding options at
November 30, 1999 having a weighted average exercise price of $15.42
per share; and
o 283,274 shares reserved for future grants under our stock option
plan.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
years ended December 31, 1995, 1996, 1997 and 1998 are derived from our audited
consolidated financial statements and the accompanying notes. Our consolidated
financial statements for each of the periods presented reflects our acquisition
of TVG in May 1999, which was accounted for as a pooling of interests.
Consolidated balance sheets at December 31, 1997 and 1998 and consolidated
statements of operations, stockholders' equity and cash flows for the three
years ended December 31, 1996, 1997 and 1998 and the accompanying notes are
included in this prospectus and have been audited by
PricewaterhouseCoopers LLP, independent accountants, in reliance on the audit
reports issued to TVG by Grant Thornton LLP for 1997 and 1998 and by Arthur
Andersen LLP for 1996. Our audited consolidated balance sheets at December 31,
1995 and 1996 and our consolidated statements of operations, stockholder's
equity and cash flows for the year ended December 31, 1995 are not included in
this prospectus but have been audited by PricewaterhouseCoopers LLP in reliance
on audit reports issued to TVG by Arthur Andersen LLP. The selected consolidated
financial data as of and for the nine month periods ended September 30, 1998 and
1999 have been derived from our unaudited consolidated financial statements,
which we have prepared in accordance with generally accepted accounting
principles and which, in our opinion, reflect all adjustments (consisting of
only normal and recurring accruals) necessary to present fairly our financial
position and results of operations for those periods. Interim results do not
necessarily indicate the results that you can expect for any other interim
period or for the full year.
The selected financial data set forth below should be read together with,
and are qualified by reference to, the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this prospectus and
our audited consolidated financial statements and accompanying notes included in
this prospectus.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1995 1996 1997 1998 1998 1999
------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue........................................... $31,861 $49,090 $75,243 $119,421 $83,504 $130,074
Program expenses.................................. 20,860 35,738 55,854 87,840 59,542 98,679
------- ------- ------- -------- ------- --------
Gross profit...................................... 11,001 13,352 19,389 31,581 23,962 31,395
Compensation expense.............................. 8,012 8,519 12,021 15,779 11,889 13,634
Bonus to majority stockholder..................... 425 1,500 2,243 -- -- --
Stock grant expense............................... -- -- 4,470 -- -- --
Other general, selling and administrative
expenses........................................ 3,090 3,509 4,749 6,546 4,381 5,914
Acquisition and related expenses.................. -- -- -- -- -- 1,741
------- ------- ------- -------- ------- --------
Total general, selling and administrative
expenses........................................ 11,527 13,528 23,483 22,325 16,270 21,289
------- ------- ------- -------- ------- --------
Operating income (loss)........................... (526) (176) (4,094) 9,256 7,692 10,106
Other income, net................................. 219 275 376 2,273 1,410 2,505
------- ------- ------- -------- ------- --------
Income (loss) before provision for income taxes... (307) 99 (3,718) 11,529 9,102 12,611
Provision for income taxes........................ 154 208 126 1,691 969 5,063
------- ------- ------- -------- ------- --------
Net income (loss)................................. $ (461) $ (109) $(3,844) $ 9,838 $ 8,133 $ 7,548
------- ------- ------- -------- ------- --------
------- ------- ------- -------- ------- --------
Basic net income (loss) per share................. $ (.05) $ (.01) $ (.44) $ .92 $ .79 $ .63
------- ------- ------- -------- ------- --------
------- ------- ------- -------- ------- --------
Diluted net income (loss) per share............... $ (.05) $ (.01) $ (.44) $ .91 $ .78 $ .62
------- ------- ------- -------- ------- --------
------- ------- ------- -------- ------- --------
Basic weighted average number of shares
outstanding..................................... 9,058 9,064 8,730 10,684 10,264 11,954
------- ------- ------- -------- ------- --------
------- ------- ------- -------- ------- --------
Diluted weighted average number of shares
outstanding..................................... 9,058 9,064 8,730 10,814 10,379 12,171
------- ------- ------- -------- ------- --------
------- ------- ------- -------- ------- --------
</TABLE>
15
<PAGE>
Both we and TVG were S corporations during a portion or all of the periods
presented and, therefore, were not subject to Federal corporate income taxes and
were not required to pay state income taxes at the regular corporate rates. The
following pro forma data assumes that, during the periods presented, we were
subject to Federal and state income taxes at the regular corporate tax rates.
PRO FORMA DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ------------------
1995 1996 1997 1998 1998 1999
------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before pro forma provision for
(benefit from) income taxes................. $ (307) $ 99 $(3,718) $ 11,529 $ 9,102 $12,611
Pro forma provision for income taxes.......... -- 40 -- 4,611 3,641 5,741
------- ------- ------- -------- ------- -------
Pro forma net income (loss)................... $ (307) $ 59 $(3,718) $ 6,918 $ 5,461 $ 6,870
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Pro forma basic net income (loss)
per share................................... $ (.03) $ .01 $ (.43) $ .65 $ .53 $ .57
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Pro forma diluted net income (loss) per
share....................................... $ (.03) $ .01 $ (.43) $ .64 $ .53 $ .56
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Basic weighted average number of shares
outstanding................................. 9,058 9,064 8,730 10,684 10,264 11,954
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
Diluted weighted average number of shares
outstanding................................. 9,058 9,064 8,730 10,814 10,379 12,171
------- ------- ------- -------- ------- -------
------- ------- ------- -------- ------- -------
</TABLE>
The following table sets forth operating data relating to our product
detailing programs.
OTHER OPERATING DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1996 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Number of detail programs................................................... 10 13 15 20
Number of detail clients.................................................... 7 8 12 13
Average size of detail program (000's)...................................... $1,850 $2,539 $3,645 $5,054
Number of sales representatives used in detail programs at end of period:
Full-time................................................................. -- 33 529 1,143
Part-time................................................................. 419 691 401 242
------ ------ ------ ------
------ ------ ------ ------
Total.................................................................. 419 724 930 1,385
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
------ ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............................... $2,513 $ 3,658 $ 7,762 $56,989 $58,266
Working capital......................................... 1,229 307 584 47,048 50,151
Total assets............................................ 12,593 15,805 21,868 77,390 87,122
Total long-term debt.................................... -- -- -- -- --
Stockholders' equity.................................... 2,110 1,297 1,647 50,365 57,719
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our financial
statements and the accompanying notes included elsewhere in this prospectus and
contains trend analysis and other forward-looking statements that involve
substantial risks and uncertainties. Our actual results could differ materially
from those expressed or implied in these forward-looking statements as a result
of various factors, including those set forth under "Risk Factors" and elsewhere
in this prospectus.
OVERVIEW
We are a leading and rapidly growing contract sales organization, providing
product detailing programs and other marketing and promotional services to the
United States pharmaceutical industry. Most of our business involves designing
and executing customized product detailing programs for both prescription and
OTC products. We utilize a variety of contract structures with our clients for
these programs. The terms of our product detailing contracts range from 12 to 27
months. Generally, all of our contracts provide for a fee to be paid to us based
on our ability to deliver a specified package of services. We may be entitled to
additional fees based upon the success of the program. We may also be subject to
penalties for failing to meet the stated minimum benchmarks, such as number of
sales representatives or number of calls.
Most contracts can be terminated by the client for any reason on 30 to
90 days notice and may also be terminated for cause if we fail to meet the
stated performance benchmarks. Many of our contracts provide for the client to
pay us a termination fee if a contract is terminated without cause. These
penalties may not act as an adequate deterrent to the termination of any
contract and may not offset the revenue that we could have earned under the
contract had it not been terminated or reimburse us for the costs that we may
incur as a result of its termination. The loss or termination of a large
contract or of multiple contracts could adversely affect our future revenue and
profitability. To date, no programs have been terminated for cause.
REVENUE AND PROGRAM EXPENSES
Historically, we have derived a significant portion of our revenue from a
limited number of major clients. In 1995, 1996, 1997 and 1998, our four largest
clients accounted for approximately 53%, 65%, 65% and 80%, respectively, of our
revenue. This increase in client concentration reflects our expanding
relationship with our largest clients. Concentration of business in the CSO
industry is common and we believe 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, we are likely
to continue to experience significant client concentration in future periods.
Revenue is earned primarily by performing product detailing programs and
other marketing and promotional services under contracts. Product detailing
programs represent the largest and fastest growing portion of our total revenue
but have had lower gross profit margins than our other service offerings.
Revenue is recognized as the services are performed and the right to receive
payment for the services is assured. In the case of contracts relating to
product detailing programs, revenue is recognized net of any potential penalties
until the performance criteria eliminating the penalties have been achieved.
Bonus and other performance incentives as well as termination payments are
recognized as revenue in the period earned and when payment of the bonus,
incentive or other payment is assured.
Program expenses consist primarily of the costs associated with executing a
product detailing program or the other services identified in the contract.
Program expenses include personnel costs and other costs, including facility
rental fees, honoraria and travel expenses, associated with executing a product
detailing or other marketing or promotional program, as well as the initial
direct costs associated with staffing a product detailing program. Personnel
costs, which constitute 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 sales managers and professional staff
who are directly responsible for executing a particular program. Initial direct
program costs are those costs associated with initiating a product detailing
program, such as recruiting, hiring and training the sales representatives who
staff a particular product detailing program. All personnel costs and initial
direct program costs, other than training costs, are expensed as incurred.
Training costs include the costs of training the
17
<PAGE>
sales representatives and managers on a particular product detailing program so
that they are qualified to properly perform the services specified in the
related contract. Training costs are deferred and amortized on a straight-line
basis over the shorter of the life of the contract to which they relate or
12 months.
As a result of the revenue recognition and program expense policies
described above, we may incur significant initial direct program costs prior to
recognizing revenue under a particular product detailing contract. We typically
receive an initial payment upon commencement of a product detailing program and,
wherever possible, characterize that payment as compensation for recruiting,
hiring and training services associated with staffing that program. This permits
us to record the initial payment as revenue in the same period in which the
costs of the services are expensed. Our inability to specifically provide in our
product detailing contracts that we are being compensated for recruiting, hiring
or training services could adversely impact our operating results for periods in
which the costs associated with the product detailing services are incurred.
CORPORATE OVERHEAD AND TAXES
General, selling and administrative expenses include general corporate
overhead, compensation expense, bonus to majority stockholder and stock grant
expense. 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 executing a particular program. Bonus to majority stockholder for
1996 and 1997 reflects the discretionary cash bonus paid to our majority
stockholder and chairman of the board, John P. Dugan. No bonuses have been or
will be paid to Mr. Dugan for any period subsequent to 1997. Stock grant expense
for 1997 reflects the non-cash, non-recurring charges related to the grant of
1,119,684 shares to our president and chief executive officer, Charles T.
Saldarini. Other general, selling and administrative expenses include corporate
overhead such as facilities costs, depreciation and amortization expenses and
professional services fees.
General, selling and administrative expenses (excluding bonus to majority
stockholder and stock grant expense) as a percentage of revenue have generally
declined as we have spread our overhead expenses across our growing revenue
base. We anticipate that general, selling and administrative expenses will
continue to decline as a percentage of revenue as our business grows, although
such expenses are expected to increase on an absolute basis.
From January 1, 1995 through May 1998, we were an S corporation for Federal
and New Jersey state corporate income tax purposes. In addition, TVG was an
S corporation from January 1, 1997 through May 1999. Accordingly, during those
respective periods neither we nor TVG were subject to Federal corporate income
taxes or state corporate income taxes at the regular corporate income tax rates.
Our consolidated statement of operations data in the "Summary Financial Data"
and "Selected Financial Data" tables reflect a provision for income taxes on a
pro forma basis as if we were required to pay Federal and state corporate income
taxes during all periods.
RECENT DEVELOPMENTS
In May 1999 we acquired 100% of the capital stock of TVG in a merger
transaction. In connection with this transaction, we issued 1,256,882 shares of
common stock in exchange for the outstanding shares of TVG. The acquisition was
accounted for as a pooling of interests and, as a result, the financial
information for all prior periods presented in this prospectus has been restated
to include the accounts and operations of TVG.
In August 1999, through our wholly-owned subsidiary, ProtoCall, we acquired
substantially all of the operating assets of ProtoCall, LLC a leading provider
of syndicated contract sales services to the United States pharmaceutical
industry. The purchase price was $4.5 million, of which $4.1 million was paid at
closing and the balance was paid in the fourth quarter of 1999. In addition, up
to $3.0 million in contingent payments may be payable in 2000 if ProtoCall
achieves defined performance benchmarks. ProtoCall, LLC recorded revenue in
excess of $8 million during 1998. The transaction has been accounted for under
the purchase method of accounting and we recorded $3.9 million in goodwill,
which will be amortized over a period of 10 years.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of revenue. The trends illustrated
in this table may not be indicative of future operating results.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------
1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue........................................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Program expenses............................................... 65.5 72.8 74.2 73.6 71.3 75.9
----- ----- ----- ----- ----- -----
Gross profit................................................... 34.5 27.2 25.8 26.4 28.7 24.1
Compensation expense........................................... 25.2 17.4 16.0 13.2 14.2 10.5
Bonus to majority stockholder.................................. 1.3 3.1 3.0 -- -- --
Stock grant expense............................................ -- -- 5.9 -- -- --
Other general, selling and administrative expenses............. 9.7 7.1 6.3 5.5 5.3 4.5
Acquisition and related expenses............................... -- -- -- -- -- 1.3
----- ----- ----- ----- ----- -----
Total general, selling and administrative expenses............. 36.2 27.6 31.2 18.7 19.5 16.3
----- ----- ----- ----- ----- -----
Operating income (loss)........................................ (1.7) (0.4) (5.4) 7.7 9.2 7.8
Other income, net.............................................. 0.7 0.6 0.5 1.9 1.7 1.9
----- ----- ----- ----- ----- -----
Income (loss) before provision for income taxes................ (1.0) 0.2 (4.9) 9.6 10.9 9.7
Provision for income taxes..................................... 0.5 0.4 0.2 1.4 1.2 3.9
----- ----- ----- ----- ----- -----
Net income (loss).............................................. (1.5)% (0.2)% (5.1)% 8.2% 9.7% 5.8%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
PRO FORMA DATA:
Income (loss) before pro forma provision for
(benefit from) income taxes.................................. (1.0)% 0.2% (4.9)% 9.7% 10.9% 9.7%
Pro forma provision for (benefit from) income taxes............ 0.0 0.1 -- 3.9 4.4 4.4
----- ----- ----- ----- ----- -----
Pro forma net income (loss).................................... (1.0)% 0.1% (4.9)% 5.8% 6.5% 5.3%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue. Revenue for the nine months ended September 30, 1999 was
$130.1 million, an increase of 55.8% over revenue of $83.5 million for the nine
months ended September 30, 1998. Revenue from product detailing programs in the
1999 period was $111.8 million, or 86.0% of total revenue, compared to
$70.2 million, or 84.1% of total revenue, in the corresponding 1998 period. This
increase was generated primarily from the continued renewal and expansion of
product detailing programs from existing clients and expanding our client base.
Program expenses. Program expenses for the nine months ended September 30,
1999 were $98.7 million, an increase of 65.7% over program expenses of $59.5
million for the nine months ended September 30, 1998. As a percentage of
revenue, program expenses increased to 75.9% for the 1999 period from 71.3% for
the corresponding 1998 period. We estimate that approximately $1.8 million of
costs associated with the initiation of programs scheduled to begin in 1998 were
expensed as incurred in the fourth quarter of 1997. This had the effect of
lowering program expenses from 73.4% to 71.3% for the nine months ended
September 30, 1998. Also, our fastest growing business segment is product
detailing, which, generally, has lower profit margins than our other business
segments effectively reducing our overall gross profit margin. Finally, we
initiated a number of new product detailing programs in the third quarter of
1999. Typically, profit margins during the initial phase of a program are lower
than at any other period during the life of a program.
Compensation expense. Compensation expense for the nine months ended
September 30, 1999 was $13.6 million compared to $11.9 million for the nine
months ended September 30, 1998. As a percentage of revenue, compensation
expense decreased to 10.5% for the 1999 period from 14.2% in the corresponding
1998 period. This percentage decrease reflects the spreading of compensation
expense over a larger revenue base. We expect to continue to invest in the
staffing and related resources needed to manage future growth.
Other general, selling and administrative expenses. Other general, selling
and administrative expenses for the nine months ended September 30, 1999 were
$5.9 million compared to $4.4 million for the nine months ended September 30,
1998. As a percentage of revenue, other general, selling and administrative
expenses decreased to 4.5% for the 1999 period from 5.3% in the corresponding
1998 period. This percentage decline reflects the spreading of other general,
selling and administrative expenses over a larger revenue base. We expect our
general, selling and administrative expenses will increase as a result of our
leasing an additional 11,000
19
<PAGE>
square feet of office space at our present location, increasing our rent by
approximately $250,000 a year beginning in the fourth quarter of 1999.
Acquisition and related expenses. In the nine months ended September 30,
1999, we incurred $1.7 million of non-recurring acquisition and related
expenses. No such expenses were incurred in the corresponding 1998 period. As a
percentage of revenue, acquisition and related expenses were 1.3% in the 1999
period.
Operating income. Operating income for the nine months ended September 30,
1999 was $10.1 million compared to operating income of $7.7 million for the nine
months ended September 30, 1998. As a percentage of revenue, operating income
for the 1999 period decreased to 7.8% from 9.2% for the corresponding 1998
period. This percentage decrease was due primarily to the fact that various
costs associated with programs begun in 1998 were expensed as incurred in the
fourth quarter of 1997, effectively increasing our 1998 operating income.
Excluding acquisition and related expenses, operating income for the nine months
ended September 30, 1999 was $11.8 million or 9.1% of revenue.
Other income, net. Other income consists primarily of interest income
earned on our cash and cash equivalents. Other income for the nine months ended
September 30, 1999 was $2.5 million, compared to other income of $1.4 million
for the nine months ended September 30, 1998. The increase is primarily due to
the investment of the net proceeds from our initial public offering in May 1998
and the increase in net cash provided by operations from the fourth quarter of
1998 through September 30, 1999.
Provision for income taxes. Income taxes of $5.1 million for the nine
months ended September 30, 1999 reflects all applicable Federal and state
corporate income taxes except that it takes into account only the portion of
TVG's taxable income arising after the termination of its S corporation status
net of a tax benefit related to the recognition of the net deferred tax asset
recorded upon termination of its S corporation status. Income taxes of $1.0
million for the nine months ended September 30, 1998 consisted of Federal and
state corporate income taxes on the portion of our taxable income arising after
the termination of our S corporation status and a tax provision relating to the
recognition of the net deferred tax liability recorded upon termination of our S
corporation status. We expect our effective tax rate to approximate 40% in
future periods.
Pro forma net income. Pro forma net income for the nine months ended
September 30, 1999 was $6.9 million as compared to pro forma net income of
$5.5 million for the nine months ended September 30, 1998. Pro forma net income
assumes that we were taxed for Federal and state income tax purposes as a C
corporation during both periods. The pro forma effective tax rate for the nine
months ended September 30, 1999 was 45.5%, primarily as a result of the impact
of $1.7 million of non-deductible acquisition and related expenses.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenue. Revenue for 1998 was $119.4 million, an increase of 58.7% over
revenue of $75.2 million for 1997. Revenue from product detailing programs for
1998 was $101.1 million, or 84.6% of total revenue, and was generated primarily
from 20 detailing programs for 13 clients. Revenue from product detailing
programs for 1997 was $54.7 million, or 72.7% of total revenue, and was
generated primarily from 15 programs for 12 clients. The average size of our
product detailing programs increased to $5.1 million in 1998 from $3.6 million
in 1997.
