<PAGE> 1
As filed with the Securities and Exchange Commission on October 15, 1996
REGISTRATION NO. 333-12573
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
QUINTILES TRANSNATIONAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 8731 56-1714315
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or organization) classification code no.) Identification No.)
</TABLE>
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703-8411
(919) 941-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DENNIS B. GILLINGS, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703-8411
(919) 941-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
COPIES TO:
<TABLE>
<S> <C>
GERALD F. ROACH, ESQ. DANIEL H. MACCOBY, ESQ.
AMY J. MEYERS, ESQ. STEVEN M. KAUFMAN, ESQ.
SMITH, ANDERSON, BLOUNT, DORSETT, HOGAN & HARTSON L.L.P.
MITCHELL & JERNIGAN, L.L.P. 555 THIRTEENTH ST., N.W.
2500 FIRST UNION CAPITOL CENTER WASHINGTON, D.C. 20004
RALEIGH, NORTH CAROLINA 27601 (202) 637-5600
(919) 821-1220
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and upon
consummation of the transaction described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[ ]
-----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
BRI INTERNATIONAL, INC.
1300 NORTH 17TH STREET
SUITE 300
ARLINGTON, VIRGINIA 22209
______________________________, 1996
TO THE SHAREHOLDERS OF BRI INTERNATIONAL, INC.:
You are cordially invited to attend a Special Meeting of Shareholders
of BRI International, Inc. ("BRI") on Thursday, November 21, 1996, at 4:00 p.m.,
local time, at 1300 North 17th Street, Suite 300, Arlington, Virginia 22209
(together with any adjournment or postponement thereof, the "Special Meeting").
As described in the enclosed Proxy Statement/Prospectus, at the
Special Meeting, the holders of common stock, par value $.10 per share, of BRI
("BRI Common Stock"), will be asked to approve and adopt the Merger Agreement
(the "Merger Agreement"), including the Plan of Merger (the "Plan of Merger")
attached as Exhibit A thereof, dated as of September 16, 1996, among Quintiles
Transnational Corp., a North Carolina corporation ("Quintiles"), Quintiles BRI,
Inc. (formerly known as BRI Acquisition Corp.), a North Carolina corporation
which has not engaged in any material operations since its incorporation and is
a wholly-owned subsidiary of Quintiles ("Acquisition"), and BRI, and the
transactions contemplated thereunder, including a merger (the "Merger")
pursuant to which BRI would be merged with and into Acquisition, with
Acquisition being the surviving corporation in the Merger. Copies of the
Merger Agreement and Plan of Merger are attached as Appendix A and Appendix B,
respectively, to the Proxy Statement/Prospectus.
In connection with the Merger, (i) each share of BRI Common Stock
issued and outstanding as of the Effective Time (as defined in the Merger
Agreement), other than shares as to which dissenters' rights have been
perfected under the Virginia Stock Corporation Act and shares held in BRI's
treasury, would be converted into the right to receive 4.3013 shares (the
"Exchange Ratio") of common stock, par value $.01 per share, of Quintiles
("Quintiles Common Stock"); and (ii) any stock option to purchase shares of BRI
Common Stock outstanding prior to the Effective Time would become an option to
purchase Quintiles Common Stock, all subject to and in accordance with the
terms and conditions of the Merger Agreement and Plan of Merger. Cash would be
paid in lieu of fractional shares of Quintiles Common Stock.
After the Merger, the assets and business of BRI would continue to be
owned and operated by Acquisition, which would be a wholly-owned subsidiary of
Quintiles.
In approving the Merger Agreement and Plan of Merger, BRI's Board of
Directors has unanimously determined that the proposed Merger is in the best
interests of BRI and BRI's shareholders. ACCORDINGLY, THE BOARD OF DIRECTORS
RECOMMENDS THAT THE SHAREHOLDERS OF BRI VOTE IN FAVOR OF THE MERGER AGREEMENT
AND PLAN OF MERGER AND THE TRANSACTIONS CONTEMPLATED THEREUNDER, INCLUDING THE
MERGER.
Smith Barney Inc. ("Smith Barney"), BRI's financial advisor, has
delivered to the BRI Board of Directors a written opinion dated September 16,
1996 to the effect that, as of the date of such opinion and based upon and
subject to certain matters set forth therein, the Exchange Ratio was fair, from
a financial point of view, to the holders of BRI Common Stock. A copy of Smith
Barney's opinion is attached as Appendix D to the Proxy Statement/Prospectus and
should be read carefully in its entirety.
The close of business on October 7, 1996 has been fixed by the BRI
Board of Directors as the record date (the "BRI Record Date") for the
determination of shareholders entitled to vote at the Special Meeting. The
affirmative vote of the holders of at least two-thirds (2/3) of the BRI Common
Stock outstanding on the BRI Record Date is necessary to approve the Merger
Agreement and Plan of Merger and the transactions contemplated thereunder,
including the Merger. BRI has agreed to use best efforts to cause its
shareholders to vote in favor of the Merger.
A Notice of Special Meeting of Shareholders, Proxy
Statement/Prospectus and proxy card are enclosed for your review. The Proxy
Statement/Prospectus contains a detailed description of the terms of the Merger
Agreement and Plan of Merger and the transactions contemplated thereunder, and
includes a description of the respective businesses of BRI and Quintiles,
summary financial information of BRI and Quintiles, a description of the
Quintiles Common Stock to be received in connection with the Merger and
additional information regarding the proposed Merger.
YOU ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS
VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED AND PRE-PAID ENVELOPE SO THAT IT WILL BE RECEIVED NO LATER THAN
WEDNESDAY, NOVEMBER 20, 1996. If you attend the Special Meeting, you may vote
in person if you wish, even though you have previously returned your proxy.
Sincerely,
James T. Ogle
President and Chief Executive Officer
<PAGE> 3
BRI INTERNATIONAL, INC.
1300 NORTH 17TH STREET
SUITE 300
ARLINGTON, VIRGINIA 22209
_______________ , 1996
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON NOVEMBER 21, 1996
TO THE SHAREHOLDERS OF BRI INTERNATIONAL, INC.:
A Special Meeting of Shareholders of BRI International, Inc. ("BRI")
will be held at 1300 North 17th Street, Suite 300, Arlington, Virginia 22209 on
November 21, 1996, at 4:00 p.m., local time, (together with any adjournment
or postponement thereof, the "Special Meeting").
1. FOR THE HOLDERS OF COMMON STOCK, PAR VALUE $.10 PER SHARE, OF BRI
("BRI COMMON STOCK"), TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT (THE "MERGER AGREEMENT"), INCLUDING THE
PLAN OF MERGER (THE "PLAN OF MERGER") ATTACHED AS EXHIBIT A THERETO,
DATED AS OF SEPTEMBER 16, 1996, AMONG QUINTILES TRANSNATIONAL CORP.,
A NORTH CAROLINA CORPORATION ("QUINTILES"), QUINTILES BRI, INC.
(FORMERLY KNOWN AS BRI ACQUISITION CORP.), A NORTH CAROLINA CORPORATION
WHICH HAS NOT ENGAGED IN ANY MATERIAL OPERATIONS SINCE ITS
INCORPORATION AND IS A WHOLLY-OWNED SUBSIDIARY OF QUINTILES
("ACQUISITION"), AND BRI, AND THE TRANSACTIONS CONTEMPLATED THEREUNDER,
INCLUDING A MERGER (THE "MERGER") PURSUANT TO WHICH BRI WOULD BE MERGED
WITH AND INTO ACQUISITION, WITH ACQUISITION BEING THE SURVIVING
CORPORATION IN THE MERGER. Copies of the Merger Agreement and Plan of
Merger are attached as Appendix A and Appendix B, respectively, to the
accompanying Proxy Statement/Prospectus. In connection with the
Merger, (i) each share of BRI Common Stock issued and outstanding as
of the Effective Time (as defined in the Merger Agreement), other than
shares as to which dissenters' rights have been perfected under the
Virginia Stock Corporation Act and shares held in BRI's treasury,
would be converted into the right to receive 4.3013 shares of common
stock, par value $.01 per share, of Quintiles ("Quintiles Common
Stock"); and (ii) any stock option to purchase shares of BRI Common
Stock outstanding prior to the Effective Time would become an option
to purchase Quintiles Common Stock, all subject to and in accordance
with the terms and conditions of the Merger Agreement and Plan of
Merger. Cash would be paid in lieu of fractional shares of Quintiles
Common Stock.
2. To transact such other business as may properly come before the
Special Meeting.
The close of business on October 7, 1996 has been fixed by the BRI
Board of Directors as the record date (the "BRI Record Date") for the
determination of shareholders entitled to vote at the Special Meeting. The
affirmative vote of the holders of at least two-thirds (2/3) of the BRI Common
Stock outstanding on the BRI Record Date is necessary to approve the Merger
Agreement and the Plan of Merger and the transactions contemplated thereunder,
including the Merger. BRI has agreed to use best efforts to cause its
shareholders to vote in favor of the Merger and the transactions contemplated
by the Merger Agreement. A complete list of shareholders entitled to vote at
the Special Meeting will be available for examination by any BRI shareholder,
for any purpose germane to the Special Meeting, at the office of the Secretary
of BRI, BRI International, Inc., 1300 North 17th Street, Suite 300, Arlington,
Virginia 22209 for a period of at least ten (10) days preceding the Special
Meeting.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such
specifications are made, proxies will be voted FOR approval and adoption of the
Merger Agreement and the Plan of Merger and the transactions contemplated
thereunder, including the Merger. Shareholders of BRI who do not vote in favor
of or otherwise consent to approval and adoption of the Merger Agreement, the
Plan of Merger and the Merger and who otherwise comply with the provisions of
Sections 13.1-730 through 741 of the Virginia Stock Corporation Act, will have
the right, if the Merger is consummated, to dissent and to demand an appraisal
of the fair value of their shares. A copy of Sections 13.1-730 through 741 is
attached to the Proxy Statement/Prospectus as Appendix F. See "RIGHTS OF
DISSENTING BRI SHAREHOLDERS" in the Proxy Statement/Prospectus for a
description of how to properly exercise dissenters' rights.
The accompanying Proxy Statement/Prospectus contains a detailed
description of the terms of the Merger Agreement and Plan of Merger and the
transactions contemplated thereunder, and includes a description of the
respective businesses of BRI and Quintiles, summary financial information of BRI
and Quintiles, a description of the Quintiles Common Stock to be received in
connection with the Merger and additional information regarding the proposed
Merger. YOU ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS
VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED AND PRE-PAID ENVELOPE SO THAT IT WILL BE RECEIVED NO LATER THAN
WEDNESDAY, NOVEMBER 20, 1996. If you attend the Special Meeting, you may vote
in person if you wish, even though you have previously returned your proxy.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY OR TO VOTE AT THE SPECIAL MEETING
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT, THE PLAN OF
MERGER AND THE TRANSACTIONS CONTEMPLATED THEREUNDER, INCLUDING THE MERGER.
By Order of the BRI Board of Directors,
James T. Ogle
President and Chief Executive Officer
Arlington, Virginia
__________ __, 1996
<PAGE> 4
BRI INTERNATIONAL, INC.
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
NOVEMBER 21, 1996
------------------------
QUINTILES TRANSNATIONAL CORP.
PROSPECTUS
FOR 1,951,027 SHARES OF
COMMON STOCK
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to the shareholders of BRI International, Inc., a Virginia
corporation (unless the context otherwise requires, together with its
subsidiaries "BRI"), in connection with the solicitation of proxies by the
Board of Directors of BRI for use at its Special Meeting of Shareholders to be
held on November 21, 1996 in connection with the approval of the proposed merger
of BRI with and into Quintiles BRI, Inc. (formerly known as BRI Acquisition
Corp.) ("Acquisition"), a North Carolina corporation and a wholly-owned
subsidiary of Quintiles Transnational Corp., a North Carolina corporation
("Quintiles"). Quintiles has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to 1,951,027 shares of Quintiles Common Stock,
par value $0.01 per share ("Quintiles Common Stock"), issuable to the
shareholders of BRI in connection with the merger of BRI with and into
Acquisition (the "Merger"). This Proxy Statement/Prospectus also constitutes
the Prospectus of Quintiles filed as part of the Registration Statement.
The Board of Directors of BRI has unanimously determined that the
Merger is in the best interests of the shareholders of BRI and recommends that
they vote their BRI shares FOR approval of the Merger Agreement.
This Proxy Statement/Prospectus is first being mailed to shareholders
of BRI on or about ____________________________, 1996.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 HEREOF FOR
A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED BY SHAREHOLDERS IN CONNECTION WITH THEIR VOTE
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
The date of this Proxy Statement/Prospectus is __________, 1996.
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY QUINTILES OR BRI. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF QUINTILES COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH A PERSON. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY OFFER OR SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Quintiles is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by Quintiles may be inspected and
copied at the Public Reference Facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the Commission's following regional offices: New York Regional Office, 7 World
Trade Center, New York, New York 10048; and Chicago Regional Office, Citicorp
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may also be obtained at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549-1004. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including Quintiles. Quotations relating to the Company's Common
Stock appear on the Nasdaq National Market and such reports and other
information concerning the Company can also be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
Quintiles has filed with the Commission a registration statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered hereby.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to are not necessarily complete; and with respect to each such contract
or other document filed as an exhibit to the Registration Statement, reference
is made to such exhibit for a more complete description of the matters involved,
each such statement being qualified in all respects by such reference. For
further information with respect to Quintiles and the Quintiles Common Stock,
reference is made to the Registration Statement and exhibits thereto. The
information so omitted, including exhibits, may be obtained from the Commission
at its principal office in Washington, D.C. upon payment of the prescribed fees,
or may be inspected without charge at the Public Reference Facilities of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549-1004.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Quintiles' Annual Report on Form 10-K for the year ended December 31,
1995, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996, the current reports on Form 8-K dated April 16, 1996 and October
6, 1996 filed with the Commission and the description of Quintiles' Common
Stock contained in its Registration Statement on Form 8-A as filed with the
Commission on April 11, 1994 are hereby incorporated by reference in this Proxy
Statement/Prospectus. All documents filed with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the termination of the offering shall
be deemed to be incorporated by reference into this Proxy Statement/Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement contained in any document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed to constitute
a part of this Proxy Statement/Prospectus except as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT CHARGE
TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS
DELIVERED UPON WRITTEN OR ORAL REQUEST TO CORPORATE SECRETARY, QUINTILES
TRANSNATIONAL CORP., 4709 CREEKSTONE DRIVE, RIVERBIRCH BUILDING, SUITE 300,
DURHAM, NORTH CAROLINA 27703-8411 OR BY TELEPHONE AT (919) 941-2000. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE NO
LATER THAN FIVE BUSINESS DAYS BEFORE THE SPECIAL MEETING.
-2-
<PAGE> 6
TABLE OF CONTENTS
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SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Restrictions Applicable to Certain BRI Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Recommendation of BRI's Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Opinion of BRI's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Federal Income Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Market Prices and Dividend Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selected Historical and Unaudited Pro Forma Combined Financial Data . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dependence on Certain Industries and Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Loss of Large Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Competition; Industry Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Indemnification Obligations of BRI Shareholders Pursuant to the Merger Agreement . . . . . . . . . . . . . . 16
Fixed Exchange Ratio; No Protection Against Adverse Change; Volatility of Stock Price . . . . . . . . . . . 17
No Assurance of Expected Business Benefits of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Variation in Quarterly Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Acquisition Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management of Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Dependence on Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Potential Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Uncertainty in Health Care Industry and Proposed Health Care Reform . . . . . . . . . . . . . . . . . . . . 19
Exchange Rate Fluctuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Dependence on Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Risks of Certain Litigation Involving BRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Possible Loss of Tax-Free Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SPECIAL MEETING OF BRI SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting Information for BRI Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Summary of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Recommendation of BRI Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Reasons for the Merger and Recommendation of the Board of Directors . . . . . . . . . . . . . . . . . . . . 24
Opinion of BRI's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Federal Income Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Restrictions on Resales of Quintiles Common Stock; Pooling Considerations; Affiliate Agreements . . . . . . 42
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
INTERESTS OF CERTAIN PERSONS IN THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Stock Ownership, Stock Options of BRI Directors and Executive Officers . . . . . . . . . . . . . . . . . . . 43
Employment and Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
RIGHTS OF DISSENTING BRI SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
CERTAIN INFORMATION CONCERNING QUINTILES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
CERTAIN INFORMATION CONCERNING BRI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
The CRO Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
BRI's Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Contractual Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Potential Liability and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Facilities and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Management's Discussion and Analysis of Financial Condition and Results of Operations
of BRI International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Beneficial Ownership of Management and Certain Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 61
COMPARISON OF THE RIGHTS OF HOLDERS OF QUINTILES COMMON STOCK AND BRI COMMON STOCK . . . . . . . . . . . . . . . . . 63
Authorized Capital Stock; Blank Stock Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Size of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Classified Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Removal of Directors; Filling Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Amendment of Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Power to Call Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Shareholder Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Shareholder Approval of Certain Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Directors Standard of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Indemnification and Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Dividends and Repurchases of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDIX A -- MERGER AGREEMENT
APPENDIX B -- FORM OF PLAN OF MERGER
APPENDIX C -- FORM OF ESCROW AGREEMENT
APPENDIX D -- OPINION OF SMITH BARNEY INC.
APPENDIX E -- OPINION OF COOPERS & LYBRAND L.L.P.
APPENDIX F -- VIRGINIA STOCK CORPORATION ACT SECTIONS 13.1-730 THROUGH 741
</TABLE>
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<PAGE> 8
SUMMARY
The following is a brief summary of certain information contained
elsewhere or incorporated by reference in this Proxy Statement/Prospectus.
Certain capitalized terms used in this Summary are defined elsewhere in this
Proxy Statement/Prospectus. This summary is not intended to be a complete
statement of all material features of the Merger and is qualified in its
entirety by reference to the more detailed information contained elsewhere in
this Proxy Statement/Prospectus and in the Appendices hereto, which the
shareholders are urged to read in their entirety.
Information contained or incorporated by reference in this Proxy
Statement/Prospectus contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, which can be
identified by the use of forward-looking terminology, such as "may," "will,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology. See "FORWARD LOOKING
STATEMENTS." The matters set forth under the caption "RISK FACTORS" in this
Proxy Statement/Prospectus constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
THE COMPANIES
Quintiles
Quintiles Transnational Corp. ("Quintiles") is a North Carolina
corporation which provides drug development and health information management
services to a range of public and private sector clients around the world.
Quintiles believes that it is one of only three contract research organizations
("CROs") with fiscal 1995 revenue exceeding $100 million and one of a few
capable of providing global services. Quintiles complements the research and
development departments of pharmaceutical and biotechnology companies by
offering services designed to assure a high quality product for the sponsor
company and reduce drug development time and cost. In addition, Quintiles'
integrated services and extensive information technology capabilities furnish
clients with broad experience and expertise in global drug development and
provide clients with an outsourced variable-cost alternative to the fixed costs
associated with internal drug development. Quintiles' professional services
include clinical trials management, data management, biostatistical analysis,
formulation and packaging of drugs for clinical trials, centralized clinical
laboratory services, pre-clinical and Phase I testing, study design and
strategic, regulatory and health economics consulting. In 1995, Quintiles
generated approximately 79% of its net revenue from its clinical services and
approximately 21% from its pre-clinical, laboratory services and formulation
and packaging services. Quintiles has 41 operating units in 19 countries.
Quintiles maintains its principal executive office at 4709 Creekstone Drive,
Riverbirch Building, Suite 300, Durham, North Carolina, 27703-8411 and its
telephone number is (919) 941-2000.
On October 6, 1996, Quintiles, Innovex Limited, a company organized
under the laws of England and Wales ("Innovex"), and the shareholders of
Innovex, signed a definitive agreement, dated as of October 4, 1996 (the
"Exchange Agreement"), by which Quintiles will exchange up to 10 million shares
of its common stock for all of the outstanding ordinary shares and cumulative
participating preferred ordinary shares ("Innovex Shares") of Innovex (the
"Exchange"). See "CERTAIN INFORMATION CONCERNING QUINTILES--Recent Events."
Acquisition
Quintiles BRI, Inc. (formerly known as BRI Acquisition Corp.)
("Acquisition"), a North Carolina Corporation, is a wholly-owned subsidiary of
Quintiles formed for the purpose of consummating the Merger. The principal
executive office and telephone number of Acquisition are the same as Quintiles.
BRI
BRI International, Inc., a Virginia corporation ("BRI"), is a provider
of CRO services on a global basis for the pharmaceutical, biotechnology and
medical device industries. BRI provides regulatory consulting and clinical
testing services which complement the research and development departments of
client companies, emphasize a high quality product and reduce product
development time and cost. Founded in 1971, BRI is one of the world's oldest
CRO's. BRI believes that it is one of the largest CRO's in the world, based on
fiscal 1995 revenues, and that it is the world's leading provider of CRO
services to the medical device industry. BRI has assisted 12 of the 15 largest
pharmaceutical companies as ranked by the size of their research and development
operations, and BRI has served 48 of the world's 100 largest medical device and
diagnostic companies as ranked by 1995 revenue. BRI has a diverse client base
with no single client providing more than 10% of expected annual revenue for
fiscal 1996. BRI provides services internationally from 13 offices in 4
countries: the U.S., the United Kingdom, France and Belgium.
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<PAGE> 9
BRI is headquartered at 1300 North 17th Street, Suite 300, Arlington,
Virginia 22209-3801, and its telephone number is (703) 276-0400.
THE MERGER
If the Merger is effected, BRI will be merged with and into
Acquisition, a wholly-owned subsidiary of Quintiles. After the Merger,
Acquisition, as the surviving corporation in the Merger, will own and operate
the assets and business BRI currently owns and operates.
Upon consummation of the Merger, holders of BRI Common Stock will
cease to have any direct equity interest in BRI. The Quintiles Common Stock to
be received by holders of BRI Common Stock upon consummation of the Merger will
provide those holders with an opportunity to have a continuing equity interest
in the combined operations of Quintiles and BRI.
Quintiles will issue up to 1,951,027 shares of Quintiles Common Stock
to BRI Shareholders. Each share of BRI Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into 4.3013 shares
(the "Exchange Ratio") of Quintiles Common Stock.
It is the intention of the parties to consummate the Merger and the
other transactions contemplated by the Merger Agreement and the Plan of Merger
as soon as possible following adoption and approval of the Merger Agreement and
the Plan of Merger by the shareholders of BRI and satisfaction of all covenants
and conditions to the parties' respective obligations to consummate the Merger
(or, to the extent permitted, waiver thereof) or at such other time as
designated in writing by Quintiles and BRI. The Merger will become effective
at the time specified in the articles of merger which will be filed with the
Secretary of State of North Carolina and the State Corporation Commission of
the Commonwealth of Virginia contemporaneously with the closing of the
transactions contemplated by the Merger Agreement.
In the Merger, each share of BRI Common Stock issued and outstanding
immediately prior to the Effective Time will cease to be outstanding and (other
than shares of BRI Common Stock held by a BRI Shareholder who exercises
dissenter's rights under Virginia law and shares of BRI Common Stock held in
BRI's treasury) will be converted into 4.3013 shares of Quintiles Common Stock,
subject to possible adjustments as described in Section 1.1(d) of the Merger
Agreement. No fractional shares of Quintiles Common Stock will be issued by
Quintiles upon the conversion of BRI Common Stock in the Merger. In lieu of
any such fractional shares, each holder of shares of BRI Common Stock who would
otherwise have been entitled to receive a fraction of a share of Quintiles
Common Stock will be entitled to receive instead an amount in cash equal to
such fraction multiplied by the closing price of a share of Quintiles Common
Stock on the Closing Date. Each share of Acquisition common stock issued and
outstanding immediately prior to the Effective Time will be converted into one
share of common stock of the Surviving Corporation. The rights of Quintiles
Shareholders, including the former BRI Shareholders who will become holders of
Quintiles Common Stock, will be governed by the Articles of Incorporation and
Bylaws of Quintiles and the laws of the State of North Carolina. See
"COMPARISON OF THE RIGHTS OF HOLDERS OF QUINTILES COMMON STOCK AND BRI COMMON
STOCK."
Pursuant to the Merger Agreement and the Plan of Merger, options to
obtain BRI Common Stock will be exchanged for options to obtain Quintiles
Common Stock. At the Effective Time, each BRI Option to obtain one share of
BRI Common Stock will be converted into the right to receive Quintiles Options
to obtain 4.3013 shares of Quintiles Common Stock. The per share exercise
price for any Quintiles Options so received will equal the per share exercise
price of the BRI Options exchanged for such Quintiles Options divided by
4.3013. Each Quintiles Option will otherwise be subject to the same terms and
conditions as apply to related BRI Options, except that all such Quintiles
Options will be fully vested and immediately exercisable as of the Effective
Time, as provided in the related BRI Options.
In issuing shares of Quintiles Common Stock to the BRI Shareholders in
accordance with the Merger Agreement and Plan of Merger, Quintiles will
withhold from each BRI Shareholder and deliver to the Escrow
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<PAGE> 10
Agent 10% of the shares of Quintiles Common Stock issuable pursuant to Section
1.1(c) of the Merger Agreement and the Plan of Merger (the "Escrow Fund"), to
be issued in the name of, held and transferred by Branch Banking and Trust
Company, as Escrow Agent, pursuant to the terms of the Merger Agreement and the
Escrow Agreement, attached hereto as Appendix C. None of the Quintiles Options
nor any of the shares of Quintiles Common Stock issuable upon the exercise of
Quintiles Options shall be contributed to the Escrow Fund. Furthermore, the
Merger Agreement provides that, by virtue of the Merger and the resolutions to
be adopted by the BRI Shareholders at the Special Meeting, James T. Ogle shall
be irrevocably appointed attorney-in-fact, and authorized and empowered to act,
for and on behalf of any or all of the BRI Shareholders in connection with the
indemnity provisions of Article VIII of the Merger Agreement as they relate to
the BRI Shareholders generally, the Escrow Agreement, and such other matters
reasonably necessary for consummation of the transactions contemplated by the
Merger Agreement. The sole recourse of Quintiles or any other Indemnitee for
any indemnification pursuant to Section 8.2 of the Merger Agreement shall be
from, out of, and to the extent of the Escrow Fund. If the indemnification
provisions of the Merger Agreement are triggered, BRI Shareholders may lose
some or all of the Quintiles Common Stock deposited into escrow which
constitutes a portion of the consideration received by the BRI Shareholders in
exchange for their BRI Common Stock in the Merger. See "THE MERGER -- The
Merger Agreement -- Shareholder's Representative" and "THE MERGER -- The Escrow
Agreement."
Pursuant to Section 8.2 of the Merger Agreement, from and after
Closing, Quintiles, Acquisition and their affiliates and all of their
respective officers, directors, employees (other than certain key employees),
agents and shareholders (other than BRI Shareholders) shall be defended,
indemnified and held harmless from and against any and all losses, claims,
actions, damages, liabilities, costs and expenses arising in connection with
(i) any misrepresentation, or failure to satisfy any representation, warranty,
covenant, obligation or agreement made by BRI in the Merger Agreement or any of
the documents related to the Merger Agreement or otherwise required to
consummate the Merger, (ii) any litigation, action, claim, proceeding or
investigation of any third party arising out of the business or operations of
BRI (or any affiliate of BRI) prior to the Closing Date, (iii) certain
acknowledged claims described pursuant to Section 8.2 of the Merger Agreement,
including, without limitation, certain pending or threatened litigation against
BRI or (iv) Quintiles' enforcement of its indemnification rights under Section
8.2 of the Merger Agreement. Subject to the limitations set forth in Section
8.2(b) of the Merger Agreement, each Indemnitee will be advanced or reimbursed
out of the Escrow Fund on demand and prior to a final determination pursuant to
the Merger Agreement and the Escrow Agreement, for any and all expenses
reasonably incurred by such Indemnitee in investigating, preparing for,
defending or taking any other action in respect of any loss described above or
any proceeding related thereto, whether or not such Indemnitee is a party to
such proceeding. See "THE MERGER -- The Merger Agreement -- Indemnification."
The Merger Agreement may be terminated by the parties at any time by
mutual consent in writing. Quintiles, Acquisition or BRI may terminate the
Merger Agreement if the transactions contemplated thereby, including, but not
limited to, the Merger, are not consummated before December 31, 1996 or if any
court or government instrumentality of competent jurisdiction takes any action
to prevent such transactions. Quintiles may terminate the Merger Agreement
upon the material breach of any of the representations, warranties or covenants
provided by BRI under the Merger Agreement. BRI may terminate the Merger
Agreement upon the material breach of any of the representations, warranties or
covenants provided by Quintiles or Acquisition thereunder. See "THE
MERGER--The Merger Agreement--Amendment, Waiver and Termination."
Consummation of the Merger is subject to the satisfaction of certain
conditions. See "THE MERGER -- The Merger Agreement -- Conditions to
Consummation." In addition, the parties have agreed to certain covenants in
connection with the Merger Agreement, including, without limitation, a
provision that may require BRI to pay an overbid fee of $3.5 million to
Quintiles in the event that BRI enters into a transaction with a third party
pursuant to an Acquisition Proposal within two years from the date of the
Merger Agreement and the Merger Agreement is terminated under specified
circumstances. See "THE MERGER--The Merger Agreement--Certain Covenants."
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<PAGE> 11
RESTRICTIONS APPLICABLE TO CERTAIN BRI SHAREHOLDERS
Affiliates of BRI who exchange their shares of BRI Common Stock in the
Merger will be subject to certain restrictions on resale of the Quintiles
Common Stock received in the Merger. See "THE MERGER -- Restrictions on
Resales of Quintiles Common Stock; Pooling Considerations; Affiliate
Agreements."
RECOMMENDATION OF BRI'S BOARD OF DIRECTORS
The Board of Directors of BRI has unanimously determined that the
Merger is in the best interests of the shareholders of BRI and approved the
Merger Agreement and Plan of Merger, and recommends that the BRI Shareholders
vote "FOR" approval of the Merger Agreement and Plan of Merger.
OPINION OF BRI'S FINANCIAL ADVISOR
Smith Barney Inc. ("Smith Barney") has delivered to the Board of
Directors of BRI a written opinion dated September 16, 1996 to the effect that,
as of the date of such opinion and based upon and subject to certain matters
stated therein, the Exchange Ratio was fair, from a financial point of view, to
the holders of BRI Common Stock. The full text of the written opinion of Smith
Barney dated September 16, 1996, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix D
to this Proxy Statement/Prospectus and should be read carefully in its entirety.
Smith Barney's opinion is directed only to the fairness of the Exchange Ratio
from a financial point of view, does not address any other aspect of the Merger
or related transactions and does not constitute a recommendation to any
shareholder as to how such shareholder should vote at the Special Meeting. See
"THE MERGER--Opinion of BRI's Financial Advisor."
SHAREHOLDER APPROVAL
The Boards of Directors of Quintiles and BRI have approved the
transaction. A special meeting (the "Special Meeting") of the BRI Shareholders
will be held on November 21, 1996 at which shareholders will consider and
vote on a proposal to approve the Merger pursuant to the terms of the Merger
Agreement and Plan of Merger.
THE SPECIAL MEETING
The close of business on October 7, 1996 has been fixed by the BRI
Board of Directors as the record date (the "BRI Record Date") for the
determination of shareholders entitled to vote at the Special Meeting. As of
the BRI Record Date, there were 375,448.04 issued and outstanding shares of BRI
Common Stock. The affirmative vote of the holders of at least two-thirds of
the BRI Common Stock outstanding on the BRI Record Date is necessary to approve
the Merger Agreement, the Plan of Merger and the transactions contemplated
thereunder, including the Merger. Any other matter properly considered and
acted upon at the Special Meeting must be approved by the affirmative vote of
at least a majority of the votes attributable to the aggregate issued and
outstanding shares of BRI Common Stock entitled to vote and be represented at
the Special Meeting (whether in person or by proxy), except for such matters
which by law, the Articles of Incorporation of BRI, as amended, or the Bylaws
of BRI, as amended (the "BRI Bylaws"), require otherwise.
Each holder of BRI Common Stock is entitled to one vote for each share
on all matters submitted to a vote of shareholders. The presence at the
Special Meeting, in person or by proxy, of the holders of more than fifty
percent (50%) of the outstanding shares of BRI Common Stock entitled to vote at
such meeting will constitute a quorum for the transaction of business.
Abstentions will be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Because the proposals to be
voted on at the Special Meeting require the affirmative vote of a percentage of
the
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<PAGE> 12
outstanding shares, abstentions will be equivalent to votes cast against the
Merger Agreement, the Plan of Merger and the transactions contemplated
thereunder, including the Merger.
DISSENTERS' RIGHTS
Shareholders of BRI who do not vote in favor of or otherwise consent
to approval and adoption of the Merger Agreement, the Plan of Merger and the
Merger and who otherwise comply with the provisions of Sections 13.1-730
through 741 of the Virginia Stock Corporation Act will have the right, if the
Merger is consummated, to dissent and to demand an appraisal of the fair value
of their shares. A copy of Sections 13.1-730 through 741 is attached to the
Proxy Statement/Prospectus as Appendix F. See "RIGHTS OF DISSENTING BRI
SHAREHOLDERS" in the Proxy Statement/Prospectus for a description of how to
properly exercise dissenters' rights.
REGULATORY APPROVALS
Quintiles and BRI have submitted filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
and regulations promulgated thereunder with respect to the Merger. The
expiration or other satisfactory termination of the requisite waiting period
under the HSR Act is a condition to the parties' obligations under the Merger
Agreement. Quintiles and BRI are not aware of any other governmental or
regulatory approvals required for consummation of the Merger, except for
compliance with applicable state securities laws and the filing of articles of
merger with the Secretary of State of North Carolina and the State Corporation
Commission of the Commonwealth of Virginia.
ACCOUNTING TREATMENT
It is intended that the Merger will be treated as a pooling of
interests for financial accounting purposes in accordance with generally
accepted accounting principles. As a condition to the obligations of
Quintiles, Acquisition and BRI pursuant to the Merger Agreement, they must
receive, on the Closing Date, the opinions of Ernst & Young LLP and Coopers &
Lybrand L.L.P., respectively, regarding the ability of these entities to enter
into a transaction to be accounted for as a pooling of interests as
contemplated by the Merger Agreement. See "THE MERGER--Accounting Treatment."
FEDERAL INCOME TAX CONSIDERATIONS
As a condition to the obligation of BRI to consummate the Merger, BRI
is to receive the opinion of Coopers & Lybrand L.L.P., to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code and that no gain or loss will be recognized by the
BRI Stockholders upon their receipt of Quintiles Common Stock in the Merger. A
copy of the opinion of Coopers & Lybrand L.L.P. is attached to the Proxy
Statement/Prospectus as Appendix E. See "THE MERGER--Federal Income Tax
Considerations" and "RISK FACTORS--Possible Loss of Tax-Free Treatment."
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MARKET PRICES AND DIVIDEND POLICIES
Quintiles Common Stock has traded publicly on the Nasdaq National
Market System under the symbol "QTRN" since April 20, 1994, the date that
Quintiles Common Stock was first offered to the public. The market price of
Quintiles Common Stock has been and may continue to be subject to wide
fluctuations. See, "RISK FACTORS--Fixed Exchange Ratio; No Protection Against
Adverse Change; Volatility of Stock Price." The following table sets forth the
high and low per share sales prices of Quintiles Common Stock for the periods
indicated as reported by the Nasdaq National Market System:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1994 $ 10.25 $ 8.125
Second Quarter (from April 20, 1994) (1) 15.125 8.75
Third Quarter (1) 15.375 12.00
Fourth Quarter (1)
Year ended December 31, 1995
First Quarter (1) $19.438 $ 14.50
Second Quarter (1) 24.125 17.25
Third Quarter (1) 32.125 22.00
Fourth Quarter 46.00 26.25
Year ended December 31, 1996
First Quarter $ 69.25 $ 37.00
Second Quarter 82.00 56.50
Third Quarter 83.25 52.50
</TABLE>
- ---------------------------------------
(1) Adjusted to reflect two-for-one split effected as a 100% stock dividend on
November 27, 1995.
On July 30, 1996, the last full trading day prior to public
announcement of the letter of intent to effect the Merger, the reported closing
sales price per share of Quintiles Common Stock on the Nasdaq National Market
System was $67.00. On _____________, 1996, the last full trading day prior to
the date of this Proxy Statement/Prospectus, the reported closing sales price
per share on the Nasdaq National Market System was $_____________.
There is no public market for the BRI Common Stock.
Quintiles has never paid any cash dividends on Quintiles Common Stock,
and its existing domestic credit facility prohibits the payment of dividends
without the prior consent of the lender. Quintiles does not anticipate paying
any cash dividends in the foreseeable future and intends to retain future
earnings for the development and expansion of its business.
BRI has never paid any cash dividends on BRI Common Stock and its
existing domestic credit facility prohibits the payment of dividends without
the prior consent of the lender. BRI does not anticipate paying any cash
dividends in the foreseeable future and intends to retain future earnings for
the development and expansion of its business.
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<PAGE> 14
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Selected Consolidated Financial Data of Quintiles
The summary of consolidated operations data set forth below for each
of the years in the five-year period ended December 31, 1995 and the
consolidated balance sheet data set forth below as of December 31, 1991, 1992,
1993, 1994, and 1995 are derived from the consolidated financial statements of
Quintiles and notes thereto which have been audited by Ernst & Young LLP. The
selected consolidated financial data provided as of June 30, 1996 and for the
six months ended June 30, 1995 and 1996 are derived from unaudited consolidated
financial statements incorporated by reference in this Proxy
Statement/Prospectus, and in the opinion of management contain all adjustments,
consisting only of normal recurring accruals, which are necessary for a fair
statement of the results of such periods. The selected consolidated financial
data presented below is a summary and is qualified in its entirety by and
should be read in conjunction with Quintiles' audited and unaudited
consolidated financial statements and notes thereto incorporated by reference
herein. The results for the first half of fiscal 1996 are not necessarily
indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue . . . . . . . . . . . . $29,515 $44,296 $61,704 $90,067 $156,437 $68,260 $117,772
Income from operations . . . . . . 3,104 4,764 6,010 9,499 15,394 6,605 12,334
Income before income taxes . . . . 2,394 4,272 5,822 10,178 17,162 7,283 13,552
Net income . . . . . . . . . . . . $ 1,445 $ 2,650 $3,842 $ 6,672 $ 11,259 $ 4,637 $ 9,261
Net income per common share(1) . . $ 0.14 $ 0.23 $ 0.28 $ 0.38 $ 0.56 $ 0.24 $ 0.42
Weighted average common
shares outstanding(1) . . . . . . 10,405 11,622 13,535 17,557 20,028 19,293 22,288
<CAPTION>
DECEMBER 31 JUNE 30, 1996
---------------------------------------------------------- -----------------
(in thousands)
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . $ 4,203 $ 1,911 $ 9,184 $ 39,353 $ 69,146 $130,213
Working capital . . . . . . . . . . . 5,706 4,373 16,446 50,961 94,246 203,479
Total assets . . . . . . . . . . . . 26,074 46,496 66,815 110,631 221,290 391,798
Long term debt including current
portion . . . . . . . . . . . . . . 4,075 6,270 5,005 1,385 671 140,593
Shareholders' equity . . . . . . . . $12,149 $19,659 $35,120 $78,846 $158,539 $168,431
</TABLE>
--------------------------------------
(1) Restated to reflect 1995 two-for-one stock split.
-11-
<PAGE> 15
Selected Consolidated Financial Data of BRI
The summary of consolidated operations data set forth below for fiscal
years 1994 and 1995 and the consolidated balance sheet data set forth below as
of November 30, 1994 and 1995 are derived from the consolidated financial
statements and notes thereto of BRI which have been audited by Coopers & Lybrand
L.L.P. The selected consolidated financial data as of May 31, 1996 and for the
six months ended May 31, 1996 are derived from the consolidated financial
statements of BRI and notes thereto which have been audited by Ernst & Young
LLP. The summary of consolidated operations data provided for fiscal years
1991, 1992 and 1993 and the six months ended May 31, 1995 and the consolidated
balance sheet data provided as of November 30, 1991, 1992 and 1993 are derived
from unaudited financial statements, and in the opinion of BRI's management,
include all adjustments, consisting only of normal accruals, necessary for a
fair statement of the results of such periods. The selected consolidated
financial data presented below is a summary and is qualified in its entirety by
and should be read in conjunction with the information provided in "CERTAIN
INFORMATION CONCERNING BRI -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of BRI and the
notes thereto included elsewhere in this Proxy Statement/Prospectus. Results
for the interim periods are not necessarily indicative of results for the full
year.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
NOVEMBER 30, MAY 31,
------------------------------------------------------ ---------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue . . . . . . . . . . . . $11,977 $16,184 $17,824 $24,771 $38,200 $18,035 $23,967
Income from operations . . . . . . 1,010 128 401 719 2,444 1,011 1,743
Income before income taxes and
change in accounting method . . . . 824 1 249 530 2,125 817 1,553
Income (loss) before change in
accounting method . . . . . . . . 501 (23) 178 292 1,001 385 971
Net income (loss) . . . . . . . . . $ 501 $ (23) 20 $ 292 $ 1,001 $ 385 $ 971
Net income (loss) per common share. $ 1.70 $ (0.08) $ 0.07 $ 0.94 $ 2.91 $ 1.12 $ 2.42
Weighted average common
shares outstanding . . . . . . . 294 298 306 311 344 343 401
<CAPTION>
NOVEMBER 30, MAY 31, 1996
---------------------------------------------------------- ----------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . $ 37 $ 343 $ 177 $ 491 $ 331 $ 267
Working capital . . . . . . . . . . . 690 276 1,236 (33) 1,232 2,090
Total assets . . . . . . . . . . . . 3,846 5,460 6,174 13,626 16,219 21,670
Long term debt including current
portion . . . . . . . . . . . . . . 1,968 1,742 1,782 2,719 2,433 3,156
Shareholders' equity [deficit]. . . . $ (620) $ (295) $ 673 $ 1,314 $ 3,277 $ 5,121
</TABLE>
-12-
<PAGE> 16
Selected Pro Forma Combined Financial Data (Unaudited)
Set forth below are selected unaudited pro forma financial data of
Quintiles and BRI combined, and selected unaudited pro forma financial data of
Quintiles, BRI and Innovex combined. The proposed transactions with BRI and
Innovex are reflected under the pooling of interests method of accounting. See
"CERTAIN INFORMATION CONCERNING QUINTILES--Recent Developments" for further
discussion of the Innovex transaction. Audited financial statements of Innovex
have been incorporated by reference from Quintiles' Form 8-K, dated October 6,
1996, See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." This information
is not necessarily indicative of the results that actually would have occurred
and should be read in conjunction with the pro forma combined financial
statements included elsewhere in this Proxy Statement/Prospectus. The selected
unaudited pro forma combined financial data presented below is a summary and is
qualified in its entirety by and should be read in conjunction with the
unaudited pro forma combined condensed financial statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus. All amounts have been
derived based upon BRI's fiscal year which ends on November 30, Quintiles'
fiscal year which ends on December 31 and Innovex's fiscal year which ends on
March 31; conforming BRI's and Innovex's year end to that of Quintiles would not
materially impact the amounts set forth below.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
-------------------------------- ---------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net revenue
Quintiles and BRI pro forma $ 79,528 $114,838 $194,637 $ 86,295 $141,739
Quintiles, BRI and Innovex pro forma 141,923 195,901 323,692 136,178 237,402
Income from operations
Quintiles and BRI pro forma 6,411 10,218 17,838 7,616 14,077
Quintiles, BRI and Innovex pro forma 10,507 14,824 23,526 11,280 18,205
Income before income taxes
Quintiles and BRI pro forma 6,071 10,708 19,287 8,100 15,105
Quintiles, BRI and Innovex pro forma 7,618 13,630 22,082 10,566 17,401
Net income
Quintiles and BRI pro forma $ 3,862 $ 6,964 $ 12,260 $ 5,022 $ 10,232
Quintiles, BRI and Innovex pro forma 4,188 9,045 13,901 6,712 11,197
Net income per common share
Quintiles and BRI pro forma $ 0.26 $ 0.37 $ 0.57 $ 0.24 $ 0.43
Quintiles, BRI and Innovex pro forma 0.17 0.32 0.45(3) 0.22 0.34(4)
Weighted average common
shares outstanding
Quintiles and BRI pro forma(1) 14,851 18,893 21,506 20,766 24,014
Quintiles, BRI and Innovex pro forma(2) 23,972 28,043 30,705 29,944 33,228
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------
(in thousands)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents
Quintiles and BRI pro forma $130,480
Quintiles, BRI and Innovex pro forma 86,357
Working capital
Quintiles and BRI pro forma $203,569
Quintiles, BRI and Innovex pro forma 138,928
Total assets
Quintiles and BRI pro forma $413,468
Quintiles, BRI and Innovex pro forma 462,613
Long term debt including current portion
Quintiles and BRI pro forma $143,749
Quintiles, BRI and Innovex pro forma 143,749
Shareholders' equity
Quintiles and BRI pro forma $171,552
Quintiles, BRI and Innovex pro forma 148,751
</TABLE>
- -----------
(1) The pro forma weighted average common shares outstanding are calculated by
combining the weighted average shares outstanding of Quintiles with the
weighted average shares outstanding of BRI adjusted by the agreed upon
exchange ratio of 4.3013.
(2) The pro forma weighted average common shares outstanding are calculated by
combining the weighted average shares outstanding of Quintiles with the
weighted average shares outstanding of BRI and Innovex adjusted by the
respective agreed upon exchange ratios.
(3) Pro forma net income per share would have been $0.58 per share for the year
ended December 31, 1995 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
(4) Pro forma net income per share would have been $0.45 per share for the six
months ended June 30, 1996 if Innovex had not incurred the $2.3 million of
non-recurring costs, relating to its reorganization and the $2.3 million of
special pension contributions.
-13-
<PAGE> 17
Comparative Per Share Data
The following table sets forth certain unaudited historical per share
data of Quintiles and BRI and combined per share data on an unaudited pro forma
basis after giving effect to the merger of Quintiles and BRI. In addition,
this table presents certain unaudited per share data for Quintiles, BRI and
Innovex on a pro forma combined basis. The proposed transactions will be
accounted for on a pooling of interests basis, and pro forma data is derived in
accordance with such method. See "CERTAIN INFORMATION CONCERNING
QUINTILES--Recent Developments" for a further discussion of the Innovex
transaction. The unaudited pro forma combined financial data are not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of each of the periods presented
and should not be construed as representative of future operations. The BRI and
the BRI and Innovex pro forma equivalent amounts are presented with respect to
each set of pro forma information. The BRI equivalent pro forma per share
amounts are computed by multiplying the Quintiles and BRI pro forma per share
amounts by the exchange ratio of 4.3013:1. The BRI and Innovex pro forma
equivalent amounts are computed by multiplying the Quintiles, BRI and Innovex
pro forma amounts by the same ratio. The periods presented for BRI are the
fiscal years ended November 30, 1995, 1994 and 1993 and the six months ended May
31, 1996.
<TABLE>
<CAPTION>
Historical Per Share Data Quintiles BRI
------------------------------- Quintiles BRI BRI and and Innovex
Quintiles BRI and BRI Equivalent Innovex Equivalent
Transnational International Pro Forma Pro Forma Pro Forma Pro Forma
Corp. Inc. Per Share Data Per Share Data Per Share Data Per Share Data
------------ ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Net income $0.56 $ 2.91 $0.57 $ 2.45 $0.45(1) $ 1.94(1)
Book value $7.41 $10.12 $6.95 $29.89 $4.48 $19.27
Year ended December 31, 1994
Net income $0.38 $ 0.94 $0.37 $ 1.59 $0.32 $ 1.38
Year ended December 31, 1993
Net income $0.28 $ 0.07 $0.26 $ 1.12 $0.17 $ 0.73
Six months ended June 30, 1996
Net income $0.42 $ 2.42 $0.43 $ 1.85 $0.34(2) $ 1.46(2)
Book value $7.73 $13.68 $7.33 $31.53 $4.45 $19.14
</TABLE>
- ------------
(1) Pro forma net income per share would have been $0.58 per share and the BRI
and Innovex equivalent pro forma net income per share would have been $2.49
per share for the year ended December 31, 1995 if Innovex had not incurred
the $2.3 million of non-recurring costs relating to its reorganization and
the $2.3 million of special pension contributions.
(2) Pro forma net income per share would have been $0.45 per share and the BRI
and Innovex equivalent pro forma net income per share would have been $1.94
per share for the six months ended June 30, 1996 if Innovex had not
incurred the $2.3 million of non-recurring costs relating to its
reorganization and the $2.3 million of special pension contributions.
-14-
<PAGE> 18
RISK FACTORS
In addition to the other information contained or incorporated by
reference in this Proxy Statement/Prospectus, shareholders of BRI should
consider the following factors carefully in evaluating the Merger. To the
extent that these factors apply to the CRO industry in general, such risk
factors apply to BRI's business as well.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
Quintiles' revenues are highly dependent on research and development
expenditures by the pharmaceutical and biotechnology industries. Quintiles has
benefited to date from the growing tendency of pharmaceutical and biotechnology
companies to engage independent outside organizations to conduct large clinical
research projects. Quintiles' operations could be materially and adversely
affected by a general economic decline in these industries or by any reduction
in the outsourcing of research and development expenditures. In 1995, two
clients each accounted for approximately 15% of Quintiles' consolidated net
revenue. Quintiles has in the past derived, and may in the future derive, a
significant portion of its net revenue from a relatively limited number of
major projects or clients. Concentrations of business in the CRO industry are
not uncommon and are increasing as large pharmaceutical companies are
outsourcing larger clinical trial projects to fewer full-service CROs.
Quintiles is likely to experience such concentration in the remainder of 1996
and in future years. The loss of any such client could materially and
adversely affect Quintiles' net revenue.
LOSS OF LARGE CONTRACTS
Most of Quintiles' contracts are terminable upon 15-90 days' notice by
the client. Although the contracts typically permit payment of certain fees
for winding down the study and, in some cases, a termination fee, the loss of a
large contract or the loss of multiple contracts could materially and adversely
affect Quintiles' future revenue and profitability. Contracts may be
terminated for a variety of reasons, including the failure of a product to
satisfy safety requirements, unexpected or undesired results of the product,
the client's decision to forego a particular study or insufficient patient
enrollment or investigator recruitment. Quintiles undertakes to recruit large
numbers of patients in many of its studies. There can be no assurance that
Quintiles will always be able to satisfy recruitment targets, particularly in
large studies for which there is little precedent.
COMPETITION; INDUSTRY CONSOLIDATION
The market for Quintiles' services is extremely competitive. The CRO
industry consists of several hundred small, limited service providers, several
medium-sized CROs, and a few full-service global drug development companies.
The CRO industry is consolidating and, in recent years, several large,
full-service competitors have emerged. This trend of industry consolidation
may result in greater competition among the larger CROs for clients and
acquisition candidates. Quintiles competes against other CROs and the in-house
research and development departments of pharmaceutical companies, as well as
universities and teaching hospitals. Competitive factors include previous
experience, medical and scientific expertise in specific therapeutic areas, the
quality of contract research, the ability to organize and manage large-scale
trials on a global basis, the ability to manage large and complex medical
databases, the ability to provide statistical and regulatory services, the
ability to recruit investigators, the ability to integrate information
technology with systems to improve the efficiency of contract research, an
international presence with strategically located facilities, financial
viability and price. The CRO industry also has attracted the attention of the
investment community which could lead to greater competition by increasing the
availability of financial resources for CROs. Increased competition may lead
to price and other forms of competition that may affect Quintiles' margins.
-15-
<PAGE> 19
INDEMNIFICATION OBLIGATIONS OF BRI SHAREHOLDERS PURSUANT TO THE MERGER
AGREEMENT
Under the Merger Agreement, from and after closing Quintiles,
Acquisition and their affiliates and all of their respective officers,
directors, employees (other than certain key employees), agents and shareholders
(other than BRI Shareholders) (each an "Indemnitee") will be defended,
indemnified and held harmless pursuant to the Merger Agreement and the Escrow
Agreement from and against any and all losses, claims, actions, damages,
liabilities, costs and expenses arising in connection with (i) any
misrepresentation, or failure to satisfy any representation, warranty, covenant,
obligation or agreement made by BRI in the Merger Agreement or any of the
documents related to the Merger Agreement or otherwise required to consummate
the Merger, (ii) any litigation, action, claim, proceeding or investigation of
any third party arising out of the business or operations of BRI (or any
affiliate controlled by BRI) prior to the Closing Date, (iii) certain
acknowledged claims as described in Section 8.2 of the Merger Agreement,
including, without limitation, certain threatened or potential litigation
against BRI, or (iv) Quintiles' enforcement of its indemnification rights
pursuant to Section 8.2 of the Merger Agreement, or any litigation, proceeding
or investigation relating to any of the foregoing. The Merger Agreement calls
for an Escrow Fund to be established with 10% of the Quintiles shares issued in
the Merger to be deposited into such Escrow Fund. Subject to the limitations
set forth in Section 8.2(b) of the Merger Agreement, each Indemnitee will be
advanced or reimbursed out of the Escrow Fund on demand and prior to a final
determination pursuant to the Merger Agreement and the Escrow Agreement for any
and all expenses reasonably incurred by such Indemnitee in investigating,
preparing for, defending or taking any other action in respect of any loss
described above or any proceeding related thereto, whether or not such
Indemnitee is a party to such proceeding.
The sole recourse for any indemnification of Quintiles and the other
Indemnitees pursuant to Section 8.2 of the Merger Agreement shall be from, out
of, and to the extent of the Escrow Fund. If such indemnification provisions
of the Merger Agreement are triggered, BRI Shareholders may lose some or all of
the Quintiles Common Stock deposited into escrow which constitutes a portion of
the consideration received by the BRI Shareholders in exchange for their BRI
Common Stock in the Merger. There can be no assurance that the indemnification
provisions of the Merger Agreement will not require disbursement of shares out
of the Escrow Fund or that the amount of such disbursements will not deplete
the Escrow Fund in its entirety. Subject to the resolution of timely asserted
claims, the Escrow Fund shall terminate and be released to the BRI Shareholders
within five business days of the date which is three hundred and sixty-five
days after the Closing Date. Nevertheless, in connection with the
indemnification for certain acknowledged claims described above, none of the
Escrow Fund can be released to the BRI Shareholders at any time unless and
until Quintiles and the Shareholder's Representative agree that no claims or
potential claims remain against the Escrow Fund with respect to such
acknowledged claims. There can be no assurance that Quintiles and the
Shareholder's Representative will agree to allow the release to the BRI
Shareholders of any of the Quintiles Common Stock out of the Escrow Fund and,
given the uncertainty associated with the acknowledged claims, the Escrow Fund
is likely to remain outstanding for the foreseeable future.
The Merger Agreement provides that, by virtue of the Merger and the
resolutions to be adopted at the Special Meeting, James T. Ogle (the
"Shareholder's Representative") shall be irrevocably appointed
attorney-in-fact, and authorized and empowered to act, for and on behalf of any
or all of the BRI Shareholders in connection with the indemnity provisions of
Article VIII of the Merger Agreement as they relate to the BRI Shareholders
generally, the Escrow Agreement and such other matters reasonably necessary to
consummate the transactions contemplated by the Merger Agreement, including to
act as the representative of the BRI Shareholders to review and authorize all
claims authorized or directed by the Escrow Agreement and dispute or question
the accuracy thereof, to compromise on their behalf with Quintiles any claims
asserted thereunder and to authorize payments to be made with respect thereto
and to take such further actions as authorized in the Merger Agreement.
Consequently, the BRI Shareholders will not be able to contest, question or
negotiate any claims for indemnification in their own right and will be bound
by the decisions of the Shareholder's Representative. There can be no
assurance that the indemnification provisions will not be triggered, or, if
triggered, that the amount of indemnity paid will not deplete the Escrow Fund.
-16-
<PAGE> 20
FIXED EXCHANGE RATIO; NO PROTECTION AGAINST ADVERSE CHANGE; VOLATILITY OF STOCK
PRICE
Under the terms of the Merger Agreement, each share of BRI Common
Stock issued and outstanding at the Effective Time will be converted into the
right to receive 4.3013 shares of Quintiles Common Stock. The Merger Agreement
does not contain any provisions for adjustment of this exchange ratio based on
fluctuations in the price of Quintiles Common Stock or changes to Quintiles'
business or financial condition. Accordingly, the value of the consideration
to be received by shareholders of BRI upon the Merger will depend on the market
price of Quintiles Common Stock at the Effective Time and the subsequent
performance by Quintiles in pursuing its business and the business of the
combined companies. On July 30, 1996, the date the Letter of Intent was
signed, the closing price of Quintiles Common Stock was $67.00. On September
16, 1996, the date the Merger Agreement was signed, the closing price of
Quintiles Common Stock was $66.50. There can be no assurance that the market
price of Quintiles Common Stock on or after the Effective Time will not be
lower than either such price. The market price of Quintiles Common Stock has
been and may continue to be subject to wide fluctuations in response to
variations in operating results from quarter to quarter, changes in earnings
estimates by analysts and market conditions in the industry and general
economic conditions. Furthermore, the stock market has experienced significant
price and volume fluctuations unrelated to the operating performance of
particular companies. These market fluctuations may have an adverse effect on
the market price of Quintiles Common Stock.
NO ASSURANCE OF EXPECTED BUSINESS BENEFITS OF MERGER
The Merger involves the combination of two companies that have
previously operated independently. Among the factors considered by the Boards
of Directors of Quintiles and BRI in connection with their approval of the
Merger Agreement were the potential synergies and increased attractiveness of
the combined company to clients due to its increased capacity, experience and
international presence. There can be no assurance that such benefits will be
obtained.
ACQUISITION RISKS
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and products of the acquired companies, the
expenses incurred in connection with the acquisition and subsequent assimilation
of operations and products, the diversion of management's attention from other
business concerns, and the potential loss of key employees of the acquired
company. The Merger and the proposed Innovex combination are significant
transactions and are therefore particularly susceptible to such risks. See
"CERTAIN INFORMATION CONCERNING QUINTILES--Recent Developments." Acquisitions
of foreign companies also may involve the additional risks of assimilating
differences in foreign business practices and overcoming language barriers.
There can be no assurance that Quintiles' past and any future acquisitions will
be successfully integrated into its operations. Quintiles reviews many
acquisition candidates in the ordinary course of business and, in addition to
acquisitions already made, Quintiles continually is evaluating new acquisition
opportunities. In view of the industry consolidation which is occurring (see,
"--Competition, Industry Consolidation"), Quintiles expects to compete for
suitable acquisition candidates. There can be no assurance that Quintiles will
successfully complete future acquisitions nor that acquisitions, if completed,
will contribute favorably to Quintiles' operations and future financial
condition.
-17-
<PAGE> 21
MANAGEMENT OF GROWTH
Quintiles has experienced rapid growth over the past ten years.
Quintiles believes that its sustained growth places a strain on operational,
human and financial resources. In order to manage its growth, Quintiles must
continue to improve its operating and administrative systems and to attract and
retain qualified management and professional, scientific and technical
operating personnel. Foreign operations also may involve the additional risks
of assimilating differences in foreign business practices, hiring and retaining
qualified personnel, and overcoming language barriers. Quintiles has a
transnational organizational structure, comprised of independent international
business units performing complementary functions with a holding company
performing management functions. While this structure has successfully
supported Quintiles' growth to date, there can be no assurance that it will
continue to be effective if the scale of Quintiles' business changes. Failure
to manage growth effectively could have a material adverse effect on Quintiles'
business.
VARIATION IN QUARTERLY OPERATING RESULTS
Quintiles' results of operations can be expected to be subject to
quarterly fluctuations. Quarterly results can fluctuate as a result of a
number of factors, including the timing of start-up expenses for new offices,
acquisitions, the completion or commencement of significant contracts, mix of
services and foreign exchange fluctuations. Quintiles believes that quarterly
comparisons of its financial results should not be relied upon as an indication
of future performance.
DEPENDENCE ON PERSONNEL
Quintiles relies on a number of key executives, including Dennis B.
Gillings, Ph.D., its Chairman of the Board of Directors and Chief Executive
Officer. Quintiles maintains key man life insurance on Dr. Gillings in the
amount of $3 million. Quintiles' performance depends on its ability to attract
and retain qualified management and professional, scientific and technical
operating staff. The loss of the services of any key executives could have a
material adverse effect on Quintiles. There can be no assurance that Quintiles
will be able to continue to attract and retain qualified staff.
POTENTIAL LIABILITY
Quintiles contracts with physicians, also referred to as
investigators, to conduct clinical trials to test new drugs on human
volunteers. Such testing creates risk of liability for personal injury or
death to volunteers, particularly to volunteers with life-threatening
illnesses, resulting from adverse reactions to the drugs administered.
Although Quintiles does not believe it is legally accountable for the medical
care rendered by third party investigators, it is possible that Quintiles could
be held liable for the claims and expenses arising from any professional
malpractice of the investigators with which it contracts or in the event of
personal injury or death of persons participating in clinical trials.
Quintiles also could be held liable for errors or omissions in connection with
the services it performs. In addition, as a result of its recent acquisition
of a Phase I clinical trials facility, Quintiles could be liable for the
general risks associated with a Phase I facility including, but not limited to,
adverse events resulting from the administration of drugs to clinical trial
participants or the professional malpractice of Phase I medical care providers.
Quintiles believes that its risks are reduced by contractual indemnification
provisions with clients and investigators (the scope of which varies from
client to client and the performances of which are not secured), insurance
maintained by clients and investigators and by Quintiles, various regulatory
requirements, including the use of institutional review boards and the
procurement of each volunteer's informed consent to participate in the study.
The contractual indemnifications generally do not protect Quintiles against
certain of its own actions such as negligence. The contractual arrangements
are subject to negotiation with clients and the terms and scope of such
indemnification vary from client to client and from trial to trial. The
financial performance of these indemnities is not secured. Therefore,
Quintiles bears the risk that the indemnifying party may not have the financial
ability to fulfill its indemnification obligations. Quintiles maintains
professional liability insurance that covers worldwide territories in which
Quintiles currently does business and includes drug safety issues as well as
data processing errors and omissions. There can be no assurance that Quintiles
will be able to maintain such insurance coverage on terms acceptable to
Quintiles. Quintiles could be materially and adversely affected if it were
required to pay damages or bear the costs of defending any claim outside the
scope of or in excess of a contractual indemnification provision or beyond the
level of insurance coverage or in the event that an indemnifying party does not
fulfill its indemnification obligations.
-18-
<PAGE> 22
UNCERTAINTY IN HEALTH CARE INDUSTRY AND PROPOSED HEALTH CARE REFORM
The health care industry is subject to changing political, economic
and regulatory influences that may affect the pharmaceutical and biotechnology
industries. During 1994, several comprehensive health care reform proposals
were introduced in the U.S. Congress. The intent of the proposals was,
generally, to expand health care coverage for the uninsured and reduce the
growth of total health care expenditures. While none of the proposals was
adopted, health care reform may again be addressed by the U.S. Congress.
Implementation of government health care reform may adversely affect research
and development expenditures by pharmaceutical and biotechnology companies
which could decrease the business opportunities available to Quintiles.
Management is unable to predict the likelihood of such or similar legislation
being enacted into law or the effects such legislation would have on Quintiles.
EXCHANGE RATE FLUCTUATIONS
Approximately 27%, 28%, 36%, 38% and 48% of Quintiles' net revenue for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995, respectively, and
53% for the six months ended June 30, 1996, were derived from Quintiles'
operations outside the United States. Quintiles' operations and financial
results could be significantly affected by factors associated with
international operations such as changes in foreign currency exchange rates and
uncertainties relative to regional economic circumstances, as well as by other
risks sometimes associated with international operations. Since the revenue
and expenses of Quintiles' foreign operations are generally denominated in
local currencies, exchange rate fluctuations between such local currencies and
the United States dollar will subject Quintiles to currency translation risk
with respect to the reported results of its foreign operations as well as to
risks sometimes associated with international operations. There can be no
assurance that Quintiles will not experience fluctuations in revenues from
Quintiles' operations outside the United States.
DEPENDENCE ON GOVERNMENT REGULATION
Quintiles' business has benefited from the extensive governmental
regulation of the drug development process. In the United States, the general
trend has been in the direction of continued or increased substantive
regulation. In Europe, the general trend has been towards establishing common
standards for clinical testing of new drugs, leading to changes in the various
requirements currently imposed by each country. The level of regulation is
generally less burdensome outside the United States. A relaxation in the scope
of regulatory requirements or the introduction of simplified drug approval
procedures could decrease the business opportunities available to Quintiles.
RISKS OF CERTAIN LITIGATION INVOLVING BRI
As of August 1996, BRI was named as a defendant in a number of
lawsuits involving the pedicle screw, a medical device used in spinal fixation
surgery. The suits alleged, among other things, that BRI conspired with the
manufacturers of the pedicle screw in misrepresenting the effectiveness of the
device, and thereby knowingly was involved in a conspiracy which caused the
pedicle screw to be misused and injured the plaintiffs. On or
about August 23, 1996, the court hearing the consolidated cases dismissed
without prejudice claims filed by the various plaintiffs against parties not
involved in the design, manufacture or sale of the pedicle screw, including all
of the claims against BRI. However, the court allowed the plaintiffs until
September 30, 1996 to re-state such claims and later extended the deadline by
an additional thirty days. BRI has notified its professional liability
insurance carrier and has asserted a claim for indemnification under its
contract with certain of the pedicle screw manufacturers. While BRI does not
believe the pedicle screw claims are likely to result in significant liability
against it, the claims are in their earliest stages and there can be no
assurance that the cases will not have a materially adverse result. See
"CERTAIN INFORMATION REGARDING BRI--Legal Proceedings."
POSSIBLE LOSS OF TAX-FREE TREATMENT
Although the Merger has been structured to qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code (the "Code"),
the Internal Revenue Service (the "IRS") has not provided a ruling on the
matter, and the opinion of Coopers and Lybrand L.L.P neither binds the IRS nor
prevents the IRS from adopting a contrary position. Moreover, the tax-free
treatment is premised on the BRI Shareholders' satisfying a "continuity of
interest" requirement, which requires them to refrain from disposing such
number of BRI shares (or Quintiles shares after the Merger) pursuant to a plan
or intent formed before the Merger that they would no longer hold in the
aggregate a substantial portion of the entire consideration received by them in
the Merger. While certain BRI Shareholders have expressed their present
intention not to transfer their shares, a subsequent decision by these or other
BRI Shareholders to sell a sufficient number of shares could result in a loss
of tax-free treatment. If this occurs, then each BRI Shareholder would
recognize gain or loss on each BRI share surrendered in the amount of the
difference between the shareholder's basis in such share and the fair market
value of the Quintiles shares received in exchange therefor at the time of the
Merger. See "THE MERGER--Federal Income Tax Considerations."
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SPECIAL MEETING OF BRI SHAREHOLDERS
This Proxy Statement/Prospectus is being furnished by BRI to its
shareholders in connection with the solicitation of proxies by the Board of
Directors of BRI for use at the Special Meeting. At the Special Meeting, the
holders of BRI Common Stock will be asked to approve and adopt the Merger
Agreement, the Plan of Merger and the transactions contemplated thereunder,
including the Merger.
VOTING INFORMATION FOR BRI SHAREHOLDERS
The close of business on October 7, 1996, has been fixed by the BRI
Board of Directors as the BRI Record Date. As of the BRI Record Date, there
were issued and outstanding 375,448.04 shares of BRI Common Stock. The
affirmative vote of the holders of at least two-thirds (2/3) of the BRI Common
Stock outstanding on the BRI Record Date is necessary to approve the Merger
Agreement and the Plan of Merger and the transactions contemplated thereunder,
including the Merger. Any other matter properly considered and acted upon at
the Special Meeting must be approved by the affirmative vote of at least a
majority of the votes attributable to the aggregate issued and outstanding
shares of BRI Common Stock on the BRI Record Date entitled to vote and be
presented at the Special Meeting (whether in person or by proxy), except for
such matters which by law, the BRI Articles of Incorporation or the BRI Bylaws
require otherwise.
Each holder of BRI Common Stock is entitled to one (1) vote for each
share on all matters submitted to a vote of shareholders. The presence at the
Special Meeting, in person or by proxy, of the holders of more than fifty
percent (50%) of the outstanding shares of BRI Common Stock entitled to vote at
such meeting will constitute a quorum for the transaction of business.
Abstentions will be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Because the proposals to be
voted on at the Special Meeting require the affirmative vote of a percentage of
the outstanding shares, abstentions will be equivalent to votes cast against the
Merger Agreement and the Plan of Merger and the transactions contemplated
thereunder, including the Merger.
Shareholders of BRI who do not vote in favor of or otherwise consent to
approval and adoption of the Merger Agreement and the Plan of Merger and who
otherwise comply with the provisions of Sections 13.1-730 through 741 of the
Virginia Stock Corporation Act will have the right, if the Merger is
consummated, to dissent and to demand an appraisal of the fair value of their
shares. A copy of Sections 13.1-730 through 741 is attached to this Proxy
Statement/Prospectus as Appendix F. See "RIGHTS OF DISSENTING BRI
SHAREHOLDERS."
SOLICITATION OF PROXIES
The accompanying proxy sent to BRI Shareholders is being solicited by
the BRI Board of Directors. All proxies in the enclosed form of proxy that are
properly executed and returned to BRI prior to commencement of voting at the
Special Meeting will be voted at the Special Meeting in accordance with the
instructions thereon. All executed but unmarked BRI proxies will be voted FOR
approval and adoption of the Merger Agreement, the Plan of Merger and the
transactions contemplated thereunder, including the Merger. A shareholder may
revoke a proxy at any time before it is voted by filing with the Secretary of
BRI either an instrument revoking the proxy or a duly executed proxy bearing a
later date, or by attending the Special Meeting and voting in person. Such
filing should be sent to the Corporate Secretary of BRI, at BRI International,
Inc., 1300 North 17th Street, Suite 300, Arlington, Virginia 22209. Attendance
at the Special Meeting will not by itself revoke the proxy. At the Special
Meeting, shareholder votes will be tabulated by persons appointed by the BRI
Board of Directors to act as inspectors of election.
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BRI SHAREHOLDERS SHOULD NOT SEND
---
THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS
The management of BRI does not know of any other matters other than
those set forth herein which may come before the Special Meeting. If any other
matters are properly presented to the Special Meeting for action, it is
intended that the persons named in the applicable form of proxy will vote on
such matters as determined by the majority of the BRI Board of Directors.
In addition to the use of the mails, proxies may be solicited by
officers and directors and regular employees of BRI, without additional
remuneration, by personal interviews, telephone, telegraph or otherwise.
IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT, THE PLAN OF MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREUNDER, INCLUDING THE MERGER, THE BRI BOARD OF
DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF BRI AND
ALL OF BRI'S SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF BRI VOTE IN
FAVOR OF THE MERGER AGREEMENT, THE PLAN OF MERGER AND THE TRANSACTIONS
CONTEMPLATED THEREUNDER, INCLUDING THE MERGER.
THE MERGER
The following information with respect to the Merger, insofar as it
relates to matters contained in the Merger Agreement and the Plan of Merger, is
qualified in its entirety by reference to the Merger Agreement and the Plan of
Merger, copies of which are attached hereto as Appendix A and Appendix B,
respectively, and are incorporated herein by reference.
SUMMARY OF THE TRANSACTION
If the Merger is effected, BRI will be merged with and into
Acquisition, which will become a wholly-owned subsidiary of Quintiles. After
the Merger, Acquisition, as the surviving corporation in the Merger, will
continue to own and operate the assets and business BRI currently owns and
operates.
Upon consummation of the Merger, holders of BRI Common Stock will
cease to have any direct equity interest in BRI. The Quintiles Common Stock to
be received by holders of BRI Common stock upon consummation of the Merger will
provide those holders with an opportunity to have a continuing equity interest
in the combined operations of Quintiles and BRI.
Up to 1,951,027 shares of Quintiles Common Stock will be issued to BRI
Shareholders. Each share of BRI Common Stock issued and outstanding at the
Effective Time will be converted into 4.3013 shares (the "Exchange Ratio") of
Quintiles Common Stock.
BACKGROUND OF THE MERGER
BRI's Growth Plan
During 1991, BRI identified a need to grow in size and increase its
capabilities, expertise and geographic presence to remain competitive in the CRO
industry, which was consolidating as large pharmaceutical and biotechnology
companies increasingly sought to outsource large, multi-national projects. To
respond to these developments, BRI (i) established its first overseas operation
in Belgium in 1991; (ii) acquired two companies in Europe, Brookwood Statistics
Limited (in the United Kingdom) and Healthcare Research and Statistical
Services, n.v. (in Belgium), in 1994; and (iii) established a subsidiary in
France in 1995. As BRI established multi-national operations, it made
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significant capital investments in new areas, particularly information
technology and equipment, developing a wide area network in order to better
assist its clients.
During this period, CRO industry consolidation was continuing and
competition was intensifying among the large, global CROs. Other large CROs
were expanding their international operations and increasing their service
offerings. In addition, several CROs sought financing from the public markets
to pursue these activities. (In April 1994 Quintiles conducted an IPO.) Based
on these developments in the industry, and BRI's existing financial situation
(BRI had only limited amounts of equity and cash on hand and was thinly
capitalized, which left it at a disadvantage compared to the newly
recapitalized CROs with regard to acquisitions and limited the amount of
internal growth that could be funded), BRI's management concluded that it
needed to take further action to remain competitive with the large, multi-
national CROs capable of assisting large pharmaceutical, medical device and
biotechnology companies with research and development on a world-wide basis.
The October 1995 Board Meeting
At a meeting on October 21, 1995, BRI's Board of Directors (the "BRI
Board") focused on BRI's long range plans and the various alternatives for
remaining competitive. At this meeting, the BRI Board reviewed an analysis,
prepared by a consultant, of the CRO industry which discussed the trends in the
industry, compared BRI with its competitors across a broad range of service
offerings, and outlined the strategic options available to BRI. The BRI Board
also reviewed a financial comparison of BRI with certain leading publicly
traded CROs and reviewed the prospectuses and publicly available reports of
certain of those CROs.
Based on this information and management's advice, the BRI Board
identified and evaluated three possible alternatives for BRI. First, BRI could
focus solely on internal growth. Second, BRI could pursue a public offering and
acquisition strategy which would involve (i) conducting an initial public
offering ("IPO") of its capital stock, which would both raise capital and create
a market for BRI's capital stock, and (ii) pursuing the acquisition of smaller
CROs which would expand BRI's service offerings and geographical presence, using
the cash raised in the IPO and BRI's publicly traded stock. Third, BRI could
merge with a strategic partner, particularly a company of similar or greater
size, to establish a significantly expanded company and improve its presence as
a broad-based, global CRO.
The BRI Board and management generally concluded that the internal
growth alternative would take significant time and effort and that, given the
pace at which competitors were growing, BRI might well fall further behind some
of the other large CROs. In reviewing the other possible alternatives, the BRI
Board considered a number of factors, including increased liquidity for
shareholders, need for additional capital and facilitation of future
financings, and the effect on BRI's employees (which represent not only the
majority of BRI's shareholders, including through an employee stock purchase
plan, but also, in management's view, BRI's principal assets). The BRI Board
discussed possible acquisition candidates, the possible valuation in an IPO and
potential strategic partners. The BRI Board concluded that management should
analyze both the strategic partner alternative and a possible IPO followed by
acquisitions of smaller CROs, and report back to the Board.
Exploration of the IPO and Strategic Partner Alternatives
Following the October 21, 1995 Board meeting, BRI's management
evaluated a number of smaller, limited-service CROs and commenced discussions
with several possible acquisition candidates. These discussions resulted in
consideration of Medical Technology Consultants Europe, Ltd. ("MTCE") as a
possible acquisition candidate. MTCE is a European CRO primarily engaged in
regulatory consulting regarding medical devices in Europe, a business which
management believed complemented BRI's U.S. expertise in this area.