Program expenses. Program expenses for 1998 were $87.8 million, an
increase of 57.3% over program expenses of $55.9 million for 1997. As a
percentage of revenue, program expenses decreased to 73.6% for 1998 from 74.2%
for 1997. Gross profit margins for both our product detailing programs and our
marketing and promotion programs increased slightly in 1998 as compared to 1997.
Compensation expense. Compensation expense for 1998 was $15.8 million
compared to $12.0 million for 1997. As a percentage of revenue, compensation
expense decreased to 13.2% for 1998 from 16.0% for 1997.
Bonus to majority stockholder. In 1997, we paid a bonus of $2.2 million to
our majority stockholder. No such bonus was paid in 1998.
Stock grant expense. There were no compensatory stock grants in 1998. In
1997 we incurred a non-recurring, non-cash charge of $4.5 million relating to
stock granted to Charles T. Saldarini, our president and chief executive
officer.
Other general, selling and administrative expenses. Other general, selling
and administrative expenses were $6.5 million for 1998, an increase of 37.8%
from other general, selling and administrative expenses of $4.7 million for
1997. As a percentage of revenue, other general, selling and administrative
expenses decreased to 5.5% for 1998 from 6.3% for 1997. This reduction is due,
in part, to the fact that various services for which we had previously used
outside consultants were performed by employees.
20
<PAGE>
Operating income/loss. Operating income for 1998 was $9.3 million, or 7.8%
of revenues, compared to an operating loss for 1997 of $4.1 million. Before
bonus to majority stockholder and stock grant expense, both of which were
non-recurring expenses, operating income for 1997 was $2.6 million.
Approximately $1.8 million of 1997's operating loss was attributable to costs
associated with product detailing programs begun in 1997 that were expensed as
incurred in the fourth quarter of 1997 while the revenue from those programs
could not be recognized under our revenue recognition policies until the first
quarter of 1998.
Other income, net. Other income, primarily net interest income, for 1998
was $2.3 million, compared to other income of $0.4 million for 1997. The
increase was primarily due to investment of the net proceeds of our initial
public offering.
Pro forma net income/loss. Pro forma net income for 1998 was $6.9 million
compared to a pro forma net loss of $3.7 million for 1997. Pro forma net
income/loss for both periods assumes that we were taxed for Federal and state
income tax purposes as a C corporation with no tax benefit assumed for net
operating loss carryforwards. The pro forma effective tax rate for 1998 is 40%.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenue. Revenue for 1997 was $75.2 million, an increase of 53.3% over
1996 revenue of $49.1 million. Revenue from product detailing programs in 1997
was $54.7 million, or 72.7% of total revenue, and was generated primarily from
15 programs for 12 clients. Revenue from product detailing programs in 1996 was
$33.0 million, or 67.3% of total revenue, and was generated primarily from 13
programs for eight clients. Average detailing program size increased to $3.6
million in 1997 from $2.5 million in 1996.
Program expenses. Program expenses for 1997 were $55.9 million, an
increase of 56.3% over program expenses of $35.7 million for 1996. As a
percentage of revenue, program expenses increased to 74.2% for 1997 from 72.8%
for 1996. This increase occurred because approximately $1.8 million of costs
associated with product detailing programs begun in the first quarter of 1998
were expensed as incurred in the fourth quarter of 1997.
Compensation expense. Compensation expense for 1997 was $12.0 million
compared to $8.5 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 our business. As a percentage of revenue,
compensation expense was 16.0% for 1997 compared to 17.4% for 1996.
Bonus to majority stockholder. Bonus to majority stockholder 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 a
non-recurring, non-cash charge of $4.5 million related to stock issued to
Charles T. Saldarini, our president and chief executive officer.
Other general, selling and administrative expenses. Other general, selling
and administrative expenses were $4.7 million for 1997, an increase of 35.3%
over other general, selling and administrative expenses of $3.5 million for
1996. As a percentage of revenue, other general, selling and administrative
expenses decreased to 6.3% for 1997 from 7.1% for 1996.
Operating loss. Loss from operations for 1997 was $4.1 million compared to
$0.2 million for 1996. Before bonus to majority stockholder and stock grant
expense, operating income for 1997 was $2.6 million or 3.5% of revenue, compared
to $1.3 million, or 2.7% of revenue, for 1996. Operating losses for 1997 were
principally attributable to bonus to majority stockholder, stock grant expense
and approximately $1.8 million of costs associates with programs begun in 1997
that were expensed as incurred in the fourth quarter of 1997 while the revenue
from those programs could not be recognized under our revenue recognition
policies until the first quarter of 1998.
Other income, net. Other income, primarily net interest income, for 1997
was $0.4 million compared to other income of $0.3 million for 1996, due to the
greater availability of funds for investment.
Pro forma net income/loss. Pro forma net loss for 1997 was $3.7 million
compared to pro forma net income of $0.1 million for 1996. Pro forma net
income/loss for both periods assumes that we were taxed for Federal and state
income tax purposes as a C corporation, with no tax benefits assumed for the net
operating losses incurred in 1997 and 1996.
QUARTERLY RESULTS
Our results of operations have varied, and are expected to continue to
vary, from quarter-to-quarter. These fluctuations result from a number of
factors including, among other things, the timing of commencement, completion or
cancellation of major programs. Revenue, generally, is recognized as services
are performed while
21
<PAGE>
program costs, other than training costs, are expensed as incurred. As a result,
we may incur substantial expenses associated with staffing a new program during
the first two to three months of a contract without recognizing any revenue
under that contract. This could have an adverse impact on our operating results
for the quarters in which those expenses are incurred. In the future, our
revenue may also fluctuate as a result of a number of additional factors,
including delays or costs associated with acquisitions, government regulatory
initiatives and conditions in the healthcare industry generally. We believe that
because of these fluctuations, quarterly comparisons of our financial results
cannot be relied upon as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 we had cash and cash equivalents of approximately
$58.3 million and working capital of $50.2 million compared to cash and cash
equivalents of approximately $57.0 million and working capital of $47.0 million
at December 31, 1998.
In May 1998, we completed our initial public offering. Net proceeds, after
expenses, were approximately $46.4 million. Prior to the initial public offering
our principal source of funds had been cash flow from operations. Immediately
prior to our initial public offering, we declared a final distribution to our
then existing stockholders of $5.8 million. The amount of the distribution
reflected stockholders' equity at March 31, 1998 of $3.9 million and our
earnings from April 1, 1998 to May 18, 1998. In addition, TVG distributed $0.3
to its stockholders in 1998.
For the nine months ended September 30, 1999, net cash provided from
operating activities was $5.5 million, a decrease of $7.2 million from cash
provided from operating activities of $12.7 million for the same period in 1998.
Net cash provided from operating activities has fluctuated and, we believe, will
continue to fluctuate depending on a number of factors, including the number and
size of programs and contract terms. These fluctuations may vary in size and
direction each reporting period. The main component of cash provided from
operating activities for the nine months ended September 30, 1998 was net income
from operations of $8.1 million and an increase of $4.0 million in "Other
changes in assets and liabilities." For the year ended December 31, 1998, we
generated $15.1 million of net cash from operating activities compared to
$3.6 million for 1997. The increase in cash provided from operating activities
mainly results from $9.8 million in net income from operations. The remaining
$5.2 million resulted from fluctuations in "Other changes in assets and
liabilities," particularly the increase in accrued liabilities of $4.8 million,
of which $3.8 million related to performance incentives.
For the nine months ended September 30, 1999, net cash used in investing
activities was $3.9 million, an increase of $0.9 million over net cash used in
investing activities of $3.0 for the same period in 1998. Net cash used in
investing activities for the nine months ended September 30, 1999 consisted of
$4.1 million paid in connection with the purchase of the ProtoCall business and
$0.8 million in purchases of property and equipment, offset by the sale of
$1.0 million in short-term investments. Net cash used in investing activities
for the nine months ended September 30, 1998 consisted of $2.0 million in
purchases of property and equipment and $1.0 million in the purchase of
short-term investments. For the years ended December 31, 1998 and 1997, net cash
used in investing activities was $3.4 million and $0.8 million, respectively.
The primary use of such cash in the 1998 period was investments of $2.2 million
in computer and networking equipment and in furniture and fixtures for our new
corporate headquarters. We also purchased $1.2 million in short-term
investments.
For the nine months ended September 30, 1999, net cash used in financing
activities was $0.3 million, reflecting $0.7 million of distributions to the TVG
S corporation stockholders, offset by $0.4 million in proceeds from the exercise
of common stock options. For the nine months ended September 30, 1998, net cash
provided by financing activities consisted of net proceeds of $46.4 million from
our initial public offering offset partially by $6.2 million of distributions to
the S corporation stockholders. Additionally, a loan of $1.4 million was made to
Charles T. Saldarini, our president and chief executive officer, and loans of
$1.3 million from stockholders were repaid. Net cash provided by financing
activities for the year ended December 31, 1998 was $37.5 million. Net proceeds
from our initial offering of $46.4 million, after expenses, were partially
offset by a $5.8 million final distribution to our existing stockholders
immediately prior to our initial public offering. For 1997, net cash provided by
financing activities was $1.3 million as a result of a $1.3 million loan from
the TVG stockholders. This loan was repaid in 1998.
Capital expenditures during the period ended September 30, 1999 were $0.8
million and were funded out of cash flows from operations. Capital expenditures
for 1998 were approximately $2.2 million, which was funded entirely through cash
generated from operations. During 1997, our capital expenditures were $0.7
million.
22
<PAGE>
When we bill clients for services before they have been completed, billed
amounts are recorded as unearned contract 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, 1998 and 1997, we had $9.6 million and $9.0 million, respectively,
of unearned contract revenue and $3.6 million and $3.7 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.
We intend to use the net proceeds from this offering for working capital
and general corporate purposes to fund the further expansion of our business. As
part of our growth strategy, we continuously evaluate potential acquisitions and
the net proceeds from this offering may be used, in part, to fund such
acquisitions.
We believe that the net proceeds of this offering together with our cash
flows from operations and existing cash balances will be sufficient to meet our
working capital and capital expenditure requirements for the next 12 months.
YEAR 2000 COMPLIANCE
We have undertaken a project that addresses the Y2K issue of computer
systems and other equipment with embedded chips or processors not being able to
properly recognize and process date-sensitive information after December 31,
1999. Many systems use only two digits rather than four to define the year and
these systems will not be able to distinguish between the year 1900 and the year
2000. This may lead to disruptions in the operations of business and
governmental entities resulting from miscalculations or system failures. Our
project to address the year 2000 issue has been divided into two sections. One
section addresses our internal business systems. The other section addresses the
business systems of our key business partners. Key business partners are those
clients and vendors that have a material impact on our operations.
The portion of the project that deals with our internal business systems
has six major phases:
o inventorying all Y2K items;
o prioritizing all Y2K items;
o assessing all Y2K items;
o repairing or replacing all systems or hardware that are not Y2K
compliant;
o testing repaired or replaced Y2K items; and
o designing and implementing contingency plans for those systems that
cannot be repaired or replaced by January 1, 2000.
As of November 30, 1999, substantially all phases related to our material
internal business systems were complete.
The portion of the project that deals with the business systems of key
business partners has three major phases:
o identifying all key business partners;
o evaluating the status of their Y2K compliance efforts;
o and determining alternatives and contingency plan requirements.
As of November 30, 1999, all key business partners have been identified and
we have completed the evaluation of their Y2K compliance efforts. The
determination of alternatives and contingency planning will be continually
evaluated.
We have not incurred nor do we expect to incur any additional material
costs relating to our internal business systems as all phases associated with
determining Y2K compliance of the internal business systems have been completed.
Costs associated with the determination of alternatives and contingency
planning, based on our evaluation of Y2K compliance efforts of our key business
partners, are not expected to be material.
Failure to make all internal business systems Y2K compliant could result in
an interruption in, or a failure of, some of our business activities or
operations. In addition, Y2K disruptions in client operations could result in,
among other things, one or more clients missing scheduled payments, which could
impact our cash flow. Y2K disruptions in the operations of key vendors could
also impact our ability to fulfill some of our contractual obligations. If one
or more of these situations occur, our financial position, results of operations
or cash flows could be materially adversely affected.
23
<PAGE>
BUSINESS
OVERVIEW
We are a leading and rapidly growing contract sales organization, providing
customized product detailing programs and other marketing and promotional
services to the United States pharmaceutical industry. We have achieved our
leadership position in the CSO industry based on 12 years of designing and
executing customized product detailing programs for many of the pharmaceutical
industry's largest companies, including Abbott, Allergan, Astra-Zeneca, Glaxo
Wellcome, Novartis, Pfizer, Procter & Gamble, Rhone-Poulenc Rorer, Hofmann
LaRoche and Solvay. We have designed programs that promote more than 90
different products, including such leading prescription medications as
Imitrex(Registered), Flonase(Registered), Prilosec(Registered),
Wellbutrin(Registered) and Cardura(Registered), as well as a number of leading
OTC products such as Bayer(Registered) Aspirin, Pepcid AC(Registered) and
Monistat 5(Registered), to hospitals, pharmacies and physicians in more than 30
different specialties.
We have generated strong internal growth by renewing and expanding programs
with existing clients and by securing new business from leading pharmaceutical
companies. Recent acquisitions have also contributed to our growth. We believe
that we are one of the largest CSOs operating in the United States measured both
by revenue and total number of sales representatives used in detailing programs.
The number of sales representatives employed by us has grown from 134 as of
January 1, 1995 to 1,385 as of December 31, 1998. As of November 30, 1999 we
employed 1,999 sales representatives, including 474 part-time sales
representatives. Whereas none of our sales representatives at January 1, 1995
were full-time employees, 76% of our current sales representatives are full-time
employees.
Our primary objective is to enhance our leadership position in the growing
CSO industry and to become the premier supplier of product detailing programs
and other marketing and promotional services to the pharmaceutical industry.
INDUSTRY BACKGROUND
Pharmaceutical companies incur substantial expense promoting and marketing
their products. Based on industry data, we believe that pharmaceutical companies
in the United States expended approximately $9.1 billion on promotional
activities, of which $5.7 billion, or 62.6%, was spent on product detailing and
$1.3 billion, or 14.3%, was spent on event spending.
The CSO industry provides product detailing programs to pharmaceutical,
medical device and diagnostic companies on an outsourced basis. CSOs have
evolved from providing detailing support for OTC products to full-service
support organizations 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. We estimate that
revenues for the CSO industry in the United States increased from approximately
$80 million in 1995 to $450 million in 1998 and will be approximately
$700 million in 1999.
We believe that product detailing is a highly effective means of
influencing the prescribing patterns of the targeted prescribers and, as
evidenced by the growth in the number of sales representatives employed or used
by both pharmaceutical companies and CSOs, is the most commonly employed
strategy to promote pharmaceutical products. Product detailing takes place in
the context of a personal sales call and involves face-to-face meetings 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 must possess a high level of product knowledge, as well as other
technical and therapeutic expertise. The interaction between the sales
representative and the targeted prescriber 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 may also discuss the types of patients best suited for the particular
product, how and when such patients will best benefit from the product's use and
the relative strengths and weaknesses of competitive products.
24
<PAGE>
TRENDS AFFECTING INDUSTRY GROWTH
We believe that, because of the following industry dynamics, pharmaceutical
companies have made a strategic decision to continue to outsource a significant
portion of their sales and marketing activities and that the importance of CSOs
in the overall marketing, promotion and sales efforts of pharmaceutical
companies will continue to grow.
Increasing unit sales of pharmaceutical products. The growing influence of
managed care and healthcare cost containment initiatives throughout the 1990s
has created pressure on pharmaceutical companies to reduce the rate of price
increases for their pharmaceutical products. This price pressure has forced the
pharmaceutical industry to focus on increasing unit sales growth to maximize
profits. Finally, other factors have led to increasing use of pharmaceutical
products, including:
o direct to consumer advertising;
o the efficacy of drug therapy;
o the lower cost of drug therapy relative to hospitalization and
medical procedures; and
o an aging population.
Accordingly, while prices for prescription products in the United States rose,
on average, only 2.4% from 1996 through 1998, spending on prescription products
in the United States increased from $64.7 billion in 1996 to $81.3 billion in
1998, an average annual rate of increase of 12.5%.
Increased research and development expenditures by pharmaceutical companies
and their need to maximize their return on investment. Pharmaceutical Research
and Manufacturers of America, an industry trade group, estimates that the United
States pharmaceutical industry will spend $24.0 billion on research and
development in 1999, an increase of 14.1% over 1998 research and development
expenditures of $21.1 billion. We estimate that research and development
expenditures for 1999 will represent approximately 21.0% of total United States
pharmaceutical sales. To maximize their research and development investment,
pharmaceutical companies must ensure that their products are fully supported by
sales, marketing and promotion 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, marketing and promotion functions, to enable
products to achieve their maximum sales potential.
Pharmaceutical companies' need to reduce fixed costs and maintain
flexibility. Outsourcing sales, marketing and promotion programs is an
effective tool in balancing cost containment pressures against pricing
pressures. By using CSOs, a pharmaceutical company converts the high fixed cost
of building, training, deploying and maintaining a sales force into a variable
cost. In addition, a CSO's ability to quickly and efficiently deploy an
effective sales force enhances flexibility by enabling pharmaceutical companies
to respond quickly to regulatory and competitive changes. In addition, it
enables the pharmaceutical company is then able to maximize the use of its own
internal sales force.
COMPETITIVE STRENGTHS
We believe that our principal competitive strengths are as follows:
Established reputation for quality. We believe that the strength of our
client relationships is evidence of our overall commitment to quality. Virtually
every program that we have designed has met or exceeded the goals established
with the client at the beginning of the program. We believe that, as a result,
we have earned a reputation in the CSO industry as a high-quality,
results-oriented provider of product detailing services. This belief is based on
our long-standing relationships with "blue chip" pharmaceutical companies like
Astra-Zeneca, Glaxo Wellcome, Pfizer, Procter & Gamble, and Rhone-Poulenc Rorer,
who not only have renewed but have also expanded their relationships with us,
and our ability to attract new clients.
Ability to quickly and efficiently deploy a high-quality, highly-motivated
sales force. As a result of our national field-based recruiting and hiring
process, we can quickly field a high quality, highly motivated sales force. As
an example, we recently built a new 300-person sales force in four weeks. The
quality of our sales force is assured by a recruiting and hiring process that is
one of the most comprehensive, challenging, rigorous,
25
<PAGE>
selective and professional processes in the industry and training programs that
are comparable to those designed by pharmaceutical companies to train their
internal sales forces. In addition, we offer our sales representatives a
compensation package that we believe is competitive with compensation packages
offered by the major pharmaceutical companies. Our highly motivated sales force
is evidenced by our low turnover rate.
Success in designing customized detailing programs. We successfully
innovate and create custom-designed product detailing programs that meet the
specific needs of our clients as they relate to the product or products being
promoted. The two principal areas of customization are the geographic deployment
of the sales representatives to be used in the program and the profile of the
sales force (i.e., part-time versus full-time). We believe that our ability to
provide full-time, part-time or a combination of full-time and part-time sales
representatives, constitutes a competitive advantage. Other areas of
customization include the experience of the sales representatives, type of sales
force to be used (i.e., a dedicated, vertically integrated sales force or a
syndicated sales force), and call frequency, compensation, and field and
database management support, such as in-house territory mapping, physician
satisfaction surveys, call reporting services and regulatory compliance
services. In addition, in furtherance of our attempts to create customized
detailing programs for our clients, we are exploring the possibility of entering
into contracts under which we would share the costs of a detailing program with
the client in exchange for a contingent fee based on future sales of the product
being promoted or some other performance based criteria. Our acquisition of TVG
enhances our ability to properly address the market potential of various
pharmaceutical products and to properly structure these arrangements.