Management also conducted an extensive search for an appropriate
investment banking firm to advise the Board regarding a potential IPO, and held
discussions with several firms. In addition, management began preliminary
discussions with some potential strategic partners. During early 1996
management
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conducted extensive discussions with a large European company that expressed an
interest in acquiring BRI. As discussions progressed, both parties expressed
strong interest, and BRI and the European company conducted significant due
diligence on one another's operations.
At a meeting on February 24, 1996, the BRI Board approved the
acquisition of MTCE (which was consummated shortly after the meeting), reviewed
the capabilities of the various investment banking firms which management had
evaluated, and also reviewed the indication of interest from the European
company. In addition, the BRI Board reviewed other potential acquisition
candidates and the valuations of certain publicly traded CROs. The BRI Board
concluded that management should continue to pursue a possible IPO and identify
additional acquisition candidates, and continue the discussions with the
European company.
As discussions with the European company progressed, BRI's management
began to be concerned about the integration of BRI and its employees as a full
strategic partner in the European company's operations, and about whether the
European company would pay the price that had been discussed. Following
additional discussions and consideration of the matter with members of the BRI
Board, by early April of 1996, BRI's management and the European company
abandoned their discussions.
On March 25, 1996, BRI engaged Smith Barney to serve as BRI's
financial advisor to assist in its search for a strategic partner or serve as
managing underwriter of an IPO. BRI initially directed Smith Barney to solicit
potential partners which were not CROs and which could provide know-how on
global operations, capital and information technology to fuel BRI's growth,
particularly in the Far East. BRI emphasized that a non-CRO partner must
possess an understanding of the CRO industry and a commitment to BRI's growth
as an independent entity under its existing management. BRI did not pursue
discussions with CROs at this stage because it believed that other CROs would
have different operational philosophies, that integration of its business with
another CRO could be difficult and that as a company in a service business that
relied heavily on the knowledge and experience of its employees, ability to
integrate business was a critical matter. BRI received several indications of
interest from non-CRO entities, but did not find these indications attractive
because the offered consideration did not reflect what BRI perceived to be the
rising valuations of the CRO industry. BRI concluded that a CRO which was
benefiting from these rising valuations might be more willing to offer BRI a
higher value, and subsequently directed Smith Barney to search for potential
strategic partners within the CRO industry.
The Proposed Merger with Quintiles
In early March of 1996, prior to the engagement of Smith Barney, BRI
was approached by Quintiles regarding a possible business combination.
Subsequently, Quintiles' Chairman contacted BRI's Chairman and commenced
preliminary discussions regarding a possible combination of the two companies.
These discussions continued on April 27, 1996, when BRI's Chairman and President
met with Quintiles' Chairman and Executive Vice President in Chapel Hill, North
Carolina. The parties held a general discussion of their respective companies'
capabilities, culture and vision and determined that further discussions should
be held. In determining to pursue discussions, BRI's management concluded that
the two companies had similar cultures and visions, and that many of the
concerns they had about integrating BRI's business with that of another CRO were
not likely to apply to a combination with Quintiles. Periodic discussions
between BRI and Quintiles continued, and, in May, Quintiles commenced a
preliminary due diligence review of BRI's operations. In late June 1996,
Quintiles expressed an interest in an exchange of its common stock for all of
BRI's stock in a merger transaction.
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Final Consideration of Options; Decision to Combine with Quintiles
During April and May of 1996, BRI also had continued to prepare for a
possible IPO and pursued discussions with a number of acquisition candidates.
At a meeting on June 22, 1996, BRI's Board reviewed the status of
discussions with Quintiles, as well as, preliminary indications of interest
from several potential strategic partners. The BRI Board also considered the
current market conditions for an IPO and reviewed three specific acquisition
candidates. Based on management's recommendations and its own consideration of
the attractiveness of the various alternatives, the BRI Board decided to pursue
the business combination with Quintiles. See "--Reasons for the Merger and
Recommendation of the Board of Directors" for a discussion of various factors
considered by the BRI Board in reaching this decision. The BRI Board directed
management to continue discussions with Quintiles and to seek an increase in
the price range being discussed, which subsequently was obtained. The BRI
Board also directed management to continue to prepare for an IPO in the event
that BRI could not reach agreement with Quintiles.
After further negotiations, Quintiles and BRI entered into a
non-binding letter of intent with respect to the Merger on July 31, 1996.
On September 11, 1996, the BRI Board held a meeting, with certain
members of management and outside counsel present, to discuss the definitive
Merger Agreement and the transactions contemplated in connection with the
Merger. The BRI Board considered the financial and business implications of
the transaction and reviewed its fiduciary duties under Virginia law with its
outside counsel. Also at this meeting, BRI's outside financial advisor, Smith
Barney Inc., reviewed the transaction process to date, presented an analysis of
the financial aspects of the Merger and rendered a fairness opinion (described
more fully below under the caption "--Opinion of BRI's Financial Adviser").
Following extensive discussion, the BRI Board concluded (for the reasons
discussed below under the caption "Reasons for the Merger and Recommendation of
the Board of Directors") that the Merger is in the best interests of BRI and
its shareholders. All board members present at the meeting unanimously adopted
resolutions, among other things, authorizing the officers of BRI to enter into
and perform the Merger Agreement, subject to approval by shareholders, and
recommending to the BRI shareholders that they vote in favor of approval of the
Merger Agreement. The one director not present at this Board meeting
subsequently concurred with the Board's decision.
RECOMMENDATION OF BRI BOARD OF DIRECTORS
The Board of Directors of BRI has unanimously approved the Merger
Agreement and Plan of Merger and unanimously recommends a vote "FOR" the
approval of the Proposal to approve and adopt the Merger Agreement and Plan of
Merger. BRI's Board of Directors believes that the Merger is fair to and in
the best interests of BRI Shareholders.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
In approving the Merger Agreement and Plan of Merger and the
transactions contemplated thereby, and in recommending that BRI's shareholders
approve the same, BRI's Board of Directors consulted with management, as well
as its financial and legal advisors, and considered a number of factors,
including the following:
(i) BRI's long term goal of growing in size and increasing its
capabilities, expertise and geographic presence to remain competitive in a
consolidating industry in which the large pharmaceutical and biotechnology
companies are increasingly looking for CROs that can handle large,
multi-national projects;
(ii) BRI's assessment that growth involved either (1) the raising
of significant additional equity capital to support existing indebtedness and
to finance the growth of BRI in a manner that would maximize shareholder value,
the acquiring of several other companies, and the need to offer target
companies cash or liquidity in the form of publicly traded stock, or (2) a
transaction with another CRO as its strategic partner that would complement
BRI's strengths;
(iii) Management's assessment that the internal growth option
through an IPO and acquisitions involved significant risks for BRI, including
risks relating to the volatility of the IPO market, risks inherent in
acquisitions, the time required to complete an IPO, the time and difficulties
involved in integrating other companies, and similar factors;
(iv) Management's assessment of Quintiles' business, market
presence, current business strategy and competitive position in the CRO
industry, the opportunities for joint business development between BRI and
Quintiles in both the combined company's existing geographic markets and in
potential new markets, and the receptivity of Quintiles management to the
mission and values of BRI and its employees and the continued ability to
satisfy the needs of the clients which BRI serves;
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(v) The structure, form and amount of consideration to be paid in
the Merger;
(vi) The opportunity, through the Merger, for BRI's shareholders to
have increased liquidity in their investment as holders of publicly traded
stock with a substantial trading volume;
(vii) The terms of the Merger Agreement and Plan of Merger;
(viii) The financial resources which would be made available to the
consolidated company after the Merger to deal with uncertainties and changes
which may result from the ongoing consolidation and maturation of the CRO
industry;
(ix) The ability, through the Merger, to recognize value from the
strategic assets which BRI has developed, including its methods of operations,
reputation, market presence and capabilities; and
(x) The opinion of Smith Barney delivered to the BRI Board as to
the fairness, from a financial point of view, of the Exchange Ratio to the
holders of BRI Common Stock. See "THE MERGER -- Opinion of BRI's Financial
Advisor."
In unanimously approving the Merger Agreement and Plan of Merger, the
BRI Board of Directors has determined that the Merger is in the best interests
of BRI and BRI's shareholders and recommends that the shareholders of BRI vote
in favor of the Merger Agreement and Plan of Merger and the transactions
contemplated thereunder, including the Merger. The names of the members of the
BRI Board of Directors and the holdings of such persons and certain information
regarding their interests in the Merger are set forth elsewhere in this Proxy
Statement/Prospectus. See "-- INTERESTS OF CERTAIN PERSONS IN THE MERGER" and
"CERTAIN INFORMATION CONCERNING BRI -- Beneficial Ownership of BRI Common
Stock."
The Quintiles Board of Directors believes that the Merger is in the
best interests of Quintiles and its shareholders. In reaching such
determination, the Quintiles Board of Directors considered a number of factors
including, but not limited to, (i) information pertaining to Quintiles' and
BRI's respective businesses, prospects, historical and projected financial
performances, financial condition and operations; (ii) analyses of the
respective projected contributions to net revenue, operating profit and net
income of each company; (iii) reports from management on Quintiles' due
diligence investigation of BRI; and (iv) the business reputation and
capabilities of the management of BRI, as well as the comparability of the
managements and corporate cultures of Quintiles and BRI. In its deliberations
concerning the Merger, the Board of Directors of Quintiles also considered
various additional considerations and risk factors, including, but not limited
to (i) the historical financial performance of BRI; (ii) the percentage of
ownership reduction to Quintiles Shareholders resulting from the issuance of
Quintiles Common Stock to the BRI Stockholders, (iii) the risk that the public
market price of Quintiles Common Stock might be adversely affected by the
announcement of the Merger; (iv) the risk that the combined company might not
achieve revenue equal to the sum of the separate companies' anticipated
revenue; (v) the risk that other benefits sought to be obtained by the Merger
will not be obtained; (vi) the cost of integration of the operations of
Quintiles and BRI and its impact on the combined results of the combined
company after the Merger; and (vii) other risks described under "RISK FACTORS."
OPINION OF BRI'S FINANCIAL ADVISOR
Smith Barney was retained by BRI to act as its financial advisor in
connection with certain transactions involving BRI. In connection with such
engagement, BRI requested that Smith Barney evaluate the fairness, from a
financial point of view, to the holders of BRI Common Stock of the
consideration to be received by such holders in the Merger. On September 11,
1996, at a meeting of the Board of Directors of BRI held to evaluate the
proposed Merger, Smith Barney delivered an oral opinion (subsequently confirmed
by delivery of a written opinion dated September 16, 1996) to the Board of
Directors of BRI to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the Exchange Ratio was
fair, from a financial point of view, to the holders of BRI Common Stock.
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In arriving at its opinion, Smith Barney reviewed the Merger Agreement
and held discussions with certain senior officers, directors and other
representatives and advisors of BRI and certain senior officers of Quintiles
concerning the businesses, operations and prospects of BRI and Quintiles.
Smith Barney examined certain publicly available business and financial
information relating to BRI and Quintiles as well as certain financial
forecasts and other information and data for BRI and Quintiles which were
provided to or otherwise discussed with Smith Barney by the respective
managements of BRI and Quintiles, including information relating to certain
strategic implications and operational benefits anticipated to result from the
Merger. Smith Barney reviewed the financial terms of the Merger as set forth
in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of Quintiles Common Stock; the
respective companies' historical and projected earnings and operating data; and
the capitalization and financial condition of BRI and Quintiles. Smith Barney
also considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which Smith Barney
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the
businesses of other companies whose operations Smith Barney considered relevant
in evaluating those of BRI and Quintiles. Smith Barney also evaluated the
potential pro forma financial impact of the Merger on Quintiles. In addition
to the foregoing, Smith Barney conducted such other analyses and examinations
and considered such other financial, economic and market criteria as Smith
Barney deemed appropriate in arriving at its opinion. Smith Barney noted that
its opinion was necessarily based upon information available, and financial,
stock market and other conditions and circumstances existing and disclosed, to
Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial forecasts
and other information and data furnished to or otherwise reviewed by or
discussed with Smith Barney, the managements of BRI and Quintiles advised Smith
Barney that such forecasts and other information and data were prepared on bases
reflecting reasonable estimates and judgments as to the future financial
performance of BRI and Quintiles and the strategic implications and operational
benefits anticipated to result from the Merger. Smith Barney assumed, with the
consent of the Board of Directors of BRI, that the Merger will be treated as a
pooling of interests in accordance with generally accepted accounting principles
and as a tax-free reorganization for federal income tax purposes. Smith
Barney's opinion, as set forth therein, relates to the relative values of BRI
and Quintiles. Smith Barney did not express any opinion as to what the value of
the Quintiles Common Stock actually will be when issued to BRI Shareholders
pursuant to the Merger or the price at which the Quintiles Common Stock will
trade subsequent to the Merger. Smith Barney did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of BRI or Quintiles nor did Smith Barney make any
physical inspection of the properties or assets of BRI or Quintiles. Smith
Barney was not requested to, and did not, participate in the negotiation or
structuring of the Merger. In connection with its engagement, Smith Barney was
requested on a limited basis to approach, and hold discussions with third
parties to solicit indications of interest in a possible acquisition of BRI.
Although Smith Barney evaluated the Exchange Ratio from a financial point of
view, Smith Barney was not asked to and did not recommend the specific
consideration payable in the Merger, which was determined through negotiation
between BRI and Quintiles. No other limitations were imposed by BRI on Smith
Barney with respect to the investigations made or procedures followed by Smith
Barney in rendering its opinion.
The full text of the written opinion of Smith Barney dated September
16, 1996, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Appendix D and is
incorporated herein by reference. Holders of BRI Common Stock are urged to
read this opinion carefully in its entirety. Smith Barney's opinion is
directed only to the fairness of the Exchange Ratio from a financial point of
view, does not address any other aspect of the Merger or related transactions
and does not constitute a recommendation to any shareholder as to how such
shareholder should vote at the BRI Special Meeting. The summary of the opinion
of Smith Barney set forth in this Proxy Statement/Prospectus is qualified in
its entirety by reference to the full text of such opinion.
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In preparing its opinion, Smith Barney performed a variety of financial
and comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, Smith Barney
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
such analyses and its opinion. In its analyses, Smith Barney made numerous
assumptions with respect to BRI, Quintiles, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of BRI and Quintiles. The estimates contained in
such analyses and the valuation ranges resulting from any particular analysis
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Smith Barney's opinion and analyses were only one of many factors considered by
the BRI Board in its evaluation of the Merger and should not be viewed as
determinative of the views of BRI's Board or management with respect to the
Exchange Ratio or the proposed Merger.
The following is a summary of the material analyses performed by Smith
Barney in connection with its opinion to the BRI Board:
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
the following selected publicly traded companies in the contract research
industry: Applied BioScience International, Inc., ClinTrials Research Inc.
("ClinTrials"), Corning Inc. (Corning Pharmaceutical Services), IBAH, Inc.,
Pharmaceutical Product Development Inc., Phoenix International Life Sciences,
Inc., PAREXEL International Corp. ("PAREXEL") and Quintiles (the "Selected
Companies"). Smith Barney compared market values as multiples of, among other
things, estimated calendar 1996 and 1997 net income, and adjusted market values
(equity market values, plus total debt and the book value of preferred stock,
less cash and cash equivalents) as multiples of, among other things, latest 12
months revenue. Net income projections for the Selected Companies (including
Quintiles) were based on estimates of selected investment banking firms and net
income projections for BRI were based on internal estimates of the management of
BRI. All multiples were based on closing stock prices as of September 6, 1996.
For purposes of such analysis, Smith Barney focused primarily on the multiples
of ClinTrials and PAREXEL, applying a 10% to 30% discount to the average of such
multiples to account for certain differences in the compatibility of such
companies and BRI. Applying adjusted multiples for ClinTrials and PAREXEL of
latest 12 months net income and estimated calendar 1996 and 1997 net income of
54.6x to 70.2x, 43.2x to 55.6x and 31.7x to 39.8x, respectively, and latest 12
months revenue of 2.9x to 3.8x to corresponding financial data for BRI resulted
in an equity reference range for BRI of approximately $116.8 million to $149.4
million, as compared to the equity value implied by the Exchange Ratio of
approximately $130.1 million based on a closing stock price of Quintiles Common
Stock on September 6, 1996 of $68.50 per share.
Selected Merger and Acquisition Transactions Analysis. Using
publicly available information, Smith Barney analyzed the purchase price and
implied transaction multiples paid or proposed to be paid in the following
selected transactions in the contract research industry (acquiror/target);
Pharmaceutical Product Development Inc./Applied BioScience International, Inc.
and Bio-Research Laboratories Ltd./ClinTrials Research Inc. (the "Selected
Transactions"). Smith Barney compared the purchase prices in such transactions
as a multiple of latest 12 months net income and transaction values as a
multiple of, among other things, latest 12 months revenue. All multiples for
the Selected Transactions were based on information available at the time of
announcement of the transaction. Applying multiples for the Selected
Transactions of latest 12 months net income of 24.2x and latest 12 months
revenue of 2.0x to 2.4x to corresponding financial data for BRI resulted in an
equity reference range for BRI of approximately $69.6
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million to $113.7 million, as compared to the equity value implied by the
Exchange Ratio of approximately $130.1 million based on the closing stock price
of Quintiles Common Stock on September 6, 1996 of $68.50 per share.
No company, transaction or business used in the "Selected
Company Analysis" or "Selected Merger and Acquisition Transactions Analysis" as
a comparison is identical to BRI, Quintiles or the Merger. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the Selected Companies, Selected
Transactions or the business segment, company or transaction to which they are
being compared.
Discounted Cash Flow Analysis. Smith Barney performed a
discounted cash flow analysis of the projected free cash flow of BRI for the
fiscal years 1997 through 2001, based on internal estimates of the management
of BRI. The stand-alone discounted cash flow analysis of BRI was determined by
(i) adding (x) the present value of projected free cash flows over the
five-year period from 1997 to 2001 and (y) the present value of BRI's terminal
value in year 2001 and (ii) subtracting the current net debt of BRI. The range
of terminal values for BRI at the end of the five-year period was calculated by
applying terminal multiples ranging from 18.0x to 22.0x to BRI's projected 2002
unlevered net income, representing BRI's estimated value beyond the year 2001.
The cash flows and terminal values of BRI were discounted to present value
using discount rates ranging from 15.0% to 20.0% (with particular focus on a
discount rate of 17.5%). Based on such terminal value multiples and a discount
rate of 17.5%, this analysis resulted in an equity reference range for BRI of
approximately $106.8 million to $127.8 million.
Contribution Analysis. Smith Barney analyzed the respective
contributions of BRI and Quintiles to the estimated revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA") and earnings before
interest and taxes ("EBIT") and net income of the combined company for fiscal
years 1996 through 1998, based on, in the case of BRI, internal estimates of
the management of BRI and, in the case of Quintiles, on estimates of selected
investment banking firms. This analysis indicated that (i) in fiscal year
1996, BRI would contribute approximately 17.5% of revenue, 14.2% of EBITDA,
15.0% of EBIT and 11.8% of net income, and Quintiles would contribute
approximately 82.5% of revenue, 85.8% of EBITDA, 85.0% of EBIT and 88.2% of net
income of the combined company, (ii) in fiscal year 1997, BRI would contribute
approximately 18.7% of revenue, 13.5% of EBITDA, 13.3% of EBIT and 11.3% of net
income, and Quintiles would contribute approximately 81.3% of revenue, 86.5% of
EBITDA, 86.7% of EBIT and 89.0% of net income, of the combined company, and
(iii) in fiscal year 1998, BRI would contribute approximately 18.2% of revenue,
12.7% of EBITDA, 12.3% of EBIT and 10.7% of net income, and Quintiles would
contribute approximately 81.8% of revenue, 87.3% of EBITDA, 87.7% of EBIT and
89.5% of net income of the combined entity. In fiscal years 1997 and 1998, a
reduction to net income of approximately 0.3% and 0.2%, respectively, was
attributed to Merger related expenses. Immediately following consummation of
the Merger, shareholders of BRI and Quintiles would own approximately 7.9% and
92.1%, respectively, of the combined company.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro
forma effects resulting from the Merger, including, among other things, the
impact of the Merger on the projected EPS of Quintiles for fiscal years 1996
through 2000, based on estimates of selected investment banking firms. The
results of the pro forma merger analysis suggested that the Merger could be
accretive to the EPS of Quintiles in each of the fiscal years analyzed. The
actual results achieved by the combined company may vary from projected results
and the variations may be material.
Other Factors and Comparative Analyses. In rendering its
opinion, Smith Barney considered certain other factors and conducted certain
other comparative analyses, including, among other things, a review of (i)
preliminary indications of interest received from third parties other than
Quintiles; (ii) BRI's and Quintiles' historical and projected financial
results; (iii) the history of trading prices and volume for Quintiles Common
Stock and the relationship between movements of such Common Stock, movements of
the common stock of the Selected Companies and movements in the S&P 500 Index;
(iv) selected published
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analysts' reports on Quintiles, including analysts' estimates as to the
earnings growth potential of Quintiles; and (v) the pro forma ownership of the
combined company.
Pursuant to the terms of Smith Barney's engagement, BRI has agreed to
pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee of $800,000. BRI has also agreed to reimburse Smith
Barney for reasonable travel and other out-of-pocket expenses incurred by Smith
Barney in performing its services, including the reasonable fees and expenses
of its outside legal counsel, and to indemnify Smith Barney and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Smith Barney's engagement.
Smith Barney has advised BRI that, in the ordinary course of business,
Smith Barney and its affiliates may actively trade or hold the securities of
BRI and Quintiles for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Smith Barney has in the past provided certain investment banking services to
Quintiles unrelated to the proposed Merger, for which services Smith Barney has
received compensation. In addition, Smith Barney and its affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with BRI
and Quintiles.
Smith Barney is a nationally recognized investment banking firm and
was selected by BRI based on Smith Barney's experience and expertise. Smith
Barney regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
THE MERGER AGREEMENT
The statements and descriptions contained in this Proxy
Statement/Prospectus with respect to the terms and conditions of the Merger
Agreement are intended only as a general discussion of the Merger Agreement and
are qualified in their entirety by reference to the detailed provisions set
forth in the Merger Agreement attached hereto as Appendix A and incorporated
herein by reference. Each shareholder of BRI is advised to read the Merger
Agreement carefully.
General. The Merger Agreement and the Plan of Merger provide that,
following the performance and fulfillment of all covenants, conditions and
obligations to the Merger (other than those waived in accordance with the terms
of the Merger Agreement), BRI will merge with and into Acquisition in accordance
with the Plan of Merger, attached hereto as Appendix B, the separate corporate
existence of BRI shall cease, and Acquisition will be the surviving corporation
(sometimes referred to as the "Surviving Corporation") and a wholly-owned
subsidiary of Quintiles and shall continue its existence as a North Carolina
corporation. The name of the Surviving Corporation will be Quintiles BRI, Inc.
The Merger will be effected by filing articles of merger with the Secretary of
State of North Carolina and the State Corporation Commission of the Commonwealth
of Virginia, respectively. The articles of merger will be filed
contemporaneously with the closing of the Merger which will occur as soon as
practicable after the satisfaction (or waiver if permissible) of the conditions
set forth in the Merger Agreement or at such other date designated by Quintiles
and BRI in writing (such specified or other date, the "Closing Date"). The
Merger will become effective at the date and time specified in the articles of
merger (the "Effective Time").
Effective Time of the Merger. It is the intention of the parties to
consummate the Merger and the other transactions contemplated by the Merger
Agreement and the Plan of Merger (the "Closing") as soon as possible following
adoption and approval of the Merger Agreement by the shareholders of BRI and
satisfaction of all covenants and conditions to the parties' respective
obligations to consummate the Merger (or, to the extent permitted, waiver
thereof) or at such other time as designated in writing by Quintiles and BRI.
The Merger will become effective upon the later to occur of the filing of the
articles of merger with the Secretary of State of North Carolina or the State
Corporation Commission of the Commonwealth of Virginia (the "Effective Time").
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Conversion of BRI Common Stock. In the Merger, each share of BRI
Common Stock issued and outstanding ("BRI Common Stock") immediately prior to
the Effective Time will cease to be outstanding and will be converted into
4.3013 shares of Quintiles Common Stock (subject to possible adjustments as
described in Section 1.1(d) of the Merger Agreement), except for shares of BRI
Common Stock held by a BRI Shareholder who exercises dissenter's rights under
the Virginia Stock Corporation Act and shares of BRI Common Stock held in BRI's
treasury. Each share of Acquisition Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
common stock of the Surviving Corporation.
Treatment of Outstanding BRI Stock Options. Pursuant to the Merger
Agreement and Plan of Merger, Quintiles has agreed to exchange options to
obtain BRI Common Stock ("BRI Options") for options to obtain Quintiles Common
Stock ("Quintiles Options"). At the Effective Time, each BRI Option to obtain
one share of BRI Common Stock will be converted into the right to receive
Quintiles Options to obtain 4.3013 shares of Quintiles Common Stock. The per
share exercise price for any Quintiles Options so received will equal the per
share exercise price of the BRI Options exchanged for such Quintiles Options
divided by 4.3013. Each Quintiles Option will otherwise be subject to the same
terms and conditions as apply to related BRI Options, except that all such
Quintiles Options will be fully vested and immediately exercisable as of the
Effective Time, as provided in the related BRI Options.
Payments Into Escrow. In issuing shares of Quintiles Common Stock to
the BRI Shareholders in accordance with the Merger Agreement and Plan of Merger,
Quintiles will withhold from each BRI Shareholder and deliver to the Escrow
Agent 10% of the shares of Quintiles Common Stock issuable pursuant to Section
1.1(c) of the Merger Agreement and the Plan of Merger, will be issued in the
name of, held and distributed by Branch Banking and Trust Company, as Escrow
Agent, in accordance with the terms of the Merger Agreement and the Escrow
Agreement, attached hereto as Appendix C (such escrow sometimes referred to as
the "Escrow Fund"). The Escrow Agent will hold such shares in accordance with
the Escrow Agreement and (to the extent legally permissible and provided that
written instructions in form and substance satisfactory to the Escrow Agent have
been provided by the BRI Shareholders) shall vote such shares in accordance with
the written instructions of the BRI Shareholder for whose account such shares
are held. Any cash or other taxable dividends paid with respect to such shares
shall be paid to the BRI Shareholders in accordance with each BRI Shareholder's
respective proportionate interest in the shares being held in escrow. None of
the Quintiles Options nor any of the shares of Quintiles Common Stock issuable
upon the exercise of Quintiles Options shall be contributed to the Escrow Fund.
Appointment of Shareholder's Representative. The Merger Agreement
provides that, by virtue of the Merger and the resolutions to be adopted by the
BRI Shareholders at the Special Meeting, James T. Ogle shall be irrevocably
appointed attorney-in-fact and authorized and empowered to act, for and on
behalf of any and all BRI Shareholders in connection with the indemnity
provisions of Article VIII of the Merger Agreement as they relate to the BRI
Shareholders generally, the Escrow Agreement and such other matters as
reasonably necessary to consummate the transactions contemplated by the Merger
Agreement, including, without limitation, to act as the representative of the
BRI Shareholders to review and authorize all claims authorized or directed by
the Escrow Agreement and dispute or question the accuracy thereof, to
compromise on their behalf with Quintiles any claims asserted thereunder and to
authorize payments to be made with respect thereto and to take such further
actions as are authorized in the Merger Agreement (the above named
representative, as well as any subsequent representative of the BRI
Shareholders appointed by him or after his death or incapacity elected by vote
of holders of a majority of BRI Common Stock outstanding immediately prior to
the Effective Time referred to as the "Shareholder's Representative"). The
Shareholder's Representative shall not be liable to any BRI Shareholder,
Quintiles, the Surviving Corporation or their respective affiliates or any
other person with respect to any action taken or failed to be taken by the
Shareholder's Representative under or in connection with the Merger Agreement
or the Escrow Agreement unless such action or omission results from or arises
out of fraud, gross negligence, willful misconduct or bad faith on the part of
the Shareholder's Representative; provided, however, the Shareholder's
Representative will not be liable to any BRI Shareholder in the event that in
the exercise of the Shareholder's Representative's reasonable judgment he
believes there will not be adequate resources available to cover his potential
costs and expenses to contest a claim made by Quintiles against the Escrow
Fund. Each BRI
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Shareholder who votes in favor of the Merger pursuant to the terms of the
Merger Agreement, by such vote, without further action, and each BRI
Shareholder who receives shares of Quintiles Common Stock in connection with
the Merger, by acceptance thereof, confirms such appointment and authority of
the Shareholder's Representative and acknowledges and agrees that such
appointment is irrevocable and coupled with an interest.
In accordance with the Escrow Agreement, the Shareholder's
Representative will be reimbursed out of the Escrow Fund for all costs and
expenses up to $250,000 in the aggregate (the "Escrow Expense Basket") incurred
in connection with his duties as such. Certain costs and expenses of the
Escrow Agent are payable by the BRI Shareholders first out of the Escrow
Expense Basket. If the Shareholder's Representative reasonably believes that
he will not have adequate resources available to cover his potential costs and
expenses or those of the Escrow Agent, the Shareholder's Representative must
consult with the holders of a majority of the BRI Common Stock, as of the date
of the Merger Agreement, to make alternative arrangements. Absent an agreement
to the contrary, the BRI Shareholders are obligated to pay costs and expenses
of the Escrow Agent in excess of the Escrow Expense Basket in accordance with
each BRI Shareholder's pro rata interest of the Escrow Fund as determined on
the Closing Date.
Representations and Warranties of BRI. The Merger Agreement requires
BRI to make certain representations and warranties with respect to its
business. The rights of Quintiles, Acquisition and their affiliates to
indemnification under the Merger Agreement depend, in part, upon the absence of
any misrepresentation or any non-fulfillment of BRI's representations,
warranties, covenants, obligations and agreements made in or pursuant to the
Merger Agreement or in certain other documents or agreements delivered to
Quintiles in connection with the Merger. Such representations and warranties
of BRI include, but are not limited to: (i) its power and authority to enter
into the Merger Agreement and the other transactions contemplated thereby; (ii)
the validity of its financial statements, including the absence of (a) any
material adverse changes and (b) any changes, other than in the ordinary
course, which in the aggregate would cause BRI's consolidated net worth to fall
below $5.2 million; (iii) its good faith estimate that the anticipated
consolidated net revenue to be collected by BRI and its subsidiaries for the
fiscal year ending November 30, 1996 will be at least $48.6 million and the
anticipated consolidated operating profit for the same period will be at least
$4.05 million; (iv) its having good and marketable title to all of its
properties and assets (as well as its subsidiaries' good and marketable title
to their respective properties and assets) and the absence of any encumbrances
or liens on such properties except for certain Permitted Liens (as that term is
defined in Section 2.8 of the Merger Agreement), (v) its compliance with all
leases to which BRI or any subsidiary is a party; (vi) its compliance with the
terms of all existing contracts of BRI and its subsidiaries and the absence of
any default or circumstances which would lead to a default thereunder; (vii)
subject to the satisfaction of certain matters as specified in Section 2.13 of
the Merger Agreement, the absence of any conflict with the articles of
incorporation or bylaws of BRI or any state or federal laws arising from BRI's
execution and performance of the Merger Agreement; (viii) the absence of any
breach of or default (or an event that with notice or lapse of time or both
would become a default) under, or any rights of termination, amendment,
acceleration, cancellation of, creation of a lien or encumbrance on any of the
properties or assets of BRI pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease or other instrument of obligation to which BRI is a
party by reason of BRI's execution of and performance under the Merger
Agreement; (ix) the absence of any pending or threatened litigation or other
proceedings against BRI or its subsidiaries or affiliates, except as specified
pursuant to Section 2.14 of the Merger Agreement, or any basis therefor, which
could affect the right or ability of BRI or any subsidiary to carry on its
business as it is currently conducted or which would affect its condition,
financial or otherwise, or properties; (x) its payment of all taxes; (xi) the
absence of any liabilities, obligations or indebtedness of or claims against
BRI or any subsidiary, whether known or unknown, due or not yet due, asserted
or unasserted (whether or not probable of assertion), actual or potential,
choate or inchoate, fixed, contingent or otherwise, arising from, or in
connection with, or based upon acts, omissions, events, things, facts,
conditions, matters or occurrences existing, occurring or taking place on or
before the Closing Date, whether or not discovered, known, asserted, expected
or contemplated by any party or third party, or in any way choate on the
Closing Date from which Quintiles could suffer or be subject to any loss for
which it would be entitled to indemnification under the Merger Agreement,
whether such loss arises before or after the Closing Date,
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except for those liabilities set forth in BRI's balance sheet of May 31, 1996,
or in the notes thereto, and liabilities occurring thereafter and prior to the
Closing Date in the ordinary course of business to the extent that all such
liabilities, when applied to BRI's balance sheet as of such date, do not cause
BRI's consolidated net worth to fall below $5.2 million; (xii) the performance
and compliance of BRI and its subsidiaries with all the terms of all existing
indebtedness and all instruments and agreements relating thereto, and, except
as specified pursuant to Section 2.17 of the Merger Agreement, no default, or
event or condition which, with the giving of notice, the lapse of time, a
determination of materiality, the satisfaction of any other condition or
combination of the foregoing, would constitute such a default or event of
default, exists with respect to such indebtedness; (xiii) its maintenance of
adequate insurance coverage in full force and effect, free from any right of
termination on the part of the applicable insurance carriers; (xiv) the absence
of any Losses, as that term is defined in Section 8.2 of the Merger Agreement,
due to the failure of any investigator, contract monitor or other independent
monitor selected by BRI or any subsidiary or of any persons employed by such to
perform services for BRI or any subsidiary, to maintain appropriate levels of
medical malpractice insurance coverage or to be otherwise adequately insured by
appropriate contract endorsements or other means, and any such losses incurred
by (a) BRI, after the date of the Merger Agreement and before the Closing Date,
or (b) Quintiles or the Surviving Corporation from and after the Closing Date
as a result of such failure existing prior to the Closing Date, shall be deemed
to be a breach of this representation and warranty; (xv) its ownership of all
intellectual property rights and licenses necessary or required to conduct
business and the absence of any threatened or asserted claim against such
rights; (xvi) the absence of any event, occurrence, condition or act which
would constitute a violation of any applicable law, regulation, order, judgment
or decree; (xvii) the sufficiency of its working capital to cover operations to
be conducted over the next year, as currently conducted, and the absence of any
material adverse change in the amount of accounts receivable or other debts due
BRI or the allowances with respect thereto, or accounts payable of BRI since
May 31, 1996; (xviii) the substantial compliance with all labor and employment
laws and the absence of any labor complaint, grievance or dispute against BRI
or any subsidiary, or any material adverse change in relations with employees
arising out of any announcement of the transactions contemplated by the Merger
Agreement, except as specified pursuant to Section 2.14 of the Merger
Agreement; (xix) the compliance of the employee benefit plans of BRI and its
subsidiaries with ERISA in all material respects and the absence of any
government investigations, termination proceedings or other claims, suits or
proceedings involving any of such employee benefit plans or assertions of
rights or claims to benefits which could give rise to any liability to BRI, any
subsidiary or any of their employee benefit plans; (xx) to the best of its
knowledge, subject to any exceptions identified pursuant to Section 2.25 of the
Merger Agreement, the compliance of BRI and its subsidiaries with all
applicable Environmental Laws (as that term is defined in Section 2.25 of the
Merger Agreement) and the absence of any facts or circumstances that could form
the basis for the assertion of any claim against BRI or any subsidiary relating
to environmental matters, which might have an adverse effect on the business,
results of operations, financial condition or prospects of BRI or any
subsidiary; (xxi) to the best of BRI's knowledge, the absence of (a) any liens
arising under or pursuant to any Environmental Laws on BRI's Facilities (as
that term is defined in Section 2.25 of the Merger Agreement), (b) any actions
by governmental authorities which likely would subject the Facilities to such
liens, or (c) any requirement to place any notice or restriction relating to
the presence of any Hazardous Materials (as that term is defined in Section
2.25 of the Merger Agreement) at the Facilities or in any deed to the
Facilities; (xxii) the absence of certain changes in financial condition (as
specified in Section 2.28 of the Merger Agreement), other than in the ordinary
course of business, without the prior permission of Quintiles, since May 31,
1996; (xxiii) the absence of any untrue statement of material fact or omission
of any statement of a material fact necessary in order to make the statements
made in BRI's disclosures to Quintiles pursuant to the Merger Agreement not
misleading; (xxiv) the enforceability of employment agreements executed by
certain key employees of BRI, and the accuracy of the representations and
warranties made by such key employees in the employment agreements; (xxv) the
absence of any event, occurrence, condition or act, which with the giving of
notice, the lapse of time or other happening of any further event or condition
would constitute a breach of or cause any of BRI's representations and
warranties to become untrue; (xxvi) to the best of BRI's knowledge, the absence
of any debarment investigations or actions by the U.S. Food and Drug
Administration (the "FDA") against BRI, any subsidiary or any of their
employees, subcontractors or investigators (or persons employed by such
subcontractors or investigators to perform any study project); (xxvii) the
absence of any material complaint regarding the
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services rendered by BRI or any subsidiary to the 20 clients which accounted
for the largest portion of BRI's consolidated net revenue for the fiscal year
ended November 30, 1995, nor any indication of any such client's desire to
reduce the level of services or terminate any contracts with BRI or its
subsidiaries; and (xxviii) the receipt of the opinion of Smith Barney to the
effect that the Exchange Ratio is fair, from a financial point of view, to the
BRI Shareholders.
In addition, the Merger Agreement requires BRI to make certain
representations and warranties with respect to the BRI Shareholders.
Specifically, BRI represents and warrants that (i) as of the Closing Date, the
BRI Shareholders are the lawful owners of the BRI Common Stock to be
transferred, free and clear of all liens and encumbrances, restrictions and
claims of every kind, and such shares owned by the BRI Shareholders shall
represent not less than 90.1% of all issued and outstanding BRI Common Stock as
of such time, (ii) each BRI Shareholder has the full legal right, power and
authority to enter and deliver any documents necessary to effect the
transaction to which such BRI Shareholder is a party, perform such BRI
Shareholder's obligations thereunder and consummate the transactions
contemplated thereby and (iii) any documents to which any BRI Shareholder is a
party constitute the valid and legally binding obligations of such BRI
Shareholder, enforceable against such BRI Shareholder in accordance with their
respective terms. The Merger Agreement also requires BRI to represent and
warrant that the delivery of BRI Common Stock to Quintiles for cancellation
pursuant to the provisions of the Merger Agreement and Plan of Merger will
constitute the surrender of all of BRI's capital stock, other than shares of
BRI Common Stock held by a BRI Shareholder who exercises dissenter's rights
under applicable Virginia law and shares held in BRI's treasury, free and clear
of all liens, encumbrances, restrictions and claims of every kind.
THE PRECEDING PARAGRAPHS REPRESENT A SUMMARY OF CERTAIN
REPRESENTATIONS AND WARRANTIES MADE BY BRI IN ARTICLE II OF THE MERGER
AGREEMENT. BRI SHAREHOLDERS SHOULD CAREFULLY REVIEW THE PROVISIONS OF ARTICLE
II SINCE THE REPRESENTATIONS AND WARRANTIES CONTAINED THEREIN FORM THE BASIS
FOR THE INDEMNIFICATION PROVISIONS OF THE MERGER AGREEMENT WHICH ARE TO BE
SECURED BY SHARES OF QUINTILES COMMON STOCK ISSUABLE TO THE BRI SHAREHOLDERS
AND DEPOSITED INTO ESCROW PURSUANT TO THE ESCROW AGREEMENT. A COPY OF THE
MERGER AGREEMENT IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS APPENDIX A.
Conditions to Consummation of the Merger. The obligations of
Quintiles and Acquisition to consummate the Merger are subject to the
satisfaction or waiver of a number of conditions, including the following: (i)
receipt of the legal opinions of Sherman Meehan & Curtin, P.C., Hogan & Hartson
L.L.P., and Kent & McBride P.C.; (ii) the absence of any material adverse
change in the assets or liabilities or condition, financial or otherwise, or
results of operations, or prospects of BRI and its subsidiaries consolidated,
that would be reasonably likely to diminish the value of BRI as part of the
Surviving Corporation by more than $250,000; (iii) the accuracy in all material
respects of the representations and warranties made by BRI in the Merger
Agreement; (iv) the performance in all material respects of all agreements of
BRI pursuant to the Merger Agreement prior to the Closing Date; (v) the
substantial consistency of the actual financial performance of BRI and its
subsidiaries with the minimum projected consolidated net revenue of $48.6
million and minimum consolidated operating profit of $4.05 million for the
fiscal year ending November 30, 1996; (vi) the absence of any action,
proceeding or claim that seeks to restrain or prohibit any of the transactions
contemplated by the Merger Agreement; (vii) BRI's delivery of a letter in a
form satisfactory to the parties regarding "pooling of interests" to Quintiles'
accountants; (viii) the delivery by the independent accountants to the parties
of certain opinions related to the appropriateness of pooling of interests
accounting for the Merger; (ix) the receipt of all governmental and other
material consents and approvals necessary for consummation of the transactions
contemplated by the Merger Agreement and expiration or termination of all
applicable waiting periods to Quintiles' satisfaction; (x) the receipt of a
letter executed by all affiliates of BRI as of the date of the Special Meeting;
(xi) the execution of the Escrow Agreement by all parties thereto; (xii) the
receipt of resignations of certain officers and directors of BRI and its
subsidiaries; (xiii) except as specified pursuant to Section 5.14 of the Merger
Agreement, the repayment in full of any intra-company debt among BRI, its
officers and directors and its subsidiaries; (xiv) the absence of any
indication that any employee or group of employees, whose departure could be
likely to have a material adverse effect on the business or financial condition
of BRI or any subsidiary, intends to leave or has any grievance with BRI or its
subsidiaries; (xv) no exercise of dissenters' rights pursuant to Sections
13.1-730
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et seq. of the Virginia Code by BRI Shareholders representing more than 9.9% of
BRI's outstanding Common Stock; (xvi) the approval and adoption of the Merger
Agreement and Plan of Merger by the BRI Shareholders; and (xvii) the absence of
any issued or pending stop-order with respect to the Registration Statement.
The obligations of BRI pursuant to the Merger Agreement are dependent
on a number of conditions, including the following: (i) the delivery of an
opinion of Quintiles' counsel; (ii) the accuracy in all material respects of the
representations and warranties made by Quintiles and Acquisition; (iii) the
receipt of all governmental and other approvals necessary to consummate the
transactions contemplated by the Merger Agreement and the expiration or other
termination of all applicable waiting periods to BRI's satisfaction; (iv) no
exercise of dissenters' rights pursuant to Sections 13.1-730 et seq. of the
Virginia Code by BRI Shareholders representing more than 9.9% of BRI's
outstanding Common Stock; (v) the approval and adoption of the Merger Agreement
and Plan of Merger by the BRI Shareholders; (vi) the execution of certain
employment agreements by Acquisition; (vii) the compliance in all material
respects by Quintiles and Acquisition with all agreements required to be
performed by them prior to the closing date specified in the Merger Agreement;
(viii) the absence of any issued or pending stop-order with respect to the
Registration Statement; (ix) the receipt of evidence that Quintiles Common Stock
to be issued in the Merger shall be quoted on the Nasdaq National Market System;
(x) the absence of any action, proceeding or claim that seeks to restrain or
prohibit the transactions contemplated by the Merger Agreement; (xi) the receipt
of satisfactory letters from the independent accountants of the parties
regarding the appropriateness of pooling of interest accounting; (xii) the
execution of the Escrow Agreement by Quintiles and the Escrow Agent; and (xiii)
the receipt of a written opinion from Coopers & Lybrand L.L.P. to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code (the "Code") and that no gain or loss will
be recognized by the BRI Shareholders upon their receipt of Quintiles Common
Stock in the Merger.
No assurances can be provided as to when or if all of the conditions
to the Merger can or will be satisfied (or waived by the party permitted to do
so). In the event the Merger is not consummated on or before December 31,
1996, the Merger Agreement may be terminated by Quintiles or BRI. See
"--Amendment, Waiver and Termination."
Certain Covenants. The Merger Agreement requires each of BRI and its
subsidiaries to conduct their operations only in the ordinary course of
business and to preserve intact its business organization, make reasonable
efforts to maintain the services of its officers and employees, make reasonable
efforts to maintain satisfactory relationships with third parties and perform
all of its existing obligations. In particular, prior to the Closing Date and
with the exception of certain pre-approved transactions, BRI and each of its
subsidiaries must: (i) maintain its organizational documents and bylaws in
their forms as of the date of the Merger Agreement; (ii) maintain the
compensation payable or to become payable to each officer, employee or agent at
the levels existing on the date of the Merger Agreement; (iii) refrain from
making any bonus, pension, retirement or insurance payment or arrangement to or
with any such persons except those that already have been accrued; (iv) refrain
from entering any contract or commitment valued more than $50,000, other than
to provide "tail" insurance coverage for BRI's officers and directors who are
currently covered by directors' and officers' insurance; (v) refrain from
changing any banking or power of attorney arrangements; (vi) refrain from
issuing or selling, or issuing any rights to purchase or subscribe for, or
subdividing or otherwise changing in any respect any shares of the capital
stock of BRI or its subsidiaries, except for any issuances of BRI Common Stock
upon the exercise of BRI Options; and (vii) refrain from taking any actions or
agreeing to take actions that would affect the financial or capital structure
of BRI or its subsidiaries other than in the ordinary course of business.
Additionally, BRI has agreed not to take or omit to take any actions which
would cause the representations and warranties provided under Article II of the
Merger Agreement and summarized above to become untrue or incorrect.
Neither Quintiles, Acquisition, BRI nor any of their respective
officers, directors or shareholders may take any actions that would disqualify
the transactions contemplated by the Merger Agreement from pooling of interests
accounting treatment or treatment as a tax-free reorganization of BRI within
the meaning of Section 368(a) of the Code.
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Quintiles and BRI have agreed that prior to the earlier of the
Effective Time or the termination of the Merger Agreement, neither party shall
solicit, induce or recruit any of the other party's employees to leave their
employment. The Merger Agreement provides that if the BRI employees who have
entered into employment agreements with Acquisition breach the non-competition
provisions of such agreements in any material respect, Quintiles may seek
indemnification from the Escrow Fund for any Losses incurred by Quintiles as a
result of such breach, as long as (i) Quintiles has demanded in writing that
the employee cease and desist such breach and reimburse Quintiles for Losses
sustained, which has not been satisfied or resolved during the following 90-day
period, and (ii) to the extent that funds are paid, the Shareholder's
Representative shall have rights to subrogation and other rights of
contribution, reimbursement, exoneration or indemnity against the employee.
Quintiles has agreed to file a registration statement on Form S-8 with
the Commission to register the shares of Quintiles Common Stock issuable with
respect to the Quintiles Options within 10 days following the Closing Date and
to use its best efforts to cause such registration statement to become
effective promptly thereafter, and to remain effective for as long as such
Quintiles Options are outstanding.
BRI has agreed to take any actions reasonably requested by Quintiles
in order to facilitate a merger of BRI's employee share ownership plan into
Quintiles' employee share ownership plan.
The Merger Agreement also requires BRI, its officers, directors and
affiliates to refrain from taking any action directly or indirectly to
encourage, initiate or engage in discussions with or provide information to any
third party concerning any Acquisition Proposal. "Acquisition Proposal" means
any proposal for (i) the sale of all or substantially all of the assets or a
majority of the voting common stock of BRI, whether by merger or other business
combination involving BRI, or (ii) the issuance of an additional number of
shares of BRI Common Stock such that immediately after such issuance(s), any
person, together with persons controlled by or under common control with such
persons, shall own, in the aggregate, a majority of BRI's voting common stock.
BRI has agreed to notify Quintiles immediately of any Acquisition
Proposal, or if any request for confidential information regarding BRI in
connection with any Acquisition Proposal is received, and will provide Quintiles
with any information regarding such Acquisition Proposal or request as Quintiles
shall request, provided, however, that nothing in Section 4.2 of the Merger
Agreement will require BRI to violate any binding confidentiality agreements
entered into with third parties and effective prior to July 1, 1996, so long as
BRI immediately rejects any Acquisition Proposal or request for information
required to be held confidential pursuant to any such confidentiality agreement
and complies with the other terms of the Merger Agreement.
If the BRI Shareholders or BRI enter into any transaction pursuant to
any Acquisition Proposal within two years from the date of the Merger
Agreement, other than the transactions contemplated by the Merger Agreement,
and (i) the Merger Agreement is terminated or abandoned as a result of the
failure of the BRI Shareholders to approve the Merger at the Special Meeting,
(ii) the Merger Agreement is terminated as a result of the dissent of more than
9.9% of the BRI Shareholders, or (iii) the Merger Agreement is terminated as a
result of (A) BRI's intentional and material breach of any binding agreement
contained in Articles I, IV, VII or VIII of the Merger Agreement, (B) BRI's
intentional and material breach of any representation, warranty or covenant
contained in the Merger Agreement, or (C) BRI's intentional failure to satisfy
or cause the satisfaction of any condition stated in Article V of the Merger
Agreement, then BRI shall pay to Quintiles, immediately upon consummation of
such transaction, an overbid fee of $3.5 million. BRI will not be liable under
this provision where such triggering event occurs following a termination of
the Merger Agreement (i) by BRI due to the material breach by Quintiles or
Acquisition of any of their respective obligations under the Merger Agreement,
(ii) by Quintiles or BRI due to the failure to receive any necessary regulatory
approval, or (iii) by Quintiles or Acquisition based upon one or more breaches
by BRI which, in the aggregate, are not reasonably likely to diminish the value
of BRI as part of the Surviving Corporation by an amount greater than $250,000.
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Amendment, Waiver and Termination. The Merger Agreement may be
waived, amended, supplemented or modified only by a written agreement executed
by each of the parties thereto.
The Merger Agreement may be terminated by the parties at any time by
mutual written consent. Any party may terminate the Merger Agreement by
written notice prior to the Closing Date if any court or other government
instrumentality of competent jurisdiction takes any action to restrain, enjoin
or otherwise prohibit the transactions contemplated by the Merger Agreement.
Quintiles may terminate the Merger Agreement by written notice to BRI
at any time prior to the Closing Date if BRI breaches in any material respect
any representation, covenant or warranty provided by BRI under the Merger
Agreement or if the consummation of the transactions contemplated thereby have
not occurred on or before December 31, 1996.
BRI may terminate the Merger Agreement upon written notice to
Quintiles and Acquisition on or prior to the Closing Date if Quintiles or
Acquisition breach in any material respect any representation, warranty or
covenant contained in the Merger Agreement or if the consummation of the
transactions contemplated thereby have not occurred on or before December 31,
1996.
Indemnification. From and after Closing, Quintiles, Acquisition and
their affiliates and all of their respective officers, directors, employees
(other than certain key employees), agents and shareholders (other than the BRI
Shareholders) (each, an "Indemnitee") will be defended, indemnified and held
harmless pursuant to the Merger Agreement and the Escrow Agreement from and
against any and all losses, claims, actions, damages, liabilities, costs and
expenses (collectively "Losses") in connection with (i) any misrepresentation,
or failure to satisfy any representation, warranty, covenant, obligation or
agreement made by BRI in or pursuant to the Merger Agreement or any of the
documents related to the Merger Agreement or otherwise required to consummate
the Merger, (ii) any litigation, action, claim, proceeding or investigation by
any third party relating to or arising out of the business or operations of BRI
(or any affiliate controlled by BRI) prior to the Closing Date, (iii) certain
acknowledged claims as described in Section 8.2 of the Merger Agreement,
including without limitation, certain threatened or potential litigation
against BRI, and (iv) Quintiles' enforcement of its indemnification rights
under Section 8.2 of the Merger Agreement. Each Indemnitee will be advanced or
reimbursed out of the Escrow Fund on demand for expenses reasonably incurred in
connection with preparing for, defending or taking any other action with
respect to any such Loss or any related proceeding, provided that any amounts
so advanced or reimbursed will be returned upon the actual and final judicial
determination that such Indemnitee is not entitled to indemnification under the
Merger Agreement or the Escrow Agreement. The maximum aggregate recourse of an
Indemnitee is limited to the aggregate market value, calculated as of the
Closing Date, of the Quintiles Common Stock deposited into escrow. In
addition, the Indemnitees will not be entitled to indemnification for any
amount unless and until the aggregate of all amounts for which Quintiles and
its affiliates would be entitled to be indemnified exceeds $250,000. The sole
recourse of any Indemnitee for indemnification pursuant to Section 8.2 of the
Merger Agreement is from the Escrow Fund. See "--The Escrow Agreement" for a
description of the procedure for claims against the Escrow Fund.
BRI shall be liable for any Losses arising from the events described
in the preceding paragraph prior to the Closing Date and from and after any
termination of the Merger Agreement. Following the Closing Date, BRI shall
have no liability for indemnification and BRI Shareholders will be prohibited
from seeking contribution from BRI with respect to any amounts payable in
accordance with the indemnification provisions of the Merger Agreement.
The Indemnitees' rights of indemnification survive the consummation of
the transactions contemplated by the Merger Agreement and will be secured by
the Escrow Fund in accordance with the terms of Escrow Agreement.
BRI's representations and warranties in the Merger Agreement and its
attachments will remain in full force and effect until the date 365 days after
the Closing Date (such period referred to as the
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"Representations Period"). The Indemnitees may not make any claim for
indemnification after the expiration of the Representations Period, other than
claims made in good faith in writing prior to such expiration (including the
acknowledged claims identified in Section 8.2 of the Merger Agreement), whether
or not any action or proceeding is instituted with respect to such claims prior
to the expiration of the Representations Period. Any and all Losses arising
after expiration of the Representations Period will be recoverable upon notice
properly given prior to the expiration of the Representations Period.
Quintiles has agreed to indemnify and hold harmless BRI's officers,
directors and shareholders from and after the Closing Date from and against any
and all losses, claims, actions, damages, liabilities, costs and expenses
relating to and arising out of or based on Quintiles' breach of any
representation or warranty that the information furnished by and with respect to
Quintiles or Acquisition in the Registration Statement, of which this Proxy
Statement/Prospectus is a part, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading. To the extent that any such losses
to BRI arise out of or are based upon, any untrue statement or alleged untrue
statement or omission (or alleged omission) based upon information furnished to
Quintiles by BRI or its officers, directors, employees, agents or
representatives for inclusion in the Registration Statement, Quintiles will not
be liable for such losses. Furthermore, Quintiles' aggregate liability for any
losses, claims, actions, damages, liabilities, costs or expenses that may be
incurred by BRI or the BRI Shareholders due to any breach or breaches of
Quintiles will not exceed 10% of the aggregate value (calculated with reference
to the closing price on the Closing Date) of the Quintiles Common Stock to be
issued in connection with the Merger (except that this shall not purport to
limit any anti-fraud common law or statutory rights which any BRI officer,
director or shareholder may have).
Expenses. The Merger Agreement provides that each party will pay all
of its own expenses relating to the transactions contemplated by the Merger
Agreement.
THE ESCROW AGREEMENT
Treatment of Accumulation of Escrow Shares. Pursuant to the Escrow
Agreement, Branch Banking and Trust Company, as Escrow Agent, will hold the
shares of Quintiles Common Stock deposited into escrow pursuant to Section 1.2
of the Merger Agreement (the "Escrow Shares") in safe keeping and dispose
thereof only in accordance with the terms of the Escrow Agreement. At any time
after the date of the Escrow Agreement and prior to the distribution of the
Escrow Shares in accordance with the Escrow Agreement, if any of the BRI
Shareholders become entitled to receive or receive in connection with the
Escrow Shares any (i) non-taxable distribution of securities of Quintiles or of
any other entity; (ii) any non-taxable distribution of stock options, warrants
or rights; or (iii) non-taxable stock dividend or other non-taxable
distribution payable in securities or property of any description, all of the
shares of capital stock, or other property resulting from any such
distribution, stock option, warrant, right or stock dividend will be deemed to
be Escrow Shares and will be subject to the terms of the Escrow Agreement to
the same extent as the original Escrow Shares. Any cash dividends and any
taxable stock dividends paid with respect to the Escrow Shares will be paid to
the BRI Shareholders in accordance with their respective proportionate
interests in the Escrow Shares and any taxable stock dividends. The Escrow
Agent may treat the Shareholder's Representative as the duly authorized agent
and representative of the BRI Shareholders with respect to any additional
property related to the Escrow Shares. The Escrow Agent will hold the Escrow
Shares in accordance with the Escrow Agreement and shall (to the extent
legally permissible and provided that written instructions in form and
substance satisfactory to the Escrow Agent have been provided by the BRI
Shareholder) vote the Escrow Shares in accordance with the written
instructions of the BRI Shareholder for whose account such Escrow Shares are
held.
Escrow Expense Basket. A portion of the Escrow Shares equal to
$250,000, as determined by the closing price of the Quintiles Common Stock on
the Closing Date, will be set aside by the Escrow Agent from the Escrow Shares
(the "Escrow Expense Basket") to satisfy obligations of the BRI Shareholders
under the Escrow Agreement, other than as to Losses, and to reimburse permitted
expenses of the Shareholder's Representative under the Escrow Agreement. The
Shareholder's Representative will instruct the Escrow Agent and Quintiles as to
the use of the Escrow Expense Basket. If the Escrow Expense Basket is
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exhausted, no claim against the Escrow Shares may be made for obligations and
expenses covered thereby, and the BRI Shareholders will be responsible for any
excess expenses of the Escrow Agent according to their pro rata share in the
Escrow Fund as determined on the Closing Date.
Distribution of Escrow Shares Upon Termination. Quintiles will not be
entitled to assert any claim against the Escrow Shares after such date which is
365 days following the Closing Date (the "Claims Deadline"); provided, however,
that any claim made in good faith in writing on or prior to the Claims Deadline
(including, without limitation the acknowledged claims and whether or not formal
legal action has been taken at that time) will continue, subject to final
resolution as provided in the Escrow Agreement. The Escrow Agreement will
terminate upon complete distribution of the Escrow Shares in accordance with
the Escrow Agreement. Within five business days after the Claims Deadline, the
Escrow Agent will deliver to the BRI Shareholders that portion of the Escrow
Shares not previously distributed or otherwise subject to claims pursuant to
Article IV of the Escrow Agreement, in proportion to the initial deposits of
shares made on their behalf by Quintiles. Thereafter, the balance of the Escrow
Shares will continue to be held by the Escrow Agent pursuant to the Escrow
Agreement until all claims asserted against the Escrow Shares are finally
resolved in accordance with Article IV of the Escrow Agreement. At that time,
the balance of the Escrow Shares will be distributed to the BRI Shareholders.
In the event that the Escrow Agent would be required to deliver fractional
interests in the Escrow Shares to the BRI Shareholders, Quintiles will have the
option to purchase from the Escrow Agent a number of Escrow Shares (or
fractional interests therein) as necessary to eliminate the fractional
interests, at a purchase price equal to the closing price of the Quintiles
Common Stock on the Closing Date as certified to the Escrow Agent by Quintiles.
In such event, the Escrow Agent will distribute to the BRI Shareholders who
otherwise would have been entitled to fractional interests, the cash equivalent
of such fractional shares.
Claims Against Escrow Shares. If Quintiles (on its own behalf or on
behalf of any other Indemnitee) at any time on or prior to the Claims Deadline
asserts a claim for indemnification pursuant to Article VIII of the Merger
Agreement, Quintiles must submit to the Escrow Agent and the Shareholder's
Representative a written claim in good faith signed by an executive officer of
Quintiles stating the details specified in Section 4.1 of the Escrow Agreement,
including the facts alleged as the basis for the claim, the amount of Losses
incurred or reasonably expected to be incurred and, if the Losses have been
incurred, the number of Escrow Shares to which the Indemnitee is entitled with
respect to such Losses. If the claim is for Losses which the Indemnitee
reasonably believes it may incur, Quintiles' written claim shall state a
reasonable estimate of such Losses, in which event a claim shall be deemed to
have been asserted against the Escrow Shares on behalf of Quintiles in the
amount of such estimated Losses, but no payment or distribution shall be made
by the Escrow Agent until such Losses have actually been incurred and Quintiles
submits a notice to the Escrow Agent and the Shareholder's Representative
pursuant to Section 4.2(ii) of the Escrow Agreement, whether or not the Losses
are incurred prior to the Claims Deadline.
Resolution of Asserted Claims Against the Escrow Shares. If, within
25 business days after (i) Quintiles provides the appropriate notice of an
asserted claim that an Indemnitee has incurred Losses, or (ii) with respect to
any claim which, when asserted, covered Losses the Indemnitee reasonably
believes it may incur, Quintiles delivers to the Escrow Agent and the
Shareholder's Representative a notice indicating that the Indemnitee has
incurred Losses and the amount of such Losses, the Shareholder's Representative
fails to notify the Escrow Agent and Quintiles in writing that the
Shareholder's Representative disputes, in good faith, the right of Quintiles to
indemnity in respect to the asserted claim, then the Escrow Agent, at the
expiration of the 25 business day period will make immediate payment to
Quintiles out of the Escrow Shares of the amount of the asserted claim.
Quintiles will have a right of indemnification for Losses which arise from
acknowledged claims, as described in Section 8.2 of the Merger Agreement, and
no further notice need be given under Section 4.1 of the Escrow Agreement with
respect to acknowledged claims except and until a Loss has occurred with
respect to any such acknowledged claim, at which time Quintiles will, in order
to be indemnified, submit a notice pursuant to Section 4.2(ii) of the Escrow
Agreement with respect to such Losses and at which time the Shareholder's
Representative will have the right to submit a notice to the Escrow Agent and
Quintiles contesting in good faith whether the Losses are related to any
acknowledged claim and the amount of such Losses. None of the Escrow Shares
are to be released to the BRI Shareholders by the Escrow Agent until Quintiles
and the Shareholder's Representative agree and notify the Escrow Agent in
writing that no claim or potential claim remains against
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<PAGE> 42
BRI or any other Indemnitee as to any acknowledged claims (as defined in the
Merger Agreement), provided that Quintiles and the Shareholder's Representative
are required to act reasonably and in good faith in evaluating whether any such
claims or potential claims remain. If any such claims or potential claims do
remain, the number of Escrow Shares which shall remain in escrow will be based
on Quintiles' good faith determination of the amount of potential Losses which
are alleged or could be alleged with respect to such claims or potential claims,
and not upon a determination of the likelihood of actual Losses. Quintiles must
notify the Escrow Agent and the Shareholder's Representative of the number of
shares to remain in escrow pursuant to the preceding sentence. On or prior to
the Claims Deadline, Quintiles also will be able to assert claims pursuant to
Section 4.1 of the Escrow Agreement (as described above) with respect to matters
other than the acknowledged claims, and the Escrow Shares subject to such claims
will not be released until any dispute with respect to the release has been
resolved as provided in the Escrow Agreement.
Resolution of Disputed Claims Against Escrow Shares. If within the 25
business day period, the Shareholder's Representative notifies the Escrow Agent
and Quintiles in writing that the Shareholder's Representative disputes or
denies in good faith the asserted claim made by Quintiles against the Escrow
Shares, then the Shareholder's Representative and Quintiles will use their
reasonable best efforts to effect a settlement and compromise of such asserted
claim. Any liability, loss, damage or expense established by reason of any such
settlement and compromise will be certified in writing to the Escrow Agent by
the Shareholder's Representative and Quintiles, and the Escrow Agent will pay to
Quintiles any resulting amount due by transfer to Quintiles of a number of
Escrow Shares set forth in such certification. If there is no amount that is
due and owing to Quintiles under the asserted claim, then the Escrow Agent will
treat the asserted claim as rejected by mutual agreement of the parties, and the
Escrow Agent will totally disregard it as the subject of assertion against the
Escrow Shares.
Unresolved Claims Against Escrow Shares. If Quintiles and the
Shareholder's Representative are unable to settle and compromise any disputed
claim asserted against the Escrow Shares, the Escrow Agent may not make any
payment or distribution out of the Escrow Shares with respect to such claim
unless and until the Escrow Agent has received either: (a) a certificate of
Quintiles and the Shareholder's Representative certifying the amount of the
asserted claim in dispute and directing payment thereof; (b) a certified copy
of an award of an arbitrator, as referred to in Article VII of the Escrow
Agreement, determining the amount of the asserted claim in dispute; or (c) a
certified copy of a final judgment of a court of competent jurisdiction
determining the amount of the asserted claim in dispute, certified by the party
providing such copy as being binding and nonappealable. Upon receipt of any
such certification, the claim will be treated as a resolved asserted claim, and
the Escrow Agent will pay and distribute Escrow Shares in the manner described
in Section 4.2 of the Escrow Agreement.
Certain Rights of the Escrow Agent. In the event of any disagreement
between any of the parties to the Escrow Agreement or between them or any one of
them and any other person, resulting in adverse claims or demands being made in
connection with the subject matter of the Escrow Agreement, or in the event the
Escrow Agent in good faith is in doubt as to what action it should take
thereunder, the Escrow Agent will have the right (i) to refrain from complying
with any claims or demands asserted on it as the Escrow Agent or (ii) to refuse
to take any other action under the Escrow Agreement, for as long as such
disagreement continues or exists, and in either such event, the Escrow Agent
will not be or become liable in any way to any person for the Escrow Agent's
failure to act, and the Escrow Agent will be entitled to continue to refrain
from acting, until (x) the rights of all parties shall have been fully and
finally adjudicated by a court of competent jurisdiction or (y) the Escrow Agent
has been notified in writing that all differences have been adjusted and all
doubts resolved by agreement among all of the interested parties. From and at
all times after the date of this Escrow Agreement, Quintiles and the BRI
Shareholders (collectively, the "Indemnifying Parties") shall, to the fullest
extent permitted by law, jointly and severally indemnify and hold harmless the
Escrow Agent and each director, officer, employee, attorney, agent and affiliate
of the Escrow Agent (collectively, the "Indemnified Parties") against any and
all actions, claims (whether or not valid), losses, damages, liabilities, costs
and expenses of any kind or nature whatsoever (including without limitation
reasonable attorneys' fees, costs and expenses) ("Losses") incurred by or
asserted against any of the Indemnified Parties from and after the date hereof,
whether direct, indirect or consequential, as a result of or arising from or in
any way relating to any claim, demand, suit, action or proceeding (including any
inquiry or investigation) by any person, including, without limitation, any
Indemnifying Party, whether threatened or initiated, asserting a claim for any
legal or equitable remedy under any statute or regulation, including, but not
limited to, any federal or state securities law, or under any common law or
equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or failure of performance of
the Escrow Agreement or any transactions contemplated thereunder, whether or not
any such Indemnifying Party is a party to any such action, proceeding, suit or
the target of any such inquiry or investigation; provided, however, that no
Indemnified Party shall have the right to be indemnified pursuant to the Escrow
Agreement for any liability finally determined by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Indemnified Party. The BRI Shareholders (in accordance with their pro rata
interest in the Escrow Shares) and Quintiles will be jointly and severally
liable for these obligations; provided, however, that as between Quintiles and
the BRI Shareholders, fifty percent (50%) of the indemnified amount will be paid
from the Escrow Expense Basket, if any remains (and otherwise pursuant to
Section 2.5 of the Escrow Agreement), and fifty percent (50%) will be paid by
Quintiles.
If, at any time, there shall exist any dispute with respect to the
holding or disposition of any portion of the Escrow Shares or any other
obligations of the Escrow Agent under the Escrow Agreement, or if at any time
the Escrow Agent is unable to determine, to the Escrow Agent's sole
satisfaction, the proper disposition of any portion of the Escrow Shares or the
Escrow Agent's proper actions with respect to its obligations hereunder, or if
Quintiles and the Shareholder's Representative have not within thirty (30) days
of the furnishing by the Escrow Agent of a notice of resignation pursuant to
Section 5.4 of the Escrow Agreement, appointed a successor escrow agent to act
hereunder, then the Escrow Agent may, in its sole discretion, take either or
both of the following actions: (i) hold and decline to make further
disbursements of the Escrow Shares that the Escrow Agent would otherwise be
obligated to make under the Escrow Agreement until such dispute or uncertainty
shall be resolved to the sole satisfaction of the Escrow Agent or until a
successor Escrow Agent is appointed (as the case may be); (ii) petition (by
means of an interpleader action or any other appropriate method) the Superior
Court for Wake County, North Carolina, or if such Court should be without
subject matter jurisdiction or should decline to exercise jurisdiction, any
other state or federal court of competent jurisdiction in North Carolina, for
instructions with respect to such dispute or uncertainty, and pay into such
court all Escrow Shares for holding and disposition in accordance with the
instructions of such court.
The Escrow Agent shall have no liability to Quintiles, the BRI
Shareholders or any other person with respect to any such actions taken pursuant
to section 5.1(j) of the Escrow Agreement, specifically including any liability
or claimed liability that may arise, or be alleged to have arisen, out of or as
a result of any delay in the disbursement of Escrow Shares or any delay in or
with respect to any other action required or requested of the Escrow Agent,
except for any Losses resulting from the gross negligence or willful misconduct
of the Escrow Agent.
The Escrow Agent will receive a fee of $2,000 per year for its
services under the Escrow Agreement. In addition, the Escrow Agent will be
entitled to reimbursement for all reasonable expenses, disbursements and
advances (including reasonable attorneys' fees) incurred or made by the Escrow
Agent in accordance with any of the provisions.
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of the Escrow Agreement, excluding any expense, disbursement or advance that
may arise from its own gross negligence or wilful misconduct. Such
compensation and reimbursement will be paid by the BRI Shareholders and
Quintiles. Quintiles will have the option to pay any compensation and
reimbursement due to the Escrow Agent in satisfaction of BRI Shareholders'
obligations thereunder, and upon any such payment, Quintiles may treat the
amount of such payment as an immediate liquidated claim against the Escrow
Shares. Quintiles will be severally liable for 50% of such compensation and
reimbursement, and the BRI Shareholders will be liable (in accordance with
their pro rata interest in the Escrow Fund) for the other 50%, to be paid from
the Escrow Expense Basket, to the extent funds remain. The Escrow Agent has
the right to set aside or hold Escrow Shares to satisfy any unpaid compensation
or reimbursement obligations of Quintiles or the Shareholder's Representative
under the Escrow Agreement.
The Escrow Agent or any successor may at any time resign by giving
thirty (30) days notice in writing to the Shareholder's Representative and
Quintiles. In the event of any such resignation, a successor Escrow Agent will
be appointed by written consent of the Shareholder's Representative and
Quintiles.
The Shareholder's Representative. The Shareholder's Representative may
be removed and a new Shareholder's Representative(s) may be appointed at any
time by the written agreement of all the BRI Shareholders. Any such removal and
appointment will be effective upon receipt by the Escrow Agent and Quintiles of
the written instrument appointing the new Shareholder's Representative. The
Shareholder's Representative will have no liability to the BRI Shareholders with
respect to any action taken by him or her under the Escrow Agreement, except
with respect to his or her gross negligence or willful misconduct. The
Shareholder's Representative will not be liable to any BRI Shareholder in the
event that in the exercise of his reasonable judgment, he believes there will
not be adequate resources available to cover his potential costs and expenses to
contest a claim made by Quintiles or any Indemnitee under the Escrow Agreement.
The Shareholder's Representative may act in reliance upon the advice of counsel
in reference to any matter in connection with the Escrow Agreement and will not
incur any liability to the other BRI Shareholders, or any one of them, for any
action taken in good faith in accordance with such advice. All BRI Shareholders
(including the Shareholder's Representative) will jointly and severally
indemnify the Shareholder's Representative, ratably according to the respective
number of shares of Quintiles Common Stock to be received by each BRI
Shareholder, from and against any and all damages, losses, demands, claims,
costs, liabilities, judgments, deficiencies or expenses incurred in connection
with the Shareholder Representative's actions under the Escrow Agreement or by
virtue of acting in his capacity as the Shareholder's Representative, except to
the extent resulting from his negligence or wilful misconduct. The
Shareholder's Representative will be reimbursed out of the Escrow Expense Basket
for all costs and expenses incurred by him in connection with serving as such.
The Escrow Agent will from time to time sell such amount of the Escrow Shares
which is necessary to pay such costs and expenses, to the extent required. In
the event that the Shareholder's Representative reasonably believes that he will
not have adequate resources to cover his potential costs and expenses, he will
consult with the BRI Shareholders who hold a majority of the BRI Common Stock as
of the Closing Date in order to make alternative arrangements for the costs and
expenses of the Shareholder's Representative.
Arbitration. Any unresolved dispute under the Escrow Agreement with
respect to any matter that is the subject of an asserted claim against the
Escrow Shares must be submitted to and settled by binding arbitration in
accordance with the commercial rules, existing at the date thereof, of the
American Arbitration Association. The dispute will be submitted to an
arbitrator agreed to by the Shareholder's Representative and Quintiles or, if
they cannot agree on a single arbitrator, by three arbitrators selected in
accordance with the above-referenced rules and will be heard in Raleigh, North
Carolina. See "RISK FACTORS--Indemnification obligations of BRI Shareholders
Pursuant to the Merger Agreement."
ACCOUNTING TREATMENT
It is intended that the Merger will be treated as a pooling of
interests for financial accounting purposes in accordance with generally
accepted accounting principles. As a condition to the obligations of Quintiles,
Acquisition and BRI pursuant to the Merger Agreement, they must receive, on the
Closing Date, the opinions of Ernst & Young LLP and Coopers & Lybrand L.L.P.,
respectively, regarding the ability of these entities to enter into a
transaction to be accounted for as a pooling of interests as contemplated by the
Merger Agreement. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS OF QUINTILES, BRI AND INNOVEX."
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
consequences of the Merger to holders of BRI Common Stock. The discussion does
not address all aspects of federal income taxation that may be relevant to
particular shareholders and may not be applicable to shareholders who are not
citizens or residents of the United States, or who will acquire the Quintiles
Common Stock pursuant to the exercise or termination of employee stock options
or otherwise as compensation, nor does the discussion address the effect of any
applicable foreign, state, local or other tax laws. This discussion assumes
that BRI shareholders hold their BRI Common Stock as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"). EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
The following discussion is based on the Code, applicable United
States Treasury regulations, judicial authority, and administrative rulings and
practice, all as of the date hereof. The Internal Revenue Service (the "IRS")
is not precluded from adopting a contrary position. In addition, there can be
no assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Quintiles, BRI and their respective shareholders.
In the opinion of Coopers & Lybrand L.L.P., accountants to BRI, the
Merger should, under current law, constitute a tax-free reorganization under
Section 368(a) of the Code and Quintiles, Acquisition, and BRI should each be a
party to the reorganization within the meaning of Section 368(b) of the Code.
In rendering such opinion, Coopers & Lybrand L.L.P. has relied upon written
representations and covenants of Quintiles and BRI. A copy of the opinion of
Coopers & Lybrand L.L.P. is attached to the Proxy Statement/Prospectus as
Appendix E.
As a tax-free reorganization, the Merger should have the following
federal income tax consequences for shareholders, BRI, Acquisition and
Quintiles:
1. No gain or loss should be recognized by holders of BRI Common
Stock upon their receipt in the Merger of Quintiles Common Stock solely in
exchange for BRI Common Stock.
2. The tax basis of the shares of Quintiles Common Stock received
by each shareholder of BRI should equal the tax basis of such shareholder's
shares of BRI Common Stock (reduced, if any, by an amount allocable to
fractional share interests for which cash is received) exchanged in the Merger.
3. The holding period for the shares of Quintiles Common Stock
received by each shareholder of BRI should include the holding period for the
shares of BRI Common Stock of such shareholder exchanged in the Merger.
4. Neither Quintiles, Acquisition, nor BRI should recognize gain
or loss as a result of the Merger.
The parties are not requesting a ruling from the IRS in connection
with the Merger. The opinion of Coopers & Lybrand referred to herein neither
binds the IRS nor precludes the IRS from adopting a contrary position, and is
subject to certain assumptions and qualifications and the accuracy of certain
representations made by Quintiles and BRI and including representations to be
delivered to Coopers & Lybrand L.L.P. by the respective managements of
Quintiles and BRI. In providing their opinion, Coopers & Lybrand L.L.P. has
relied on certain assumptions and representations relating to the "continuity
of interest" requirement from Quintiles and BRI.