Ability to manage multiple large complex programs. We have demonstrated an
ability to manage multiple large and complex programs simultaneously. This
ability is due, in part, to our experienced and highly qualified management
team, an organizational structure that enables us to respond to client demands
promptly and our management, database and information technology support
systems. We are currently executing four programs each having more than 300
sales representatives. We believe that we are currently managing two of the
three largest outsourced client specific sales forces in the United States CSO
industry.
GROWTH STRATEGY
We are committed to maintaining our position as a leader and innovator in
the growing CSO industry. The following are the principal elements of our growth
strategy:
Strengthen and broaden our relationships with our existing
clients. Building on our past successes and our strong relationships with our
existing clients, we will continue to seek to expand and renew existing programs
and implement new programs for these clients. Our growth has been due in large
part to a consistently high renewal rate among our clients. Revenues from our
three largest clients in 1998 increased by more than 130% over the revenue from
those same clients in 1997. Many of our clients are large pharmaceutical
companies with extensive product portfolios. We are currently marketing our
services to these clients for the purpose of capturing incremental business from
them.
Expand our client base. A significant number of major United States
pharmaceutical companies do not currently use our sales services. Our growth is
due, in part, to our ability to attract new clients. For example, in 1999, we
are executing product detailing programs for five new clients. We have expanded
and enhanced our new business development team, which focuses on expanding our
client base by targeting those pharmaceutical companies that we believe have
attractive product portfolios.
Provide additional services. We have an established platform from which to
offer services that expand and complement our product detailing services. For
example, through TVG we can offer our clients professional communication and
education programs and marketing research and consulting services. In addition,
our core competencies enable us to provide other services to our clients. For
example, our recruiting, hiring and training expertise gives us the ability to
effectively build an internal sales force for a client.
Pursue selected strategic acquisitions. We continually evaluate potential
strategic acquisitions in complementary and existing business areas. We believe
that by acquiring other carefully selected CSOs, such as ProtoCall, and
marketing support companies, such as TVG, we can expand our existing services or
accelerate the development of a broader array of services. In addition,
strategic acquisitions could help us expand our client
26
<PAGE>
base or enter new markets. For example, TVG's client base includes 17 of the top
20 pharmaceutical companies, many of which do not currently use our product
detailing services.
Expand into other segments of the pharmaceutical industry. We believe that
other sectors of the pharmaceutical industry, such as emerging pharmaceutical
and biotechnology companies, will contribute to the growth of CSOs. Generally,
these companies do not have the internal resources to market and promote their
products. Accordingly, we believe that these segments of the pharmaceutical
industry will need to outsource various functions, particularly sales, product
marketing and promotion.
Enter new geographic markets. We continually look for opportunities to
provide sales, marketing and promotional services in markets outside the United
States. This expansion may be in the form of strategic joint ventures,
acquisitions or by building a presence using our own internal resources.
SERVICES OFFERED
We currently provide three principal services to the pharmaceutical
industry:
o customized product detailing programs using dedicated or syndicated sales
forces;
o professional communication and education services; and
o marketing research and consulting services.
PRODUCT DETAILING PROGRAMS
Our primary business is designing and executing customized product
detailing programs using dedicated or syndicated sales forces.
Dedicated detailing programs. A dedicated detailing program typically
involves designing and deploying a fully integrated sales force customized to
the client's particular needs. A dedicated sales force promotes one to three
products of a single client. The amount of time devoted to each product detailed
during a call depends upon that product's detail position, i.e., the slot,
within the call. 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 targeted prescriber, obtain market share for new products, maintain market
share for existing products and build barriers to entry against competing
products.
While each detailing program relies on our basic core competencies, we
custom design each program to provide significant strategic advantages to the
client. Our product detailing programs can be divided into three distinct
phases: design, execution and assessment. In the design phase, we undertake to
understand the client's needs and objectives, identify, define and rank the
proposed target audience and determine appropriate staffing. In the execution
phase, we recruit, hire, train and manage the sales force. Finally, in the
assessment phase, we measure the performance of the sales force and the success
of the program relative to the goals and objectives of the program.
Syndicated detailing programs. Through ProtoCall, we provide syndicated
product detailing programs. ProtoCall is the leading provider of syndicated
detailing programs to the United States pharmaceutical industry. A syndicated
sales program utilizes a team of highly qualified sales representatives to
promote non-competing products of multiple manufacturers. Because the costs
associated with a syndicated sales force are shared among the various
manufacturers, these programs are less expensive than programs involving a
dedicated sales force. In addition, since the sales force is already deployed,
the detailing program can be launched even more quickly than a program using a
dedicated sales force. Accordingly, a syndicated sales force is typically used
for seasonal products or products with short-term promotional needs. Examples of
seasonal brands include flu medicines that are promoted during the winter cold
and flu season. Brands with short-term promotional needs may include brands that
are currently being promoted but require supplemental promotion.
27
<PAGE>
PROFESSIONAL COMMUNICATION AND EDUCATION SERVICES
Through TVG's education/communication division, we are a leading provider
of customized professional communication and education programs to the
pharmaceutical industry. These programs are designed to optimize sales of
pharmaceutical products. These programs fall into three basic categories:
o peer-to-peer promotional events such as dinner meetings and
teleconferences;
o developing and organizing advisory boards, speaker bureaus and symposia;
and
o customized continuing medical education programs for physicians.
MARKETING RESEARCH AND CONSULTING SERVICES
Through TVG's MR&C division, we are a leading provider of custom marketing
research and consulting services to the pharmaceutical industry. The MR&C
division provides a broad range of services across the entire life cycle of a
pharmaceutical product. TVG has developed a proprietary marketing model and
tools that utilize both qualitative and quantitative methodologies. This model
and related tools are intended to identify the work that must be done in order
to achieve the client's marketing goals. The model uses a six-step analysis:
o market assessment involves identifying current knowledge, attitudes and
practices of the relevant target audience;
o product profiling attempts to identify how an existing product is viewed
or how a new product will be viewed by the targeted audience,
particularly in relation to competing products and treatment
alternatives;
o product positioning helps the client develop the appropriate marketing
strategy for the product;
o message awareness evaluates the efficacy of a client's existing marketing
program;
o execution involves translating the message to effective promotional
materials; and
o implementation involves designing a program to actually deliver the
marketing material to the targeted audience.
In addition, the MR&C division also conducts a series of marketing seminars
for new and experienced pharmaceutical marketing researchers and product
managers. These seminars generally focus on the techniques of pharmaceutical
marketing research and the key marketing principles for successfully promoting
pharmaceutical products. Finally, the MR&C division has also created a team
dedicated to addressing the effect of managed care on marketing issues relating
to a client's product.
MARKETING AND BUSINESS DEVELOPMENT
Most of our revenue is derived from renewals and extensions of existing
programs, new programs with existing clients and new programs from new clients.
Most of our new business, from both existing clients and new clients, is derived
from responses to "requests for proposals" from pharmaceutical companies.
However, we are also engaged in proactive efforts to generate more business from
new and prospective clients. Recently, we hired a business development team, led
by our vice president-new business development. We have also implemented a sales
process that is designed to leverage our results-oriented image through case
studies, references and comprehensive proposals. This new business development
process relies on the use of a dedicated sales and marketing team as well as our
experienced senior management team.
COMPETITION
Traditionally, our competition has included in-house sales and marketing
departments of pharmaceutical companies and other CSOs, the largest of which are
Innovex, a subsidiary of Quintiles Transnational, the various sales and
marketing affiliates of Ventiv Health (formerly, Snyder Communications) and
Nelson Professional Sales, a division of Nelson Communications, Inc. However,
there are relatively few barriers to entry into the CSO industry and, as the CSO
industry continues to evolve, new competitors are likely to emerge. For example,
recently, two major wholesale drug distributors have begun to provide product
detailing services. Many of our current and potential competitors are larger
than we are and have greater financial, personnel and other resources
28
<PAGE>
than we do. Increased competition may lead to price and other forms of
competition that may have a material adverse effect on our business and results
of operations.
As a result of competitive pressures, pharmaceutical companies, as well as
various organizations providing services to the pharmaceutical industry are
consolidating and are becoming targets of global organizations. This trend is
likely to produce increased competition for clients 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 or may choose to award their product detailing and other marketing
and promotion contracts to organizations that can provide a broader range of
services. Although we intend to monitor industry trends and respond
appropriately, we cannot be certain that we will be able to anticipate and
successfully respond to such trends.
We believe that the primary competitive factors 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. We also compete on the basis of such factors as reputation,
quality of services, experience of management, performance record, customer
satisfaction, ability to respond to specific client needs, integration skills
and price. We believe we compete favorably with respect to each of these
factors.
GOVERNMENT AND INDUSTRY REGULATION
The healthcare industry is subject to extensive government and industry
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 United States Food and Drug Administration, the FDA. The 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. Finally, the Prescription Drug Marketing Act, the 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.
In addition, some of the services that we currently perform or that we may
provide in the future are affected by various guidelines promulgated by industry
and professional organizations. For example, ethical guidelines promulgated by
the American Medical Association 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 companies. Similar
guidelines and policies have been adopted by other professional and industry
organizations, such as Pharmaceutical Research and Manufacturers of America.
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 imposes 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.
29
<PAGE>
Finally, we are subject to the rules and regulations promulgated by the
Equal Employment Opportunity Commission and similar state entities which govern
our recruiting and hiring practices and our relationship with our employees.
Our failure, or the failure of our 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 us or our
clients from conducting certain business activities, subject us or our clients
to adverse publicity, increase the costs of regulatory compliance or subject us
or our clients to monetary fines or other penalties. Any such actions could have
a material adverse affect on us.
INSURANCE
General liability insurance. As a provider of product detailing services
to the pharmaceutical industry, we may become involved in litigation regarding
the products promoted by our employees, with the associated risks of significant
legal costs, substantial damage awards and adverse publicity. Even if these
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 our
operations and financial condition. In addition, we are often required to
indemnify our clients for the negligence of our employees.
We protect ourselves against potential liability by maintaining general
liability and professional liability insurance, which we believe to be adequate
in amount and coverage for the current size and scope of our operations, and by
contractual indemnification provisions with our clients. We may seek to increase
our existing policy limits or obtain additional insurance coverage in the future
as our business grows. Although we have not experienced difficulty obtaining
insurance coverage in the past, we cannot be certain that we can increase our
existing policy limits or obtain additional insurance coverage on acceptable
terms or at all. In addition, although our clients may indemnify us for their
negligent conduct, that may not be adequate protection for us.
Employment practice liability insurance. The success of our business
depends on our ability to deploy a high-quality sales force quickly. As part of
our recruiting and hiring process, we conduct a thorough screening process, drug
testing and rigorous interviews. In addition, we must continually evaluate our
personnel and, when necessary, terminate some of our employees with or without
cause. Accordingly, we may be subject to lawsuits relating to wrongful
termination, discrimination and harassment. We have obtained employment practice
liability insurance, which insures us against claims made by employees or former
employees relating to their employment, i.e., wrongful termination, sexual
harassment, etc. To date, we have not made any claims under this policy. We
cannot be sure that the coverage we maintain will be sufficient to cover any
future claims or will continue to be available in adequate amounts or at a
reasonable cost. We could be materially and adversely affected if we were
required to pay damages or incur defense costs in connection with a claim by an
employee that is outside the scope of coverage or exceeds the limits of our
policy.
LEGAL PROCEEDINGS
We are not currently a party to any pending litigation and we are not aware
of any material threatened litigation.
FACILITIES
Our corporate headquarters are located in Upper Saddle River, New Jersey,
in approximately 38,500 square feet of space occupied under a lease that expires
in the fourth quarter of 2004 with an option to extend for an additional five
years. We also rent a 1,000 square foot sales office in Raleigh-Durham, North
Carolina. TVG operates out of a 48,000 square foot facility in Fort Washington,
Pennsylvania, which expires on August 31, 2000.
EMPLOYEES
As of November 30, 1999, we had approximately 2,496 employees, including
1,999 sales representatives. Approximately 103 employees work at our
headquarters in Upper Saddle River, New Jersey, 145 employees work out of TVG's
headquarters in Fort Washington, Pennsylvania, and 48 employees work out of
ProtoCall's headquarters in Cincinnati, Ohio. In addition, we have 201 field
based sales managers. We are not party to a collective bargaining agreement with
a labor union and our relations with our employees are good.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages and
positions as of December 1, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
John P. Dugan................................... 64 Chairman of the board of directors and director
of strategic planning
Charles T. Saldarini............................ 36 President, chief executive officer and director
Bernard C. Boyle................................ 55 Chief financial officer, executive vice
president, secretary and treasurer
Steven K. Budd.................................. 43 Chief operating officer and executive vice
president
Robert Higgins.................................. 57 Executive vice president--client programs
John M. Pietruski(1)............................ 66 Director
Jan Martens Vecsi(1)............................ 56 Director
Gerald J. Mossinghoff(1)........................ 64 Director
</TABLE>
- ------------------
(1) Member of audit and compensation committees
John P. Dugan is our founder, chairman of the board of directors and
director of strategic planning. He served as our president from inception until
January 1995 and as our 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.
and served as its president until 1990. We were a wholly-owned subsidiary of
Dugan Farley in 1990 when Mr. Dugan became our sole stockholder. 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 our president and chief executive officer and a
director. Mr. Saldarini became president in January 1995 and chief executive
officer in November 1997. Prior to January 1995 Mr. Saldarini was our chief
operating officer. Mr. Saldarini joined us 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 our chief financial officer and executive
vice president since March 1997. In 1990, Mr. Boyle founded BCB Awareness, Inc.,
a firm that provided management advisory services, and served as its president
until March 1997. During that period he was also a partner in Boyle & Palazzolo,
Partners, an accounting firm. 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 joined us in April 1996 as vice president, account group
sales. He became executive vice president in July 1997 and chief operating
officer in January 1998. From April, 1995 through April 1996, 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 (now known as Nelson Professional Sales, a
division of Nelson Communications, Inc.), 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.
31
<PAGE>
Robert R. Higgins became our executive vice president-client programs in
October 1998. He joined us as a district sales manager in August 1996. From 1965
to 1995, Mr. Higgins was employed by Burroughs Wellcome Co., where he was
responsible for building and managing sales teams and developing and
implementing marketing strategies. After he left Burroughs Wellcome and before
he joined us, Mr. Higgins was self-employed. Mr. Higgins received a B.S. in
biology from Kansas State University in 1964, and an MBA from North Texas State
University in 1971.
Gerald J. Mossinghoff became a director in May 1998. 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 became a director in May 1998. 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. where he was employed
from 1977 until his retirement in 1988. Mr. Pietruski is a member of the boards
of directors of Hershey Foods Corporation, GPU, Inc., and Lincoln National
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 became a director in May 1998. Ms. Vecsi is the
sister-in-law of John P. Dugan, our chairman. Ms. Vecsi was employed by
Citibank, N.A. from 1967 through 1996 when she retired. Starting in 1984 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.
Our board of directors is divided into three classes. Each year the
stockholders elect the members of one of the three classes to a three-year term
of office. Messrs. Saldarini and Pietruski serve in the class whose term expires
in 2000; Messrs. Dugan and Mossinghoff serve in the class whose term expires in
2001; and Ms. Vecsi serves in the class whose term expires in 2002.
Our 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 our independent accountants and our internal controls. The
compensation committee is responsible for the approval of compensation
arrangements for our officers and the review of our compensation plans and
policies.
32
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth information
concerning compensation paid for services in all capacities awarded to, earned
by or paid to our chief executive officer and the other four most highly
compensated executive officers during 1998 whose aggregate compensation exceeded
$100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------
------------------------------------ SHARES OF COMMON
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS
- ------------------------------------------------------- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
John P. Dugan
Chairman of the board................................ $125,000 $ -- $ 18,994 --
Charles T. Saldarini
President and chief executive officer................ $233,744 $275,000 $ 2,394 --
Steven K. Budd
Chief operating officer and executive vice
president............................................ $168,678 $178,000 $ 2,302 --
Bernard C. Boyle
Chief financial officer, executive vice president,
secretary and treasurer.............................. $155,833 $165,000 $ 4,170 --
Robert R. Higgins
Executive vice president............................. $101,186 $ 45,000 $ 2,104 7,500
</TABLE>
Option Grants. The following table sets forth certain information
regarding grants of options made by us during 1998 to each of the executives
named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
__________________INDIVIDUAL GRANTS__________________
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
- ------------------------------ -------------- ------------- --------- ---------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Dugan................. -- -- -- -- -- -- --
Charles T. Saldarini.......... -- -- -- -- -- -- --
Steven K. Budd................ -- -- -- -- -- -- --
Bernard C. Boyle.............. -- -- -- -- -- -- --
Robert R. Higgins............. 7,500(2) 2.0% $ 16.00 05/20/08 $ -- $75,467 $191,249
</TABLE>
- ------------------
(1) Potential realizable values are net of exercise price but before taxes, and
are based on the assumption that our common stock appreciates at the annual
rate shown (compounded annually) from the date of grant until the expiration
date of the options. These numbers are calculated based on Securities and
Exchange Commission requirements and do not reflect our projection or
estimate of future stock price growth. Actual gains, if any, on stock option
exercises are dependent on our future financial performance, 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.
(2) Options covering 2,500 shares vested on May 19, 1999 and options covering
2,500 shares will vest on each May 19, 2000 and 2001.
33
<PAGE>
Option Exercises and Year-End Option Values. The following table sets
forth information regarding the number and year-end value of unexercised options
held at December 31, 1998 by each of the executives named in the Summary
Compensation Table.
FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED
FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END FISCAL YEAR-END(2)
SHARES ACQUIRED ---------------------------- ----------------------------
NAME ON EXERCISE VALUE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Dugan.......... -- -- -- -- -- --
Charles T. Saldarini... -- -- -- -- -- --
Steven K. Budd......... -- -- 13,063 26,126 $ 347,998 $ 695,997
Bernard C. Boyle....... 5,000 $ 108,825 4,331 18,661 $ 115,378 $ 497,129
Robert R. Higgins...... -- -- -- 7,500 $ -- $ 91,875
</TABLE>
- ------------------
(1) For purposes of this calculation, value is based upon the difference between
the exercise price of the options, $1.61 per share, and the stock price on
the exercise date of $23.375 per share.
(2) For the purposes of this calculation, value is based upon the difference
between the exercise price of the options, $1.61 per share in the case of
Messrs. Budd and Boyle and $16.00 in the case of Mr. Higgins, and the stock
price at December 31, 1998 of $28.25 per share.
EMPLOYMENT CONTRACTS
In January 1998, we 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, no cash bonuses and for
participation in all executive benefit plans.
In April 1998, we entered 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 provides for an annual base salary
of $275,000 and for participation in all executive benefit plans. The agreement
also provides that Mr. Saldarini will be entitled to bonus and incentive
compensation awards as determined by the compensation committee. Further, the
agreement provides, 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), we 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.
In March 1998, we also entered into employment agreements with each of
Messrs. Boyle and Budd, providing for Mr. Boyle's employment as chief financial
officer and Mr. Budd's employment as 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 agreements also provide that Messrs. Boyle and
Budd are entitled to bonus and incentive compensation awards as determined by
the compensation committee. Each agreement also provides, among other things,
that, if we terminate the employee's employment without cause (as defined) or
the employee terminates his employment for good reason (as defined), we will pay
the employee an amount equal to the salary which would have been payable over
the unexpired term of the employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None of the directors serving on the compensation committee of the board of
directors is employed by us. In addition, none of our directors or executive
officers is a director or executive officer of any other corporation that has a
director or executive officer who is also a member of our board of directors.
34
<PAGE>
1998 STOCK OPTION PLAN
In order to attract and retain persons necessary for our success, in March
1998, our board of directors adopted our 1998 stock option plan reserving for
issuance up to 750,000 shares. Officers, directors, key employees and
consultants are eligible to receive incentive and/or non-qualified stock options
under this plan. The plan, which has a term of ten years from the date of its
adoption, is administered by the compensation committee. The selection of
participants, allotment of shares, determination of price and other conditions
relating to the purchase of options is determined by the compensation committee
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 stockholder 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.
At November 30, 1999, options for an aggregate of 434,729 shares were
outstanding under the plan, including 39,189 granted to Steven Budd, our chief
operating officer, 22,992 granted to Bernard Boyle, our chief financial officer
and 11,250 granted to each of Gerald J. Mossinghoff, John M. Pietruski and Jan
Martens Vecsi, our non-employee directors. In addition, as of November 30, 1999,
options to purchase 31,997 shares of common stock had been exercised.
COMPENSATION OF DIRECTORS
Each non-employee director receives 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 receive $200 for each committee meeting
attended in person and $100 for each committee meeting attended telephonically.
Under our stock option plan, each non-employee director is granted options to
purchase 7,500 shares upon first being elected to our board of directors and
options to purchase an additional 3,750 shares on the date of our annual
meeting. All options have an exercise price equal to the fair market value of
the common stock on the date of grant and vest one-third on the date of grant
and one-third at the end of each subsequent year of service on the board.
401(K) PLAN
We maintain a 401(k) retirement plan intended to qualify under
sections 401(a) and 401(k) of the Internal Revenue Code. The 401(k) plan is a
defined contribution plan that covers employees at least 21 years of age, who
have been employed 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, we 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. Our contribution to the 401(k) plan for 1998 was approximately $657,000.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors of corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. Our certificate of incorporation limits the liability of our directors to
the fullest extent permitted by Delaware law.
Our certificate of incorporation provides mandatory indemnification rights
to any officer or director who, by reason of the fact that he or she is an
officer or director, is involved in a legal proceeding of any nature. These
indemnification rights include reimbursement for expenses incurred by an officer
or director in advance of the final disposition of a legal proceeding in
accordance with the applicable provisions of the DGCL. We have been informed
that, in the opinion of the Securities and Exchange Commission, indemnification
for liabilities under the Securities Act is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
35
<PAGE>
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification by us is
required or permitted. We are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
CERTAIN TRANSACTIONS
In connection with our efforts to recruit sales representatives, we place
advertisements in various print publications. These ads are placed on our behalf
through Boomer & Son, Inc., which receives commissions from the publications.
Prior to 1998, B&S was wholly-owned by John P. Dugan, our chairman of the board.
At the end of 1997 Mr. Dugan transferred his interest in B&S to his son, Thomas
Dugan, and daughter-in-law, Kathleen Dugan. John P. Dugan is not actively
involved in B&S; however, his son, Thomas Dugan, is active in B&S. For the year
ended December 31, 1998 we purchased $1.8 million of advertising through B&S and
B&S received commissions of $239,000. For the period ended September 30, 1999,
we purchased $2.2 million of advertising through B&S and B&S received
commissions of $345,000. All ads were placed at the stated rates set by the
publications in which they appeared. In addition, we believe 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.
Peter Dugan, the son of John P. Dugan, our chairman of the board, is
employed by us as director of new business development. In 1998, compensation
paid or accrued to Peter Dugan was $103,000.
In May 1998, immediately prior to our initial public offering, we made a
final cash distribution of $5.8 million to our then existing stockholders. This
distribution reflected stockholders' equity as of March 31, 1998 plus our
earnings from April 1, 1998 to May 18, 1998. No similar distributions have been
made since and it is not anticipated that any will be made in the future.
In April 1998, we loaned $1.4 million to our president and chief executive
officer, Charles T. Saldarini. The proceeds of this loan were used by
Mr. Saldarini to pay income taxes relating to his receipt of shares of common
stock in January 1997. This loan is for a term of three years, bears interest at
a rate equal to 5.4% per annum payable quarterly in arrears and is secured by a
pledge of the shares held by Mr. Saldarini.
In November 1998, we agreed to loan $250,000 to Steven Budd, our executive
vice president and chief operating officer, in connection with his relocation
and purchase of a primary residence. This loan is for a term of ten years,
subject to acceleration upon termination of employment, bears interest at the
rate of 5.5% per annum payable quarterly in arrears and is secured by a pledge
of Mr. Budd's rights under his stock option agreement and any shares issuable
thereunder. We funded $100,000 of this loan in November 1998 and the remainder
in February 1999.
36
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 1, 1999 and as adjusted to reflect
the sale of the shares offered by this prospectus, by:
o each person known by us to be the beneficial owner of more than 5% of our
outstanding shares;
o each of our directors;
o each executive officer named in the Summary Compensation Table above;
o each selling stockholder; and
o all of our directors and executive officers 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. All information with respect to beneficial ownership has been
furnished to us by the respective stockholder. The address for each of Messrs.
Dugan and Saldarini is c/o Professional Detailing, Inc., 10 Mountainview Road,
Upper Saddle River, New Jersey 07458.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)
-------------------- BEING --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
John P. Dugan........................................... 6,344,878 53.0% 1,000,000 5,344,878 40.0%
Charles T. Saldarini.................................... 1,117,684 9.3% 275,000 842,684 6.3%
Steven K. Budd.......................................... 26,526(2) * -- 26,526(2) *
Bernard C. Boyle........................................ 18,662(3) * -- 18,662(3) *
Robert Higgins.......................................... 7,500(4) * -- 7,500(4) *
John M. Pietruski....................................... 8,250(5) * -- 8,250(5) *
Jan Martens Vecsi....................................... 6,250(6) * -- 6,250(6) *
Gerald J. Mossinghoff................................... 6,250(6) * -- 6,250(6) *
Frank Smith............................................. 164,540 1.4% 16,454 148,086 1.1%
Marc Julius............................................. 164,540 1.4% 16,454 148,086 1.1%
Gail Keppler............................................ 164,540 1.4% 16,454 148,086 1.1%
Gary Silverman.......................................... 164,540 1.4% 16,454 148,086 1.1%
John McNichol........................................... 164,540 1.4% 16,454 148,086 1.1%
Robin Putzrath.......................................... 164,540 1.4% 16,454 148,086 1.1%
Mary Attig.............................................. 82,270 * 8,227 74,043 *
Bill Wrubel............................................. 82,270 * 8,227 74,043 *
Eric Rodes.............................................. 55,740 * 5,574 50,166 *
H. Dennis Zanella....................................... 49,362 * 4,936 44,426 *
All executive officers and directors as a group
(8 persons)........................................... 7,536,000(7) 62.7% 6,261,000 46.6%
</TABLE>
- ------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options and warrants held by that person
that are currently exercisable or exercisable within 60 days of October 1,
1999 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Includes 26,126 shares issuable pursuant to options exercisable within
60 days of the date hereof.
(3) Includes 13,662 shares issuable pursuant to options exercisable within
60 days of the date hereof.
(4) Includes 2,500 shares issuable pursuant to options exercisable within
60 days of the date of this prospectus.
(5) Includes 6,250 shares issuable pursuant to options exercisable within
60 days of the date of this prospectus.
(6) Represents shares issuable pursuant to options exercisable within 60 days of
the date of this prospectus.
(7) Includes 55,538 shares issuable pursuant to options exercisable within
60 days of the date of this prospectus.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 30,000,000 shares of common stock
and 5,000,000 shares of preferred stock. As of November 30, 1999, there were
11,971,911 shares of common stock and no shares of preferred stock issued and
outstanding. As of November 30, 1999, options to purchase 434,729 shares of
common stock were outstanding.
The statements under this caption are brief summaries of material
provisions of our certificate of incorporation and bylaws. These summaries do
not purport to be complete, and are subject to, and are qualified in their
entirety by reference to, those documents.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters on which the holders of common stock are entitled to vote and do not
have any cumulative voting rights. This means that the holders of more than 50%
of our common stock voting for the election of directors can elect all of the
directors up for election if they choose to do so. If this event occurs, the
holders of the remaining shares of our common stock will not be able to elect
any person to our board of directors. Subject to the rights of the holders of
shares of our preferred stock, holders of our common stock are entitled to
receive ratably such dividends as may be from time to time declared by our board
of directors out of funds legally available for this purpose. Holders of our
common stock are not entitled to any preemptive, conversion, redemption,
subscription or similar rights. In the event we liquidate or dissolve, whether
voluntarily or involuntarily, holders of our common stock are entitled to share
proportionately in any assets which remain after we have paid all of our debts
and other liabilities and reserved any amounts due to holders of our outstanding
preferred stock.
PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors to
issue, from time to time, up to five million shares of preferred stock in one or
more series. The board is authorized to fix or alter the specific rights of each
series, including:
o dividend rights,
o dividend rates,
o conversion rights,
o voting rights,
o terms of redemption,
o redemption prices,
o liquidation preferences, and
o the number of shares of each series.
The issuance of preferred stock could delay, deter or prevent a change in
control.
CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation provides that none of our directors will
be liable to us or our stockholders for monetary damages for breach of his or
her fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o in respect of certain unlawful dividend payments or stock redemptions or
repurchases; or
38
<PAGE>
o for any transaction from which the director derived an improper personal
benefit.
These provisions effectively eliminate our right and the right of our
stockholders, through stockholders' derivative suits, to recover monetary
damages against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior, except in the situations
described above.
Our bylaws require that we indemnify our legal representatives, directors
and officers and any person who is or was serving at our request as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, to the fullest extent authorized by the DGCL. We also have
officers' and directors' liability insurance in the amount of $15 million for
members of our board of directors and executive officers.
Our certificate of incorporation and bylaws include provisions which may
delay, deter or prevent a future takeover or change in control unless the
transaction is approved by our board of directors. These provisions may also
render the removal of directors and management more difficult.
Our certificate of incorporation divides our board of directors into three
classes, as equal in number as possible, serving staggered, three-year terms.
Our bylaws contain provisions requiring stockholders to give us prior notice of
their intent to either nominate a director or submit a proposal for
consideration at the annual meeting. In general, we must receive notice no less
than 120 days prior to the meeting. This notice must contain specified
information regarding the person to be nominated or the matter to be brought
before the meeting and the stockholder submitting the proposal.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the DGCL. The DGCL
generally prohibits a publicly-held 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 the person became an interested stockholder,
unless the interested stockholder attained that status with the approval of the
board or unless the business combination is approved in a prescribed manner. A
business combination includes mergers, asset sales, and other transactions
resulting in a financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together with affiliates and associates,
owns, or within three years did own, 15% or more of our voting stock. This
statute could prohibit or delay the consummation of mergers or other
transactions resulting in a change of control and, accordingly, may discourage
attempts to acquire us.
REGISTRATION RIGHTS
In connection with our acquisition of TVG, we agreed to file a registration
statement on Form S-3 with the Securities and Exchange Commission covering the
1,256,882 shares issued in the merger on or before February 6, 2000 and to use
our best efforts to cause such registration statement to be declared effective
promptly after that registration statement is filed. Generally, we are required
to keep the registration statement current and available for use for one year or
until all the registered shares have been sold. The TVG stockholders were also
granted certain "piggy-back" registration rights. As a result of those
piggy-back rights, 125,688 shares are being sold by ten stockholders in this
offering. With respect to the remaining 1,131,194 shares, the TVG stockholders
have agreed to defer the required filing of a registration statement until the
270th day following the date of this prospectus.
39
<PAGE>
UNDERWRITERS
Under the terms and conditions contained in an underwriting agreement, the
underwriters named below, for whom Morgan Stanley & Co. Incorporated and William
Blair & Company, L.L.C. are acting as representatives, have severally agreed to
purchase, and we and the selling stockholders have agreed, severally, to sell to
them, the respective number of shares of common stock set forth opposite the
names of the underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated....................................................................
William Blair & Company, L.L.C.......................................................................
---------
Total.............................................................................................. 2,800,000
---------
---------
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and the selling stockholders and subject to
prior sale. The underwriting agreement provides that the obligations of the
several underwriters to pay for and accept delivery of the shares of common
stock offered in this offering are subject to the approval of various legal
matters by their counsel and to other delineated conditions. The underwriters
are obligated to take and pay for all of the shares of common stock offered in
this offering, other than those covered by the underwriters' over-allotment
option described below, if any 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 of this prospectus and part to dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and the dealers may reallow, a concession not in excess
of $ a share to other underwriters or to 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 representatives of the
underwriters.
We and the selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of additional shares of common stock at the public
offering price set forth on the cover page of this prospectus, less underwriting
discounts and commissions. The underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered in this offering. 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 of common stock 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 set forth next to the names of all underwriters in the preceding
table. If the underwriters' over-allotment option is exercised in full, the
total price to public would be $ , the total underwriters' discounts and
commission would be $ and total proceeds to us and the selling stockholders
would be $ and $ , respectively.
We estimate expenses payable by us in connection with this offering, other
than the estimated underwriting discounts and commissions referred to above,
will be approximately $ .
We and our directors, executive officers and certain of our stockholders
have each agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 90 days
after the date of this prospectus, he, she or it will not, subject to limited
exceptions, directly or indirectly:
o 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 common stock (whether
such shares or any such securities are then owned by such person or are
thereafter acquired directly from us); or
o enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
40
<PAGE>
The restrictions described in the previous paragraph do not apply to:
o the sale of shares to the underwriters;
o the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
o the issuance by us of additional options to purchase shares of common
stock under our existing stock option plan, provided that those options
are not exercisable during the 90-day lock-up period; or
o transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
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 over-allot 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 the previously
distributed shares of 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 end any of these activities at any time.
The underwriters and dealers may engage in passive market making
transactions in the common stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the common stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the common stock during a specified two month prior period, or
200 shares, whichever is greater. A passive market maker must identify passive
market making bids as such or maintain the market price of the common stock
above independent market levels. Underwriters and dealers are not required to
engage in passive market making and may end passive market making activities at
any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Various legal matters in connection with this offering will be passed upon
for us by Morse, Zelnick, Rose & Lander, LLP, New York, New York and for the
underwriters by Ropes & Gray, Boston, Massachusetts. Various legal matters
relating to rules and regulations promulgated by the FDA and other regulatory
matters will be passed upon for us by Farkas & Manelli, P.L.L.C., Washington,
D.C. Members and affiliates of Morse, Zelnick, Rose & Lander, LLP own in the
aggregate approximately 5,600 shares of our common stock.
EXPERTS
The audited consolidated financial statements included in this prospectus,
except as they relate to TVG, Inc., have been audited by
PricewaterhouseCoopers LLP, independent accountants, and, insofar as they relate
to TVG, Inc., by Grant Thornton LLP, for 1997 and 1998, and by Arthur Andersen
LLP, for 1996, independent accountants, whose reports thereon appear herein.
Such financial statements have been included in reliance on the reports of such
independent accountants given on the authority of such firms as experts in
auditing and accounting.
41
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements, or other information we file with the SEC at its Public
Reference Room at 450 Fifth Avenue, N.W., Washington, D.C., 20549 and at the
SEC's regional offices located at Seven World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market.
You can inspect and copy our reports and other information at the offices of the
National Association of Securities Dealers, Inc., located at 1735 K Street,
N.W., Washington, D.C. 20006.
We filed a registration statement on Form S-3 to register with the SEC the
shares covered by this prospectus. This prospectus is part of that registration
statement. As permitted by SEC rules, this prospectus does not contain all of
the information you can find in the registration statement or the exhibits to
the registration statement. The SEC allows us to "incorporate by reference" the
information we filed with them, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this prospectus, and later information filed with the SEC will update and
supersede this information.
We incorporate by reference the documents listed below:
o Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
o Current report on Form 8-K dated May 12, 1999; and
o Quarterly Reports on Form 10-Q for the three, six and nine months ended
March 31, June 30 and September 30, 1999, respectively.
All documents subsequently filed by us pursuant to Sections 13(a), 13(c),
15(d) or 16 of the Exchange Act, prior to the termination of this offering, will
be deemed to be incorporated by reference into this prospectus.
You may request a copy of our annual, quarterly and special reports, proxy
statements and other information at no cost, by writing or telephoning us at the
following address:
Professional Detailing, Inc.
Attention: Investor Relations
10 Mountainview Road
Upper Saddle River, NJ 07458
(201) 258-8450
42
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants......................................................................... F-2
Consolidated Balance Sheets for Years Ended December 31, 1997 and 1998..................................... F-5
Consolidated Statements of Operations for Years Ended December 31, 1996, 1997 and 1998..................... F-6
Consolidated Statements of Cash Flows for Years Ended December 31, 1996, 1997 and 1998..................... F-7
Consolidated Statements of Stockholders' Equity for Years Ended December 31, 1996, 1997
and 1998................................................................................................. F-8
Notes to Consolidated Financial Statements................................................................. F-9
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998................................. F-20
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1999 and 1998........................................................................ F-21
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998.............................................................................. F-22
Notes to Consolidated Financial Statements................................................................. F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of Professional Detailing, Inc.:
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations and stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Professional Detailing, Inc. and
its subsidiaries at December 31, 1998 and 1997 and the results of their
operations and their cash flows for the three years ended December 31, 1998, in
conformity with generally accepted accounting principles. 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 did not audit the financial statements of TVG, Inc., a
wholly-owned subsidiary, which statements reflect total assets of $7,450,369 and
$9,423,141 at December 31, 1998 and 1997, respectively, and total revenues of
$18,340,216, $20,569,036 and $16,076,397 for the years ended December 31, 1998,
1997 and 1996, respectively. Those statements were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for TVG, Inc., is based
solely on the report of the other auditors. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
February 8, 1999,
except as to the pooling of
interests with TVG, Inc.
which is as of May 12,
1999 and Note 21 which
is as of August 31, 1999.
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
TVG, Inc.