To satisfy the continuity of interest requirement, BRI Shareholders
must not, pursuant to a plan or intent existing at or prior to the Merger,
dispose of or transfer so much of either (i) their BRI Common Stock
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in anticipation of the Merger or (ii) the Quintiles Common Stock to be received
in the Merger (collectively, "Planned Dispositions"), such that the BRI
Shareholders, as a group, would no longer have a significant equity interest in
the BRI business conducted after the Merger. Planned Dispositions include,
among other things, dispositions of shares pursuant to the exercise of
dissenters' rights. BRI Shareholders will generally be regarded as having
retained a significant equity interest as long as the Quintiles Common Stock
received in the Merger (after taking into account Planned Dispositions), in the
aggregate, represents a substantial portion of the entire consideration
received by the BRI Shareholders in the Merger. If the continuity of interest
requirement were not satisfied, the Merger would not be treated as a
"reorganization".
A successful IRS challenge to the "reorganization" status of the
Merger (as a result of the failure of the "continuity of interest" requirement
or otherwise) would result in each BRI Shareholder recognizing gain or loss
with respect to each share of BRI Common Stock surrendered equal to the
difference between the shareholder's basis in such share and the fair market
value, as of the Effective Time, of the Quintiles Common Stock received in
exchange therefor. In such event, a shareholder's aggregate basis in the
Quintiles Common Stock so received would equal its fair market value and his
holding period for such stock would begin the day after the Merger.
Even if the Merger qualifies as a "reorganization", a recipient of
shares of Quintiles Common Stock may recognize income or gain to the extent
that such shares were considered to be received in exchange for services or
property (other than solely BRI Common Stock). All or a portion of such income
or gain may be taxable as ordinary income. In addition, gain or loss would be
recognized to the extent that BRI Shareholder was treated as receiving
(directly or indirectly) consideration other than Quintiles Common Stock in
exchange for the shareholder's BRI Common Stock.
RESTRICTIONS ON RESALES OF QUINTILES COMMON STOCK; POOLING CONSIDERATIONS;
AFFILIATE AGREEMENTS
All shares of Quintiles Common Stock to be issued at the Effective
Time pursuant to the Merger Agreement will be freely transferable under the
Securities Act, except for shares issued to any person who is an "affiliate" of
BRI prior to the Merger. Affiliates are persons who control, are controlled by
or under common control with BRI at the time the BRI Shareholders vote on the
Merger, none of whom will be affiliates of Quintiles at or shortly after the
Effective Time, and generally include BRI's directors and executive officers.
Such affiliates may not sell their shares of Quintiles Common Stock acquired in
the Merger without (i) the further registration of such shares under the
Securities Act, (ii) compliance with Rule 145 promulgated under the Securities
Act, which permits resales under certain conditions, as discussed in more
detail below, or (iii) the availability of another exemption from such further
registration. Under Rule 145, a person who was an affiliate of BRI, but who is
not an affiliate of Quintiles after the Merger, may publicly sell shares
acquired in the Merger where the person (1)(a) sells during any period the
number of shares permitted under Rule 144(e) promulgated under the Securities
Act; (b) sells in a "broker's transaction", (c) does not solicit orders to buy
in connection with the transaction and does not make any payment in connection
with such sale to anyone other than the selling broker, and (d) sells at a time
when there is adequate current public information about Quintiles; or (2)(a)
holds such shares for at least two years and (b) sells at a time when there is
adequate public information about Quintiles; or (3) holds the shares for at
least three years. As a condition to the Merger, each person who has been
identified by BRI as an affiliate of BRI is required to have entered into an
agreement with Quintiles acknowledging the restrictions set forth above (each,
an "Affiliate Agreement").
Pooling of interests accounting treatment requires that affiliates of
BRI who receive shares of Quintiles Common Stock in the Merger and affiliates
of Quintiles must not sell or otherwise reduce their risk relative to their
shares of Quintiles Common Stock until Quintiles has published consolidated
financial statements including the combined operations of Quintiles and the
Surviving Corporation for a period of at least 30 days following the Effective
Time. As a condition to the Merger, Quintiles must receive an Affiliate
Agreement signed by all persons who were, at the record date for the meeting of
BRI Shareholders, affiliates of BRI evidencing their agreement not to sell
their shares of Quintiles Common Stock until such period has expired.
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In order to help ensure that the Merger will qualify as a
reorganization under Section 368(a) of the Tax Code, the Affiliate Agreements
to be executed by each affiliate of BRI contain a representation that such
affiliate (i) has no plan or intention to sell any of the shares of Quintiles
Common Stock received by such affiliate in the Merger, and (ii) is not aware
of, or participating in, any plan or intent on the part of BRI Shareholders to
engage in sales of Quintiles Common Stock received in the Merger, such that the
aggregate fair market value, as of the Effective Time, of the shares of
Quintiles Common Stock subject to such sales would exceed fifty percent (50%)
of the aggregate fair market value of all outstanding BRI Common Stock
immediately prior to the Merger.
REGULATORY APPROVALS
Under the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Merger may not be consummated
unless certain information has been filed with the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the applicable waiting period under the HSR Act has
expired or been terminated by the FTC and the Antitrust Division. Quintiles
and BRI have submitted the applicable filings under the HSR Act, and the
expiration or other termination of the waiting period satisfactory to Quintiles
and BRI, is a condition to consummation of the Merger.
At any time before or after the Effective Time, and notwithstanding
the termination of the HSR Act waiting period, the Antitrust Division, the FTC
or a private person could seek to use the antitrust laws, among other things,
to enjoin the merger or to cause Quintiles to divest itself, in whole or in
part, of BRI or of other business conducted by Quintiles. Based upon the
information available to them, Quintiles and BRI believe that the Merger can be
consummated in compliance with the antitrust laws. However, there can be no
assurance that a challenge to the Merger will not be made or that, if such a
challenge is made, Quintiles and BRI will prevail. The absence of any claim or
action to restrain or prohibit the Merger is a condition to the parties'
obligations under the Merger Agreement.
Quintiles and BRI are aware of no other material governmental or
regulatory requirements that remain to be compiled with in connection with the
Merger, other than applicable securities and "blue sky" laws of the various
states and the filing of articles of merger, setting forth the principal terms
of the Merger Agreement and Plan of Merger, with the Secretary of State of
North Carolina and the State Corporation Commission of the Commonwealth of
Virginia.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
STOCK OWNERSHIP, STOCK OPTIONS OF BRI DIRECTORS AND EXECUTIVE OFFICERS
As of the BRI Record Date, the directors and executive officers of BRI
as a group beneficially owned an aggregate of 134,741 shares of BRI Common Stock
and held options to purchase 28,082 shares of BRI Common Stock. All of
those shares will be treated in the Merger in the same manner as the shares of
BRI Common Stock held by other shareholders of BRI, and all of those options
will be treated in the Merger in the same manner (other than for restrictions
on transfer due to pooling restrictions - see "THE MERGER -- Restrictions on
Resales of Quintiles Common Stock; Pooling Considerations; Affiliate
Agreements") as options to purchase BRI Common Stock held by other employees of
BRI. To the best of BRI's knowledge, each of the BRI directors and executive
officers who owns shares of BRI Common Stock intends to vote those shares in
favor of the Merger. Each director and executive officer of BRI will enter
into an agreement restricting his or her sale of Quintiles shares for a period
following the effectiveness of the Merger. See "THE MERGER -- The Merger
Agreement -- Restrictions on Resales of Quintiles Common Stock; Pooling
Considerations; Affiliate Agreements."
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EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Contemporaneous with the execution of the Merger Agreement,
Acquisition entered into employment agreements with certain employees,
including Dr. Frank Hurley and James T. Ogle, to become effective at Closing.
The employment agreement of Dr. Hurley initially provides for a three year term
and an annual base salary of $240,000, and that of Mr. Ogle initially provides
for a two year term and an annual base salary of $200,000. The employment
agreements also permit participation in the Quintiles Executive Compensation
Plan and all employee benefit plans or programs made available to employees of
the applicable level of the Surviving Corporation, and incorporate certain
non-compete and confidentiality provisions, including in the case of Dr. Hurley
a requirement that he not compete with the Surviving Corporation and its
affiliates for the longer of five years and the period ending one year
following the expiration of his employment, and for Mr. Ogle a requirement that
he not compete with the Surviving Corporation and its affiliates for the longer
of three years and the period ending one year following the expiration of his
employment.
Approximately 60 of the BRI employees who will become employees of
Quintiles or Acquisition following the Merger, including those entering into
employment agreements with Acquisition as provided above, will receive an
aggregate of 200,000 options to purchase Quintiles common stock as an incentive
for future performance with Quintiles or Acquisition. The number of Quintiles
options granted to the individual BRI employees ranges from 100 to 25,000 (in
the cases of Dr. Hurley and Mr. Ogle), and the BRI executives will receive
approximately half of the options.
RIGHTS OF DISSENTING BRI SHAREHOLDERS
Any holder of shares of BRI Common Stock who objects to the adoption of
the Merger Agreement and Plan of Merger (a "Dissenting Shareholder") may elect
to be paid the fair value of those shares. The rights of Dissenting
Shareholders are governed by Sections 13.1-730 through 741 of the Virginia Stock
Corporation Act. The following description summarizes the material provisions
of Sections 13.1-730 through 741 of the Virginia Stock Corporation Act. The
following description is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to the full text of
Sections 13.1-730 through 741, which is set forth in Appendix F to this Proxy
Statement/Prospectus.
If any holder of BRI Common Stock wishes to elect to dissent from the
Merger and demand payment, such holder must first satisfy each of the following
conditions:
(i) Such holder must deliver to BRI, before the taking of the
vote with respect to the Merger, a written notice of his intent to demand
payment for his shares of BRI Common Stock if the Merger is consummated
("Intent to Demand Payment"). This Intent to Demand Payment must be in
addition to and separate from any proxy or vote against the Merger; neither
voting against the Merger nor failing to vote for the Merger will constitute an
Intent to Demand Payment within the meaning of Section 13.1-733.
(ii) Such holder must not vote in favor of the Merger. A
failure to vote will satisfy this requirement, but a vote in favor of the
Merger, by proxy or in person, will constitute a waiver of such holder's right
to dissent and will nullify any previously filed written demand for appraisal.
If any holder of shares of BRI Common Stock fails to comply with
either of these conditions and the Merger becomes effective, such holder will
have no dissenters' rights with respect to those shares.
All written notices of Intent to Demand Payment should be delivered to
BRI International, Inc., 1300 North 17th Street, Suite 300, Arlington, Virginia
22209, Attention: Corporate Secretary, before the taking of the vote on the
Merger Agreement at the Special Meeting, and should be executed by, or on
behalf of, the holder of record.
Within ten (10) days after the date of the shareholder approval of the
Merger, BRI must give written notice (the "Dissenters Notice") that the Merger
has become effective to each shareholder who has filed an Intent to Demand
Payment and who did not vote in favor of the Merger. The Dissenters Notice
must (i) state where a demand for payment must be sent and the procedure for
depositing shares, (ii) inform holders of uncertificated shares about certain
transfer restrictions, (iii) provide a form for demanding payment, which shall
include (A) the date of the first announcement to news media or to shareholders
of the terms of the proposed Merger (the "Announcement Date") and (B) a
requirement that the person asserting dissenters rights must certify whether or
not he acquired beneficial ownership of the shares before or after the
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Announcement Date, (iv) provide a copy of Article 15 of Chapter 9 of the
Virginia Stock Corporation Act, and (v) set a date for receipt of demands for
payment not less than thirty (30) and not more than sixty (60) days after the
date of the Dissenters Notice.
The shareholder's demand for payment must certify that he acquired
beneficial ownership of the shares on or before the Announcement Date. Also
the shareholder must deposit his or her certificates in accordance with the
terms of the Dissenters Notice. A shareholder who deposits his shares retains
all other rights of a shareholder except to the extent that these rights are
canceled or modified by the Merger. Any shareholder who does not demand
payment and deposit his certificates where required by the date set forth in
the Dissenters Notice, is not entitled for payment for his shares under Article
15 of Chapter 9 of the Virginia Stock Corporation Act.
Within thirty (30) days of receipt of a demand for payment, BRI must
pay the Dissenting Shareholder the fair value of his shares, plus accrued
interest. In addition BRI must supply the Dissenting Shareholder with an
explanation of the fair value calculation, a balance sheet of the most recent
fiscal year ending not more than sixteen months before the effective date of
the Merger, an income statement for that year, a statement of changes in
shareholders' equity for that year, the latest available interim financial
statements, an explanation of how the corporation estimated the fair value of
the shares and of how the interest was calculated, a statement regarding
procedures to dispute BRI's fair value calculation, and a copy of Chapter 9 of
Article 15 of the Virginia Stock Corporation Act.
If a Dissenting Shareholder disagrees with the fair value of shares
paid or offered by BRI or the amount of accrued interest due, the Dissenting
Shareholder may notify BRI of his or her own estimate of the fair value of his
shares and amount of accrued interest and demand payment of such estimate (less
any amount already received by the Dissenting Shareholder) (the "Dissenter's
Estimate"). The Dissenting Shareholder must notify BRI of the Dissenter's
Estimate within thirty (30) days after the date BRI makes or offers to make
payment to the Dissenting Shareholder. Within sixty (60) days after receiving
the Dissenter's Estimate, BRI must either commence a proceeding in the
appropriate circuit court to determine the fair value of the Dissenting
Shareholder's shares and accrued interest, or BRI must pay each Dissenting
Shareholder whose demand remains unsettled the amount demanded. If a
proceeding is commenced, the circuit court must determine all costs of the
proceeding and must assess those costs against BRI, except that the circuit
court may assess costs against all or some of the Dissenting Shareholders to
the extent the court finds that the Dissenting Shareholders did not act in good
faith in demanding payment of the Dissenter's Estimate.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE MATERIAL PROVISIONS OF
ARTICLE 15. SHAREHOLDERS ARE STRONGLY ENCOURAGED TO REVIEW CAREFULLY THE FULL
TEXT OF ARTICLE 15, WHICH IS INCLUDED AS APPENDIX F TO THIS PROXY
STATEMENT/PROSPECTUS. THE PROVISIONS OF ARTICLE 15 ARE TECHNICAL AND COMPLEX,
AND A SHAREHOLDER FAILING TO COMPLY STRICTLY WITH THEM MAY FORFEIT HIS
DISSENTING SHAREHOLDER'S RIGHTS. ANY SHAREHOLDER WHO INTENDS TO DISSENT FROM
THE MERGER SHOULD REVIEW THE TEXT OF THOSE PROVISIONS CAREFULLY AND ALSO SHOULD
CONSULT WITH HIS ATTORNEY. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO
DISSENTERS' RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO BRI
SHAREHOLDERS, EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
Any Dissenting Shareholder who perfects his right to be paid the fair
value of his shares will recognize gain or loss, if any, for federal income tax
purposes upon the receipt of cash for his shares. The amount of gain or loss
and its character as ordinary or capital gain or loss will be determined in
accordance with applicable provisions of the Internal Revenue Code. See "THE
MERGER--Federal Income Tax Considerations."
Because the North Carolina Business Corporation Act does not require
that the shareholders of Quintiles approve the Merger Agreement, Quintiles'
shareholders will not have dissenters' rights in connection with the Merger.
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CERTAIN INFORMATION CONCERNING QUINTILES
GENERAL
Quintiles Transnational Corp. ("Quintiles") is a North Carolina
corporation which provides drug development and health information management
services to a range of public and private sector clients around the world.
Quintiles believes that it is one of only three contract research organizations
("CROs") with fiscal 1995 revenue exceeding $100 million and one of a few
capable of providing global services. Quintiles compliments the research and
development departments of pharmaceutical and biotechnology companies by
offering services designed to assure a high quality product for the sponsor
company and reduce drug development time and cost. In addition, Quintiles'
integrated services and extensive information technology capabilities furnish
clients with broad experience and expertise in global drug development and
provide clients with an outsourced variable-cost alternative to the fixed costs
associated with internal drug development. Quintiles' professional services
include clinical trials management, data management, biostatistical analysis,
formulation and packaging of drugs for clinical trials, centralized clinical
laboratory services, pre-clinical and Phase I testing, study design and
strategic, regulatory and health economics consulting. In 1995, Quintiles
generated approximately 79% of its net revenue from its clinical services, and
approximately 21% from its pre-clinical, laboratory services and formulation and
packaging services. Quintiles maintains its principal executive office at 4709
Creekstone Drive, Riverbirch Building, Suite 300, Durham, North Carolina,
27703-8411 and its telephone number is (919) 941-2000.
Information about the business of Quintiles, its directors and
executive officers, their business history, stock ownership, compensation and
direct or indirect interests in certain transactions with Quintiles,
information about the principal holders of Quintiles Common Stock and
additional financial information not contained in this Proxy
Statement/Prospectus is incorporated herein by reference from reports Quintiles
files with the Commission. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
RECENT DEVELOPMENTS
On October 6, 1996, Quintiles, Innovex Limited, a company organized
under the laws of England and Wales ("Innovex"), and the shareholders of
Innovex, signed a definitive agreement, dated as of October 4, 1996 (the
"Exchange Agreement"), by which Quintiles will exchange up to 10 million shares
of its common stock for all of the outstanding ordinary shares and cumulative
participating preferred ordinary shares ("Innovex Shares") of Innovex (the
"Exchange"). Innovex is believed to be the largest privately held contract
pharmaceutical organization in the world with more than 3,200 employees in the
U.K., continental Europe and the United States. The company's core
competencies focus on supplementing the sales and marketing of drugs for many
of the leading 25 pharmaceutical companies on a global basis. Innovex's
clinical research and contract-selling activities are concentrated during the
peri-marketing phase of two years pre- and two years post-regulatory approval.
The Exchange Agreement provides that, following the performance and
fulfillment of all covenants, conditions and obligations to the Exchange (other
than those waived in accordance with the terms of the Exchange Agreement),
Quintiles will acquire all of the outstanding Innovex Shares from the
shareholders of Innovex and Innovex will become a wholly-owned subsidiary of
Quintiles and continue its existence as a company under the laws of the United
Kingdom. On the closing date of the Exchange, for an aggregate amount of
approximately $60 million (the source of which is expected to be Quintiles'
working capital), Quintiles would also (i) purchase all outstanding Innovex
cumulative redeemable preference shares from the holders of such shares for
L1.00 each, plus accrued and unpaid dividends thereon and (ii) advance cash to
Innovex sufficient to satisfy certain indebtedness of Innovex. The Exchange
will be effected by the delivery at Closing by the Innovex shareholders of duly
executed stock transfer forms in respect of all of their Innovex Shares
together with certificates representing such shares in exchange for shares of
Quintiles Common Stock. The Exchange will become effective at the date and
time specified in the Exchange Agreement (the "Exchange Closing Date").
Pursuant to the Exchange Agreement, Quintiles has agreed to substitute
options to acquire Innovex ordinary shares ("Innovex Options") for options to
acquire shares of Quintiles Common Stock ("Quintiles Options"). On the
Exchange Closing Date, each Innovex Option will be cancelled and a new
Quintiles Option to acquire shares of Quintiles Common Stock will be
substituted therefor. The exercise price for any Quintiles Options so received
will equal the exercise price of the Innovex Options exchanged for such
Quintiles Options divided by the exchange ratio of 0.7981 applicable in the
Exchange. Each Quintiles Option will otherwise be subject to equivalent terms
and conditions as apply to the corresponding Innovex Option. The total number
of shares of Quintiles Common Stock issuable in the Exchange and upon exercise
of the substituted options is 10 million.
On the Exchange Closing Date and pursuant to an escrow agreement
among the parties, two and one-half percent of the total number of shares of
Quintiles Common Stock to be issued in the Exchange will be delivered pro rata
by the Innovex shareholders to the escrow agent under the escrow agreement to
be held by such escrow agent for the purpose of securing the obligations of the
Innovex shareholders pursuant to the indemnification provisions of the Exchange
Agreement.
In addition, on the Exchange Closing Date, Barrie S. Haigh, currently
the Chairman of Innovex, will execute an employment agreement with Quintiles on
terms similar to his existing service agreement and also providing for a
noncompetition covenant restricting Mr. Haigh for a period ending on the date
he reaches age 65 or, if later, two years after his employment with Quintiles
ends. In addition, certain other senior executive officers of Innovex will
execute employment agreements with Quintiles which will include terms
satisfactory to the parties as well as noncompetition covenants. Mr. Haigh
and Paul Knott, currently Group Finance Director of Innovex, will also be
appointed to the Board of Directors of Quintiles.
The shares of Quintiles Common Stock to be received by the
shareholders of Innovex in the Exchange will be issued by Quintiles without
registration under the Securities Act pursuant to the exemptions from
registration contained in Section 4(2) of, and Regulation S under, the
Securities Act. As a result, the acquired shares may be transferred only
pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption from registration. Quintiles has agreed to provide
the Innovex shareholders with certain rights, which are subject to market
conditions and other customary limitations, to have the acquired shares
registered under the Securities Act pursuant to a Registration Rights
Agreement. Under the Registration Rights Agreement, which would be executed
when the Exchange is consummated, Quintiles has (i) agreed to file a
registration statement for an underwritten offering to include up to 2.7
million of the acquired shares and granted to the Innovex shareholders rights
to demand registration until an aggregate of 2.7 million shares are sold,
(ii) agreed to file a shelf registration statement to allow the Innovex
shareholders to sell in the market up to 500,000 shares every 90 days for a
period of approximately three years and (iii) granted rights to the Innovex
shareholders to participate with Quintiles in certain underwritten offerings
that Quintiles may file over the next approximately three years. The rights
granted to the Innovex shareholders terminate when, among other things, the
acquired shares may be sold within the limitations set forth in Rule 144 under
the Securities Act or if the holder thereof transfers the acquired shares to an
ineligible person.
It is the intention of Quintiles and the other parties to the Exchange
Agreement to consummate the Exchange and the other transactions contemplated by
the Exchange Agreement as soon as possible following the satisfaction of all
covenants and conditions to the parties' respective obligations to complete the
Exchange (or, to the extent permitted, waiver thereof). See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," "SUMMARY -- Selected Pro Forma Combined
Financial Data (Unaudited)," "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS OF QUINTILES, BRI AND INNOVEX" and "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS OF QUINTILES AND INNOVEX."
CERTAIN INFORMATION CONCERNING BRI
GENERAL
BRI is a provider of CRO services on a global basis for the
pharmaceutical, biotechnology and medical device industries. BRI provides
regulatory consulting and clinical testing services which complement the
research and development departments of client companies, emphasize a high
quality product and reduce product development time and cost. Founded in 1971,
BRI is one of the world's oldest CROs. BRI believes that it is one of the
largest CROs in the world, based on 1995 net revenue, and that it is the world's
leading provider of CRO services to the medical device industry. BRI has
assisted 12 of the 15 largest pharmaceutical companies, as ranked by the size of
their research and development operations, and BRI has served 48 of the world's
100 largest medical device and diagnostic companies as ranked by 1995 revenue.
BRI was founded as a provider of clinical services to large,
established pharmaceutical companies. As medical device regulations developed
and became more stringent, BRI expanded its scope to assist companies with
their medical device registrations. Subsequently, as the biotechnology
industry developed, BRI again expanded its services to assist those companies
with product development and registration. BRI's current operations can be
broadly grouped into three categories: Biopharmaceutical Development and
Consulting Services, Medical Device Services and Quality/Regulatory Systems.
BRI's net revenue has grown from approximately $13 million in fiscal
1991 to $38 million in fiscal 1995. BRI has a diverse client base with no
single client providing more than 10% of expected annual net revenue for fiscal
1996. BRI provides services internationally from 13 offices in 4 countries:
the U.S., the United Kingdom, France and Belgium. For the fiscal year ended
November 30, 1995, approximately 72% of net revenue was attributed to BRI's
U.S. operations and 28% to international operations.
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THE CRO INDUSTRY
The CRO industry provides independent product development services for
the pharmaceutical, biotechnology and medical device industries. Generally,
CROs derive substantially all of their revenue from the research and
development expenditures of these industries. The CRO industry has evolved
from providing primarily pre-clinical services in the 1970s to a full-service
industry today offering pre-clinical and clinical services as well as
post-marketing research. CROs manage clinical trials, provide scientific
evaluations and analyze results according to good clinical and laboratory
practices as required by the applicable regulatory authorities.
New Drug Development
Before a new drug may be marketed, it must generally undergo extensive
testing and regulatory review to determine that it is safe and effective. This
development process consists of two stages, pre-clinical and clinical. In the
pre-clinical stage, the sponsor of the new drug conducts laboratory analysis
and animal tests, generally over a one to three year period, to determine the
basic biologic activity and safety of the drug. Upon successful completion of
the pre-clinical phase, the drug undergoes a series of clinical tests in
humans, often including healthy volunteers as well as subjects with the
targeted disease, generally over an eight to twelve year period. In the U.S.,
pre-clinical and clinical testing must comply with a set of requirements
generally referred to as Good Clinical Practice ("GCP") and other standards
promulgated by the Food and Drug Administration ("FDA") and other federal and
state governmental authorities. GCP stipulates procedures designed to ensure
the quality and integrity of data obtained from clinical testing and to protect
the rights and safety of clinical subjects. The FDA pioneered the use of
clinical trials in the regulation of new drug development, and the agency's
approval process has shaped much drug regulation worldwide. In recent years,
the FDA and corresponding regulatory agencies of the major industrial countries
(Canada, Japan and the European Community ("EC")) commenced discussions for the
purpose of developing common standards for both the conduct of pre-clinical and
clinical studies and the format and content of applications for new drug
approvals. Data from multinational studies adhering to GCP are now generally
acceptable to the FDA and the governments within the EC.
For a drug manufactured in the U.S., a sponsor must file an
investigational new drug application ("IND") with the FDA before the
commencement of human testing of the drug. The IND includes pre-clinical
testing results and sets forth the sponsor's plans for conducting human
clinical trials. The design of these clinical trials is included in the study
protocol, and is critical to the success of the drug development effort because
the protocol must correctly anticipate the data and results the FDA will
require before approving the drug. In the absence of any comments from the
FDA, human trials may begin 30 days after the IND is filed. Human trials
usually start on a small scale to assess safety and then expand to larger
trials to test efficacy. Trials are usually grouped into four phases, with
multiple trials generally conducted within each phase.
Phase 1. Phase 1 trials are conducted on healthy volunteers, typically 20
to 80 persons, to develop basic safety data relating to toxicity, metabolism,
absorption and other pharmacological actions. These trials last an average of
six months to one year.
Phase 2. Phase 2 trials are conducted on a small number of subjects,
typically 100 to 200 subjects, who suffer from the drug's targeted disease or
condition. Phase 2 trials offer the first evidence of clinical efficacy, as
well as additional safety data. These trials last an average of two years.
Phase 3. Phase 3 trials are conducted on a significantly larger
population of several hundred to several thousand subjects, some of whom suffer
from the targeted disease or condition and some of whom are healthy. Phase 3
trials are designed to measure efficacy on a large scale as well as long-term
side effects. These trials involve numerous sites and generally last two to
three years.
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Phase 4. As a condition of granting marketing approval, the FDA may
require that a sponsor continue to conduct additional clinical trials, known as
Phase 4 trials, to monitor long-term risks and benefits, study different dosage
levels, or evaluate different safety and efficacy parameters in target patient
populations. Phase 4 trials have increased in importance, which has resulted
in increasing complexity in the scope of the trials (i.e., the number of
subjects tested) and the manner in which they are conducted (i.e., the number
of sites at which testing is performed). Phase 4 trials generally last one to
four years.
Clinical trials can last from eight to twelve years and represent the
most expensive and time consuming part of the overall drug development process.
The information generated during these trials is critical for gaining marketing
approval from the FDA or other regulatory agencies. After the successful
completion of Phase 3 trials, the sponsor of a new drug must submit a New Drug
Application ("NDA") to the FDA. The NDA is a lengthy filing that includes,
among other things, the results of all pre-clinical and clinical studies,
information about the drug's composition and the sponsor's plans for producing,
packaging and labeling the drug. Most of the clinical data contained in an NDA
are generated during the Phase 2 and 3 trials. The average NDA filed between
1989 and 1992 contained 90,650 pages. The FDA's review of an NDA can last from
several months to several years depending on the priority assigned to the drug
by the FDA, with the average review lasting two and one-half years. Drugs that
successfully complete this review may be marketed in the U.S., subject to the
conditions imposed by the FDA in its approval. The FDA has been subject to
increasing pressure to allow drugs to reach the public more quickly. As a
result, in some instances the FDA has expedited the review process by granting
conditional approval of lifesaving drugs or those for conditions for which
there is no current treatment so that they can be marketed while Phase 4 trials
are being conducted. In recent years, the FDA has encouraged the use of
computer assisted NDAs ("CANDAs") in an effort to expedite the approval
process.
New Medical Device Development
In addition to its regulations covering marketed devices, the FDA also
regulates the clinical investigation and marketing approval of all medical
devices in the U.S. To obtain approval to clinically investigate a significant
risk medical device, the sponsor, or sponsor/investigator, must submit an
Investigational Device Exemption ("IDE") application to the FDA for approval.
The IDE must include a scientifically valid protocol, provisions for informed
consent, and, where appropriate, pre-clinical in vitro and animal testing to
justify the clinical study. The clinical study protocol must also be approved
by the institutional review board ("IRB") at each of the institutions where the
study will be conducted.
Marketing approval is obtained by one of two processes. If the device
is substantially equivalent to a marketed device (that reached the market by
other than the pre-market approval ("PMA") process (discussed below)), then the
manufacturer submits a pre-market notification (otherwise known as a 510(k)
notice) to the FDA for approval. To be found substantially equivalent, the
device must be equivalent to the marketed device in terms of its indication for
use and its safety and performance. Safety and performance are generally
documented by in vitro testing, and possibly animal and/or clinical testing.
The FDA generally tries to respond to 510(k) submissions within 90 days, but
the entire process (i.e., responding to questions from the FDA and waiting for
further review and a decision) may take seven to nine months or longer.
If the device is not substantially equivalent to a marketed device
(that reached the market by other than the PMA process), then a PMA application
must be submitted to, and approved by, the FDA. A PMA must generally include
in-vitro, animal, and clinical data which provide reasonable assurance that
the device is safe and effective. PMAs are reviewed not only by the FDA, but
generally also by an advisory committee consisting of outside medical and
scientific experts. The entire review and approval process may take from 18
months to 40 months or longer.
Industry Structure
The CRO industry consists of several hundred small, limited-service
providers, several medium-sized CROs and a few full-service CROs with global
operations. Although there are few barriers to entry for small,
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limited-service providers, BRI believes there are significant barriers to
becoming a full-service CRO with global capabilities. Some of these barriers
include the cost and experience necessary to develop complex information
technology systems, multiple international offices to serve the global demands
of clients, the expertise to manage complex clinical trials in numerous
countries involving thousands of subjects, the preparation of flexible
regulatory submissions on a multinational basis and broad therapeutic
expertise. BRI believes barriers to entry for a full-service CRO are increasing
as a result of consolidation in the pharmaceutical industry because, once
consolidated, many pharmaceutical companies aggressively manage costs by
outsourcing larger scale, more comprehensive and sophisticated drug development
programs on a global basis. BRI believes that only a few CROs are capable of
providing these types of global services.
The CRO industry, as a whole, derives substantially all of its revenue
from research and development expenditures by the pharmaceutical, biotechnology
and medical device industries. The global pharmaceutical and biotechnology
industry spent an estimated $28 billion in 1994 on research and development, of
which an estimated $17 billion was spent on the type of services offered by
BRI. Of this amount, approximately $3.5 billion was outsourced, of which
approximately $1.5 billion was outsourced to CROs. These expenditures are
primarily for pre-clinical testing and clinical trials. Although research and
development expenditures for the publicly traded medical device companies were
approximately $5.3 billion in 1995, estimates of outsourcing are less well
defined than for the pharmaceutical and biotechnology industry.
Trends Affecting the CRO Industry
BRI believes that the following trends have been affecting the CRO
industry in recent years and will continue to do so:
Cost Containment Pressures. Recently, drug companies have faced
cost containment pressures stemming from patent expirations, market acceptance
of generic drugs and regulatory pressures to reduce drug prices. BRI believes
that the pharmaceutical industry is responding by reducing jobs, decentralizing
the research and development process, consolidating, and outsourcing to CROs,
thereby reducing the fixed costs associated with internal drug development.
The CRO industry is often able to perform the needed services with a higher
level of expertise or specialization, more quickly and at a lower cost than the
client could perform the services internally.
Globalization of the Marketplace. Pharmaceutical and biotechnology
companies are increasingly attempting to expand the market for new drugs by
pursuing regulatory approvals in multiple countries simultaneously rather than
sequentially as they have in the past. Expanding the market for a drug is
particularly important to the industry because of limited periods of patent
protection and high development costs of new drugs. In order to gain access to
the global marketplace, pharmaceutical and biotechnology companies are
increasingly outsourcing to CROs that are deployed in key geographical markets
worldwide and are capable of coordinating concurrent regulatory approvals. In
addition, these companies are increasingly using CROs that have the technology
systems in place to compile and analyze large volumes of complex data from
multinational clinical trials and prepare regulatory submissions simultaneously
on a multinational basis.
Consolidation in the Pharmaceutical Industry. The pharmaceutical
industry is consolidating as companies seek to reduce costs. Recent
consolidations include some of the largest multinational pharmaceutical
companies in the world, such as American Home Products-American Cyanamid
Company, Glaxo-Wellcome, and Roche-Syntex. Once consolidated, many
pharmaceutical companies aggressively manage costs by reducing jobs,
decentralizing the research and development process, and outsourcing to CROs in
an effort to reduce the fixed costs associated with internal drug development.
BRI believes that the full-service global CROs will benefit from this trend.
Increasingly Stringent Regulation. Increasingly stringent regulatory
requirements throughout the world have increased the volume of data required
for regulatory filings and complicated data collection and analysis during the
drug development process. As a result, the pharmaceutical and biotechnology
industries
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are outsourcing to global CROs to take advantage of their data management
expertise, technological capabilities and geographic presence. BRI believes
that CROs which stay abreast of technological innovations and the changing
regulatory requirements in multiple international jurisdictions will have a
competitive advantage.
Product Pipeline Pressures. BRI believes that research and
development expenditures have increased as a result of pressure to develop a
pipeline of products for an aging population and for the treatment of chronic
disorders and life-threatening conditions such as AIDS, Alzheimer's disease and
arthritis. The development of therapies for such conditions and disorders
requires complex clinical trials to demonstrate a therapy's effectiveness and
long-term side effects.
Biotechnology Industry Growth. The U.S. biotechnology industry has
grown rapidly over the last ten years and is introducing significant numbers of
new drugs which require regulatory approval. Many biotechnology companies do
not have the necessary staff, in-house expertise or financial resources to
conduct clinical trials. Accordingly, many biotechnology companies have chosen
to outsource to CROs rather than expend significant time and resources to
develop an internal clinical development capability. In addition, as a result
of recent product development setbacks encountered by some biotechnology
companies, BRI believes that many biotechnology companies are turning to
certain CROs for sophisticated regulatory expertise. Moreover, the
biotechnology industry is expanding into Europe, and BRI believes that
significant opportunities exist for CROs with a global presence.
Medical Device Industry Growth. The medical device industry in both
the United States and abroad has grown rapidly over the last two decades and
now offers a range of safe, effective and cost-efficient products. Many new
products and technologies are currently in development, and the speed with
which these products reach the market is greater than in either the
pharmaceutical or biotechnology industries, particularly in foreign countries.
BRI believes medical device development companies are increasingly relying on
CROs for supplemental resources and for their expertise in complex
technologies, global program management, and reimbursement and consulting
compliance. BRI believes that CROs with global capabilities in these areas
will be able to compete more effectively for outsourced business from the
growing medical device industry.
BRI'S SERVICES
BRI provides its services in the U.S. and internationally
through five operating divisions, some of which are in wholly owned
subsidiaries:
Pharmaceutical Development Services. The Pharmaceutical
Development Services ("U.S. Pharmaceutical Development") division is based in
the U.S. and is BRI's largest division. U.S. Pharmaceutical Development
assists clients with the design, implementation and management of drug or
biologic clinical research studies by providing clients with high quality
information to support regulatory submissions or post-marketing activities.
U.S. Pharmaceutical Development can manage a study or program through the
entire process from initial application to final submission, or through any
particular segment of that process. U.S. Pharmaceutical Development's staff
consists of project managers, clinical research associates, medical monitors,
data managers, biostatisticians and drug development strategists who work with
each other and with clients to design study plans and monitor studies on a
continuing basis. U.S. Pharmaceutical Development's services include: design
of clinical programs to validate claims; protocol design and review; case
report form design and printing; investigator identification and meetings;
qualification and coordination; project management of global clinical trials
using multi-lingual staff; worldwide clinical monitoring of all study phases;
clinical trials supplies, management and distribution; patient recruitment;
database design and construction; data entry and review/verification; worldwide
data management; review and incorporation of multinational data for global
submissions; central laboratory selection and evaluation; medical monitoring
and serious adverse event management; statistical design and programming;
medical writing; and computer assisted regulatory submissions.
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BRI International, Ltd. BRI International, Ltd. ("BRI
International") is BRI's second largest operating division and is based in
Europe. BRI International operates through several subsidiaries as a
pan-European organization and offers substantially the same services to the
pharmaceutical and biotechnology industries in Europe as U.S. Pharmaceutical
Development offers to those industries in the U.S. BRI International serves
European clients through its own capabilities and resources and assists U.S.
Pharmaceutical Development in serving U.S. clients with their European studies
and regulatory submissions. BRI International consists of four
revenue-generating units: Clinical Operations, Biometrics, Regulatory Affairs,
and Pharmacoeconomics. BRI International's service offerings include:
clinical trials management and monitoring; medical writing; data management;
statistical analysis and reporting; statistical consulting; project management;
regulatory affairs; and pharmacoeconomics.
Quality Regulatory Alliance. BRI's Quality Regulatory
Alliance division offers clients a wide range of regulatory compliance and
quality-related services. These services are designed to ensure regulatory
compliance and quality in manufacturing operations, laboratory research,
clinical research, product approval submissions, and commercial product
distribution. Quality Regulatory Alliance can audit a client's research and
development operations and adjust and implement existing or new quality systems
specific to a client's working practices. Quality Regulatory Alliance also
offers procedures designed to ensure efficient compliance with relevant
national and international regulations and standards, including GLP, GCP, GMP
and ISO 9000.