We have audited the accompanying balance sheets of TVG, Inc. (a Delaware
corporation), as of December 31, 1998 and 1997, and the related statements of
income and comprehensive income, changes in shareholders' equity, and cash flows
for the years then ended. These financial statements (not presented separately
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial staements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the financial
position of TVG, Inc., as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
February 3, 1999
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TVG, Inc.:
We have audited the acompanying balance sheets of TVG, Inc. (a Delaware
corporation) as of December 31, 1996, and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TVG, Inc. as of December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 14, 1997
F-4
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 7,762,299 $56,989,233
Short-term investments........................................................... 1,281,966 2,422,111
Contract payments receivable..................................................... 6,676,373 8,426,029
Unbilled costs and accrued profits on contracts in progress...................... 3,688,903 3,578,341
Deferred training................................................................ 407,255 1,222,103
Receivable from affiliate, net................................................... 27,161 --
Other current assets............................................................. 364,968 771,135
Deferred tax asset............................................................... -- 368,400
----------- -----------
Total current assets............................................................... 20,208,925 73,777,352
Net property, plant & equipment:................................................... 1,659,082 3,070,397
Other long-term assets............................................................. -- 542,606
----------- -----------
Total assets....................................................................... $21,868,007 $77,390,355
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 834,260 $ 1,311,648
Payable to affiliate............................................................. -- 56,236
Notes payable.................................................................... 1,352,998 --
Accrued incentives............................................................... 3,755,199 7,590,954
Accrued salaries and wages....................................................... 1,658,332 2,614,878
Unearned contract revenue........................................................ 9,011,855 9,627,035
Other accrued expenses........................................................... 3,012,418 5,528,701
----------- -----------
Total current liabilities.......................................................... 19,625,062 26,729,452
----------- -----------
Long-term liabilities:
Deferred tax liability........................................................... -- 32,000
Other long-term liabilities...................................................... 595,501 263,455
----------- -----------
Total long-term liabilities........................................................ 595,501 295,455
----------- -----------
Total liabilities.................................................................. 20,220,563 27,024,907
----------- -----------
Commitments and contingencies (note 15)
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares authorized; shares issued and
outstanding, 1997 -- 9,109,963; 1998 -- 12,334,963............................ 91,100 123,350
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued
and outstanding............................................................... -- --
Additional paid-in capital......................................................... 5,422,979 47,637,593
Retained earnings (deficit)........................................................ (2,925,837) 4,896,066
Accumulated other comprehensive income............................................. 54,527 5,161
Treasury stock, at cost -- 388,519 shares.......................................... (812,171) (812,171)
Deferred compensation.............................................................. (101,822) (56,557)
Loan to officer.................................................................... (81,332) (1,427,994)
----------- -----------
Total stockholders' equity......................................................... 1,647,444 50,365,448
----------- -----------
Total liabilities & stockholders' equity........................................... $21,868,007 $77,390,355
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue.......................................................... $ 49,089,757 $ 75,243,022 $119,421,353
Program expenses (including related party amounts of $671,810,
$1,564,606, and $1,753,018 for the periods ended December 31,
1996, 1997 and 1998, respectively)............................. 35,738,125 55,854,196 87,840,355
------------ ------------ ------------
Gross profit..................................................... 13,351,632 19,388,826 31,580,998
------------ ------------ ------------
Compensation expense............................................. 8,518,551 12,020,784 15,779,396
Bonus to majority stockholder.................................... 1,500,000 2,243,000
Stock grant expense.............................................. -- 4,470,000 --
Other general, selling & administrative expenses................. 3,509,385 4,748,888 6,545,971
------------ ------------ ------------
Total general, selling & administrative expenses................. 13,527,936 23,482,672 22,325,367
------------ ------------ ------------
Operating income (loss).......................................... (176,304) (4,093,846) 9,255,631
Other income, net................................................ 275,163 376,099 2,273,776
------------ ------------ ------------
Income (loss) before provision for taxes......................... 98,859 (3,717,747) 11,529,407
Provision for income taxes....................................... 207,670 125,973 1,691,181
------------ ------------ ------------
Net income (loss)................................................ $ (108,811) $ (3,843,720) $ 9,838,226
------------ ------------ ------------
------------ ------------ ------------
Basic net income (loss) per share................................ $ (0.01) $ (0.44) $ 0.92
------------ ------------ ------------
------------ ------------ ------------
Diluted net income (loss) per share.............................. $ (0.01) $ (0.44) $ 0.91
------------ ------------ ------------
------------ ------------ ------------
Basic weighted average number of shares outstanding.............. 9,063,779 8,729,608 10,684,264
------------ ------------ ------------
------------ ------------ ------------
Diluted weighted average number of shares outstanding............ 9,063,779 8,729,608 10,813,928
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA DATA (UNAUDITED) (see note 18):
Income (loss) before provision for taxes, as reported............ $ 98,859 $ (3,717,747) $ 11,529,407
Pro forma provision for income tax............................... 39,544 -- 4,611,763
------------ ------------ ------------
Pro forma net income (loss)...................................... $ 59,315 $ (3,717,747) $ 6,917,644
------------ ------------ ------------
------------ ------------ ------------
Pro forma basic net income (loss) per share...................... $0.01 $(0.43) $0.65
Pro forma diluted net income (loss) per share.................... $0.01 $(0.43) $0.64
Pro forma basic weighted average number of shares outstanding.... 9,063,779 8,729,608 10,684,264
------------ ------------ ------------
------------ ------------ ------------
Pro forma diluted weighted average number of shares
outstanding.................................................... 9,063,779 8,729,608 10,813,928
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from operations................................... $ (108,811) $(3,843,720) $ 9,838,226
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation................................................ 387,295 461,429 697,123
Deferred rent and compensation.............................. 82,342 136,739 (106,017)
Loss on disposal of equipment............................... -- -- 87,517
Non-cash compensation expense--stock grant to officer....... -- 4,050,000 --
Non-cash compensation expense--stock options................ -- 42,030 45,265
Deferred taxes, net......................................... (41,135) 125,973 (336,400)
Other changes in assets and liabilities:
(Increase) decrease in contract payments receivable......... (1,698,010) 585,232 (1,749,656)
(Increase) decrease in unbilled costs....................... 327,642 (1,796,860) 110,562
(Increase) decrease in deferred training.................... 28,054 (77,270) (814,848)
(Increase) in other current assets.......................... (56,210) (230,421) (406,167)
(Increase) in other long-term assets........................ -- -- (542,606)
Increase (decrease) in trade accounts payable............... 242,852 (52,527) 477,388
Increase (decrease) in accrued liabilities.................. 3,511,162 (1,014,332) 4,792,301
Increase (decrease) in unearned contract revenue............ (533,378) 3,837,727 615,180
Increase (decrease) in payable to affiliate................. 284,877 (138,859) 56,236
Increase in other current liabilities....................... 819,322 1,513,212 2,452,815
(Decrease) in other long-term liabilities................... -- -- (162,561)
---------- ----------- -----------
Net cash provided by operating activities............................. 3,246,002 3,598,353 15,054,358
---------- ----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of short-term investments.................................. (381,040) (317,542) (1,189,511)
Purchase of property and equipment.................................. (556,445) (705,191) (2,195,955)
Advances to affiliate............................................... (369,204) -- --
Repayments of advances from affiliate............................... -- 196,025 27,161
---------- ----------- -----------
Net cash used in investing activities................................. (1,306,689) (826,708) (3,358,305)
---------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of note payable.............................. -- 100,000 --
Payments on note payable............................................ (122,129) (92,486) (68,365)
Distributions to S corporation stockholders......................... -- -- (6,200,351)
Net proceeds from issuance of common stock.......................... -- -- 46,430,892
Purchase of treasury stock.......................................... (751,084) (134,050) --
Proceeds from sale of treasury stock................................ 39,264 27,285 --
Loans from stockholders............................................. -- 1,284,633 (1,284,633)
Loan to stockholders................................................ -- -- (1,427,994)
Repayments of stockholders loans.................................... 39,302 147,316 81,332
---------- ----------- -----------
Net cash provided by (used in) financing activities................... (794,647) 1,332,698 37,530,881
---------- ----------- -----------
Net increase in cash and cash equivalents............................. 1,144,666 4,104,343 49,226,934
Cash and cash equivalents--beginning.................................. 2,513,290 3,657,956 7,762,299
---------- ----------- -----------
Cash and cash equivalents--ending..................................... $3,657,956 $ 7,762,299 $56,989,233
---------- ----------- -----------
---------- ----------- -----------
Cash paid for interest................................................ $ 6,012 $ 43,612 $ 29,131
---------- ----------- -----------
---------- ----------- -----------
Cash paid for taxes................................................... $ 205,701 $ 56,800 $ 1,698,815
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
--------------------- ------------------- DEFERRED STOCKHOLDER PAID IN
SHARES AMOUNT SHARES AMOUNT COMPENSATION LOAN CAPITAL
---------- -------- ------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1995, as previously
reported...................................... 7,464,562 $ 74,646 $ -- $ -- $ (10,340) $ --
Adjustment for pooling of interests with
TVG......................................... 1,645,401 16,454 47,935 (50,827) 1,214,500
---------- -------- ------- --------- ---------- ----------- -----------
Balance--December 31, 1995, as restated......... 9,109,963 91,100 47,935 (50,827) (10,340) 1,214,500
---------- -------- ------- --------- ---------- ----------- -----------
Net (loss) for the year ended December 31,
1996..........................................
Unrealized investment holding (losses), net.....
Comprehensive (loss)............................
Purchase of treasury stock...................... 365,383 (775,196)
Sale of treasury stock.......................... (44,340) 59,337 14,627
Net repayment of stockholder notes..............
---------- -------- ------- --------- ---------- ----------- -----------
Balance--December 31, 1996...................... 9,109,963 91,100 368,978 (766,686) (10,340) 1,229,127
---------- -------- ------- --------- ---------- ----------- -----------
Net (loss) for the year ended December 31,
1997..........................................
Unrealized investment holding gains, net........
Comprehensive (loss)............................
Purchase of treasury stock...................... 57,589 (134,050)
Sale of treasury stock.......................... (38,048) 88,565
Repayment of stockholder loan................... 10,340
Stock grant..................................... 4,050,000
Deferred compensation--stock options............ (101,822) 143,852
---------- -------- ------- --------- ---------- ----------- -----------
Balance--December 31, 1997...................... 9,109,963 91,100 388,519 (812,171) (101,822) 5,422,979
Net income for the year ended December 31,
1998..........................................
Unrealized investment holding (losses), net.....
Comprehensive income............................
Issuance of common stock........................ 3,225,000 32,250 46,398,642
Purchase of common stock........................
Stockholders' distribution...................... (4,184,028)
Amortization of deferred compensation expense... 45,265
Loan to officer................................. (1,346,662)
---------- -------- ------- --------- ---------- ----------- -----------
Balance--December 31, 1998...................... 12,334,963 $123,350 388,519 $(812,171) $ (56,557) $(1,346,662) $47,637,593
---------- -------- ------- --------- ---------- ----------- -----------
---------- -------- ------- --------- ---------- ----------- -----------
<CAPTION>
NOTE ACCUMULATED
RECEIVABLE RETAINED OTHER
FROM SALE EARNINGS COMPREHENSIVE
OF STOCK (DEFICIT) INCOME (LOSS) TOTAL
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance--December 31, 1995, as previously
reported...................................... $ -- $ (742,392) $ -- $ (678,086)
Adjustment for pooling of interests with
TVG......................................... (161,630) 1,769,086 2,787,583
---------- ----------- --------- -----------
Balance--December 31, 1995, as restated......... (161,630) 1,026,694 2,109,497
---------- ----------- --------- -----------
Net (loss) for the year ended December 31,
1996.......................................... (108,811) (108,811)
Unrealized investment holding (losses), net..... (6,927) (6,927)
-----------
Comprehensive (loss)............................ (115,738)
Purchase of treasury stock...................... (775,196)
Sale of treasury stock.......................... (34,700) 39,264
Net repayment of stockholder notes.............. 39,302 39,302
---------- ----------- --------- -----------
Balance--December 31, 1996...................... (157,028) 917,883 (6,927) (1,297,129)
---------- ----------- --------- -----------
Net (loss) for the year ended December 31,
1997.......................................... (3,843,720) (3,843,720)
Unrealized investment holding gains, net........ 61,454 61,454
-----------
Comprehensive (loss)............................ (3,782,266)
Purchase of treasury stock...................... (134,050)
Sale of treasury stock.......................... 75,696 164,261
Repayment of stockholder loan................... 10,340
Stock grant..................................... 4,050,000
Deferred compensation--stock options............ 42,030
---------- ----------- --------- -----------
Balance--December 31, 1997...................... (81,332) (2,925,837) 54,527 1,647,444
Net income for the year ended December 31,
1998.......................................... 9,838,226 9,838,226
Unrealized investment holding (losses), net..... (49,366) (49,366)
-----------
Comprehensive income............................ 9,788,860
Issuance of common stock........................ 46,430,892
Purchase of common stock........................ --
Stockholders' distribution...................... (2,016,323) (6,200,351)
Amortization of deferred compensation expense... 45,265
Loan to officer................................. (1,346,662)
---------- ----------- --------- -----------
Balance--December 31, 1998...................... $ (81,332) $ 4,896,066 $ 5,161 $50,365,448
---------- ----------- --------- -----------
---------- ----------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-8
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Professional Detailing, Inc. ("PDI" and, together with its wholly owned
subsidiaries, the "Company") is a leading and rapidly growing contract sales
organization, providing customized product detailing programs and other
marketing and promotion services to the United States pharmaceutical industry.
Principles of Consolidation
The consolidated financial statements include accounts of PDI and its
wholly owned subsidiary, TVG, Inc. ("TVG"). All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated 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
accrued incentives payable to employees.
Revenue Recognition
The Company uses a variety of contract structures with its clients. Product
detailing contracts generally are for a term of one year, although some
contracts have a two-year term. Generally, contracts provide for a fee to be
paid to the Company based on its ability to deliver a specified package of
services. In the case of product detailing programs, PDI may also be entitled to
additional fees based upon the success of the program and/or subject to
penalties for failing to meet stated performance benchmarks. Performance
benchmarks usually are a minimum number of sales representatives or minimum
number of calls. PDI's contracts also usually provide that it is entitled to a
fee for each sales representative hired by the client during or at the
conclusion of a program.
Most contracts may be terminated by the client for any reason on 30 to
90 days notice. Many of PDI's contracts provide for the client to pay PDI a
termination fee if a contract is terminated without cause. These penalties may
not act as an adequate deterrent to the termination of any contract and may not
offset the revenue which PDI could have earned under the contract had it not
been terminated and it may not be sufficient to reimburse PDI for the costs
which it may incur as a result of its termination. Contracts may also be
terminated for cause if PDI fails to meet stated performance benchmarks. The
loss or termination of a large contract or of multiple contracts could adversely
affect PDI's future revenue and profitability. To date, no programs have been
terminated for cause.
Revenue is earned primarily by performing services under contracts and is
recognized as the services are performed and the right to receive payment for
such services is assured. In the case of contracts relating to product detailing
programs, revenue is recognized net of any potential penalties until the
performance criteria eliminating the penalties have been achieved. Bonus and
other performance incentives as well as termination payments are recognized as
revenue in the period earned and when payment of the bonus, incentive or other
payment is assured.
Program expenses consist primarily of the costs associated with the
execution of product detailing programs or other marketing and promotional
services identified in the contract. Program expenses include all personnel
costs and other costs, including facility rental fees, honoraria and travel
expenses, associated with executing a product detailing or other marketing or
promotional services, as well as the initial direct costs associated with
staffing a product detailing program. Personnel costs, which constitute the
largest portion of program expenses, include all labor related costs, such as
salaries, bonuses, fringe benefits and payroll taxes for the sales
representatives, managers and professional staff who are directly responsible
for the rendering of services in
F-9
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
connection with a particular program. Initial direct program costs are the costs
associated with initiating a product detailing program, such as recruiting,
hiring and training the sales representatives who staff a particular product
detailing program. All personnel costs and initial direct program costs, other
than training costs, are expensed as incurred. Training costs include the costs
of training the sales representatives and managers on a particular product
detailing program so that they are qualified to properly render the services
specified in the related contract. Training costs are deferred and amortized on
a straight-line basis over the shorter of (i) the life of the contract to which
they relate or (ii) 12 months.
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. At
December 31, 1997, the fair value of the Company's note payable was 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 its book value at December 31, 1997.
Unbilled Costs and Accrued Profits and Unearned Contract Revenue
In general, contractual provisions, including predetermined payment
schedules or submission of appropriate billing detail, establish the
prerequisites for billings. Unbilled costs and accrued profits arise when
services have been rendered and payment is assured but clients have not been
billed. These amounts are classified as a current asset. Normally, in the case
of product detailing contracts, the clients agree to pay PDI 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, highly
liquid investment instruments and certificates of deposit with a maturity of
three months or less at the date of purchase.
Available-for-Sale Securities
Available-for-sale securities are valued at fair market value and are
classified as short-term. For the purposes of determining gross realized gains
and losses the cost of securities sold is based upon specific identification.
Any unrealized holding gains or losses are recorded as a separate component of
stockholders' equity as accumulated other comprehensive income.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The estimated useful
lives of asset classifications are five to ten years for furniture and fixtures
and three to seven 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 removed from the related accounts and any gains or losses are
reflected in operations.
F-10
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies a choice of measuring employee
stock-based compensation expense based on either the fair value method of
accounting or 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 $181,848, $317,514 and $239,996 for the
years ended December 31, 1996, 1997 and 1998, respectively.
2. INITIAL PUBLIC OFFERING OF COMMON STOCK
In May 1998, the Company completed its initial public offering (the "IPO")
of 3,220,000 shares of common stock (including 420,000 shares in connection with
the exercise of the underwriters' over-allotment option) at a price per share of
$16.00. Net proceeds to the Company after expenses of the IPO were approximately
$46.4 million. The Company made a distribution of $5.8 million to the S
corporation stockholders, representing stockholders' equity of the Company as of
March 31, 1998, plus the earnings of the Company from April 1, 1998 to May 18,
1998.
In connection with the IPO, the Company has reincorporated in Delaware. To
effect such reincorporation, on May 15, 1998, Professional Detailing, Inc., a
New Jersey corporation (the "New Jersey Entity") merged with and into
Professional Detailing, Inc., a Delaware corporation (the "Delaware Entity"). As
a result of the merger, the former stockholders of the New Jersey Entity owned
7,464,562 shares of the Delaware Entity's common stock which shares constituted
all of the issued and outstanding shares of common stock of the Delaware Entity
prior to the IPO. In addition, outstanding options to purchase common stock of
the New Jersey Entity converted into 67,181 options to purchase shares of common
stock of the Delaware Entity at $1.61 per share. The conversion of shares and
options related to the merger has been retroactively reflected in the Company's
consolidated financial statements.
3. MERGER WITH TVG, INC.
On May 12, 1999, PDI and TVG signed a definitive agreement pursuant to
which PDI acquired 100% of the capital stock of TVG in a merger transaction. In
connection with the transaction, PDI issued 1,256,882 shares of common stock in
exchange for the outstanding shares of TVG. The acquisition has been accounted
for as a pooling of interest and, accordingly, all periods presented in the
accompanying consolidated financial statements have been restated to include the
accounts and operations of TVG.
F-11
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. MERGER WITH TVG, INC.--(CONTINUED)
The results of operations previously reported by separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
PDI............................................... $ 33,013,360 $ 54,673,986 $ 101,081,137
TVG............................................... 16,076,397 20,569,036 18,340,216
------------- ------------- -------------
Combined.......................................... $ 49,089,757 $ 75,243,022 $ 119,421,353
------------- ------------- -------------
------------- ------------- -------------
Net income (loss):
PDI............................................... $ (347,460) $ (4,151,883) $ 9,491,928
TVG............................................... 238,649 308,163 346,298
------------- ------------- -------------
Combined.......................................... $ (108,811) $ (3,843,720) $ 9,838,226
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
4. HISTORICAL AND PRO FORMA BASIC AND DILUTED NET INCOME/LOSS PER SHARE
Historical and pro forma basic and diluted net income/loss per share is
calculated based on the requirements of SFAS No. 128, "Earnings Per Share."
A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share for the year ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Basic weighted average number of common shares
outstanding.......................................... 10,684,264
Dilutive effect of stock options....................... 129,664
-----------
Diluted weighted average number of common shares
outstanding.......................................... 10,813,928
-----------
-----------
</TABLE>
At December 31, 1997, outstanding options to purchase 67,181 shares of
common stock with an exercise price of $1.61 per share have not been included in
the 1997 computation of historical and pro forma diluted net loss per share
because to do so would have been antidilutive.
5. SHORT-TERM INVESTMENTS
Included in short-term investments are $1,281,966 and $1,422,111 of
investments classified as available for sale securities as of December 31, 1997
and 1998, respectively. The unrealized after-tax gain/(loss) of $61,453 in 1997
and $(49,366) in 1998 was included as a separate component of stockholders'
equity as accumulated other comprehensive income.
F-12
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Furniture and fixtures............................................ $ 556,753 $1,191,264
Office equipment.................................................. 1,926,305 2,007,070
Computer equipment................................................ 1,310,387 2,536,623
Leasehold improvements............................................ 418,221 519,887
---------- ----------
Total property, plant and equipment............................... 4,211,666 6,254,844
Less accumulated depreciation and amortization.................... 2,552,584 3,184,447
---------- ----------
Property, plant and equipment, net................................ $1,659,082 $3,070,397
---------- ----------
---------- ----------
</TABLE>
7. 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, 1996, 1997 and 1998 were $759,957, $780,410 and
$1,260,509, respectively. The Company entered into a new facilities lease in May
1998 for a term that expires in the fourth quarter of 2004, with an option to
extend for an additional five years, for the premises which house its corporate
headquarters. TVG's office lease is for seven years and commenced in August
1993. The Company records lease expense on a straight line basis over the lease
term.
The following is a schedule by year of the future minimum lease payments as
of December 31, 1998 required under these agreements:
<TABLE>
<S> <C>
1999........................................................ $2,422,604
2000........................................................ 2,205,282
2001........................................................ 1,722,003
2002........................................................ 1,495,406
2003........................................................ 555,336
Thereafter.................................................. 0
----------
Total....................................................... $8,400,631
----------
</TABLE>
8. SIGNIFICANT CUSTOMERS
During 1996, 1997 and 1998, 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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
CUSTOMERS 1996 1997 1998
- ---------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
A......................................................... $10,846,236 $14,831,507 $31,576,256
B......................................................... * 14,998,321 32,007,807
C......................................................... 6,104,247 12,138,999 25,272,009
D......................................................... 6,048,267 * *
E......................................................... 9,104,203 * *
</TABLE>
- ------------------
* Less than 10% of revenue.
F-13
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SIGNIFICANT CUSTOMERS--(CONTINUED)
At December 31, 1997 and 1998, these customers represented 49.3% and 70.8%,
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.
9. BORROWINGS
The Company has a $500,000 line of credit from a bank under which interest
is payable monthly on the outstanding balance at a floating rate equal to 1%
above the prime rate. As of December 31, 1998, the Company has not drawn on its
line. The line of credit is collateralized by a lien on all of the assets of the
Company. In addition, if the Company were to draw on such line, it could be
subject to certain restrictive financial covenants and other customary
provisions found in commercial loan documentation. The commitment fee associated
with the line is immaterial.
The Company also has a $1,000,000 revolving credit facility that expires
May 31, 1999. The facility also provides for available stand by letters of
credit up to $1,000,000. There were no borrowings under the line at December 31,
1998. Interest is at a rate approximating the prime rate and the facility
requires a commitment fee of 1/4% or requires the Company to maintain a
compensating balance of $75,000. The agreement also requires the Company to
maintain certain financial covenants customarily found in commercial loan
documentation.
The Company also obtained a commitment from a bank for a $10 million line
of credit. This line, if drawn upon, would be for a term of one year and would
bear interest payable monthly at a floating rate equal to 2.0% above LIBOR. The
commitment expires in April of 1999. If the line were drawn upon, it would be
collaterialized by a lien on all of the assets of the Company and the Company
would be subject to certain restrictive financial covenants and other customary
provisions found in commercial loan documentation.
10. RELATED PARTY TRANSACTIONS
The Company purchased certain print advertising for initial recruitment of
representatives through a company that is wholly-owned by family members of the
Company's majority stockholder. The net amounts charged to the Company for these
purchases amounted to $671,810, $1,564,606 and $1,753,018 for the years ended
December 31, 1996, 1997 and 1998. As of December 31, 1997 and 1998, the amounts
payable to the affiliate totaled $146,018 and $56,236, respectively. The Company
also made advances to this affiliate. As of December 31, 1997 and 1998, the
amounts due the Company as a result of these advances were $173,179 and $0,
respectively. Additionally, the Company also provided administrative services to
this affiliate during the first six months of 1998.
11. INCOME TAXES
PDI was treated as an S corporation for Federal and state income tax
purposes until its initial public offering in May 1998. TVG was treated as a C
corporation for Federal and state income tax purposes in 1996, and as an S
corporation in 1997, 1998 and through the time of merger with PDI in May 1999.
Consequently, during the periods in which TVG and PDI were treated as S
corporations, they were not subject to Federal income taxes. In addition, they
were not subject to state income tax at the regular corporate rates.
F-14
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES--(CONTINUED)
The provisions for income taxes for the years ended December 31, 1996, 1997
and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal........................................................ $186,926 $ -- $1,630,919
State.......................................................... 63,885 -- 396,662
-------- -------- ----------
Total current.................................................... 250,811 -- 2,027,581
Deferred......................................................... (43,141) 125,973 (336,400)
-------- -------- ----------
Provision for income taxes....................................... $207,670 $125,973 $1,691,181
-------- -------- ----------
-------- -------- ----------
</TABLE>
Effective January 1, 1997 TVG changed its tax status from a C corporation
to an S corporation. Accordingly, the deferred tax asset as of December 31, 1996
of $125,973 was eliminated in 1997 through the deferred tax provision.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying value of assets and liabilities recorded for financial
reporting purposes and the amounts used for income tax purposes.
As of December 31, 1998 the Company had a current deferred tax asset of
$368,400, primarily related to accrued expenses. In addition, the Company has a
non-current deferred tax liability of $32,000, primarily related to accelerated
depreciation.
As of December 31, 1996 the Company had a current deferred tax asset of
$56,066, primarily related to prepaid expenses. In addition, the Company had a
non-current deferred tax asset of $189,238, primarily related to deferred rent
and deferred compensation and a non current deferred tax liability related to
accelerated depreciation of $119,331.
A reconciliation of the difference between the Federal statutory tax rates
and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ----- -----
<S> <C> <C> <C>
Federal statutory rate......................................................... 34.0% 34.0% 34.0%
State income tax rate, net of Federal benefit.................................. 7.8 -- 4.0
Effect of S corporation status................................................. 163.2 (34.0) (24.0)
Other.......................................................................... 5.1 (3.4) 0.7
------ ----- -----
Effective tax rate............................................................. 210.1% (3.4)% 14.7%
------ ----- -----
------ ----- -----
</TABLE>
12. PREFERRED STOCK
The Company's board of directors is authorized to issue, from time to time,
up to 5,000,000 shares of preferred stock in one or more series. The board is
authorized to fix the rights and designation of each series, including dividend
rights and rates, conversion rights, voting rights, redemption terms and prices,
liquidation preferences and the number of shares of each series. As of each of
December 31, 1997 and 1998, there were no issued and outstanding shares of
preferred stock.
13. LOANS TO/FROM STOCKHOLDERS/OFFICERS
The Company loaned $1.4 million to its President and Chief Executive
Officer, Charles T. Saldarini in April 1998. The proceeds of this loan were used
by Mr. Saldarini to pay income taxes relating to his receipt of shares of common
stock. Such loan is for a term of three years, bears interest at a rate equal to
5.4% per annum payable
F-15
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. LOANS TO/FROM STOCKHOLDERS/OFFICERS--(CONTINUED)
quarterly in arrears and is secured by a pledge of the shares of common stock
held by Mr. Saldarini. A loan of $10,340 to the Company's then sole shareholder
at December 31, 1996 was repaid in 1997.
In November 1998, the Company agreed to lend $250,000 to an executive
officer. As of December 31, 1998, $100,000 of this amount had been funded, and
was recorded in other long-term assets. Such loan is payable on December 31,
2008, bears interest at a rate of 5.5% per annum, payable quarterly in arrears
and is secured by a pledge of certain options to purchase shares of common
stock.
Included in notes payable as of December 31, 1997 is a $1,284,633 11%
unsecured note from certain stockholders that was repaid in 1998.
14. RETIREMENT PLANS
In 1996, 1997 and 1998, the Company provided its employees with two
qualified profit sharing plans with 401(k) features. Under one plan, the Company
expensed contributions of $99,917, $172,310 and $310,248 for the years ended
December 31, 1996, 1997 and 1998, respectively. Effective January 1, 1997, the
Company committed to make mandatory contributions to this 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 this plan is at the discretion of the Company.
Under the other 401(k) plan, the Company expensed contributions of
$299,820, $410,351 and $346,419 for the years ended December 31, 1996, 1997 and
1998, respectively. Effective January 1, 1998, the Company matched 100% of the
first $1,250 contributed by the employees, 75% of the next $1,250, 50% of the
next $1,250 and 25% of the next $1,250 contributed. In addition the Company can
make discretionary contributions.
In 1995, TVG established a deferred compensation plan (the "Plan") covering
full-time employees who meet certain eligibility criteria as defined in the
Plan. Participants become eligible to receive distributions from the Plan equal
to 25% of their net balance after receiving three annual contribution pledges.
Upon retirement from the Company or death, the participant or their
beneficiaries receive the remaining balance in four equal annual installments.
All forfeitures and interest are credited to the Company. The Company made
contribution pledges of $415,000, $550,000 and $465,218 in 1996, 1997 and 1998,
respectively. Compensation expense recognized in 1996, 1997 and 1998 related to
the Plan was $117,423, $195,996, and $260,009 respectively.
15. COMMITMENTS AND CONTINGENCIES
PDI 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
insurance. 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 or insurance policy. The Company could be
materially adversely affected if it were required to pay damages or incur
defense costs in connection with a claim that is 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.
F-16
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
16. STOCK GRANT
In January 1997, the Company issued 1,119,684 shares of its common stock to
its President and Chief Executive Officer. As a result, Mr. Saldarini owned
15.0% of the Company's outstanding shares of common stock at that time. The
Company has treated these shares as outstanding for all periods.
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
recognized $4,470,000 in compensation and related expenses in the first quarter
of 1997. Such expenses include a reserve for taxes related to such grant.
17. STOCK OPTION PLAN
In March 1998, the Board of Directors of the Company adopted its 1998 Stock
Option Plan (the "1998 Plan") which reserves 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 1998 Plan, which has a term of ten years
from the date of its adoption, is administered by 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
is determined by the committee, in its sole discretion. Incentive stock options
granted under the 1998 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 1998 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. In January 1997, the Company adopted its 1997
Stock Option Plan (the "1997 Plan"). In March 1998, the 1997 Plan was
incorporated into the 1998 Plan.
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. In connection with the
grant of such options, the Company will amortize $143,852 of compensation
expense over the expected vesting period. The options vest as follows: one-third
became exercisable on the date of the IPO (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 and 1998, total options
outstanding under the 1997 Plan were 67,181 and 62,181, of which 0 and 17,394,
respectively, were exercisable. In October 1998, 5,000 of these options were
exercised. As of December 31, 1998 the weighted average exercise price of these
outstanding and exercisable options was $1.61. The average remaining contractual
life of these outstanding options was 7.0 years. Compensation expense of $42,030
and $45,265 was recognized for the years ended December 31, 1997 and 1998.
In May 1998, 345,168 options were granted to employees and 22,500 options
were granted to outside directors under the 1998 Plan. The exercise price of
these options was $16.00, the fair market value of the common stock on the date
of grant. One third of the employees' options will vest and become exercisable
on each of May 18, 1999, 2000 and 2001. The directors' options vest and become
exercisable one third on the date of grant, and one third on each of May 19,
1999 and 2000. All stock options granted during the second quarter of 1998 will
expire in May 2008. Total options outstanding as of December 31, 1998 was
367,668 of which 7,500
F-17
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. STOCK OPTION PLAN--(CONTINUED)
were exercisable. At December 31, 1998, the weighted average exercise price of
these options outstanding and exercisable was $16.00. The weighted average
remaining contractual life of the outstanding options under the 1998 Plan was
9.4 years.
Had compensation cost for the Company's stock option grants been determined
for awards consistent with the fair value approach of SFAS 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) income and pro forma basic and diluted (loss) income per share
would have been adjusted to the amounts indicated below:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Pro forma net (loss) income -- as reported...................... $(3,717,747) $ 6,917,644
Pro forma net (loss) income -- as adjusted...................... (3,768,029) 6,432,326
Pro forma basic (loss) income per share -- as reported.......... (0.43) 0.65
Pro forma basic (loss) income per share -- as adjusted.......... (0.43) 0.60
Pro forma diluted (loss) income per share -- as reported........ (0.43) 0.64
Pro forma diluted (loss) income per share -- as adjusted........ (0.43) 0.59
</TABLE>
Compensation cost for the determination of Pro forma net (loss) income --
as adjusted and related per share amounts were estimated using a the Black
Scholes option pricing model, and the following assumptions; (i) risk free
interest rate of 6.27% at December 31, 1997 and 5.62% at December 31, 1998;
(ii) expected life of 5 years for December 31, 1997 and 1998; (iii) expected
dividends -- $0 for the years ended December 31, 1997 and 1998; and
(iv) volatility -- 0% for 1997 and 60% for 1998. The weighted average fair value
of options granted during 1997 and 1998 was $2.56 and $9.63, respectively.
18. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Provision for (Benefit From) Income Tax
The accompanying financial statements reflect a provision for income taxes
on a pro forma basis as if the Company were subject to Federal and state income
taxes throughout the years presented. The pro forma income tax rate of 40% is
based upon the statutory rates in effect for C corporations for the periods
presented, with no tax benefits assumed for the net operating losses in 1997.
19. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board released in June 1998, SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. This statement addresses the accounting for derivative
instruments including certain derivative instruments embedded in other contracts
and for hedging activities. As the Company has not entered into transactions
involving derivative instruments, the Company does not believe that the adoption
of this new statement will have a material effect on the Company's financial
statements.
In the second quarter of 1998, the Accounting Standard Executive Committee
of the AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities." This statement provides guidance on financial reporting of
start-up costs and organizational costs. This Statement of Position is effective
for financial statements for fiscal years beginning after December 15, 1998 and
requires start-up costs to be expensed as incurred. The Company does not believe
that the adoption of this Statement of Position will have a material impact on
the Company's financial statements.
F-18
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SEGMENT INFORMATION
The Company is organized primarily on the basis of its three principal
service offerings, including customized contract sales services, marketing
research and consulting services and professional education and communication
services. Marketing research and consulting services and professional education
and communication services have been combined to form the "All other" category.
The accounting policies of the segments are the same as those described in the
"Nature of Business and Significant Accounting Policies" footnote. Segment data
includes a charge allocating all corporate headquarters costs to each of the
operating segments. The Company evaluates the performance of its segments and
allocates resources to them based on earnings before interest and taxes (EBIT).
The Company does not utilize information about assets for its operating segments
and, accordingly, no asset information is presented in the table below.
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues
Contract sales services............................................ $33,013,360 $54,673,986 $101,081,137
All other.......................................................... 16,076,397 20,569,036 18,340,216
----------- ----------- ------------
Total........................................................... $49,089,757 $75,243,022 $119,421,353
----------- ----------- ------------
----------- ----------- ------------
EBIT
Contract sales services............................................ $ 445,077 $(1,843,434) $ 9,372,711
All other.......................................................... (621,381) (2,250,412) (117,080)
----------- ----------- ------------
Total........................................................... $ (176,304) $(4,093,846) $ 9,255,631
----------- ----------- ------------
----------- ----------- ------------
Reconciliation of EBIT to income before provision
for income taxes
Total EBIT for operating groups.................................... $ (176,304) $(4,093,846) $ 9,255,631
Interest income.................................................... 275,163 376,099 2,273,776
----------- ----------- ------------
Income before provision for income taxes............................. $ 98,859 $(3,717,747) $ 11,529,407
----------- ----------- ------------
----------- ----------- ------------
Capital expenditures
Contract sales services............................................ $ 271,503 $ 290,167 $ 2,044,587
All other.......................................................... 284,942 415,024 151,368
----------- ----------- ------------
Total........................................................... $ 556,445 $ 705,191 $ 2,195,955
----------- ----------- ------------
----------- ----------- ------------
Depreciation expense
Contract sales services............................................ $ 104,531 $ 137,852 $ 338,164
All other............................................................ 282,764 323,577 358,959
----------- ----------- ------------
Total........................................................... $ 387,295 $ 461,429 $ 697,123
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
21. ACQUISITION OF PROTOCALL, LLC (UNAUDITED)
In August 1999, the Company, through its wholly-owned subsidiary,
ProtoCall, Inc. ("ProtoCall"), acquired substantially all of the operating
assets of ProtoCall, LLC, a leading provider of syndicated contract sales
services to the United States pharmaceutical industry. The purchase price was
$4.5 million (of which $4.1 million was paid at closing) plus up to an
additional $3.0 million in contingent payments payable during 2000 if ProtoCall
achieves defined performance benchmarks. This acquisition was accounted for as a
purchase. In connection with this transaction, the Company recorded
$3.9 million in goodwill which will be amortized over a period of 10 years.