MTC-BRI International. BRI's recent integration of MTCE's
European medical device consulting service into its own U.S. medical device
consulting service has produced MTC-BRI International, which the Company
believes is the world's largest medical device consulting organization.
MTC-BRI International's service offerings include: review of global strategies
for device development and introduction; identifying regulatory requirements in
targeted markets; clinical study design and planning; data management;
statistical analysis and report preparation; global clinical trial management
and monitoring capabilities; consultation on quality control and quality
assurance issues; IDE, 510(k) and PMA guidance and preparation; compliance with
European and European Union regulations relating to medical devices; long-
range planning for multinational product launches; compliance with legislative
requirements for market access; post marketing requirements; managing
relationships with national governments and regulatory authorities; European
pricing strategies; and European personnel and recruitment services.
Biopharmaceutical Consulting Services. BRI's
Biopharmaceutical Consulting Services division assists clients in navigating
the regulatory approval process governing the development of pharmaceutical and
biological drugs and biotechnology products. Biopharmaceutical Consulting
Services can assist clients in the design and implementation of product
development plans from the initial product concept through product marketing.
Biopharmaceutical Consulting Services' service offerings include: strategic
regulatory planning for product development and approval; clinical research
study design to generate data for approvable indications; design and
implementation of the Phase 1 and clinical programs; GMP audits and preparation
for inspections; preparation and review of regulatory submissions; coordination
of scheduling and agendas with regulatory authorities; assisting at regulatory
meetings; in-house training programs in clinical research, regulatory affairs
and manufacturing activities; evaluation of pre-clinical research programs to
support human clinical trials; and health economics and outcome research.
SALES AND MARKETING
BRI markets and sells its services primarily through the following
means:
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Field Sales. BRI currently has 14 sales and marketing professionals,
six of whom are focused on major account development in the U.S., U.K. and
Europe, with the remainder focused on the specialty areas of biostatistics,
regulatory services, devices, and biopharmaceuticals. During 1995, additional
field sales professionals were recruited globally from both the pharmaceutical
industry and other CROs to target large, multinational clinical trial
opportunities. BRI establishes account executives for each of its client
accounts. Each account executive possesses a different area of expertise
(e.g., Phase 1, 2, 3 or 4 devices, monitoring services or contract
administration), and is responsible for a geographic region, country or
countries with specific target accounts. BRI coordinates efforts between U.S.,
European and Asian account executives.
In-house Sales. Historically, much of BRI's business has been
initiated by telephone inquiries from potential clients. These contacts have
typically been generated from other consultants with prior knowledge of BRI
(e.g., regulatory law firms) and from responses to media advertising,
conference exhibits and presentations. Senior sales staff are assigned to
handle these inquiries and try to generate business opportunities from them.
Media Advertising. BRI conducts annual (or more frequent) media
campaigns, each of which has a theme. The 1996 campaign is focused on BRI's
global capabilities.
Conferences and Exhibits. Industry conferences have become an
important sales outlet. This medium has been exploited by competitors, and in
recent years has been of increasing importance to BRI.
Corporate Target Accounts. As the industry emphasis is shifting to
large, multinational, clinical studies, BRI is focusing on becoming an integral
part of the large pharmaceutical companies.
CLIENTS
BRI serves many of the leading pharmaceutical, biotechnology, and
medical device companies in the U.S. and the EC. BRI has assisted 12 of the 15
largest pharmaceutical companies as ranked by the size of their research and
development operations, and BRI has served 48 of the world's 100 largest medical
device and diagnostic companies as ranked by 1995 revenue. For the year ended
November 30, 1995, BRI recognized revenue on contracts with 569 clients, and
realized approximately 69% of revenue from pharmaceutical and biotechnology
clients, 21% from medical device clients and 10% from quality systems and
regulatory affairs. For the fiscal year ended November 30, 1995, approximately
72% of net revenue was attributed to U.S. operations and 28% to international
operations. BRI has a diverse client base with no single client providing more
than 10% of expected annual revenue for fiscal 1996.
CONTRACTUAL ARRANGEMENTS
BRI generally is awarded contracts based, among other things, upon its
response to requests for proposal ("RFP") received from pharmaceutical,
biotechnology and medical device companies. The contract may require BRI to
design a protocol, conduct the trial, analyze the results of one or more of the
trials, prepare and submit an NDA or CANDA to the FDA, or perform any
combination or all of these services. Most contracts are time and materials (a
majority of contracts) or fixed price. They are fixed task, multi-year
contracts that require a portion of the contract amount to be paid at or near
the time the trial is initiated. BRI generally bills its clients monthly in
the case of time and material contracts or upon the completion of negotiated
performance requirements (in the case of fixed price contracts). Frequently,
BRI obtains additional revenue as a result of change orders to existing
contracts. Project managers initiate change orders, subject to client
approval, as additional tasks or requirements are determined over the course of
the contract. BRI's contracts generally may be terminated with or without
cause upon a specified notice period (usually 30 days) by the client. In the
event of termination, BRI is typically entitled to all sums owed for work
performed through the notice of termination and all costs associated with
termination of the study. Some of BRI's contracts provide for an early
termination fee, the amount of which usually declines as the trial progresses.
Loss of a large contract could adversely affect the Company's future revenue
and
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profitability. Termination or delay in the performance of a contract occurs
for various reasons, including, but not limited to, unexpected or undesired
results, inadequate patient enrollment or investigator recruitment, production
problems resulting in shortages of the drug, adverse patient reactions to the
drug, or the client's decision to de-emphasize a particular trial.
BACKLOG
Backlog consists of anticipated net revenue from letters of intent and
contracts that have not been completed. Once work under a letter of intent or
contract commences, net revenue is recognized over the life of the contract.
In certain cases, BRI will work on a project prior to finalizing a letter of
intent or contract, but backlog does not include anticipated net revenue for
projects for such project until a definitive letter of intent or contract has
been executed. BRI believes that its backlog as of any date is not necessarily
an accurate indicator of future results because backlog can be affected by a
number of factors, including the size and duration of multi-year projects.
Also, BRI enters into many general consulting agreements which do not specify
dollar minimums or limits. Therefore, only anticipated net revenue which is
reasonably expected over the near term is included in backlog. Clinical trials
under contracts included in backlog are subject to termination or delay at any
time by the client or regulatory authorities; delayed contracts remain in BRI's
backlog pending determination of whether to continue, modify or cancel the
contract. Accordingly, and no assurance can be given that BRI will be able to
realize the net service revenue included in backlog. At May 31, 1996, BRI's
backlog was $60 million.
COMPETITION
BRI competes primarily with the pharmaceutical companies'
in-house research departments, other CROs, universities and teaching hospitals,
many of which have substantially greater financial and other resources than
BRI. The CRO industry is highly fragmented, with approximately 20 full-service
CROs and many small, limited-service providers. In recent years, however,
competitive pressures have resulted in an increasing consolidation of the CRO
industry, which is likely to produce heightened competition among the larger
CROs for clients. Several large, full-service competitors have emerged, some
of which have substantially greater capital and other resources, are better
known and have more experienced personnel than BRI. BRI's competitors include
Quintiles; G.H. Besselaar and Associates, a subsidiary of Corning, Inc.;
Pharmaco, a subsidiary of Applied Bioscience International, Inc.; ClinTrials
Research, Inc.; Parexel International Corp.; IBAH, Inc.; and Pharmaceutical
Product Development, Inc.
The CRO industry is not capital intensive and the financial costs of
entry into this industry as a small, limited service provider are relatively
low. However, the resources and expertise required to become a full-service
CRO with global capabilities are significant and include highly trained
personnel, offices in several countries, sophisticated information systems and
expertise in managing complex clinical trials in multiple countries. BRI
believes that clients choose a CRO based on several factors, the most important
of which is the historical quality of the work performed for existing and
former clients. Other factors include references from existing clients,
ability to provide the services required for projects in specific therapeutic
areas, and the price for the services performed. While the contract price is
an important consideration, BRI believes the more important considerations are
experience, reputation, availability of resources and timely completion.
GOVERNMENT REGULATION
The clinical investigation of new pharmaceutical, biotechnology and
medical device products is highly regulated by governmental agencies. The
purpose of U.S. federal regulations is to ensure that only those products which
have been proven to be safe and effective are made available to the public.
The FDA has set forth regulations and guidelines that pertain to applications
to initiate trials of products, approval and conduct of studies, report and
record retention, informed consent, applications for the approval of new
products, and post-marketing requirements. Pursuant to FDA regulations, CROs
that assume obligations of a drug sponsor are required to comply with
applicable FDA regulations and are subject to regulatory action
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for failure to comply with such regulations. In the U.S., the historical trend
has been in the direction of increased regulation by the FDA. BRI believes
that many pharmaceutical, biotechnology and medical device companies do not
have the staff and/or the available expertise to comply with all of the
regulations and standards, and this has contributed and will continue to
contribute to the growth of the CRO industry.
The services provided by BRI are ultimately subject to FDA regulation
in the U.S. and comparable agencies in other countries. BRI is obligated to
comply with FDA regulations governing such activities as selecting qualified
investigators, obtaining required forms from investigators, verifying that
patient informed consent is obtained, monitoring the validity and accuracy of
data, verifying drug/device accountability, and instructing investigators to
maintain records and reports. BRI must also maintain records for each study
for specified periods for inspection by the study sponsor and the FDA during
audits. If FDA audits document a failure by a CRO to adequately comply with
federal regulations and guidelines, significant sanctions could follow. In
addition, failure to comply with applicable regulations could result in
termination of ongoing research or the disqualification of data.
The industry standard for conducting pre-clinical research and
development is embodied in the GCP guidelines, which set standards ensuring the
quality and integrity of the clinical development and testing process and
protect the rights and safety of clinical subjects. The GCP guidelines have
not been formally adopted as regulations by the FDA or its counterpart
regulatory agencies outside the U.S. However, such authorities may from time
to time require that clinical development studies be conducted in compliance
with GCP, and both the FDA and foreign authorities have incorporated certain
provisions of GCP in their regulations.
GLP represents the industry standard for conducting pre-clinical and
laboratory testing. The U.S. FDA and the Environmental Protection Agency
("EPA") have formally adopted GLP as regulations, as have the Department of
Health in the U.K. and other agencies around the world. GLP stipulates
requirements for facilities, equipment, and professional staff, and sets forth
standardized procedures for controlling studies, recording and reporting data
and record retention.
POTENTIAL LIABILITY AND INSURANCE
BRI monitors the testing of new drugs on human volunteers pursuant to
study protocols in Phase 2, 3 and 4 trials. Clinical research involves a risk
of liability for personal injury or death to subjects from adverse reactions to
the study drug, many of whom are seriously ill and are at great risk of further
illness or death as a result of factors other than their participation in a
trial. Additionally, although BRI's employees do not have direct contact with
the participants in a clinical trial, BRI, on behalf of its clients, contracts
with physicians who render professional services, including the administration
of the substance being tested, to such persons. Although BRI does not believe
it is legally accountable for the medical care rendered by such third party
physicians, it is possible that BRI could be held liable for bodily injury,
death, pain and suffering, loss of consortium, other personal injury claims and
medical expenses arising from any professional malpractice of such physicians.
BRI maintains insurance to cover malpractice liability of physicians who are
employees or consultants of BRI.
BRI believes that the risk of liability to subjects in clinical trials
is mitigated by various regulatory requirements, including the role of
institutional review boards ("IRBs") and the need to obtain each patient's
informed consent. The FDA requires each human clinical trial to be reviewed
and approved by the IRB at each study site. An IRB is an independent committee
that includes both medical and non-medical personnel and is obligated to
protect the interests of subjects enrolled in the trial. After the trial
begins, the IRB monitors the protocol and the measures designed to protect
subjects, such as the requirement to obtain informed consent.
To reduce its potential liability, BRI seeks to obtain indemnity
provisions in its contracts with clients and, in some cases, with investigators
contracted by BRI on behalf of its clients. These indemnities generally do
not, however, protect BRI against certain of its own actions such as those
involving negligence or
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misconduct. Moreover, these indemnities are contractual arrangements that are
subject to negotiation with individual clients, and the terms and scope of such
indemnities vary from client to client and from trial to trial. BRI also, in
some circumstances, indemnifies and holds harmless its clients and
investigators against liabilities incurred by such parties due to the actions
or inaction of BRI. Finally, since the financial performance of these
indemnities is not secured, BRI bears the risk that an indemnifying party may
not have the financial ability to fulfill its indemnification obligations. BRI
could be materially and adversely affected if it were required to pay damages
or incur defense costs in connection with a claim that is outside the scope of
an indemnity or where the indemnity, although applicable, is not performed in
accordance with its terms.
BRI currently maintains an errors and omissions professional
liabilities insurance policy in amounts it believes to be sufficient. There
can be no assurance that this insurance coverage will be adequate, or that
insurance coverage will continue to be available on terms acceptable to BRI.
INTELLECTUAL PROPERTY
BRI believes that factors such as its ability to attract and retain
highly-skilled professional and technical employees and its project management
skills and experience are significantly more important to its performance than
are any intellectual property rights developed by it. BRI has developed, and
continually develops and updates, certain computer software related
methodologies. BRI seeks to maintain its rights in the software it develops
through a combination of contract, copyright and trade secret protection.
FACILITIES AND EMPLOYEES
At August 31, 1996, BRI had approximately 509 employees.
Approximately 52% of BRI's employees are located in the U.S. and 48% are
located in Europe. BRI believes that its relations with its employees are
good.
BRI's performance depends on its ability to attract and retain a
qualified management, professional, scientific and technical staff.
Competition from both BRI's clients and competitors for skilled personnel is
high. While BRI has not experienced any significant problems in attracting or
retaining qualified staff to date, there can be no assurance BRI will be able
to avoid these problems in the future.
BRI owns no real estate. BRI leases approximately 34,000 square feet
in Arlington, Virginia for its headquarters operations. Additionally, BRI
leases 14 facilities in the U.S. and five European countries. For the six
months ended May 31, 1996, BRI incurred approximately $860,000 in facilities
rent. BRI believes its current facilities are adequate for its existing
operations.
LEGAL PROCEEDINGS
As of August 2, 1996, BRI had been served with approximately 29
complaints, on behalf of 32 individuals who claim to have suffered injury
resulting from spinal fixation surgery using a medical device known as the
pedicle screw. The 29 complaints were among several hundred filed against
numerous other defendants. Physicians around the country have used the pedicle
screw in spinal fixation surgery since approximately 1990, and BRI believes that
hundreds of lawsuits relating to the device have been filed against physicians
and manufacturers. BRI was engaged by various manufacturers of the pedicle
screw, including members of the Spinal Implant Manufacturers Group ("SIMG"),
principally to analyze existing data which the manufacturers wished to present
to the FDA for approval of a re-labeling of the pedicle screw to refer to its
efficacy in spinal fixation. The claims against BRI allege that BRI conspired
with the manufacturers of the pedicle screw in misrepresenting the effectiveness
of the device, and thereby knowingly committed a "fraud on the marketplace."
BRI understands that all of the cases against it involving the pedicle
screw have been or will be consolidated in the Eastern District of Pennsylvania
for pre-trial purposes pursuant to transfer orders from the federal Panel on
Multi-District Litigation. On or about August 23, 1996, Judge Bechtle of the
Eastern District of Pennsylvania dismissed without prejudice claims filed by
the various plaintiffs against parties not
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involved in the design, manufacture or sale of the pedicle screw, including all
the claims against BRI. Initially, the Court allowed plaintiffs until
September 30, 1996 to restate their claims, and subsequently that deadline was
extended an additional thirty (30) days. Therefore, while all claims against
BRI currently stand dismissed, they may be re-filed.
BRI's professional liability insurance carrier has been notified and
has agreed to defend the cases subject to an express reservation of rights. In
addition, BRI has asserted a claim for indemnification under its contract with
SIMG. While BRI does not at this point believe the pedicle screw claims are
likely to result in significant liability against it, the claims are in their
earliest stages and there can be no assurance that the cases will not have a
materially adverse result. See "RISK FACTORS--Risks of Certain Litigation
Involving BRI."
BRI is involved in various other legal proceedings in the ordinary
course of its business which are not anticipated to have a materially adverse
effect on BRI's financial condition or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BRI INTERNATIONAL, INC.
Overview
BRI was founded in 1971 as a provider of clinical services to large,
established pharmaceutical companies. Subsequently, BRI has continued to focus
on the pharmaceutical industry but has also expanded its service offerings to
include medical device development consulting, biotechnology product development
consulting, and general quality control and regulatory consulting. Accordingly,
BRI derives revenue from a diverse array of clients in the pharmaceutical,
medical device and biotechnology industries. For fiscal 1995, BRI realized
approximately 69% of net revenue from pharmaceutical and biotechnology clients,
21% from medical device clients and 10% from quality systems and regulatory
affairs consulting. For the same period, BRI received approximately 72% of net
revenue from its U.S. operations and 28% from international operations. No
single client provides more than 10% of annual net revenue.
BRI typically is awarded contracts based, among other things, upon its
response to requests for proposal ("RFP") from pharmaceutical, biotechnology
and medical device companies. A majority of contracts are time and materials,
but the company also receives cost-plus and fixed-price contracts. The
contracts are generally fixed-task, multi-year agreements that require a
portion of the contract amount to be paid at or near the time the study or
trial begins. BRI recognizes revenue from time and materials contracts as
costs are incurred in amounts consistent with the agreed-upon billing rates,
and from cost-plus and fixed-price contracts under the percentage-of-completion
method of accounting. BRI generally bills its clients monthly in the case of
time and materials and cost-plus contracts and upon the completion of
negotiated performance requirements in the case of fixed-price contracts.
Costs and estimated profits are included in service revenue as work is
performed and are calculated based on the relationship between cost incurred
and total estimated cost.
BRI also recognizes revenue from change orders to existing contracts
initiated by project managers (with client approval) to accommodate additional
tasks or requirements over the course of a contract. BRI does not require
collateral for unpaid balances, but credit losses have consistently been within
management's expectations and applicable reserves. Contracts generally are
terminable with or without cause upon a specified notice period (typically 30
days). In the event of termination, BRI is typically entitled to all sums owed
for work performed through the notice of termination and all costs associated
with termination of the contract.
On June 30, 1994, BRI acquired Brookwood Statistics Ltd. ("BSL"), a
statistical CRO based in the U.K., in a non-cash, merger transaction. BRI
issued 30,786 shares of its Common Stock in exchange for all the outstanding
common stock of BSL. This transaction was accounted for as a pooling of
interests and, accordingly, BRI's consolidated financial statements and related
disclosures have been restated to include the results of operations of BSL for
all periods presented. The discussion of results of operations that follows is
based on the combined operations of BRI and BSL for all periods presented.
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On October 18, 1994, BRI acquired Health Care Research and Statistical
Services N.V. ("HCR"), a Belgium-based CRO, for approximately $143,000 and
14,920 shares of BRI's Common Stock. The HCR acquisition was accounted for as
a purchase and, accordingly, the operating results of HCR are included in BRI's
consolidated statements of operations since the date of the acquisition.
On February 28, 1996, BRI acquired Medical Technology Consultants
Europe, Ltd. ("MTCE"), a medical device development CRO based in the U.K., in a
non-cash, merger transaction. BRI issued 49,400 shares of its Common Stock in
exchange for all of the outstanding common stock of MTCE. This transaction was
accounted for as a pooling of interests. BRI's consolidated financial statements
and related disclosures have not been restated to include the results of
operations of MTCE for all periods presented up to and including November 30,
1995 as the operations of MTCE are not considered material to BRI.
Results of Operations
Six Months Ended May 31, 1996 Compared to Six Months Ended May 31, 1995
Net revenue for the six months ended May 31, 1996 was $24.0 million as
compared with $18.0 million for the corresponding six month period in 1995, an
increase of 32.9%. This increase is due to growth in BRI's U.S. and European
operations attributable to expanded service offerings, increased services on
existing contracts, the acquisition of new contracts and clients, and a greater
percentage of larger contracts.
Direct costs increased 17.8% from $7.2 million for the six months ended
May 31, 1995 to $8.5 million during the corresponding period of 1996. This
increase is attributable to the increase in net revenue, which is partially
offset by an improvement in direct margins. Direct costs as a percentage of net
revenue decreased from 39.8% in the six months ended May 31, 1995 to 35.3% in
the same period of 1996 as a result of changes in the composition of BRI's
contracts, improved efficiencies in the provision of services to clients, and
better controls over pricing and billing.
General and administrative expenses increased from $9.3 million in
the first half of fiscal 1995 to $13.1 million in the first half of fiscal
1996, an increase of 40.5%. As a percentage of net revenue, general and
administrative expenses increased from 51.6% in the six months ended May 31,
1995 to 54.5% in the six months ended May 31, 1996. This increase is primarily
due to expenses associated with the MTCE merger in February 1996 and to
significantly higher expenditures for business development. Depreciation and
amortization as a percentage of net revenue were unchanged.
Operating income for the six months ended May 31, 1996 was $1.7 million
as compared with $1.0 million for the first six months of fiscal 1995, a 72.4%
increase. This increase is attributable to the increase in net revenue and the
improvement in operating margins, as discussed above.
Net other expense during the six-month periods ended May 31, 1995 and
May 31, 1996 remained essentially unchanged.
BRI's effective tax rate decreased from 52.9% for the six months ended
May 31, 1995 to 37.5% for the six months ended May 31, 1996. This reduction
occurred because foreign losses in 1995 did not qualify for tax benefit
recognition. These foreign losses have been eliminated in 1996, and BRI has
provided no tax on the resulting profits due to the benefit expected from the
prior tax loss carryforwards.
BRI's net income increased approximately $586,000 from $385,000 for the
six months ended May 31, 1995 to $971,000 for the corresponding period in 1996,
an increase of 152.2%. This increase is attributable to higher net revenue and
operating margins coupled with a decrease in the Company's effective
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tax rate, as discussed above. Net income as a percentage of net revenue rose
from 2.1% for the first half of fiscal 1995 to 4.1% for the first half of
fiscal 1996.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net revenue for the fiscal year ended November 30, 1995 was $38.2
million as compared with $24.8 million for the fiscal year ended November 30,
1994. This represents a 54.2% increase and was due to growth in both domestic
and European operations. Net revenue from U.S. operations increased due to the
continued expansion of certain lines of service, acquisition of new contracts
and increased net revenue from existing customers. European net revenue,
exclusive of Belgian operations, increased primarily because of performance
under new and larger contracts and growth in clinical operations. Net revenue
from BRI's Belgian subsidiary, acquired in October 1994, increased due to the
inclusion of these operations for the entirety of fiscal 1995 as compared with
only one and one-half months of fiscal 1994.
Direct costs increased 52.7% from $10.1 million in 1994 to $15.3
million in 1995. This increase was proportional to BRI's growth in net revenue.
Direct costs as a percentage of net revenue decreased from 40.6% in fiscal 1994
to 40.2% in fiscal 1995.
General and administrative expenses increased 43.4% from $13.3 million
in 1994 to $19.1 million in 1995. As a percentage of net revenue, general and
administrative expenses decreased from 53.7% in 1994 to 49.9% in 1995.
This decrease reflects BRI's efforts to control indirect (support) costs in
order to achieve economies of scale on an increasing revenue base.
Depreciation and amortization as a percentage of net revenue increased by 0.7%
due primarily to acquisitions of technology-related equipment intended to
enhance operating efficiencies.
Operating income for the year ended November 30, 1995 was $2.4 million
as compared with $719,000 for the previous year. This represents a 239.9%
increase and was attributable primarily to the growth in net revenue and
containment of general and administrative expenses.
Net other expenses increased by $130,000 from $189,000 in fiscal 1994
to $319,000 in fiscal 1995 due principally to increased interest costs related
to the financing of BRI's accounts receivable and capital expenditures.
The Company's effective tax rate was 52.9% in fiscal year 1995 as
compared with 44.9% in fiscal year 1994. The higher effective rate in 1995 was
due to foreign operating losses, primarily associated with an acquisition made
near the end of 1994, for which no tax benefit was provided.
The Company's net income increased by 242.8% to $1.0 million in fiscal
year 1995 from $292,000 in fiscal 1994. This increase is attributable
principally to the increase in revenue, as the savings resulting from lower
general and administrative expenses as a percentage of net revenue were
essentially offset by higher interest charges and the increased effective tax
rate. Net income as a percentage of net revenue increased from 1.2% in fiscal
1994 to 2.6% in fiscal 1995.
Fiscal Year 1994 Compared to Fiscal Year 1993
Net revenue for the fiscal year ended November 30, 1994 was
approximately $24.8 million as compared with $17.8 million for fiscal year 1993,
a 39.0% increase. This increase was due primarily to net revenue growth in U.S.
operations resulting from expansion of certain relatively new areas of service,
the acquisition of contracts in project operations and increased staffing and
net revenue in consulting operations. Additionally, fiscal year 1994 net
revenue included BRI's Belgian subsidiary, which was acquired in October 1994.
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Direct costs rose from $7.4 million in fiscal 1993 to $10.1 million
in fiscal 1994. As a percentage of net revenue, direct costs fell to 40.5% in
fiscal 1994 from 41.5% in fiscal 1993. This slight reduction was due to a
change in the mix of BRI's contracts and the nature of the costs required to
perform them, coupled with improved performance efficiencies.
General and administrative expenses increased to $13.3 million in 1994
from $9.7 million in 1993. As a percentage of net revenue, general and
administrative expenses fell slightly to 53.7% in the year ended November 30,
1994 from 54.1% in the previous year. Depreciation and amortization as a
percentage of net revenue increased by 0.7%.
Operating income for the year ended November 30, 1994 was approximately
$719,000 as compared with $401,000 for fiscal year 1993. This 79.3% increase in
operating income is attributable to the increase in net revenue and to savings
realized from the reductions as a percentage of net revenue in direct costs and
general and administrative expenses.
Net other expenses increased by $37,000 from $152,000 in fiscal 1993 to
$189,000 in fiscal 1994 due principally to increased cost relating to the
financing of accounts receivable and capital expenditures.
BRI's effective tax rate was 44.9% in fiscal year 1994 as compared
with 28.5% in fiscal year 1993, primarily because of higher marginal income tax
rates on a 112.9% increase in pre-tax earnings. In the year ended November 30,
1993, the Company recorded a charge related to a change in its methodology for
recognizing deferred income taxes of approximately $158,000 in conjunction with
the adoption of a recently promulgated accounting standard. There was no
similar expense in fiscal year 1994.
BRI's net income increased by approximately $272,000, or 1,360%, to
$292,000 in fiscal 1994 from $20,000 in fiscal 1993. This increase is
attributable to the higher net revenue and operating margins, coupled with the
effect of the cumulative accounting change recorded in fiscal year 1993.
Liquidity and Capital Resources
BRI has financed its operations primarily through cash flow from
operations, as well as through a line of credit and other borrowings. Cash
flows from operations were approximately $927,000 for the six months ended May
31, 1996, arising primarily from net income, non-cash charges against income for
depreciation and amortization, and advance contract funds received from clients.
Net cash in-flows from operations were approximately $1.3 million in 1995. In
1994 and 1993, net cash out-flows from operations were approximately $1.0
million and $234,000, respectively.
BRI had working capital of approximately $2.1 million at May 31, 1996,
as compared with $200,000 at May 31, 1995. BRI's line of credit has been
sufficient to cover any working capital deficits. BRI made capital
expenditures totaling approximately $919,000 during the six months ended May
31, 1996, principally to upgrade its technology. BRI has financed its
acquisitions primarily through the issuance of its common stock.
BRI currently has a $4 million line of credit with Citizens Bank. The
line of credit bears interest which is payable monthly at the bank's prime rate
(currently 8.25%) and expires on June 30, 1997. The line of credit subjects
BRI to certain covenants, including requirements to maintain a minimum
consolidated tangible net worth of $4 million, minimum tangible net worth from
U.S. operations of $3 million and a debt to worth ratio not to exceed 3.75 to
1. At May 31, 1996, BRI was in compliance with these covenants and $1,121,000
was outstanding under the line of credit. The line of credit is repayable on
demand and is secured by substantially all the assets of BRI.
In addition to the line of credit, BRI has outstanding bank debt
consisting of: (i) a note payable in the amount of $354,000, bearing interest
at prime plus 1% (currently 9.25%) and payable in monthly principal and
interest installments of approximately $7,600 through May 2000, secured by
substantially all
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assets of BRI; (ii) a revolving commercial loan of up to $900,000, of which
$300,000 was outstanding as of May 31, 1996, bearing interest at the lender's
prime rate (currently 8.25%), due in October 1996 and secured by substantially
all assets of BRI; (iii) various notes payable in the total amount of $734,000,
due in monthly principal installments of approximately $20,000 plus interest at
prime plus 1% (currently 9.25%) through October 1999, secured by substantially
all the assets of BRI; and (iv) a note payable in the amount of $863,000, due
in monthly principal installments of $15,417 plus interest at the lender's
prime rate (currently 8.25%), with a balloon payment of the remaining principal
due July 1997. BRI also has other long-term debt obligations, the most
significant of which are notes payable in the amount of $452,000 due in monthly
principal and interest payments of various amounts through January 1999 and
bearing interest at an average rate of 16.0%.
BRI will depend on cash flow from operations and bank borrowings to
meet its future working capital requirements. BRI believes the combination of
cash flow from operations and its current credit facilities will be adequate to
cover its short-term cash requirements. To the extent that BRI pursues
acquisitions or geographic expansion, it may require additional cash beyond
that provided by operations and current credit facilities.
Foreign Currency Exchange
Contracts between BRI and its clients may be denominated in a currency
other than the currency local to BRI's operations. Exchange gains and losses,
which are recognized in income currently, have not been material to the BRI's
results of operations or cash flow.
Inflation
BRI does not believe that inflation has had a material effect on its
results of operations during the past three years.
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BENEFICIAL OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
Ownership of Directors and Executive Officers
The following table sets forth as of September 17, 1996 the number of
shares of BRI Common Stock beneficially owned by each Director and Executive
Officer named below:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES
BENEFICIALLY PERCENTAGE OF TOTAL
BENEFICIAL OWNERS OWNED SHARES OUTSTANDING (1)
----------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Frank L. Hurley, Ph.D 65,916 (2) 14.5% (2)
James T. Ogle 19,268 (3) 4.2% (3)
Anne E. Wiles, MSc, CStat 18,293 (4) 4.0% (4)
Paul Redstone 16,395 (5) 3.6% (5)
Alan J. Howard, Esq. 13,800 3.0%
Edward Van Rompay 9,223 (6) 2.0% (6)
J. Stewart Marr 7,366 (7) 1.6% (7)
Rodney R. Munsey, Esq. 4,910 (8) 1.1% (8)
Robert J. Davis, Pharm.D. 1,623 (9) *
Bruce Brennan 1,527 (10) *
Joseph P. Clancy 906 *
John Villforth 895 *
John Weidlein 876 *
Louis Lasagna, M.D. 833 *
Michael J. Beatrice 600 (11) *
Thomas M. Hogan 392 *
All Directors and Executive Officers as a 162,823 35.9%
Group
- --------------------------------------
</TABLE>
* Indicates less than 1% of total shares outstanding
(1) Total shares outstanding includes all shares of BRI Common Stock held
under the BRI Employees' 401(k) Stock Ownership Plan and all shares which
may be acquired by the exercise of all options granted under the
Biometric Research Institute, Inc. Stock Option Plan, the Biometric
Research Institute, Inc. Amended and Restated Stock Option Plan, the
Biometric Research Institute, Inc. Second Amended and Restated Stock
Option Plan, and the BRI International, Inc. Incentive Stock Option Plan
(collectively, the "Option Plans").
(2) Includes 5,959 shares of BRI Common Stock which may be acquired by the
exercise of options granted under the Option Plans, 3,949 of which are
currently vested and 2,000 of which will vest as a result of shareholder
approval of the Merger.
(3) Includes 1,133 shares of BRI Common Stock held pursuant to the BRI
Employees' 401(k) Stock Ownership Plan and 6,676 shares of BRI Common
Stock which may be acquired by the exercise of options granted under the
Option Plans, 4,676 of which are currently vested and 2,000 of which will
vest as a result of shareholder approval of the Merger.
(4) Includes 2,178 shares of BRI Common Stock which may be acquired by the
exercise of options granted under the Option Plans, 178 of which are
currently vested and 2,000 of which will vest as a result of shareholder
approval of the Merger. Also includes 6,000 shares of BRI Common Stock
held by Richard Nigel Wiles and 6,000 shares held by Mr. and Mrs. Wiles
as trustees.
(5) Includes 400 shares of BRI Common Stock which may be acquired by the
exercise of options granted under the Option Plans, all of which will
vest as a result of shareholder approval of the Merger.
(6) Includes 6,249 shares held in the name of Edward Van Rompay and Hilde
DeDecker and 2,974 shares held by MDM, N.V., an entity in which Mr.
Van Rompay has a controlling interest.
(7) Includes 174 shares of BRI Common Stock held pursuant to the BRI
Employees' 401(k) Stock Ownership Plan and 6,563 shares of BRI Common
Stock which may be acquired by the exercise of options granted under the
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Option Plans, 4,563 of which are currently vested and 2,000 of which will
vest as a result of shareholder approval of the Merger.
(8) Includes 193 shares of BRI Common Stock held pursuant to the BRI
Employees' 401(k) Stock Ownership Plan and 3,778 shares of BRI Common
Stock which may be acquired by the exercise of options granted under the
Option Plans, 3,578 of which are currently vested and 200 of which will
vest as a result of shareholder approval of the Merger.
(9) Includes 206 shares of BRI Common Stock held pursuant to the BRI
Employees' 401(k) Stock Ownership Plan and 1,413 shares of BRI Common
Stock which may be acquired by the exercise of options granted under the
Option Plans, 113 of which are currently vested and 1,300 of which will
vest as a result of shareholder approval of the Merger.
(10) Includes 615 shares of BRI Common Stock which may be acquired by the
exercise of options granted under the Option Plans, all of which are
currently vested.
(11) Includes 500 shares of BRI Common Stock which may be acquired by the
exercise of options granted under the Option Plans, all of which will
vest as a result of shareholder approval of the Merger.
Ownership of Certain Other Beneficial Owners
The following chart names all beneficial owners (other than
Directors and Executive Officers) of BRI's Common Stock known to BRI to own
more than 5% of the Common Stock as of September 17, 1996:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF TOTAL
BENEFICIAL OWNERS OWNED SHARES OUTSTANDING (1)
------------------- ----------------------- -------------------
<S> <C> <C>
BRI 401(k) ESOP Trust 31,166 (2) 6.9% (2)
1300 North 17th Street
Suite 300
Arlington, Virginia 22209
</TABLE>
_____________________________________
(1) Total shares outstanding includes all shares of BRI Common Stock held
under the BRI Employees' 401(k) Stock Ownership Plan and all shares which
may be acquired by the exercise of all options granted under the Option
Plans.
(2) Includes 1,706 shares listed above held for the benefit of certain
directors and executive officers of BRI.
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COMPARISON OF THE RIGHTS OF HOLDERS
OF QUINTILES COMMON STOCK AND BRI COMMON STOCK
If the Merger is consummated, shareholders of BRI, a Virginia
corporation, will become shareholders of Quintiles, a North Carolina
corporation, and the rights of such shareholders will be governed by North
Carolina law, including the North Carolina Business Corporation Act (the
"NCBCA"), and by the Amended and Restated Articles of Incorporation and Bylaws
of Quintiles, and will no longer be governed by Virginia law, including the
Virginia Stock Corporation Act (the "VSCA"), or by the Articles of
Incorporation or Bylaws of BRI. Although it is not practical to compare all
the differences between North Carolina law and applicable Virginia law and
between the governing documents of Quintiles and BRI, the following provides a
summary of certain of those differences that may significantly affect the
rights of BRI's shareholders. This summary is qualified in its entirety by
reference to the VSCA and the NCBCA and by the governing corporate instruments
of Quintiles and BRI, to which shareholders of BRI are referred.
AUTHORIZED CAPITAL STOCK; BLANK STOCK PROVISION
Quintiles' charter authorizes 50,000,000 shares of Common Stock, $0.01
par value, which are of the same class. The charter also authorizes 25,000,000
shares of preferred stock, $0.01 par value, and grants broad authority to the
Quintiles Board of Directors to determine the voting powers, designations,
preferences and rights of classes or series of such preferred stock without
shareholder approval. Quintiles has no preferred stock outstanding at the date
of this Proxy Statement/Prospectus. Subject to the rights of any preferred
stock issued in the future, as determined by the Board of Directors or
otherwise provided under North Carolina law, the holders of Quintiles Common
Stock have one vote per share on all matters on which holders of Common Stock
are entitled to vote.
BRI's articles of incorporation authorize 500,000 shares of common
stock, $.10 par value per share, which are the same class and of which
375,448.04 are issued and outstanding as of September 16, 1996. BRI has no
authorized or outstanding preferred stock. The holders of BRI Common Stock
have one vote per share on all matters on which holders of BRI Common Stock are
entitled to vote.
SIZE OF THE BOARD OF DIRECTORS
Under North Carolina law, although changes in the number of directors
must in general be approved by a majority of the outstanding shares, the board
of directors may: (i) increase or decrease the number of directors by not more
than 30% during any 12-month period or (ii) fix the exact number of directors
within a stated range set forth in the articles of incorporation or bylaws.
Quintiles' articles of incorporation set a range for Board size from nine (9)
to fifteen (15) members, and the bylaws permit a majority of the Directors to
approve changes in Board size within the range.
The VSCA requires that each Virginia corporation have a board of
directors consisting of one or more individuals, but does not require a
specified number of directors. BRI's Bylaws set a range for board size from
three (3) to fifteen (15), with the number of directors determined by the BRI
Board of Directors within such range.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one to which a certain number, but not all, of
the directors are elected on a rotating basis each year. A North Carolina
corporation may classify its board into two, three or four classes. A
classified board makes changes in the board of directors, and thus potential
changes in control of a corporation, a lengthier and more difficult process.