F-19
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 31,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 58,265,515 $56,989,233
Short-term investments........................................................... 1,499,919 2,422,111
Contract payments receivable..................................................... 12,939,669 8,426,029
Unbilled costs and accrued profits on contracts in progress...................... 3,115,247 3,578,341
Deferred training................................................................ 1,985,038 1,222,103
Other current assets............................................................. 886,059 771,135
Deferred tax asset............................................................... 336,400 368,400
------------ -----------
Total current assets............................................................... 79,027,847 73,777,352
Net property, plant & equipment.................................................... 3,349,727 3,070,397
Other long-term assets............................................................. 4,744,155 542,606
------------ -----------
Total assets....................................................................... $ 87,121,729 $77,390,355
------------ -----------
------------ -----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................................................. $ 4,521,472 $ 1,311,648
Payable to affiliate............................................................. -- 56,236
Accrued incentives............................................................... 8,604,172 7,590,954
Accrued salaries and wages....................................................... 3,647,029 2,614,878
Unearned contract revenue........................................................ 6,890,205 9,627,035
Other accrued expenses........................................................... 5,213,706 5,528,701
------------ -----------
Total current liabilities.......................................................... $ 28,876,584 $26,729,452
------------ -----------
Long-term liabilities:
Deferred tax liability........................................................... 150,459 32,000
Other long-term liabilities...................................................... 376,168 263,455
------------ -----------
Total long-term liabilities........................................................ 526,627 295,455
------------ -----------
Total liabilities.................................................................. $ 29,403,211 $27,024,907
------------ -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 30,000,000 shares
authorized; shares issued and outstanding
September 30, 1999 -- 11,970,831 and
December 31, 1998 -- 12,334,963............................................... 119,708 123,350
Preferred stock, $.01 par value, 5,000,000 shares authorized,
no shares issued and outstanding.............................................. -- --
Additional paid-in capital......................................................... 47,219,256 47,637,593
Retained earnings.................................................................. 11,774,332 4,896,066
Accumulated other comprehensive income............................................. 55,825 5,161
Treasury stock, at cost; 0 shares at September 30, 1999 and 388,519 shares at
December 31, 1998................................................................ -- (812,171)
Deferred compensation.............................................................. (22,609) (56,557)
Loan to officer.................................................................... (1,427,994) (1,427,994)
------------ -----------
Total stockholders' equity......................................................... 57,718,518 50,365,448
------------ -----------
Total liabilities & stockholders' equity........................................... $ 87,121,729 $77,390,355
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-20
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue.................................................. $44,549,035 $28,840,395 $130,073,740 $83,504,521
Program expenses, (including related party amounts of
$754,818 and $480,501 for the quarters ended
September 30, 1999 and 1998, respectively, and
$2,210,105 and 1,496,449 for the nine months ended
September 30, 1999 and 1998, respectively)............. 34,378,219 21,157,681 98,678,918 59,542,281
----------- ----------- ------------ -----------
Gross profit............................................. 10,170,816 7,682,714 31,394,822 23,962,240
Compensation expense..................................... 4,581,393 4,197,838 13,633,708 11,889,214
Other general, selling, and administrative expenses...... 2,095,357 1,829,535 5,914,024 4,381,338
Acquisition and related expenses......................... 406,255 -- 1,741,102 --
----------- ----------- ------------ -----------
Total general, selling and administrative expenses....... 7,083,005 6,027,373 21,288,834 16,270,552
----------- ----------- ------------ -----------
Operating income......................................... 3,087,811 1,655,341 10,105,988 7,691,688
Other income, net........................................ 901,243 807,019 2,504,769 1,410,016
----------- ----------- ------------ -----------
Income before provision for income taxes................. 3,989,054 2,462,360 12,610,757 9,101,704
Provision for income taxes............................... 1,793,654 933,811 5,062,490 969,012
----------- ----------- ------------ -----------
Net income............................................... $ 2,195,400 $ 1,528,549 $ 7,548,267 $ 8,132,692
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Basic net income per share............................... $ 0.18 $ 0.13 $ 0.63 $ 0.79
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Diluted net income per share............................. $ 0.18 $ 0.13 $ 0.62 $ 0.78
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Basic weighted average number of shares outstanding...... 11,965,222 11,941,444 11,953,558 10,264,008
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Diluted weighted average number of shares outstanding.... 12,179,361 12,114,467 12,171,307 10,379,010
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
PRO FORMA DATA (see note 4)
Income before provision for taxes, as reported........... $ 2,462,360 $ 12,610,757 $ 9,101,704
Pro forma provision for income tax....................... 984,944 5,740,744 3,640,682
----------- ------------ -----------
Pro forma net income..................................... $ 1,477,416 $ 6,870,013 $ 5,461,022
----------- ------------ -----------
----------- ------------ -----------
Pro forma basic net income per share..................... $ 0.12 $ 0.57 $ 0.53
----------- ------------ -----------
----------- ------------ -----------
Pro forma diluted net income per share................... $ 0.12 $ 0.56 $ 0.53
----------- ------------ -----------
----------- ------------ -----------
Pro forma basic weighted average number of shares
outstanding............................................ 11,941,444 11,953,558 10,264,008
----------- ------------ -----------
----------- ------------ -----------
Pro forma diluted weighted average number of shares
outstanding............................................ 12,114,467 12,171,307 10,379,010
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-21
<PAGE>
PROFESSIONAL DETAILING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from operations......................................................... $ 7,548,267 $ 8,132,692
Adjustments to reconcile net income to net cash provided by operating activities,
net of aquisitions:
Depreciation.................................................................. 703,468 488,648
Deferred compensation......................................................... 33,948 33,949
Deferred taxes, net........................................................... 150,459 --
Amortization of goodwill......................................................... 32,442 --
Other changes in assets and liabilities:
(Increase) in contract payments receivable.................................... (3,069,618) (2,497,783)
Decrease in unbilled costs.................................................... 463,094 3,040,081
(Increase) in deferred training............................................... (762,935) (1,104,882)
(Increase) in other current assets............................................ (105,885) (623,617)
(Increase) in other long-term assets.......................................... (340,895) --
Increase in trade accounts payable............................................ 2,466,405 719,522
Increase (decrease) in accounts payable to affiliate.......................... (56,236) 216,166
Increase in accrued liabilities............................................... 1,978,735 4,323,378
(Decrease) in unearned contract revenue....................................... (3,379,838) (1,071,981)
Increase (decrease) in other current liabilities.............................. (314,995) 1,118,018
Increase (decrease) in other long-term liabilities............................ 112,713 (75,212)
----------- -----------
Net cash provided by operating activities.......................................... 5,459,129 12,698,979
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Sale of short-term investments................................................... 972,856 --
Purchase of short-term investments............................................... -- (1,027,580)
Purchase of property and equipment............................................... (775,895) (1,973,642)
Cash paid for acquisition........................................................ (4,100,000) --
----------- -----------
Net cash (used in) investing activities............................................ (3,903,039) (3,001,222)
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Payments on note payable......................................................... -- (68,365)
Distribution to S corporation stockholders....................................... (670,000) (6,186,325)
Net proceeds from the issuance of common stock................................... -- 46,524,324
Repayment of loans from stockholders............................................. -- (1,284,633)
Net proceeds from the exercise of common stock options........................... 390,192 --
Loans to stockholders, net....................................................... -- (1,346,662)
----------- -----------
Net cash provided by (used in) financing activities................................ (279,808) 37,638,339
----------- -----------
Net increase in cash and cash equivalents.......................................... 1,276,282 47,336,096
Cash and cash equivalents -- beginning............................................. 56,989,233 7,762,298
----------- -----------
Cash and cash equivalents -- ending................................................ $58,265,515 $55,098,394
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-22
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements and
related notes should be read in conjunction with the consolidated financial
statements of Professional Detailing, Inc. and its subsidiaries (the "Company"
or "PDI") and related notes. The unaudited interim consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited interim
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) which, in the judgement of management, are
necessary for a fair presentation of such financial statements. Operating
results for the three and nine month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. Certain prior period amounts have been reclassified to
conform with the current presentation.
2. INITIAL PUBLIC OFFERING OF COMMON STOCK
In May 1998, the Company completed its initial public offering (the "IPO")
of 3,220,000 shares of common stock (including 420,000 shares in connection with
the exercise of the underwriters' over-allotment option) at a price per share of
$16.00. Net proceeds to the Company after expenses of the IPO were approximately
$46.5 million. In 1998, the Company distributed $5.8 million to its two pre-IPO
stockholders, representing stockholders' equity of the Company as of March 31,
1998 plus the earnings of the Company from April 1, 1998 to May 18, 1998.
3. ACQUISITIONS
On May 12, 1999, the Company acquired 100% of the capital stock of TVG,
Inc. ("TVG") in a merger transaction. In connection with the transaction, the
Company issued 1,256,882 shares of its common stock in exchange for the
outstanding shares of TVG. The acquisition has been accounted for as a pooling
of interests and, accordingly, all prior periods presented in the accompanying
consolidated financial statements have been restated to include the accounts and
operations of TVG. Prior to the merger TVG declared $670,000 in distributions to
its S corporation stockholders, all of which has been paid as of September 30,
1999. This was recorded as a reduction of stockholder's equity. TVG is a
provider marketing research and consulting services as well as professional
education and communication services to the pharmaceutical industry.
Net sales and net income of the separate companies for the periods
preceding the acquisition were:
<TABLE>
<CAPTION>
NET SALES NET INCOME
----------- ----------
<S> <C> <C>
Three months ended March 31, 1999:
PDI.............................................................. $36,013,617 $2,696,097
TVG.............................................................. 5,730,771 625,482
----------- ----------
Combined......................................................... $41,744,388 $3,321,579
----------- ----------
Three months ended March 31, 1998:
PDI.............................................................. $23,450,219 $4,980,442
TVG.............................................................. 4,082,351 (436,511)
----------- ----------
Combined......................................................... $27,532,570 $4,543,931
----------- ----------
</TABLE>
In August 1999, the Company, through its wholly-owned subsidiary,
ProtoCall, Inc. ("ProtoCall"), acquired substantially all of the operating
assets of ProtoCall, LLC, a leading provider of syndicated contract sales
services to the United States pharmaceutical industry. The purchase price was
$4.5 million (of which $4.1 million was paid at closing) plus up to an
additional $3.0 million in contingent payments payable during 2000 if ProtoCall
achieves defined performance benchmarks. This acquisition was accounted for as a
purchase. In connection with this transaction, the Company recorded
$3.9 million in goodwill which will be amortized over a period of 10 years.
F-23
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. ACQUISITIONS--(CONTINUED)
The Company recorded $1,741,102 in nonrecurring acquisition and related
expenses during the nine months ended September 30, 1999. These costs consist
primarily of investment banking, legal and accounting fees.
4. PRO FORMA INFORMATION
Prior to its IPO in May 1998, PDI was an S corporation and not subject to
Federal income tax. Prior to its acquisition by PDI in May 1999, TVG was an S
corporation and not subject to Federal income tax. During such periods the net
income of the Company had been reported by and taxed directly to the pre-IPO
stockholders (in the case of PDI) and to the pre-acquisition stockholders (in
the case of TVG), rather than the Company. Accordingly, for informational
purposes, the accompanying statements of operations for the nine months ended
September 30, 1999 and the three and nine months ended September 30, 1998
include a pro forma adjustment for the income taxes which would have been
recorded if the Company had been a C corporation for the periods presented based
on the tax laws in effect during the respective periods. The pro forma
adjustment for income taxes is based upon the statutory rates in effect for
C corporations during the nine months ended September 30, 1999 and the three and
nine months ended September 30, 1998 and does not include the one-time tax
provisions and benefits related to recognition of deferred tax assets and
liabilities recorded upon termination of PDI's S corporation status in May 1998
and termination of TVG's S corporation status in May 1999. The pro forma
adjustment for income taxes for the nine months ended September 30, 1999 also
reflects the non-deductibility of certain acquisition related costs.
5. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board released Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in June 1998. This statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. This statement addresses the
accounting for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. As the Company does not
enter into transactions involving derivative instruments, the Company does not
believe that the adoption of this new statement will have a material effect on
the Company's financial statements.
6. BASIC AND DILUTED NET INCOME PER SHARE
Basic and diluted net income per share was calculated based on the
requirements of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
A reconciliation of the number of shares used in the calculation of basic
and diluted earnings per share for the three-month and nine-month periods ended
September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average number of shares outstanding -- basic............ 11,965,222 11,941,444 11,953,558 10,264,008
Dilutive effect of stock options......................... 214,139 173,023 217,749 115,002
---------- ---------- ---------- ----------
Average number of shares outstanding -- diluted.......... 12,179,361 12,114,467 12,171,307 10,379,010
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
7. INVESTMENTS
The Company has investments of $1.5 million which are classified as
available-for-sale securities which are recorded at fair market value. The
unrealized after tax gain at September 30, 1999 of $55,825 was included as a
separate component of stockholders' equity as "Accumulated other comprehensive
income."
F-24
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
8. COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income............................................... $2,195,400 $1,528,549 $7,548,267 $8,132,692
Other comprehensive income, before tax:
Unrealized holding gain (loss) on available-for-sale
securities arising during period.................... (72,499) (340,546) 84,440 (175,005)
---------- ---------- ---------- ----------
Other comprehensive income, before tax................... 2,122,901 1,188,003 7,632,707 7,957,687
Income tax (expense) benefit related to items of other
comprehensive income................................... 29,000 136,218 (33,776) 70,002
---------- ---------- ---------- ----------
Other comprehensive income, net of tax................... $2,151,901 $1,324,221 $7,598,931 $8,027,689
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
9. SEGMENT INFORMATION
As a result of its acquisition of TVG, the Company is now subject to
certain provisions of Statement of Financial Accounting Standards No. 131,
"Financial Reporting for Segments of a Business Enterprise."
The Company is organized primarily on the basis of its three principal
service offerings, which include customized contract sales services, marketing
research and marketing consulting services and professional education and
communication services. Marketing research and consulting services and
professional education and communication services have been combined to form the
"All other" category.
The accounting policies of the segments are the same as those described in
the "Nature of Business and Significant Accounting Policies" footnote to the
Company's audited financial statements. Segment data includes a charge
allocating all corporate headquarters costs to each of the operating segments.
The Company evaluates the performance of its segments and allocates resources to
them based on earnings before interest and taxes ("EBIT"). The Company does not
utilize information about assets for its operating segments and, accordingly, no
asset information is presented in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues
Contract sales services.......................... $38,644,548 $24,608,978 $111,820,015 $70,187,994
All other........................................ 5,904,487 4,231,417 18,253,725 13,316,527
----------- ----------- ------------ -----------
Total......................................... $44,549,035 $28,840,395 $130,073,740 $83,504,521
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
EBIT
Contract sales services.......................... $ 2,714,557 $ 1,604,729 $ 9,540,448 $ 7,763,810
All other........................................ 779,509 50,612 2,306,642 (72,122)
----------- ----------- ------------ -----------
Total......................................... $ 3,494,066 $ 1,655,341 $ 11,847,090 $ 7,691,688
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
F-25
<PAGE>
PROFESSIONAL DETAILING, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
9. SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reconciliation of EBIT to income before
provision for income taxes
Total EBIT for operating groups.................. $ 3,494,066 $ 1,655,341 $ 11,847,090 $ 7,691,688
Acquisition costs................................ 406,255 -- 1,741,102 --
Interest income.................................. 901,243 807,019 2,504,769 1,410,016
----------- ----------- ------------ -----------
Income before provision for income taxes...... $ 3,989,054 $ 2,462,360 $ 12,610,757 $ 9,101,704
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Capital expenditures
Contract sales services.......................... $ 178,891 $ 171,648 $ 686,511 $ 1,746,361
All other........................................ 36,161 25,679 89,384 227,281
----------- ----------- ------------ -----------
Total......................................... $ 215,052 $ 197,327 $ 775,895 $ 1,973,642
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Depreciation expense
Contract sales services.......................... $ 149,188 $ 94,837 $ 409,317 $ 210,534
All other........................................ 100,393 53,317 294,151 278,114
----------- ----------- ------------ -----------
Total......................................... $ 249,581 $ 148,154 $ 703,468 $ 488,648
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
F-26
<PAGE>
[LOGO]
PROFESSIONAL DETAILING, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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.......................................... $
Printing and engraving costs.................................. *
Accounting fees and expenses.................................. *
Legal fees and expenses....................................... *
Miscellaneous expenses........................................ *
--------
Total.................................................... $750,000
--------
--------
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporations Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify any person under such
section in connection with a proceeding by or in the right of the corporation to
procure judgment in its favor, as provided in the preceding sentence, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, except that no
indemnification shall be made with respect thereto unless, and then only to the
extent that, a court of competent jurisdiction shall determine upon application
that such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
present or former directors and officers who are successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter in any proceeding, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. A Delaware corporation may pay for the expenses (including attorneys'
fees) incurred by an officer or director in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation. Article Twelfth of
the Registrant's Certificate of Incorporation provides for indemnification of
directors and officers to the fullest extent permitted by Section 145 of the
DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) with respect to certain unlawful dividend
payments or stock redemptions or repurchases or (iv) for any transaction from
which the director derived an improper personal benefit. Article Eleventh of the
Registrant's Certificate of Incorporation eliminates the liability of directors
to the fullest extent permitted by Section 102(b)(7) of the DGCL.
II-1
<PAGE>
Section 145 of the DGCL permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other employee against any liability asserted against
such person and incurred by such person in such capacity, or arising out of
their status as such, whether or not the corporation would have the power to
indemnify directors and officers against such liability. The Registrant has
obtained officers' and directors' liability insurance of $15 million for members
of its Board of Directors and executive officers.
At present, there is no pending litigation or other proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
1.1 -- Form of Underwriting Agreement
5.1 -- Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Grant Thornton LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
23.5 -- Consent of Farkas & Manelli, P.L.L.C.
24 -- Power of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
ITEM 17. CERTAIN UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price, represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
II-2
<PAGE>
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant,
Professional Detailing, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Upper Saddle River, State of New
Jersey on this 16th day of December, 1999.
PROFESSIONAL DETAILING, INC.
By: /s/ CHARLES T. SALDARINI
----------------------------------
Charles T. Saldarini
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Charles T. Saldarini and Bernard C. Boyle,
and each of them, as their true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for them and in their names,
places, steads, in any and all capacities, to sign this Registration Statement
to be filed with the Securities and Exchange Commission and any and all
amendments (including post-effective amendments) to this Registration Statement,
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as they might or could do in person, thereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 16th day of December, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------------------- --------
<S> <C> <C>
/s/ JOHN P. DUGAN Chairman of the Board of Directors 12/16/99
- ------------------------------------------
John P. Dugan
/s/ CHARLES T. SALDARINI President, Chief Executive Officer and Director 12/16/99
- ------------------------------------------
Charles T. Saldarini
/s/ BERNARD C. BOYLE Chief Financial Officer (principal accounting and 12/16/99
- ------------------------------------------ financial officer)
Bernard C. Boyle
/s/ GERALD MOSSINGHOFF Director 12/16/99
- ------------------------------------------
Gerald Mossinghoff
/s/ JOHN M. PIETRUSKI Director 12/16/99
- ------------------------------------------
John M. Pietruski
/s/ JAN MARTENS VECSI Director 12/16/99
- ------------------------------------------
Jan Martens Vecsi
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
1.1 -- Form of Underwriting Agreement
5.1 -- Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of Grant Thornton LLP
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
23.5 -- Consent of Farkas & Manelli, P.L.L.C.
24 -- Power of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
<PAGE>
R&G Draft of 10/20/99
__________ Shares
PROFESSIONAL DETAILING, INC.
COMMON STOCK, $.01 PAR VALUE
UNDERWRITING AGREEMENT
November __, 1999
<PAGE>
November __, 1999
Morgan Stanley & Co. Incorporated
[Other Managers]
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
PROFESSIONAL DETAILING, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule II
hereto (the "Underwriters") and certain shareholders of the Company (the
"Selling Shareholders") named in Schedule I hereto severally propose to sell to
the several Underwriters an aggregate of __________ shares of the Common Stock,
$.01 par value of the Company (the "Firm Shares") of which __________ shares are
to be issued and sold by the Company and __________ shares are to be sold by the
Selling Shareholders, each Selling Shareholder selling the amount set forth
opposite such Selling Shareholder's name in Schedule I hereto.
The Company also proposes to issue and sell to the several Underwriters
not more than an additional __________ shares of its Common Stock, $.01 par
value (the "Additional Shares") if and to the extent that you, as Managers of
the offering, shall have determined to exercise, on behalf of the Underwriters,
the right to purchase such shares of common stock granted to the Underwriters in
Section 3 hereof. [Note that the apportionment of the Additional Shares among
the Company and the Selling Shareholders has yet to be determined and additional
changes will need to be made to reflect such determination]. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares".
The shares of Common Stock, $.01 par value of the Company to be outstanding
after giving effect to the sales contemplated hereby are hereinafter referred to
as the "Common Stock." The Company and the Selling Shareholders are hereinafter
sometimes collectively referred to as the "Sellers".
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus".
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to
<PAGE>
Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"),
then any reference herein to the term "Registration Statement" shall be deemed
to include such Rule 462 Registration Statement (including, in the case of all
references to the Registration Statement and the Prospectus, documents
incorporated therein by reference).
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and incorporated by reference in the Prospectus complied or will comply
when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder; (ii) the
Registration Statement, when it became effective, did not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph
1(b) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company.
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct
-2-
<PAGE>
its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the
issuance of the Shares to be sold by the Company have been duly
authorized and are validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
-3-
<PAGE>
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be required to
register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i) the
Company and its subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (ii) the Company
has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and
-4-
<PAGE>
customary dividends; and (iii) there has not been any material change
in the capital stock, short-term debt or long-term debt of the Company
and its subsidiaries, except in each case as described in the
Prospectus.
(q) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries, in
each case except as described in the Prospectus.
(r) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them and necessary for the conduct of its business as
described in the Prospectus, and neither the Company nor any of its
subsidiaries has received any notice of or has knowledge of, any
infringement of or conflict with asserted rights of others with respect
to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(s) No material labor dispute with the employees of the
Company exists, except as described in or contemplated by the
Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
effect on the Company and its subsidiaries, taken as a whole.
(t) The Company and its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor any of its subsidiaries
has been refused any insurance coverage sought or applied for; and
neither the Company nor any of its subsidiaries has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to
-5-
<PAGE>
continue its business at a cost that could not have a material adverse
effect on the Company and its subsidiaries, taken as a whole, except as
described in the Prospectus.
(u) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, other than those which, if not so possessed, would not have
a material adverse effect on the Company and its subsidiaries, taken as
a whole, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described in the
Prospectus.