The Quintiles Board of Directors currently is divided into three classes, each
serving three year terms.
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Under the VSCA, a corporation's articles of incorporation may provide
for staggering the terms of directors by dividing the total number of directors
into two or three groups. The terms of the members of the BRI Board of
Directors are not staggered.
CUMULATIVE VOTING
Cumulative voting permits a shareholder to cumulate his total
shareholder votes for a single candidate in an election of directors. Under
North Carolina law, the right to cumulative voting depends upon the date of
incorporation and a corporation's status as a public or private company.
Quintiles' shareholders are not entitled to cumulate their votes.
Although the VSCA permits corporations to authorize cumulative voting
in their articles of incorporation, the BRI Articles of Incorporation do not
grant cumulative voting rights.
REMOVAL OF DIRECTORS; FILLING VACANCIES
Pursuant to the Quintiles charter, the shareholders can remove
a director only with the approval of two-thirds of the voting power of all
shares entitled to vote in the election of directors, except that where a
director was elected by the holders of one class or series of stock, or a group
of such class or series, only the members of that voting group may participate
to remove him. The Quintiles charter further specifies that only the Board of
Directors may fill vacancies on the Board.
Under the VSCA, unless otherwise provided in the articles of
incorporation, vacancies on the board of directors may be filled by the
shareholders of the corporation, the directors or, if the directors remaining
in office constitute fewer than a quorum of the board, the affirmative vote of
a majority of the directors remaining in office. A director of BRI may be
removed with or without cause at a shareholders' meeting called for that
purpose.
AMENDMENT OF CHARTER AND BYLAWS
Quintiles' charter contains a provision that requires the
approval of at least two-thirds of the shareholders who are entitled to vote in
an election of directors in order to adopt an amendment to the charter. If,
however, the proposed amendment is approved by a majority of the disinterested
members of Quintiles' Board of Directors, then the amendment will only require
the majority approval of the shareholders, or such greater percentage as
required under North Carolina law. A disinterested director is defined as a
member of the Board (1) who is not affiliated with a control person, was not
nominated by a control person and was already on the Board when a control
person acquired its controlling interest or (2) a successor to a disinterested
director who is not affiliated with a control person, is not nominated by a
control person and who is recommended by a majority of disinterested directors
on the Board.
Quintiles' bylaws may be amended or repealed by two-thirds of
the shares entitled to vote on such matter. The bylaws also permit the Board
of Directors to amend or repeal the bylaws, except that (1) a bylaw adopted,
amended or repealed by the shareholders may not be readopted, amended or
repealed by the Board of Directors unless they are authorized to do so by the
charter or a bylaw adopted by the shareholders, (2) a bylaw that fixes higher
quorum or voting requirements for the Board may not be adopted by less than the
majority of the directors in office and may not later be amended by a vote or
quorum less than required by that bylaw, (3) if a bylaw fixing higher voting or
quorum requirements was originally adopted by the shareholders, only the
shareholders may amend it unless the bylaws otherwise permit its amendment or
repeal by the Board of Directors.
Under the VSCA, amendments to a corporation's articles of
incorporation require the vote of at least two-thirds of each class outstanding
and entitled to vote thereon or, if the articles of
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incorporation so provide, a greater or lesser proportion, but not less than a
majority of the outstanding shares of each class. The BRI articles of
incorporation do not alter the two-thirds rule.
The VSCA provides generally that a Virginia corporation's
board of directors may amend or repeal the corporation's bylaws except (a) to
the extent such power is reserved to the shareholders by the articles of
incorporation or bylaws, (b) the shareholders in adopting or amending a
particular bylaw provided expressly that the board of directors could not amend
or repeal such bylaw, and (c) the corporation's shareholders may amend or
repeal bylaws even though the bylaws may be amended or repealed by the board of
directors. The BRI bylaws provide that the BRI Board of Directors shall have
the power to make, alter and repeal the bylaws and adopt new bylaws by an
affirmative vote of a majority of the entire BRI Board of Directors.
POWER TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
Quintiles' bylaws provide that special meetings of the
shareholders may be called only by the Board of Directors, the Chairman of the
Board, the President or the holders of 25% or more of the voting power of the
outstanding shares of Quintiles stock.
The VSCA and BRI's Bylaws provide that a special meeting of
the shareholders may be called by the Chairman of the Board of Directors or the
President, and must be called promptly by the President or the Secretary at the
written request of the holders of more than fifty percent (50%) of BRI's voting
shares or at the request of a majority of the Board of Directors.
SHAREHOLDER ACTION WITHOUT MEETING
North Carolina and Virginia law permit shareholders to act
without meeting only by unanimous written consent.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
North Carolina has two primary anti-takeover statutes, the
Shareholder Protection Act and the Control Share Acquisition Act, which govern
the shareholder approval required for certain business combinations. As
permitted by North Carolina law, Quintiles has opted-out of both these
provisions. Quintiles' articles of incorporation provide that, in the absence
of more restrictive requirements under applicable law, any "Business
Combination" (as defined below) must be approved by either: (i) a majority of
the Board of Directors, consisting of two-thirds of the full Board, or (ii) a
supermajority of the shares, consisting of at least two-thirds of the shares
entitled to vote thereon, and a majority of a quorum of the Board of Directors
(but less than two-thirds of the full Board). This supermajority voting
requirement is complemented by a "fair price" provision. Under the fair price
provision in Quintiles' articles of incorporation, where a business combination
is approved by a supermajority of the shareholders and a majority, but less
than two-thirds, of the Board of Directors, shareholders who do not vote to
approve the transaction can elect to sell their shares to the company for cash
at a "fair price," as determined by a specified formula. "Business
Combinations" that trigger the supermajority voting requirements generally
include mergers, dispositions of all or substantially all of the corporation's
assets, and transactions involving control persons, including combinations with
control persons, other combination transactions entered at the behest of
control persons or other transactions which would have the result of increasing
a person's control of the corporation. A control person includes any person or
entity which, together with its affiliates, owns or controls at least 10% of
any class of Quintiles' equity (or securities convertible into equity),
excluding those person who obtained that level of control prior to January 1,
1994.
Under the VSCA, a sale, lease, exchange or other disposal of
all or substantially all of the property of a corporation other than in the
usual or regular course of business, requires the approval by the holders of
more than two-thirds of all the votes entitled to be cast on the transaction
(unless the
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board of directors requires a higher vote or the articles of incorporation
provide for a greater or lesser vote so long as the vote provided for is not
less than a majority of all the votes cast on the transaction). Also under the
VSCA, a plan of merger or share exchange generally must be approved by each
voting group entitled to vote on the plan by more than two-thirds of all the
votes entitled to be cast by that voting group (unless the board of directors
requires a higher vote or the articles of incorporation provide for a greater
or lesser vote so long as the vote provided for is not less than a majority of
all the votes cast on the plan). The BRI Articles of Incorporation do not
alter the shareholder vote requirement relating to such transactions.
Under the Virginia Control Share Acquisition statute, a person (the
"acquiror") who makes a bona fide offer to acquire, or acquires, shares of stock
of a Virginia corporation that when combined with shares already owned, would
increase the acquiror's ownership to at least 20%, 33-1/3%, or a majority of the
voting stock of the corporation, must obtain the approval of a majority in
interest of the shares held by all shareholders, except the acquiror and the
officers and inside directors of the corporation, in order to vote the shares
acquired. The statute does not apply to mergers approved by the board of
directors of the Virginia corporation. The Control Share Acquisition statute
permits a Virginia corporation to elect not to be governed by these provisions
by including such an election in its articles of incorporation or Bylaws, and
does not apply to companies with less than 300 shareholders. The BRI Articles
of Incorporation and Bylaws are silent with respect to the Virginia Control
Share Acquisition statute, although BRI presently has less than 300
shareholders.
Virginia's Affiliated Transactions Statute provides that if a
person acquires 10% or more of the stock of a Virginia corporation without the
approval of its board of directors (an "interested shareholder"), such person
may not engage in certain transactions with the corporation (including a merger
and purchase or sale of greater than 5% of the corporation's assets or voting
stock) for a period of three years, and then only with a specified
supermajority shareholder vote, disinterested director approval or fair price
and procedural protections. Virginia's statute includes certain exceptions to
this prohibition; for example, if a majority of disinterested directors
approves the acquisition of stock or the transaction prior to the time that the
person became an interested shareholder, or if the transaction is approved by
the board of directors and by the affirmative vote of two-thirds of the
outstanding voting stock which is not owned by the interested shareholder, the
prohibition does not apply. This statute also does not apply to companies with
less than 300 shareholders.
Virginia law contains provisions explicitly permitting a
corporation to take the steps necessary to implement a shareholder rights plan
"poison pill" where all shareholders, except for the acquiror, have certain
economically powerful rights that are activated upon an acquiror obtaining a
20% (or other percentage) stock ownership position. BRI has not implemented a
"poison pill," and the BRI articles of incorporation do not provide for
preferred stock (or other separate class of stock) as to which the Board of
Directors has authority to determine the terms of such stock, which is
generally a prerequisite to implementing a "poison pill."
DIRECTORS STANDARD OF CARE
The NCBCA requires that a director of a North Carolina
corporation discharge his duties as a director (a) in good faith, (b) with the
care that an ordinarily prudent person in a like position would exercise under
similar circumstances, and (c) in a manner he reasonably believes to be the
best interests of the corporation.
The VSCA requires that a director of a Virginia corporation
discharge his duties as a director in accordance with his good faith business
judgment of the best interests of the corporation.
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INDEMNIFICATION AND LIMITATION OF LIABILITY
North Carolina law permits a corporation to indemnify its
directors, officers, employees or agents under either or both a statutory or
non-statutory scheme of indemnification. Under the statutory scheme, a
corporation may, with certain exceptions, indemnify a director, officer,
employee or agent of the corporation who was, is, or is threatened to be made,
a party to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative, or investigative, because
of the fact that such person was a director, officer, agent or employee of the
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise.
This indemnity may include the obligation to pay any judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan) and reasonable expenses incurred in connection with the
proceeding (including counsel fees), but no such indemnification may be granted
unless such director, officer, agent or employee (i) conducted himself in good
faith, (ii) reasonably believed (1) that any action taken in his official
capacity with the corporation was in the best interest of the corporation or
(2) that in all other cases his conduct at least was not opposed to the
corporation's best interest, and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Whether a
director has met the requisite standard of conduct for the type of
indemnification set forth above is determined by the corporation's board of
directors, a committee of directors, special legal counsel or the shareholders
in accordance with the statute. A corporation may not indemnify a director
under the statutory scheme in connection with the proceeding by or in the right
of the corporation in which the director was adjudged liable to the corporation
or in connection with the proceeding in which a director was adjudged liable on
the basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification
described above under the statutory scheme, North Carolina law permits a
corporation to indemnify or agree to indemnify any of its directors, officers,
employees or agents against liability and expenses (including attorneys fees) in
any proceeding (including proceedings brought by or on behalf of the
corporation) arising out of their status as such or their activities in such
capacities, except for any liabilities or expenses incurred on account of
activities that were, at the time taken, known or believed by the person to be
clearly in conflict with the best interests of the corporation. Quintiles'
bylaws provide for indemnification to the fullest extent permitted under North
Carolina law, provided, however, that Quintiles will indemnify any person
seeking indemnification in connection with a proceeding initiated by such person
only if such proceeding was authorized by the Board of Directors. Accordingly,
Quintiles may indemnify its directors, officers, and employees in accordance
with either the statutory or non-statutory standard.
North Carolina law requires a corporation, unless its articles
of incorporation provide otherwise, to indemnify a director or officer who has
been wholly successful, on the merits or otherwise, in the defense of any
proceeding to which such director or officer was a party. Unless prohibited by
the articles of incorporation, a director or officer also may make application
and obtain court-ordered indemnification if the court determines that such
director or officer is fairly and reasonably entitled to such indemnification.
Finally, North Carolina law provides that a corporation may
purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee or agent of the corporation against certain
liabilities incurred by such persons, whether or not the corporation is
otherwise authorized under North Carolina law to indemnify such party.
Quintiles currently maintains directors' and officers' insurance policies
covering its directors and officers.
As permitted by North Carolina law, Quintiles' articles of
incorporation limits the personal liability of directors for monetary damages
for breaches of duty as a director, provided that such limitation will not
apply to (i) acts or omissions that the director at the time of the breach knew
or believed were clearly in conflict with Quintiles' best interests, (ii) any
liability for unlawful distributions
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under North Carolina law, (iii) any transaction from which the director derived
an improper personal benefit or (iv) acts or omissions occurring prior to the
date the provision became effective.
The VSCA generally permits indemnification by a corporation of
an individual made a party to a proceeding because he is or was a director or
officer of such corporation against liability incurred in the proceeding, if
the director or officer has acted in good faith and with the belief that his
conduct was in the best interest of the corporation. The VSCA prohibits a
corporation from indemnifying a director or officer in connection with a
proceeding by or in the right of a corporation in which the director or officer
was adjudged liable to the corporation. In addition, the VSCA prohibits
indemnification in connection with a proceeding charging improper personal
benefit to the director, whether or not in his official capacity, in which he
was adjudged liable on the basis that personal benefit was improperly received
by him. The BRI Bylaws provide for the indemnification of BRI's directors and
officers against all claims, liabilities, judgments, settlements, costs and
expenses, including all attorney's fees imposed on or reasonably incurred by
such director or officer in connection with or resulting from any action, suit,
proceeding or claim to which such director or officer is or may be made a party
by reason of being or having been a director or officer of BRI, unless the
officer or director is adjudged to be liable for gross negligence or willful
misconduct in the performance of his or her duties as such director or officer.
The VSCA also provides that a corporation may purchase and
maintain insurance on behalf of an individual who is or was a director,
officer, employee, or agent of the corporation against liability asserted
against or incurred by him in that capacity or arising from his status as a
director, officer, employee, or agent, whether or not the corporation is
authorized under the VSCA to indemnify such party. BRI currently maintains
directors' and officers' insurance policies covering its directors and
officers.
DIVIDENDS AND REPURCHASES OF SHARES
North Carolina law dispenses with the concepts of par value of shares
as well as statutory definitions of capital, surplus and the like.
Under North Carolina law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and redemptions or
repurchases of its shares) if it would result in either: (i) the corporation
being unable to pay its debts when they become due or (ii) the corporation's
assets being less than the sum of its liabilities plus any preferential
liquidation rights of shareholders. A director of a North Carolina corporation
may be personally liable to the corporation to the extent that the amount of
the distribution exceeds such permissible amounts if it is established that he
did not perform his duties as a director in good faith with reasonable care in
a manner which he believes to be in the best interests of the corporation. A
director held liable for unlawful distributions is entitled to contribution
from other directors voting in favor of the distribution and reimbursement from
each shareholder of the amount which the shareholder accepted with knowledge
that the distribution was unlawful.
Under the VSCA, the payment of dividends and the repurchase of a
corporation's stock are generally permissible, except if, after giving effect
to such payment, the corporation would not be able to pay its debts as they
become due in the usual course of its business or the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were dissolved, to satisfy the preferential
rights of holders of securities with rights superior to the corporation's
common stock. The directors of a Virginia corporation may be personally liable
to the corporation and its creditors to the extent that a dividend authorized
by the directors exceeds such permissible amounts and is not repaid to the
corporation, but may seek contribution from other directors voting in favor of
the distribution and from the shareholders receiving the distribution.
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APPRAISAL RIGHTS
Under North Carolina law, a shareholder of a corporation participating
in certain major corporate transactions may, under varying circumstances be
entitled to appraisal rights pursuant to which such shareholder may receive
cash in the amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. In North
Carolina, appraisal rights are also available for certain amendments to a
corporation's articles of incorporation.
Under the VSCA, a shareholder of a Virginia corporation is entitled to
dissent from, and to receive payment of the "fair value" of his shares in the
event of, any of the following corporate transactions: (a) consummation of a
merger to which the corporation is a party, provided that either (i)
shareholder approval is required for the merger pursuant to the VSCA or the
corporation's articles of incorporation and the shareholder is entitled to vote
or (ii) the corporation is a subsidiary being merged with its parent pursuant
to a particular VSCA provision for such transactions; (b) consummation of a
plan of share exchange to which the corporation is a party as the party whose
shares will be acquired, provided that the shareholder is entitled to vote on
the plan; (c) consummation of the sale or exchange of all or substantially all
the property of the corporation, if the shareholder is entitled to vote on the
transaction or the transaction is in furtherance of a dissolution on which the
shareholder is entitled to vote, and provided that the transaction is neither
(i) a transaction pursuant to court order nor (ii) a transaction for cash
pursuant to a plan by which all or substantially all of the net proceeds will
be distributed to shareholders within one year; or (d) any corporate action
taken pursuant to a shareholder vote, to the extent that the articles of
incorporation, the bylaws, or a resolution of the board of directors provides
that voting and nonvoting shareholders are entitled to dissent and obtain
payment for their shares. A shareholder who has the right to dissent from a
transaction and receive payment of the "fair value" of his shares must follow
specific procedural requirements as set forth in the VSCA in order to maintain
such right and obtain such payment. See "RIGHTS OF DISSENTING BRI
SHAREHOLDERS."
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for Quintiles by Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P., 2500 First Union Capitol Center, Raleigh, North Carolina 27601.
EXPERTS
The consolidated financial statements of Quintiles incorporated by
reference from its Annual Report on Form 10- K as of and for the year ended
December 31, 1995 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The financial statements of Lewin- VHI as of
and for the year ended December 31, 1995 included in Quintiles' Current Report
on Form 8-K dated April 16, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements have been
incorporated herein by reference in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of BRI as of May 31, 1996 and
for the six month period ended May 31, 1996 included in this Proxy
Statement/Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein. The consolidated financial statements of BRI as of November 30, 1994
and 1995 and for each of the two years in the period ended November 30, 1995
included in this Proxy Statement/Prospectus and Registration Statement have
been audited by Coopers & Lybrand L.L.P., independent auditors, as set forth in
their report thereon included therein. Such financial statements have been
included herein in reliance upon such reports given on the authority of such
firms as experts in accounting and auditing.
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The consolidated financial statements of Innovex included in Quintiles'
Current Report on Form 8-K dated October 6, 1996 have been audited by KPMG,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements have been
incorporated herein by reference in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.
FORWARD LOOKING STATEMENTS
Information set forth in this Proxy Statement/Prospectus under the
captions "RISK FACTORS," "CERTAIN INFORMATION CONCERNING BRI -- Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF QUINTILES, BRI
AND INNOVEX" and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF
QUINTILES AND INNOVEX" contains various "forward-looking statements" within the
meaning of Section 27A of the 1933 Act, and Section 21E of the 1934 Act, which
statements represent Quintiles' and BRI's reasonable judgment concerning the
future and are subject to risks and uncertainties that could cause Quintiles'
and BRI's actual operating results and financial position to differ materially.
Quintiles and BRI caution that any such forward-looking statements are
further qualified by important factors that could cause Quintiles' and BRI's
actual operating results to differ materially from those in the forward looking
statements. Such factors include, without limitation, those set forth in this
Proxy Statement/Prospectus under "RISK FACTORS" and the following: possible
loss of existing relationships in the pharmaceutical, biotechnology and medical
device industries and with specific large clients in those industries;
potential loss of large contracts; greater than anticipated competition and CRO
industry consolidation; possibility that expected synergies from the Merger
would not be achieved; possible volatility of the Quintiles stock price;
difficulties encountered in the integration of the operations of Quintiles and
BRI; greater than anticipated costs of acquisitions and managing growth of the
companies; unexpected malpractice or similar liabilities or an inability to
maintain adequate liability insurance to cover legal claims; reforms in the
healthcare industry; decreases in government regulatory requirements which lead
companies to engage CROs; and dependence on key personnel. See "RISK FACTORS".
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF QUINTILES, BRI AND INNOVEX
Introduction to Combined Condensed Pro Forma Financial Information F-2
Pro Forma Combined Condensed Balance Sheet as of June 30, 1996 (unaudited) F-3
Notes to Pro Forma Combined Condensed Balance Sheet (unaudited) F-4
Pro Forma Combined Condensed Statement of Income for the six months ended
June 30, 1996 (unaudited) F-5
Pro Forma Combined Condensed Statement of Income for the six months ended
June 30, 1995 (unaudited) F-6
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1995 (unaudited) F-7
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1994 (unaudited) F-8
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1993 (unaudited) F-9
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF QUINTILES AND INNOVEX
Introduction to Combined Condensed Pro Forma Financial Information F-10
Pro Forma Combined Condensed Balance Sheet as of June 30, 1996 (unaudited) F-11
Notes to Pro Forma Combined Condensed Balance Sheet (unaudited) F-12
Pro Forma Combined Condensed Statement of Income for the six months ended
June 30, 1996 (unaudited) F-13
Pro Forma Combined Condensed Statement of Income for the six months ended
June 30, 1995 (unaudited) F-14
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1995 (unaudited) F-15
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1994 (unaudited) F-16
Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1993 (unaudited) F-17
BRI INTERNATIONAL, INC.
Report of Ernst & Young LLP, Independent Auditors F-18
Consolidated Balance Sheet as of May 31, 1996 F-19
Consolidated Statement of Operations for the six months ended
May 31, 1996 F-21
Consolidated Statement of Stockholders' Equity for the six months
ended May 31, 1996 F-22
Consolidated Statement of Cash Flows for the six months ended
May 31, 1996 F-23
Notes to Consolidated Financial Statements F-24
Report of Coopers & Lybrand L.L.P., Independent Accountants F-36
Consolidated Balance Sheets as of November 30, 1995 and 1994 F-37
Consolidated Statements of Operations for the years ended
November 30, 1995 and 1994 F-39
Consolidated Statements of Stockholders' Equity for the years
ended November 30, 1995 and 1994 F-40
Consolidated Statements of Cash Flows for the years ended
November 30, 1995 and 1994 F-41
Notes to Consolidated Financial Statements F-42
Balance Sheet as of November 30, 1993 (unaudited) F-56
Statement of Operations for the year ended
November 30, 1993 (unaudited) F-58
Statement of Stockholders' Equity for the year
ended November 30, 1993 (unaudited) F-59
Statement of Cash Flows for the year ended
November 30, 1993 (unaudited) F-60
Notes to Financial Statements F-62
</TABLE>
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF
QUINTILES, BRI AND INNOVEX
The following unaudited pro forma combined condensed financial statements are
presented assuming the Mergers of Quintiles and BRI and Quintiles and Innovex
had occurred at the beginning of each period presented on a pooling of
interests basis.
The unaudited pro forma combined condensed balance sheet reflects the combined
historical balance sheets of Quintiles and Innovex at June 30, 1996 and BRI at
May 31, 1996. The unaudited pro forma combined condensed statements of
operations for the years ended December 31, 1995, 1994 and 1993, and the six
months ended June 30, 1996 and 1995 reflect historical operating results of
Quintiles for such periods combined with historical operating results of BRI for
the twelve months ended November 30, 1995, 1994 and 1993 (BRI's fiscal year) and
the six months ended May 31, 1996 and 1995, respectively, and the historical
operating results of Innovex for the twelve months ended March 31, 1996, 1995
and 1994 (Innovex's fiscal year) and the six months ended June 30, 1996 and June
30, 1995, respectively.
For all applicable periods presented in the pro forma combined condensed
statements of operations, shares used in the computation of earnings per common
and common equivalent share give effect to the appropriate exchange ratios.
The Innovex financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK, except for the redeemable
preference shares which have been reclassified from shareholders' equity and are
presented as a separate classification between debt and shareholders' equity on
the June 30, 1996 unaudited proforma combined condensed balance sheet. The
remaining net differences between UK and US GAAP are immaterial to Innovex's net
income and shareholders' equity for all periods presented.
The pro forma financial statements are not necessarily indicative of the
results that would have been obtained had the Mergers occurred on the dates
indicated. The pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of
Quintiles, BRI and Innovex incorporated by reference or included hereto,
respectively in this Proxy Statement/Prospectus.
F-2
<PAGE> 76
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ HISTORICAL
PRO FORMA PRO FORMA ----------- PRO FORMA
QUINTILES BRI (1) ADJUSTMENTS SUBTOTAL INNOVEX (2) ADJUSTMENTS PRO FORMA
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $130,213 $ 267 $ - $130,480 $ 5,724 $(49,847)(7) $ 86,357
Accounts receivable and unbilled services 89,598 14,777 - 104,375 44,994 - 149,369
Investments 35,422 - - 35,422 - - 35,422
Other current assets 8,744 847 - 9,591 2,016 - 11,607
-------- ------- ------- -------- -------- -------- --------
Total current assets 263,977 15,891 - 279,868 52,734 (49,847) 282,755
Property and equipment 88,038 7,185 - 95,223 47,160 - 142,383
Less accumulated depreciation 23,203 4,079 - 27,282 15,872 - 43,154
-------- ------- ------- -------- -------- -------- --------
64,835 3,106 - 67,941 31,288 - 99,229
Non-current assets:
Investments 10,710 - - 10,710 - - 10,710
Intangible and other assets 52,276 2,673 - 54,949 14,970 - 69,919
-------- ------- ------- -------- -------- -------- --------
Total non-current assets 62,986 2,673 - 65,659 14,970 - 80,629
-------- ------- ------- -------- -------- -------- --------
Total assets $391,798 $21,670 $ - $413,468 $ 98,992 $(49,847) $462,613
======== ======= ======= ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,494 $ 5,084 $ 2,000 (3) $ 33,578 $ 23,570 $ 12,000 (5) $ 69,148
Line of credit and current portion
of long-term debt 546 2,529 - 3,075 14,281 (14,281)(7) 3,075
Unearned income 25,791 5,441 - 31,232 24,137 - 55,369
Income taxes and other current liabilities 7,667 747 - 8,414 7,821 - 16,235
-------- ------- ------- -------- -------- -------- --------
Total current liabilities 60,498 13,801 2,000 76,299 69,809 (2,281) 143,827
Long-term liabilities:
Long-term debt, less current portion 140,355 1,749 - 142,104 35,395 (35,395)(7) 142,104
Long-term obligation 19,827 999 - 20,826 4,418 - 25,244
Deferred income taxes 2,687 - - 2,687 - - 2,687
-------- ------- ------- -------- -------- -------- --------
162,869 2,748 - 165,617 39,813 (35,395) 170,035
-------- ------- ------- -------- -------- -------- --------
Total liabilities 223,367 16,549 2,000 241,916 109,622 (37,676) 313,862
Redeemable preference shares - - - - 171 (171)(7) -
Shareholders' equity:
Preferred Stock - - - - 66 (66)(6) -
Common Stock 218 37 (21)(4) 234 112 (12)(6) 334
Additional paid-in-capital and other
shareholders' equity 129,616 1,318 21 (4) 130,955 16,896 78 (6) 147,929
Retained earnings (accumulated deficit) 38,597 3,766 (2,000)(3) 40,363 (27,875) (12,000)(5) 488
-------- ------- ------- -------- -------- -------- --------
Total shareholders' equity 168,431 5,121 (2,000) 171,552 (10,801) (12,000) 148,751
-------- ------- ------- -------- -------- -------- --------
Total liabilities and shareholders' equity $391,798 $21,670 $ - $413,468 $ 98,992 $(49,847) $462,613
======== ======= ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
(1) BRI's balance sheet is as of May 31, 1996.
(2) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK, except for the
redeemable preference shares which have been reclassified from
shareholders' equity and are presented as a separate classification
between debt and shareholders' equity. The remaining net differences
between UK and US GAAP are immaterial to Innovex's net income and
shareholders' equity for all periods presented.
(3) To reduce pro forma retained earnings for non-recurring costs (as
currently estimated by management) directly associated with the
acquisition of BRI, estimated at $2 million.
(4) To reflect the issuance of 1,614,915 shares of Quintiles common stock,
$.01 par value, in exchange for the 375,448 shares of BRI common stock,
$0.10 par value, using the agreed upon exchange ratio of 4.3013.
(5) To reduce pro forma retained earnings for non-recurring costs (as
currently estimated by management) directly associated with the acquisition
of Innovex, estimated at $12 million.
(6) To reflect the issuance of 10,000,000 shares of Quintiles common stock,
$.01 par value, in exchange for the outstanding shares of Innovex common
stock and preferred stock.
(7) In connection with the transaction, Quintiles will satisfy in full and
retire approximately $60 million of Innovex's outstanding long-term credit
facility, which was approximately $49.7 million as of June 30, 1996. The
$171,000 of redeemable preference shares will also be redeemed in
connection with the transaction.
F-4
<PAGE> 78
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $147,309 $26,701 $ - $174,010 $95,663 $ - $269,673
Less reimbursed costs:
Investigator payments 19,981 2,734 - 22,715 - - 22,715
Travel and other 9,556 - - 9,556 - - 9,556
-------- ------- ----- -------- ------- -------- --------
Net revenue 117,772 23,967 - 141,739 95,663 - 237,402
Costs and expenses:
Direct costs 54,931 8,455 - 63,386 1,266 - 64,652
General and administrative expense 45,000 13,073 - 58,073 80,378 - 138,451
Depreciation and amortization 5,507 696 - 6,203 5,266 - 11,469
Non-recurring costs relating
to reorganization - - - - 2,334 - 2,334
Special pension contribution - - - - 2,291 - 2,291
-------- ------- ----- -------- ------- -------- --------
105,438 22,224 - 127,662 91,535 - 219,197
-------- ------- ----- -------- ------- -------- --------
Income from operations 12,334 1,743 - 14,077 4,128 - 18,205
Other income (expense), net 1,218 (190) - 1,028 (1,832) - (804)
-------- ------- ----- -------- ------- -------- --------
Income before income taxes 13,552 1,553 - 15,105 2,296 - 17,401
Income taxes 4,291 582 - 4,873 1,016 - 5,889
-------- ------- ----- -------- ------- -------- --------
Net income before non-equity
interest dividends 9,261 971 - 10,232 1,280 - 11,512
Non-equity interest dividends - - - - (315) - (315)
-------- ------- ----- -------- ------- -------- --------
Net income $ 9,261 $ 971 $ - $ 10,232 $ 965 $ - $ 11,197
======== ======= ===== ======== ======= ======== ========
Weighted average shares outstanding 22,288 24,014 33,228
======== ======== ========
Net income per share $ 0.42 $ 0.43 $ 0.34 (3)
======== ======== ========
</TABLE>
(1) BRI's income statement is for the six month period ended May 31, 1996.
(2) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1996.
(3) Pro forma net income per share would have been $0.45 per share for the six
months ended June 30, 1996 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-5
<PAGE> 79
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $104,710 $18,598 $ - $123,308 $49,883 $ - $173,191
Less reimbursed costs:
Investigator payments 27,154 563 - 27,717 - - 27,717
Travel and other 9,296 - - 9,296 - - 9,296
-------- ------- ----- -------- ------- -------- --------
Net revenue 68,260 18,035 - 86,295 49,883 - 136,178
Costs and expenses:
Direct costs 32,229 7,178 - 39,407 1,262 - 40,669
General and administrative expense 26,145 9,305 - 35,450 41,959 - 77,409
Depreciation and amortization 3,281 541 - 3,822 2,998 - 6,820
-------- ------- ----- -------- ------- -------- --------
61,655 17,024 - 78,679 46,219 - 124,898
-------- ------- ----- -------- ------- -------- --------
Income from operations 6,605 1,011 - 7,616 3,664 - 11,280
Other income (expense), net 678 (194) - 484 (1,198) - (714)
-------- ------- ----- -------- ------- -------- --------
Income before income taxes 7,283 817 - 8,100 2,466 - 10,566
Income taxes 2,646 432 - 3,078 776 - 3,854
-------- ------- ----- -------- ------- -------- --------
Net income $ 4,637 $ 385 $ - $ 5,022 $ 1,690 $ - $ 6,712
======== ======= ===== ======== ======= ======== ========
Weighted average shares outstanding 19,293 20,766 29,944
======== ======== ========
Net income per share $ 0.24 $ 0.24 $ 0.22
======== ======== ========
</TABLE>
(1) BRI's income statement is for the six months ended May 31, 1995.
(2) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1995.
F-6
<PAGE> 80
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI (1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- ------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $228,143 $40,800 $- $268,943 $129,055 $ - $397,998
Less reimbursed costs:
Investigator payments 50,892 2,600 - 53,492 - - 53,492
Travel and other 20,814 - - 20,814 - - 20,814
-------- ------- -- -------- -------- -------- --------
Net revenue 156,437 38,200 - 194,637 129,055 - 323,692
Costs and expenses:
Direct costs 73,429 15,349 - 88,778 3,182 - 91,960
General and administrative expense 60,100 19,070 - 79,170 107,430 - 186,600
Depreciation and amortization 7,514 1,337 - 8,851 8,053 - 16,904
Non-recurring costs relating to
reorganization - - - - 2,373 - 2,373
Special pension contribution - - - - 2,329 - 2,329
-------- ------- -- -------- -------- -------- --------
141,043 35,756 - 176,799 123,367 - 300,166
-------- ------- -- -------- -------- -------- --------
Income from operations 15,394 2,444 - 17,838 5,688 - 23,526
Other income (expense), net 1,768 (319) - 1,449 (2,893) - (1,444)
-------- ------- -- -------- -------- -------- --------
Income before income taxes 17,162 2,125 - 19,287 2,795 - 22,082
Income taxes 5,903 1,124 - 7,027 1,154 - 8,181
-------- ------- -- -------- -------- -------- --------
Net income $ 11,259 $ 1,001 $- $ 12,260 $ 1,641 $ - $ 13,901
======== ======= == ======== ======== ======== ========
Weighted average shares outstanding 20,028 21,506 30,705
======== ======== ========
Net income per share $ 0.56 $ 0.57 $ 0.45 (3)
======== ======== ========
</TABLE>
(1) BRI's income statement is for the year ended November 30, 1995.
(2) Innovex's income statement is for the year ended March 31, 1996. Innovex's
financial statements have been prepared on a basis of generally accepted
accounting principles (GAAP) in the UK. The net differences between UK
and US GAAP are immaterial to Innovex's net income for the year ended
March 31, 1996.
(3) Pro forma net income per share would have been $0.58 per share for the year
ended December 31, 1995 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-7
<PAGE> 81
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $141,185 $25,347 $- $166,532 $81,063 $ - $247,595
Less reimbursed costs:
Investigator payments 39,027 576 - 39,603 - - 39,603
Travel and other 12,091 - - 12,091 - - 12,091
-------- ------- -- -------- ------- ------- --------
Net revenue 90,067 24,771 - 114,838 81,063 - 195,901
Costs and expenses:
Direct costs 41,612 10,053 - 51,665 2,764 - 54,429
General and administrative
expense 34,418 13,300 - 47,718 68,578 - 116,296
Depreciation and amortization 4,538 699 - 5,237 5,115 - 10,352
-------- ------- -- -------- ------- ------- --------
80,568 24,052 - 104,620 76,457 - 181,077
-------- ------- -- -------- ------- ------- --------
Income from operations 9,499 719 - 10,218 4,606 - 14,824
Other income (expense), net 679 (189) - 490 (1,684) - (1,194)
-------- ------- -- -------- ------- ------- --------
Income before income taxes 10,178 530 - 10,708 2,922 - 13,630
Income taxes 3,506 238 - 3,744 841 - 4,585
-------- ------- -- -------- ------- ------- --------
Net income $ 6,672 $ 292 $- $ 6,964 $ 2,081 $ - $ 9,045
======== ======= == ======== ======= ======= ========
Weighted average shares outstanding 17,557 18,893 28,043
======== ======== ========
Net income per share $ 0.38 $ 0.37 $ 0.32
======== ======== ========
</TABLE>
(1) BRI's income statement is for the year ended November 30, 1994.
(2) Innovex's income statement is for the year ended March 31, 1995. Innovex's
financial statements have been prepared on a basis of generally accepted
accounting principles (GAAP) in the UK. The net differences between UK
and US GAAP are immaterial to Innovex's net income for the year ended
March 31, 1995.
F-8
<PAGE> 82
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1993
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $79,289 $17,824 $- $97,113 $62,395 $ - $159,508
Less reimbursed costs:
Investigator payments 12,048 - - 12,048 - - 12,048
Travel and other 5,537 - - 5,537 - - 5,537
------- ------- -- ------- ------- ------- --------
Net revenue 61,704 17,824 - 79,528 62,395 - 141,923
Costs and expenses:
Direct costs 28,386 7,401 - 35,787 4,380 - 40,167
General and administrative expense 23,839 9,650 - 33,489 49,937 - 83,426
Depreciation and amortization 3,469 372 - 3,841 3,982 - 7,823
------- ------- -- ------- ------- ------- --------
55,694 17,423 - 73,117 58,299 - 131,416
------- ------- -- ------- ------- ------- --------
Income from operations 6,010 401 - 6,411 4,096 - 10,507
Other income (expense), net (188) (152) - (340) (2,549) - (2,889)
------- ------- -- ------- ------- ------- --------
Income before income taxes and
change in accounting method 5,822 249 - 6,071 1,547 - 7,618
Income taxes 1,980 71 - 2,051 1,221 - 3,272
------- ------- -- ------- ------- ------- --------
Net income before change in
accounting method 3,842 178 - 4,020 326 - 4,346
Change in accounting method - (158) - (158) - - (158)
------- ------- -- ------- ------- ------- --------
Net income $ 3,842 $ 20 $- $ 3,862 $ 326 $ - $ 4,188
======= ======= == ======= ======= ======= ========
Weighted average shares outstanding 13,535 14,851 23,972
======= ======= ========
Net income per share $ 0.28 $ 0.26 $ 0.17
======= ======= ========
</TABLE>
(1) BRI's income statement is for the year ended November 30, 1993.
(2) Innovex's income statement is for the year ended March 31, 1994. Innovex's
financial statements have been prepared on a basis of generally accepted
accounting principles (GAAP) in the UK. The net differences between UK
and US GAAP are immaterial to Innovex's net income for the year ended
March 31, 1994.
F-9
<PAGE> 83
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF
QUINTILES AND INNOVEX
The following unaudited pro forma combined condensed financial statements are
presented assuming the Merger of Quintiles and Innovex had occurred at the
beginning of each period presented on a pooling of interests basis.