(v) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(w) The accountants who have certified or shall certify the
financial statements filed or to be filed with the Commission as part
of the Registration Statement and the Prospectus are independent
accountants as required by the Securities Act. The consolidated
financial statements of the Company (together with the related notes
thereto) included in the Registration Statement present fairly the
financial position and results of operations of the Company at the
respective dates and for the respective periods to which they apply,
subject to normal year-end adjustments. Such financial statements have
been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except
as otherwise stated therein. The pro forma financial information of the
Company included in the Registration Statement has been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial statements, has been properly compiled on the bases
described therein and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(x) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its
-6-
<PAGE>
subsidiaries will be affected by the Year 2000 Problem (that is, any
significant risk that computer hardware or software applications used
by the Company and its subsidiaries will not, in the case of dates or
time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000); as a result of such review, (i) the Company has no
reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem
that are of a character required to be described or referred to in the
Registration Statement or Prospectus which have not been accurately
described in the Registration Statement or Prospectus and (B) the Year
2000 Problem will have a material adverse effect on the condition,
financial or otherwise, or on the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, or result in any
material loss or interference with the business or operations of the
Company and its subsidiaries, taken as a whole; and (ii) the Company
reasonably believes, after due inquiry, that the suppliers, vendors,
customers or other material third parties used or served by the Company
and such subsidiaries are addressing or will address the Year 2000
Problem in a timely manner, except to the extent that a failure to
address the Year 2000 Problem by any supplier, vendor, customer or
material third party would not have a material adverse effect on the
condition, financial or otherwise, or on the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(y) To the Company's knowledge, no officer or director of the
Company is in breach or violation of any employment agreement,
non-competition agreement, confidentiality agreement, or other
agreement restricting the nature or scope of employment to which such
officer or director is a party, and, to the Company's knowledge, the
conduct of the Company's business, as described in the Registration
Statement and Prospectus, will not result in a breach or violation of
any such agreement.
(z) There are no outstanding options to acquire shares of
capital stock of the Company except as disclosed in the Registration
Statement and the Prospectus and except as have been granted under the
Company's 1998 stock option plan since June 30, 1999.
(aa) The Shares have been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.
(bb) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement. The Company has either included the securities of those
persons who possess such rights or such persons have effectively waived
them with respect to the offering of the Shares.
-7-
<PAGE>
2. Representations and Warranties of the Selling Shareholders. Each of
the Selling Shareholders represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been executed and delivered by or on
behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Shareholder and __________, as Custodian, relating to the deposit of
the Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as
such Selling Shareholder's attorneys-in-fact to the extent set forth
therein, relating to the transaction contemplated hereby and by the
Registration Statement (the "Power of Attorney") will not contravene
any provision of applicable law, or any agreement or other instrument
binding upon such Selling Shareholder of any judgment, order or decree
of any governmental body, agency or court having jurisdiction over such
Selling Shareholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by such Selling Shareholder of its obligations
under this Agreement or the Custody Agreement or Power of Attorney of
such Selling Shareholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date will
have, valid title to the Shares to be sold by such Selling Shareholder
and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver the Shares
to be sold by such Selling Shareholder.
(d) The Custody Agreement and the Power of Attorney have been
executed and delivered by such Selling Shareholder and are valid and
binding agreements of such Selling Shareholder.
(e) Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(f) If the Selling Shareholder is an officer or director of
the Company (i) the Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material
-8-
<PAGE>
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph
2(f) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(g) For each Selling Shareholder other than those making a
representation and warranty pursuant to paragraph 2(f) above, all
information relating to such Selling Shareholder furnished to the
Company in writing by or on behalf of such Selling Shareholder for use
in the Registration Statement and the Prospectus is, and on the Closing
Date will be, true, correct, and complete, and does not, and on the
Closing Date will not, contain any untrue statement of a material fact
or omit to state any material fact necessary to make such information
not misleading.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $__________ per share (the
"Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedule II hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to __________
Additional Shares at the Purchase Price. [Note that the apportionment of the
Additional Shares among the Company and the Selling Shareholders has yet to be
determined] If you, on behalf of the Underwriters, elect to exercise such
option, you shall so notify the Company in writing not later than 30 days after
the date of this Agreement, which notice shall specify the number of Additional
Shares to be purchased by the Underwriters and the date on which such shares are
to be purchased. Such date may be the same as the Closing Date (as defined
below) but not earlier than the Closing Date nor later than ten business days
after the date of such notice. Additional Shares may be purchased as provided in
Section 5 hereof solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. If any Additional Shares are to
be purchased, each Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the
-9-
<PAGE>
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 90 days after the date of the Prospectus, (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
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. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) 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 hereof of which the Underwriters have been advised in
writing or (C) transactions by any person other than the Company relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the offering of the Shares or (D) grants of options to
purchase shares of Common Stock pursuant to the Company's equity-based
compensation plan described in the Prospectus, provided that such options are
not exercisable within such 90 day period. In addition, each Selling Shareholder
agrees that, without the prior written consent of Morgan Stanley on behalf of
the Underwriters, it will not, during the period ending 90 days after the date
of the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$__________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
$_________ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $__________
a share, to any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on November __, 1999, or at such other time on the same or such other
date, not later than November __, 1999, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Closing Date". The
-10-
<PAGE>
Closing of the offering and sale of the Firm Shares will be held at the Offices
of Ropes & Gray, 885 Third Avenue, New York, NY 10022.
Payment for any Additional Shares shall be made [to the Company] in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than December __, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Option Closing Date." The Closing of the offering and sale of the
Additional Shares will be held at the Offices of Ropes & Gray, 885 Third Avenue,
New York, NY 10022.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [__________] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken
-11-
<PAGE>
as a whole, from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the
date of this Agreement) that, in your judgment, is material
and adverse and that makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 6(a)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Morse, Zelnick, Rose & Lander, L.L.P., outside counsel
for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries,
taken as a whole;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
-12-
<PAGE>
(iv) the shares of Common Stock outstanding prior to
the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid and
non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
are owned directly by the Company, and, to such counsel's
knowledge, are free and clear of all liens, encumbrances,
equities or claims;
(vi) the Shares to be sold by the Company have been
duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement will not contravene the certificate of
incorporation or by-laws of the Company or, to the best of
such counsel's knowledge, any provision of applicable law, any
agreement or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of
the Shares by the Underwriters as to which such counsel need
express no opinion;
(ix) the statements (A) in the Prospectus under the
captions "Business Contracts and Clients," "Description of
Capital Stock" and "Underwriters" and (B) in the Registration
Statement in Item 15, in each case insofar as such statements
constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the
information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters
referred to therein;
(x) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any
-13-
<PAGE>
of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be
required to register as an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
(xii) to the best of such counsel's knowledge, the
Company and its subsidiaries (A) are in compliance with any
and all applicable Environmental Laws, (B) have received all
permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct their respective
business and (C) are in compliance with all terms and
conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole; and
(xiii) such counsel (A) is of the opinion that each
document filed pursuant to the Exchange Act and incorporated
by reference in the Registration Statement and the Prospectus
(except for financial statements and schedules as to which
such counsel need not express any opinion) complied when so
filed as to form in all material respects with the Exchange
Act and the applicable rules and regulations of the Commission
thereunder, (B) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included
therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder, (C) has no reason to believe that (except for
financial statements and schedules and other financial and
statistical data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and
(D) has no reason to believe that (except for financial
statements and schedules and other financial and statistical
data as to which such
-14-
<PAGE>
counsel need not express any belief) the Prospectus contains
any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Underwriters shall have received on the Closing Date
an opinion of Morse, Zelnick, Rose & Lander, L.L.P., counsel for the
Selling Shareholders, dated the Closing Date, to the effect that:
(i) this Agreement has been duly executed and
delivered by or on behalf of each of the Selling Shareholders;
(ii) the execution and delivery by each Selling
Shareholder of, and the performance by such Selling
Shareholder of its obligations under, this Agreement and the
Custody Agreement and Power of Attorney of such Selling
Shareholder will not contravene any provision of applicable
law, or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon such Selling
Shareholder or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Shareholder of its
obligations under this Agreement or the Custody Agreement or
Power of Attorney of such Selling Shareholder, and no consent,
approval, authorization or order of, or qualification with,
any governmental body or agency is required for the
performance by such Selling Shareholder of its obligations
under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Shareholder, except such as may be
required by the securities or Blue Sky laws of the various
states in connection with offer and sale of the Shares;
(iii) each of the Selling Shareholders is the record
owner and, to such counsel's knowledge, the beneficial owner,
of the Shares to be sold by such Selling Shareholder and the
legal right and power, and all authorization and approval
required by law, to enter into this Agreement and the Custody
Agreement and Power of Attorney of such Selling Shareholder
and to sell, transfer and deliver the Shares to be sold by
such Selling Shareholder;
(iv) the Custody Agreement and the Power of Attorney
of each Selling Shareholder have been executed and delivered
by such Selling Shareholder and are valid and binding
agreements of such Selling Shareholder;
(v) delivery of the Shares to be sold by each Selling
Shareholder pursuant to this Agreement will pass title to such
Shares free and clear of any security interests, claims,
liens, equities and other encumbrances; and
-15-
<PAGE>
(vi) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial and statistical
data included therein as to which such counsel need not
express any opinion) comply as to form in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, (B) has no reason to
believe that (except for financial statements and schedules
and other financial and statistical data as to which such
counsel need not express any belief) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules
and other financial and statistical data as to which such
counsel need not express any belief) the Prospectus contains
any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(e) The Underwriters shall have received on the Closing Date
an opinion of Farkas & Manelli, P.L.L.C., regulatory counsel to the
Company, dated the Closing Date to the effect that:
(i) The statements under the captions ["Risk
Factors-The Healthcare Industry ..." and "Business--Government
and Industry Regulation"] in the Prospectus, insofar as such
statements constitute a summary of documents referred to
therein or matters of law, fairly summarize in all material
respects the information called for with respect to such
documents and matters.
(f) The Underwriters shall have received on the Closing Date
an opinion of Ropes & Gray, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(c)(vi),
6(c)(vii), 6(c)(ix) (but only as to the statements in the Prospectus
under "Description of Capital Stock" and "Underwriters") and clauses
(B), (C) and (D) of Section 6(c)(xiii).
With respect to subparagraph (xiii) of paragraph 6(c) above, Morse,
Zelnick, Rose & Lander, L.L.P. and Ropes & Gray may state that their opinion and
belief are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and documents
incorporated therein by reference and review and discussion of the contents
thereof, but are without independent check or verification, except as specified.
With respect to clauses (B), (C) and (D) of subparagraph (xii) of paragraph (c)
above, Ropes & Gray may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto (other than the documents incorporated
by reference) and
-16-
<PAGE>
review and discussion of the contents thereof (including documents incorporated
by reference), but are without independent check or verification except as
specified.
The opinion of Morse, Zelnick, Rose & Lander, L.L.P. and Farkas &
Manelli, P.L.L.C. described in paragraphs 6(c) and 6(d), respectively, shall be
rendered to the Underwriters at the request of the Company or one or more of the
Selling Shareholders, as the case may be, and shall so state therein.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Coopers & Lybrand, L.L.P. independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in or incorporated by reference into the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
(h) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
(i) The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the
Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, the due authorization
and issuance of the Additional Shares and other matters related to the
issuance of the Additional Shares.
(j) The Shares shall have been approved for quotation through
the Nasdaq National Market.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish you, without charge, [_____] signed copies of
the Registration Statement (including exhibits thereto and documents
incorporated by reference) and for delivery to each other Underwriter a
copy of the Registration Statement (without exhibits thereto but
including document incorporated by reference) and to furnish to you in
New York City, without charge, prior to 10:00 A.M. local time on the
business day next succeeding the date of this Agreement and during the
period mentioned in paragraph 7(c) below, as many copies of the
Prospectus, and documents incorporated therein by reference, and any
supplements and amendments thereto as you may
-17-
<PAGE>
reasonably request. The terms "supplement" and "amendment" or "amend"
as used in this Agreement shall include all documents subsequently
filed by the Company with the Commission pursuant to the Exchange Act
that are deemed to be incorporated by reference in the Prospectus.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering
the twelve-month period ending December 31, 2000 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
8. Expenses.
(a) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers
agree to pay or cause to be paid all expenses incident to the
performance of obligations under this Agreement, including: (i) the
fees, disbursements and expenses of the Company's counsel, the
Company's accountants and counsel for the Selling Shareholders in
connection with the
-18-
<PAGE>
registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and
filing of the Registration Statement, any preliminary prospectus, the
Prospectus and amendments and supplements to any of the foregoing,
including all printing costs associated therewith, and the mailing and
delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related
to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the cost
of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities
laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in
paragraph 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky or Legal
Investment memorandum, (iv) all filing fees and the reasonable fees and
disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc., (v) the cost of
printing certificates representing the Shares, (vi) the costs and
charges of any transfer agent, registrar or depositary, (vii) the costs
and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering
of the Shares, including, without limitation, expenses associated with
the production of road show slides and graphics, fees and expenses of
any consultants engaged in connection with the road show presentations
with the prior approval of the Company, travel and lodging expenses of
the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with
the road show, and (viii) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Section, Section 9 entitled
"Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes
payable on resale of any of the Shares by them and any advertising
expenses connected with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution.
(a) The Company and each Selling Shareholder who is a director
or officer of the Company (as designated with an asterisk "*" on
Schedule I) on the date of this Agreement, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act, from and
-19-
<PAGE>
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar
as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use
therein;
(b) Each Selling Shareholder severally agrees to indemnify and
hold harmless (i) each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (ii) the Company,
its directors, its officers who sign the Registration Statement, and
each person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplement thereto), or caused by any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but only with reference to information relating to such
Selling Shareholder furnished in writing by or on behalf of such
Selling Shareholder expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused
-20-
<PAGE>
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating
to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments
or supplements thereto.
(d) The aggregate liability of any Selling Shareholder under
the representations and warranties contained in Section 2(g) hereof and
for indemnification under Section 9 shall in no event exceed the net
proceeds received by such Selling Shareholder from the Underwriters in
the offering of the Shares.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 9(a), 9(b) or 9(c),
such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all Underwriters and all persons, if any, who control any
Underwriter within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section and (iii) the fees and expenses of more
than one separate firm (in addition to any local counsel) for all
Selling Shareholders and all persons, if any, who control any Selling
Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters and such control
persons of any Underwriters, such firm shall be designated in writing
by Morgan Stanley. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the
-21-
<PAGE>
Company. In the case of any such separate firm for the Selling
Shareholders and such control persons of any Selling Shareholders, such
firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Shareholders under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled
with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying
party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
(f) To the extent the indemnification provided for in Section
9(a), 9(b) or 9(c) is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph,
in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received
by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause 9(f)(i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 9(f)(i)
above but also the relative fault of the indemnifying party or parties
on the one hand and of the indemnified party or parties on the other
hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by
the Sellers on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of
the Shares (before deducting expenses) received by each Seller and the
total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of
the Prospectus, bear to the aggregate Public Offering Price of the
Shares. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference
-22-
<PAGE>
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Sellers or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 9 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(g) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 9(f). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section
9 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in
equity.
(h) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements
of the Company and the Selling Shareholders contained in this Agreement
shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter,
any Selling Shareholder or any person controlling any Selling
Shareholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of
the Shares.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of
-23-
<PAGE>
the Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities or (iv)
there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses 10(a)(i) through 10(a)(iv), such event, singly or together with any
other such event, makes it, in your judgment, impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company and
the Selling Shareholders for the purchase of such Firm Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholders. In any such case either you or the relevant Sellers shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably
-24-
<PAGE>
incurred by such Underwriters in connection with this Agreement or the offering
contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
-25-
<PAGE>
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
PROFESSIONAL DETAILING, INC.
By:_______________________
Name:
Title:
The Selling Shareholders named in
Schedule I hereto, acting severally
By:_______________________
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
[Other Managers]
Acting severally on behalf of themselves and the several Underwriters named in
Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:_______________________________
Name:
Title:
<PAGE>
SCHEDULE I
SELLING SHAREHOLDERS
Number of
Firm Shares
Selling Shareholder To Be Sold
------------------- ----------
John P. Dugan
Charles T. Saldarini
[Others]
Total
---------------
-27-
<PAGE>
SCHEDULE II
UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
---------
Total Firm Shares
-28-
<PAGE>
EXHIBIT A
FORM OF LOCK-UP LETTER
[attached]
-29-
<PAGE>
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
(212) 838-1177
December 15, 1999
Professional Detailing, Inc.
10 Mountainview Road
Upper Saddle River, NJ 07458
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-3 (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), to register (a) the offering by the Company of 1,339,312 shares of
common stock, par value $.01 per share (the "Common Stock") and up to an
additional 210,000 shares if the over-allotment option is exercised in full, (b)
the offering by certain selling stockholders (as identified in the Registration
Statement) of 1,400,688 shares of Common Stock and up to an additional 210,000
shares if the over-allotment option is exercised in full, and (c) 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.
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,
/s/ Morse, Zelnick, Rose & Lander, LLP
--------------------------------------
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
[Letterhead of PriceWaterhouseCoopers]
We hereby consent to the use in this Registration Statement on Form S-3
of or report dated February 8, 1999, except as to the pooling of
interests with TVG, Inc. which is as of May 12, 1999 and Note 21 which
is as of August 31, 1999, relating to the financial statements of
Professional Detailing, Inc., which appear in such Registration
Statement. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Registration
Statement.
/s/ PriceWaterhouseCoopers LLP
Florham Park, New Jersey
December 15, 1999
<PAGE>
[Letterhead of Grant Thornton LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 3, 1999, accompanying the 1997 and
1998 financial statements of TVG, Inc. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus of
Professional Detailing, Inc. on Form S-3 filed with the Securities and Exchange
Commission, pursuant to the Securities Act of 1933 (the financial statements of
TVG, Inc. are not presented separately therein), and to the use of our name as
it appears under the caption "Experts" and "Selected Consolidated Financial
Data."
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
December 15, 1999
<PAGE>
Exhibit 23.3
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 14, 1997 on the 1996 financial statements of TVG, Inc. and to all
references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
December 15, 1999
Philadelphia, Pennsylvania
<PAGE>
Exhibit 23.5
------------
Consent of Farkas & Manelli, P.L.L.C.
We hereby consent to the inclusion of our firm under the heading "Legal
Matters" in the Registration Statement on Form S-3 of Professional Detailing,
Inc.
/s/ Farkas & Manelli, P.L.L.C.
--------------------------------
Farkas & Manelli, P.L.L.C.
Dated: Washington, D.C.
December 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 56,989
<SECURITIES> 2,422
<RECEIVABLES> 8,426
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,777
<PP&E> 6,255
<DEPRECIATION> 697
<TOTAL-ASSETS> 77,390
<CURRENT-LIABILITIES> 26,729
<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 50,242
<TOTAL-LIABILITY-AND-EQUITY> 77,390
<SALES> 119,421
<TOTAL-REVENUES> 121,695
<CGS> 87,840
<TOTAL-COSTS> 110,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,529
<INCOME-TAX> 1,691
<INCOME-CONTINUING> 9,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,838
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 58,266
<SECURITIES> 1,500
<RECEIVABLES> 12,940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,028
<PP&E> 7,472
<DEPRECIATION> 703
<TOTAL-ASSETS> 87,122
<CURRENT-LIABILITIES> 28,877
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 57,599
<TOTAL-LIABILITY-AND-EQUITY> 87,122
<SALES> 130,074
<TOTAL-REVENUES> 132,579
<CGS> 98,679
<TOTAL-COSTS> 119,968
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,611
<INCOME-TAX> 5,063
<INCOME-CONTINUING> 7,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,548
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.62
</TABLE>