The unaudited pro forma combined condensed balance sheet reflects the combined
historical balance sheets of Quintiles and Innovex at June 30, 1996. The
unaudited pro forma combined condensed statements of operations for the years
ended December 31, 1995, 1994 and 1993, and the six months ended June 30, 1996
and 1995 reflect historical operating results of Quintiles for such periods
combined with historical operating results of Innovex for the twelve months
ended March 31, 1996, 1995 and 1994 (Innovex's fiscal year) and the six months
ended June 30, 1996 and June 30, 1995, respectively.
For all applicable periods presented in the pro form combined condensed
statements of operations, shares used in the computation of earnings per common
and common equivalent share give effect to the appropriate exchange ratio.
The Innovex financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK, except for the redeemable
preference shares which have been reclassified from shareholders' equity and are
presented as a separate classification between debt and shareholders' equity on
the June 30, 1996 unaudited pro forma combined condensed balance sheet. The
remaining net differences between UK and US GAAP are immaterial to Innovex's net
income and shareholders' equity for all periods presented.
The pro forma financial statements are not necessarily indicative of the
results that would have been obtained had the Merger occurred on the dates
indicated. The pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of Quintiles
and Innovex incorporated by reference or included hereto, respectively in this
Proxy Statement/Prospectus.
F-10
<PAGE> 84
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
Historical
----------------------------- Pro Forma
Quintiles Innovex (1) Adjustments Pro forma
--------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $130,213 $ 5,724 $(49,847) (4) $ 86,090
Accounts receivable and unbilled services 89,598 44,994 - 134,592
Investments 35,422 - - 35,422
Other current assets 8,744 2,016 - 10,760
-------- -------- -------- --------
Total current assets 263,977 52,734 (49,847) 266,864
Property and equipment 88,038 47,160 - 135,198
Less accumulated depreciation 23,203 15,872 - 39,075
-------- -------- -------- --------
64,835 31,288 - 96,123
Non-current assets:
Investments 10,710 - - 10,710
Intangible and other assets 52,276 14,970 - 67,246
-------- -------- -------- --------
Total non-current assets 62,986 14,970 - 77,956
-------- -------- -------- --------
Total assets $391,798 $ 98,992 $(49,847) $440,943
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,494 $ 23,570 $ 12,000 (2) $ 62,064
Line of credit and current portion of
long-term debt 546 14,281 (14,281) (4) 546
Unearned income 25,791 24,137 - 49,928
Income taxes and other current liabilities 7,667 7,821 - 15,488
-------- -------- -------- --------
Total current liabilities 60,498 69,809 (2,281) 128,026
Long-term liabilities:
Long-term debt, less current portion 140,355 35,395 (35,395) (4) 140,355
Long-term obligation 19,827 4,418 - 24,245
Deferred income taxes 2,687 - - 2,687
-------- -------- -------- --------
162,869 39,813 (35,395) 167,287
-------- -------- -------- --------
Total liabilities 223,367 109,622 (37,676) 295,313
Redeemable preference shares - 171 (171) (4) -
Shareholders' equity:
Preferred Stock - 66 (66) (3) -
Common Stock 218 112 (12) (3) 318
Additional paid-in-capital and other
shareholders' equity 129,616 16,896 78 (3) 146,590
Retained earnings (accumulated deficit) 38,597 (27,875) (12,000) (2) (1,278)
-------- -------- -------- --------
Total shareholders' equity 168,431 (10,801) (12,000) 145,630
-------- -------- -------- --------
Total liabilities and shareholders' equity $391,798 $ 98,992 $(49,847) $440,943
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-11
<PAGE> 85
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
(1) Innovex's financial statements have been prepared on a basis of
generally accepted accounting principles (GAAP) in the UK, except for
the redeemable preference shares which have been reclassified from
shareholders' equity and are presented as a separate classification
between debt and shareholders' equity. The remaining net differences
between UK and US GAAP are immaterial to Innovex's net income and
shareholders' equity for all periods presented.
(2) To reduce pro forma retained earnings for non-recurring costs (as
currently estimated by management) directly associated with the
acquisition of Innovex, estimated at $12 million.
(3) To reflect the issuance of 10,000,000 shares of Quintiles common
stock, $.01 par value, in exchange for the outstanding shares of
Innovex common stock and preferred stock.
(4) In connection with the transaction, Quintiles will satisfy in full and
retire approximately $60 million of Innovex's outstanding long-term
credit facility, which was approximately $49.7 million as of June 30,
1996. The $171,000 of redeemable preference shares will also be
redeemed in connection with the transaction.
F-12
<PAGE> 86
Unaudited Pro Forma Combined Condensed Statement of Income
Six Months ended June 30, 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex (1) Adjustments Pro forma
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Professional fee income $147,309 $95,663 $ - $242,972
Less reimbursed costs:
Investigator payments 19,981 - - 19,981
Travel and other 9,556 - - 9,556
-------- ------- ------- --------
Net revenue 117,772 95,663 - 213,435
Costs and expenses:
Direct costs 54,931 1,266 - 56,197
General and administrative expense 45,000 80,378 - 125,378
Depreciation and amortization 5,507 5,266 - 10,773
Non-recurring costs relating to
reorganization - 2,334 - 2,334
Special pension contribution - 2,291 - 2,291
-------- ------- ------- --------
Income from operations 105,438 91,535 - 196,973
-------- ------- ------- --------
12,334 4,128 - 16,462
Other income (expense), net 1,218 (1,832) - (614)
-------- ------- ------- --------
Income before income taxes 13,552 2,296 - 15,848
Income taxes 4,291 1,016 - 5,307
-------- ------- ------- --------
Net income before non-equity interest dividends 9,261 1,280 - 10,541
Non-equity interest dividends - (315) - (315)
-------- ------- ------- --------
Net income $ 9,261 $ 965 $ - $ 10,226
======== ======= ======= ========
Weighted average shares outstanding 22,288 31,502
======== ========
Net income per share $ 0.42 $ 0.32 (2)
======== ========
</TABLE>
(1) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1996.
(2) Pro forma net income per share would have been $0.45 per share for the six
months ended June 30, 1996 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-13
<PAGE> 87
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex (1) Adjustments Pro forma
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Professional fee income $104,710 $49,883 $ - $154,593
Less reimbursed costs:
Investigator payments 27,154 - - 27,154
Travel and other 9,296 - - 9,296
-------- ------- -------- --------
Net revenue 68,260 49,883 - 118,143
Costs and expenses:
Direct costs 32,229 1,262 - 33,491
General and administrative expense 26,145 41,959 - 68,104
Depreciation and amortization 3,281 2,998 - 6,279
-------- ------- -------- --------
61,655 46,219 - 107,874
-------- ------- -------- --------
Income from operations 6,605 3,664 - 10,269
Other income (expense), net 678 (1,198) - (520)
-------- ------- -------- --------
Income before income taxes 7,283 2,466 - 9,749
Income taxes 2,646 776 - 3,422
-------- ------- -------- --------
Net income $ 4,637 $ 1,690 $ - $ 6,327
======== ======= ======== ========
Weighted average shares outstanding 19,293 28,471
======== ========
Net income per share $ 0.24 $ 0.22
======== ========
</TABLE>
(1) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1995.
F-14
<PAGE> 88
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex(1) Adjustments Pro forma
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Professional fee income $228,143 $129,055 $ - $357,198
Less reimbursed costs:
Investigator payments 50,892 - - 50,892
Travel and other 20,814 - - 20,814
-------- -------- -------- --------
Net revenue 156,437 129,055 - 285,492
Costs and expenses:
Direct costs 73,429 3,182 - 76,611
General and administrative expense 60,100 107,430 - 167,530
Depreciation and amortization 7,514 8,053 - 15,567
Non-recurring costs relating to reorganization - 2,373 - 2,373
Special pension contribution - 2,329 - 2,329
-------- -------- -------- --------
141,043 123,367 - 264,410
-------- -------- -------- --------
Income from operations 15,394 5,688 - 21,082
Other income (expense), net 1,768 (2,893) - (1,125)
-------- -------- -------- --------
Income before income taxes 17,162 2,795 - 19,957
Income taxes 5,903 1,154 - 7,057
-------- -------- -------- --------
Net income $ 11,259 $ 1,641 $ - $ 12,900
======== ======== ======== ========
Weighted average shares outstanding 20,028 29,226
======== ========
Net income per share $ 0.56 $ 0.44 (2)
======== ========
</TABLE>
(1) Innovex's income statement is for the year ended March 31, 1996 and has
been prepared on a basis of generally accepted accounting principles
(GAAP) in the UK. The net differences between UK and US GAAP are
immaterial to Innovex's net income for the year ended March 31, 1996.
(2) Pro forma net income per share would have been $0.57 per share for the year
ended December 31, 1995 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-15
<PAGE> 89
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex(1) Adjustments Pro forma
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Professional fee income $141,185 $81,063 $ - $222,248
Less reimbursed costs:
Investigator payments 39,027 - - 39,027
Travel and other 12,091 - - 12,091
-------- ------- -------- --------
Net revenue 90,067 81,063 - 171,130
Costs and expenses:
Direct costs 41,612 2,764 - 44,376
General and administrative expense 34,418 68,578 - 102,996
Depreciation and amortization 4,538 5,115 - 9,653
-------- ------- -------- --------
80,568 76,457 - 157,025
-------- ------- -------- --------
Income from operations 9,499 4,606 - 14,105
Other income (expense), net 679 (1,684) - (1,005)
-------- ------- -------- --------
Income before income taxes 10,178 2,922 - 13,100
Income taxes 3,506 841 - 4,347
-------- ------- -------- --------
Net income $ 6,672 $ 2,081 $ - $ 8,753
======== ======= ======== ========
Weighted average shares outstanding 17,557 26,707
======== ========
Net income per share $ 0.38 $ 0.33
======== ========
</TABLE>
(1) Innovex's income statement is for the year ended March 31, 1995 and has
been prepared on a basis of generally accepted accounting principles
(GAAP) in the UK. The net differences between UK and US GAAP are
immaterial to Innovex's net income for the year ended March 31, 1995.
F-16
<PAGE> 90
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1993
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex(1) Adjustments Pro forma
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Professional fee income $79,289 $62,395 $ - $141,684
Less reimbursed costs:
Investigator payments 12,048 - - 12,048
Travel and other 5,537 - - 5,537
------- ------- -------- --------
Net revenue 61,704 62,395 - 124,099
Costs and expenses:
Direct costs 28,386 4,380 - 32,766
General and administrative expense 23,839 49,937 - 73,776
Depreciation and amortization 3,469 3,982 - 7,451
------- ------- -------- --------
55,694 58,299 - 113,993
------- ------- -------- --------
Income from operations 6,010 4,096 - 10,106
Other income (expense), net (188) (2,549) - (2,737)
------- ------- -------- --------
Income before income taxes 5,822 1,547 - 7,369
Income taxes 1,980 1,221 - 3,201
------- ------- -------- --------
Net income $ 3,842 $ 326 $ - $ 4,168
======= ======= ======== ========
Weighted average shares outstanding 13,535 22,656
======= ========
Net income per share $ 0.28 $ 0.18
======= ========
</TABLE>
(1) Innovex's income statement is for the year ended March 31, 1994 and has
been prepared on a basis of generally accepted accounting principles
(GAAP) in the UK. The net differences between UK and US GAAP are
immaterial to Innovex's net income for the year ended March 31, 1994.
F-17
<PAGE> 91
Report of Independent Auditors
To the Board of Directors
of BRI International, Inc.
We have audited the accompanying consolidated balance sheet of BRI
International, Inc., formerly Biometric Research Institute, Inc., ("the
Company") as of May 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the six months 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BRI
International, Inc. as of May 31, 1996, and the consolidated results of its
operations and its cash flows for the six months then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
August 2, 1996
F-18
<PAGE> 92
BRI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
as of May 31, 1996
------
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $267,276
Accounts receivable 14,776,802
Note receivable - related party 110,000
Prepaid expenses 374,269
Deferred income taxes 362,614
-----------
Total current assets 15,890,961
-----------
Property and equipment:
Equipment, furniture and fixtures 6,627,069
Leasehold improvements 558,139
-----------
7,185,208
Less accumulated depreciation and amortization (4,078,959)
-----------
Net property and equipment 3,106,249
-----------
Other assets:
Excess of purchase price over net assets of acquired business 1,119,167
Non-compete agreements 548,542
Deferred income taxes 341,118
Other 664,457
-----------
Total other assets 2,673,284
-----------
Total assets $21,670,494
===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-19
<PAGE> 93
BRI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
as of May 31, 1996
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Line of credit $ 1,121,000
Accounts payable and accrued liabilities 5,083,633
Advance billings to clients 5,440,711
Client deposits 457,780
Income taxes payable 26,323
Liability under stock option plan 74,720
Long-term debt, current portion 1,407,525
Liability under non-compete agreements, current portion 189,651
-----------
Total current liabilities 13,801,343
Long-term debt, less current portion 1,748,505
Liability under non-compete agreements, less current portion 192,184
Deferred rent 806,935
-----------
Total liabilities 16,548,967
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares authorized,
374,405 shares issued and outstanding 37,441
Additional paid-in capital 2,165,372
Retained earnings 3,765,912
Cumulative foreign currency translation adjustment 16,135
Unearned shares of common stock held by ESOP (863,333)
-----------
Total stockholders' equity 5,121,527
-----------
Total liabilities and stockholders' equity $21,670,494
===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-20
<PAGE> 94
BRI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
for the six months ended May 31, 1996
-------------
<TABLE>
<S> <C>
Revenue:
Professional fees $26,700,860
Less reimbursed costs (2,734,439)
-----------
Net revenue 23,966,421
Operating costs and expenses:
Direct costs 8,454,736
General and administrative expenses 13,073,350
Depreciation and amortization 695,944
-----------
Income from operations 1,742,391
Other expense (income):
Interest expense 216,789
Other (27,063)
-----------
Income before provision for income taxes 1,552,665
Provision for income taxes 582,124
-----------
Net income $ 970,541
===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-21
<PAGE> 95
BRI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the six months ended May 31, 1996
--------
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Currency
---------------------- Paid-in Retained Translation Unearned
Shares Amount Capital Earnings Adjustment ESOP Shares Total
------------ ------ ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1995,
as previously reported 323,809 $32,381 $1,996,708 $2,187,471 $16,614 $(955,833) $3,277,341
Adjustment to restate for MTCE
pooling 49,400 4,940 101,052 607,900 287 - 714,179
------- ------- ---------- ---------- ------- --------- ----------
Balance at November 30, 1995
as restated 373,209 $37,321 $2,097,760 $2,795,371 $16,901 $(955,833) $3,991,520
Issuance of common stock for
compensation 747 75 42,452 - - - 42,527
Purchase and cancellation of
stock at $69.58 per share (531) (53) (36,894) - - - (36,947)
Reduction of liability under
stock option plan, net of tax - - 6,356 - - - 6,356
Retirement of ESOP-related
debt - - - - - 92,500 92,500
Issuance of common stock in
settlement of accrued liabilities 980 98 55,698 - - - 55,796
Foreign currency translation
adjustments - - - - (766) - (766)
Net income - - - 970,541 - - 970,541
------- ------- ---------- ---------- ------- ----------- ----------
Balance at May 31, 1996 374,405 $37,441 $2,165,372 $3,765,912 $16,135 $ (863,333) $5,121,527
======= ======= ========== ========== ======= =========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-22
<PAGE> 96
BRI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended May 31, 1996
------
<TABLE>
<S> <C>
Operating activities:
Net income $970,541
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 695,944
Compensation expense under stock option plan (14,535)
Issuance of stock for compensation 42,527
Allowance for doubtful accounts 4,623
Deferred income taxes 26,699
Increase (decrease) in cash due to changes in operating assets and liabilities:
Accounts receivable (2,869,599)
Note receivable - related party (75,000)
Prepaid expenses (10,756)
Other assets (424,221)
Income taxes payable (101,653)
Accounts payable and accrued liabilities (335,786)
Deferred rent 11,403
Advance billings to clients 3,009,783
Client deposits (3,265)
---------
Net cash provided by operating activities 926,705
---------
Investing activities:
Purchases of property and equipment (919,447)
---------
Net cash used by investing activities (919,447)
---------
Financing activities:
Borrowings on line of credit, net (246,000)
Cash overdraft (467,626)
Borrowings on notes payable 906,039
Payments on notes payable (349,744)
Payments under non-compete agreements (100,539)
Purchase of treasury stock (36,947)
---------
(294,817)
---------
Net cash used by financing activities
Effect of exchange rate changes on cash (766)
---------
Net decrease in cash (288,325)
Cash at beginning of period 555,601
---------
Cash at end of period $ 267,276
=========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-23
<PAGE> 97
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary of significant accounting policies
The Company
BRI International, Inc., formerly known as Biometric Research
Institute, Inc., ("BRI" or "the Company") is a full-service contract
research organization specializing, on a global basis, in the design
and evaluation of preclinical and clinical research for the
pharmaceutical, biotechnology and medical device industries.
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of BRI International, Inc. and its wholly-owned subsidiaries.
All material intercompany balances and transactions have been
eliminated.
Revenue recognition
Revenue from time and material contracts is recognized as costs are
incurred at amounts consistent with the agreed-upon billing rates.
Revenue from cost-plus and fixed-price contracts is recognized under
the percentage-of-completion method of accounting, with costs and
estimated profits included in service revenue as work is performed,
calculated based on the relationship between costs incurred and total
estimated costs. The Company's exposure to credit loss in the event
that payment is not received for revenue recognized equals the
outstanding accounts receivable balance. Although the Company does
not require collateral for unpaid balances, credit losses have
consistently been within management's expectations. If actual and
estimated costs to complete a contract indicate a loss, provision is
made currently for the loss anticipated on the contract.
Unbilled receivables and advance billings
In general, prerequisites for billings are established by contractual
provisions, including predetermined payment schedules, the achievement
of contractual milestones or submission of appropriate billing detail.
Unbilled services arise when services have been rendered but clients
have not been billed. Similarly, unearned income represents
prebilling for services that have not yet been rendered.
F-24
<PAGE> 98
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
The Company requires an advance deposit in the form of a retainer on
some of its contracts. The retainer generally is applied as follows:
against outstanding invoices over sixty days past due, at the option
of the Company; against charges incurred in the final month for which
services are rendered; or, if not so applied, it is returned in full
when the contract is complete.
Investigator payments
Investigator payments are recognized as expense when payments are made
based upon predetermined contractual arrangements. The Company has
excluded from the accompanying balance sheet cash held for
investigator payments in the amount of $362,590, that pursuant to
agreements with certain clients, remains property of the clients.
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets, which range from three to ten years. Leasehold
improvements are amortized over the period of the lease or the useful
life of the improvements, whichever is shorter.
Upon disposition of property and equipment, the cost and related
depreciation or amortization are removed from the accounts and any
gain or loss is recognized currently.
Intangible assets
Cost in excess of the net asset value of a purchased subsidiary is
being amortized over 10 years using the straight-line method. The
Company annually evaluates the recoverability of this intangible asset
utilizing qualitative factors. At such time as an impairment in value
is identified, the impairment will be quantitatively measured using a
discounted cash flow methodology and charged to expense. Accumulated
amortization of the excess of purchase price over fair value of net
assets acquired was $210,170 at May 31, 1996.
Non-compete agreements relating to certain acquisitions are being
amortized on a straight-line basis over the term of the agreements,
ranging from three to four years. Accumulated amortization totaled
$288,528 at May 31, 1996.
Use of accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts
F-25
<PAGE> 99
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
Deferred rent
Total non-contingent minimum lease payments due under noncancelable
long-term operating leases, including future non-contingent increases,
are recognized as rent expense over the term of the lease on a
straight-line basis. The excess of such accruals over payments due
under the terms of the lease is included in deferred rent in the
accompanying balance sheet.
Income taxes
The Company utilizes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future
tax consequences, the Company generally considers all expected future
events other than proposed changes in the tax law or rates. The
effect of a change in tax rates on deferred tax assets and liabilities
is recognized in net income in the period in which the tax rate change
is enacted.
The Company does not provide for withholding and income taxes on
undistributed foreign earnings. Such earnings amounted to
approximately $1,148,000 through May 31, 1996, cumulatively, and are
intended to be permanently invested in those operations. The ultimate
tax liability related to repatriation of such earnings is dependent
upon future tax planning opportunities and is not estimable at the
present time.
Translation of non-U.S. financial statements
Assets and liabilities of non-U.S. operations are translated at the
period-end rates of exchange, and the statement of operations is
translated at the average rates of exchange for the period. Gains or
losses from translating non-U.S. dollar financial statements are
accumulated as a separate component of stockholders' equity.
Transaction gains and losses, which are recognized in income
currently, are immaterial in the six months ended May 31, 1996.
Transactions with related parties
On May 17, 1996, the Company issued a loan to a related party in the
amount of $110,000 at an interest rate of 8.75%. The note is payable
in full, principal and interest, at the maturity date of May 17, 1997.
The note receivable balance at May 31, 1996 was $110,000. Subsequent
to the balance sheet date, the Company issued two loans to a related
F-26
<PAGE> 100
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
party in the aggregate amount of $140,000 at an interest rate of
8.75%. The notes dated June 1996 and July 1996, each in the amount of
$70,000, are payable in full, principal and interest, in June and July
1997, respectively.
Recently issued accounting standards
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("FASB 121"), which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flow estimated to be generated by those assets is
less than the assets' carrying amount. FASB 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
FASB 121 is effective for organizations with fiscal years beginning
after December 15, 1995. The Company has not elected early adoption of
FASB 121, but does not believe the effect of adoption will be material
to the financial statements.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("FASB 123"). FASB 123 encourages companies
to adopt the fair value method for expense recognition of employee
stock options. FASB 123 also allows companies to continue to account
for stock options and stock based awards using the intrinsic value
method as outlined under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and to make pro
forma disclosures of net income and net income per share as if the
fair value method had been applied. FASB 123 is effective for fiscal
years beginning after December 15, 1995. The Company has decided not
to elect early adoption of FASB 123. The Company currently uses APB
25 and does not believe the effect of adoption of FASB 123 would be
material to the financial statements.
2. Acquisitions
Effective February 28, 1996, the company issued 49,400 shares of
common stock in exchange for all of the outstanding common stock of
Medical Technology Consultants Europe Limited ("MTCE"). MTCE
previously used a calendar year basis for preparing its financial
statements. This transaction was accounted for as a pooling of
interests and, accordingly, the Company's consolidated financial
statements and related disclosures include the accounts and results of
operations of MTCE for the period from January 1, 1996 through May 31,
1996. MTCE's results of operations for the month of December 1995 are
not considered material to the Company's consolidated financial
statements. MTCE had net revenue of $789,170 and net income of
$123,256 for the period January 1, 1996 through the date of the
merger.
F-27
<PAGE> 101
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
3. Accounts receivable
Accounts receivable consist of billed and unbilled amounts under
contracts in progress, principally with commercial clients. All
billed and unbilled amounts are expected to be collected during the
next twelve months.
Accounts receivable consisted of the following at May 31, 1996 (in
thousands):
<TABLE>
<S> <C>
Billed $12,236
Unbilled 2,554
Allowance (213)
-------
14,577
Other 200
-------
$14,777
=======
</TABLE>
All accounts receivable are pledged to Citizens Bank as collateral for
certain borrowings (Note 5).
4. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities at May 31, 1996 consisted of
the following amounts (in thousands):
<TABLE>
<S> <C>
Accounts payable $1,646
Accrued wages 1,137
Accrued commissions and bonuses 559
Other accrued expenses 931
Cash overdraft 811
------
$5,084
======
</TABLE>
F-28
<PAGE> 102
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
5. Line of credit
The Company has a line of credit arrangement ("the Line of Credit")
with Citizens Bank. During the six months ended May 31, 1996,
interest under the Line of Credit was payable monthly at Citizens
Bank's prime rate plus 0.5% (8.75%). The maximum borrowings available
under the Line of Credit at May 31, 1996 were $3,000,000. The Line of
Credit is a demand note and is collateralized by substantially all the
assets of the Company. Further, all borrowings are personally
guaranteed by certain shareholders of the Company. At May 31, 1996,
the Company had drawn down $1,121,000 under the Line of Credit.
In July 1996, the Company obtained an increase in the Line of Credit
to a maximum of $4,000,000 and a reduction in the interest rate to the
bank's prime rate. The July 1996 Line of Credit agreement also
removed the requirement for personal guarantees. The Line of Credit
is set to expire June 30, 1997.
The revised terms of the Line of Credit and other debt with Citizens
Bank subject the Company to certain covenants, the most restrictive of
which require the Company to maintain a minimum consolidated tangible
net worth of $4,000,000, minimum tangible net worth from U.S.
operations of $3,000,000, and a debt to worth ratio not to exceed 3.75
to 1.0. At May 31, 1996, the Company was in compliance with these
covenants.
6. Long-term debt
At May 31, 1996, long-term debt consisted of the following:
<TABLE>
<S> <C>
Note payable, bearing interest at prime plus 1% (9.25% at May 31,
1996), due in monthly principal and interest installments of
approximately $7,600 through May 2000, collateralized by all
corporate assets and the personal guarantees of certain
shareholders. $354,000
Revolving commercial loan note in the amount up to $900,000, bearing
interest at the lender's prime rate (8.25% at May 31, 1996),
due in October 1996, collateralized by all corporate assets
and the personal guarantees of certain shareholders. 300,000
</TABLE>
F-29
<PAGE> 103
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
<TABLE>
<S> <C>
Various notes payable, due in monthly principal installments of
approximately $20,000 plus interest at prime plus 1% (9.25%
at May 31, 1996) through October 1999, collateralized by all
corporate assets and the personal guarantees of certain
shareholders. 733,994
Note payable in connection with establishment of the Employee Stock
Ownership Plan ("ESOP"), due in monthly principal
installments of $15,417, with a balloon payment of the
remaining principal due July 1997. The note requires monthly
interest payments at the lender's prime rate (8.25% at May
31, 1996), and is collateralized by the personal guarantees
of certain shareholders. 863,333
Notes payable, at an average interest rate of 16.0%, due in monthly
payments of various amounts of principal plus interest,
through January 1999. 451,820
Notes payable to two officers of a subsidiary of the Company, at an
interest rate of 10.0%, due upon demand. 187,305
Other long-term debt 265,578
-----------
Total 3,156,030
Less current portion (1,407,525)
-----------
Long-term portion $ 1,748,505
===========
</TABLE>
In July 1996, the requirement for personal guarantees was removed from
the first three debt instruments listed above.
At May 31, 1996, the scheduled future principal maturities for
long-term debt were as follows:
<TABLE>
<CAPTION>
Year ending May 31,
------------------
<S> <C>
1997 $1,407,525
1998 1,261,167
1999 345,505
2000 141,833
----------
Total $3,156,030
==========
</TABLE>
7. Leases
The Company leases its facilities under noncancelable operating leases
which include renewal and escalation clauses. Total rent expense was
approximately $864,000 during the six
F-30
<PAGE> 104
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
months ended May 31, 1996. In addition, the Company leases some of
its office equipment under operating leases which expire at various
dates over the next five years. Future minimum lease commitments due
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ending May 31,
------------------
<S> <C>
1997 $1,739,853
1998 1,854,584
1999 1,590,478
2000 1,270,601
2001 1,264,379
Thereafter 1,445,381
----------
$9,165,276
==========
</TABLE>
8. Equity transactions
Stock option plans
The Company has a non-qualified stock option plan ("the Non-Qualified
Plan") for company executives, key employees and other persons or
entities and has reserved for issuance under the plan 85,000 shares of
authorized, but unissued, common stock. The Non-Qualified Plan is
administered by a committee of the Board of Directors which determines
the number of shares to be granted. An option entitles the holder to
purchase shares of the Company's common stock at a price per share
immediately preceding such grant as determined by the annual valuation
of the Company for purposes of the ESOP. Under their normal terms,
non-qualified stock options are exercisable upon issuance but expire
in five years from the date of grant if they are not exercised.
As of May 31, 1996, holders of options for 2,000 non-qualified stock
options had the right, on or before the option expiration date, to
sell some or all of their stock options to the Company. Under the
terms of these options, the Company pays the option holder the
difference between the exercise price and the current fair market
value as determined by the most recent annual stock valuation. The
Company recognizes a current liability associated with these
outstanding options, representing the amount which the holders would
realize upon sale of their options to the Company. The Company no
longer offers options which contain the right to sell such options to
the Company. For the six months ended May 31, 1996, the expense
related to the option buy-back feature was not material.
In addition, the Company has previously followed the practice of
offering to its executives and certain key employees the right to
elect to take their annual bonuses in a number of alternative forms
including cash, common stock or options to acquire common stock. If
F-31
<PAGE> 105
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
options are elected, they are considered options issued under the
Non-Qualified Plan, subject to all the same terms and conditions
described above.
The following table summarizes option activity under the Non-Qualified
Plan during the six months ended May 31, 1996:
<TABLE>
<CAPTION>
Number Option Price
of Shares per Share
---------- -------------
<S> <C> <C>
Shares under option at November 30, 1995 63,605 $27.75-$56.93
Options granted 466 $56.93
---------
Shares under option at May 31, 1996 64,071 $27.75-$56.93
=========
</TABLE>
At May 31, 1996, there were 85,000 shares authorized in the Plan,
64,071 shares under option and 20,929 shares available.
In December 1995, the Company introduced an Incentive Stock Option
Plan ("the ISO Plan"). Under the ISO Plan, 50,000 shares of
authorized, but unissued, common stock have been reserved for issuance
to company executives and key employees. The options are exercisable
at prices determined in a manner consistent with the establishment of
exercise prices under the Non-Qualified Plan and expire at the end of
5 years. Unlike non- qualified options, however, options granted
under the ISO Plan become exercisable at the rate of one third per
year commencing on the first anniversary of the grant date, provided
that the fair market value of the underlying common stock has attained
certain specified levels as of the time of exercise, but are fully
exercisable without restriction within the last 30 days prior to
expiration or upon a change in control of the Company. The following
table summarizes option activity under the ISO Plan through May 31,
1996:
<TABLE>
<CAPTION>
Number Option Price
of Shares per Share
---------- -------------
<S> <C> <C>
Options granted 14,825 $56.93-$69.69
Options canceled (300) $56.93
----------
Shares under option at May 31, 1996 14,525 $56.93-$69.69
==========
</TABLE>
F-32
<PAGE> 106
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
Stockholder's agreement
Under the terms of a stockholder's agreement ("the Agreement")
signed by the Company and the Company's Chairman in February, 1994,
the Company is obligated to purchase all of the Shares owned by the
Chairman as of the date of his death, and shall have the option, but
not the obligation, to purchase any of the Shares previously
transferred by the Chairman and governed by the provisions of the
Agreement. The purchase price for the Shares shall be the fair value
determined by the annual stock valuation for the ESOP. At May 31,
1996, 60,457 shares valued at $4,213,248 (per the most recent annual
stock valuation) were owned directly by the Chairman. The Agreement
terminates with respect to any of the Shares which become registered
for sale to the public pursuant to the Securities Act of 1933.
The Agreement, as amended in 1996, gives the Chairman the right to
require the Company annually to redeem shares with an aggregate fair
value of not more than $300,000. The Chairman has not exercised this
right for 1996.
9. Retirement plan
The Company has a retirement plan for the benefit of its employees
consisting of two portions. The Employee Stock Ownership Plan ("the
ESOP Portion") is a stock bonus plan. The second portion ("the 401(k)
Portion") constitutes a cash or deferred arrangement.
The 401(k) Portion provides the opportunity for participants to elect
to make contributions of up to 20% of annual gross compensation.
These funds are invested in Lincoln National Pension funds, as
directed by the participant. Participants are fully vested in these
funds. There is no employer match for the 401(k) Portion of the Plan.
The ESOP Portion is designed to invest primarily in Company stock. The
ESOP initially acquired shares of stock from a founder and former
officer of the Company utilizing principally the proceeds of a
$1,850,000 bank loan made to the Company. The Company considers the
loan repayments as its minimum contribution to the ESOP, and allocates
shares held by the ESOP to employees' accounts in proportion to loan
repayments. Unallocated (unearned) ESOP shares are recorded as a
separate reduction of stockholders' equity. As of May 31, 1996, the
ESOP held 91,643 shares of common stock of the Company, of which
approximately 65% had been allocated to employees' accounts and
approximately 35% remained unallocated. The Plan provides for
additional Company contributions at the discretion of the Board of
Directors. Participants become vested in the employer contributions
at the rate of 20% per year starting after year two; thus, employees
are fully vested in the Company's contributions after six years of
employment. Contributions to the ESOP Portion of the plan were
$92,500 for the six months ended May 31, 1996.
F-33
<PAGE> 107
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
10. Income taxes
Income before taxes for the six months ended May 31, 1996 was as follows:
<TABLE>
<S> <C>
U.S. $1,167,322
Non-U.S. 385,343
----------
$1,552,665
==========
</TABLE>
The provision for income taxes charged to operations during the six
months ended May 31, 1996 was as follows:
<TABLE>
<S> <C>
Current:
U.S. Federal $353,771
State and local 84,365
Foreign 117,289
--------
Total current 555,425
--------
Deferred:
U.S. Federal 21,558
State and local 5,141
Foreign -
--------
Total deferred 26,699
--------
Total provision for income taxes $582,124
========
The Company's deferred income tax expense results from:
Allowance for doubtful accounts $ 37,149
Client deposits 16,424
Amortization (24,503)
Other (2,371)
--------
Deferred tax expense $ 26,699
========
</TABLE>
The actual provision for income taxes as a percentage of pre-tax
income varies from the U.S. Federal statutory income tax rate for the
following reasons:
<TABLE>
<S> <C>
U.S. Federal statutory tax rate 34.0%
State income taxes, net of Federal
income tax benefits 4.6
Other (1.1)
----
37.5%
====
</TABLE>
F-34
<PAGE> 108
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
Deferred tax assets (liabilities) are comprised of the following at
may 31, 1996:
<TABLE>
<S> <C>
Allowance for doubtful accounts $ 43,151
Depreciation (11,911)
Accruals 120,807
Deferred rent 282,131
Non-compete amortization 160,011
Stock option plan 28,543
Client deposits 70,898
Other 10,102
--------
Net deferred tax asset $703,732
========
</TABLE>
11. Supplemental disclosures of cash flow information
Supplemental disclosures of cash flow information for the six months
ended May 31, 1996 are as follows:
<TABLE>
<S> <C>
Federal and state income taxes paid $533,000
Interest paid 237,493
</TABLE>
Supplemental disclosures of non-cash financing activities for the six
months ended May 31, 1996 are as follows:
<TABLE>
<S> <C>
Retirement of ESOP-related debt $ 92,500
Issuance of common stock in settlement
of accrued liabilities 55,796
</TABLE>
F-35
<PAGE> 109
Report of Independent Accountants
To the Board of Directors
of BRI International, Inc.
We have audited the accompanying consolidated balance sheet of BRI
International, Inc., formerly Biometric Research Institute, Inc., (the Company)
as of November 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years 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 audits 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 consolidated financial position of BRI
International, Inc. as of November 30, 1995 and 1994, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Certain stockholders' equity amounts as of November 30, 1993 have been
restated to give effect to the pooling of interests described in Note 3 and to
correct for prior period adjustments described in Note 12.
Coopers & Lybrand L.L.P.
Rockville, Maryland
May 15, 1996
F-36
<PAGE> 110
BRI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
as of November 30, 1995 and 1994
------
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 330,587 $ 490,717
Accounts receivable 10,712,862 7,904,188
Prepaid expenses 317,527 324,250
Deferred income taxes 407,298 635,204
----------- -----------
Total current assets 11,768,274 9,354,359
----------- -----------
Property and equipment:
Equipment, furniture and fixtures 5,337,400 4,218,237
Leasehold improvements 358,885 135,257
----------- -----------
5,696,285 4,353,494
Less accumulated depreciation and amortization (3,311,820) (2,266,621)
----------- -----------
Net property and equipment 2,384,465 2,086,873
----------- -----------
Other assets:
Excess of purchase price over net assets of acquired business 1,159,917 1,312,720
Non-compete agreements 352,266 490,817
Deferred income taxes 323,133 246,479
Other 230,808 134,830
----------- -----------
Total other assets
2,066,124 2,184,846
----------- -----------
$16,218,863 $13,626,078
Total assets =========== ===========
</TABLE>
F-37
<PAGE> 111
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Line of credit $ 1,367,000 $ 1,300,000
Long-term debt, current portion 849,052 687,424
Liability under non-compete agreements, current portion 94,134 284,115
Accounts payable and accrued liabilities 5,122,591 4,344,702
Advance billings to clients 2,517,450 722,952
Client deposits 461,045 521,144
Income taxes payable 29,070 399,299
Liability under stock option plan 95,602 1,128,047
----------- -----------
Total current liabilities 10,535,944 9,387,683
Long-term debt, less current portion 1,584,395 2,031,792
Liability under non-compete agreements, less current portion 94,134 188,790
Deferred rent 727,049 703,601
----------- -----------
Total liabilities 12,941,522 12,311,866
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares authorized,
323,809 and 322,774 shares issued and outstanding 32,381 32,277
Additional paid-in capital 1,996,708 1,280,237
Retained earnings 2,187,471 1,186,820
Cumulative foreign currency translation adjustment 16,614 38,760
Unearned shares of common stock held by ESOP (955,833) (1,223,882)
----------- -----------
Total stockholders' equity
3,277,341 1,314,212
----------- -----------
Total liabilities and stockholders' equity $16,218,863 $13,626,078
=========== ===========
</TABLE>
F-38
<PAGE> 112
BRI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
for the years ended November 30, 1995 and 1994
------
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Revenue:
Professional fees $ 40,799,957 $25,346,728
Less reimbursed costs (2,600,164) (576,416)
------------ -----------
Net revenue 38,199,793 24,770,312
Operating costs and expenses:
Direct costs 15,348,464 10,052,720
General and administrative expenses 19,070,433 13,300,701
Depreciation and amortization 1,336,553 698,764
------------ -----------
Income from operations 2,444,343 718,127
Other expense (income):
Interest expense 372,614 213,390
Other (52,786) (24,872)
------------ -----------
Income before provision for income taxes 2,124,515 529,609
Provision for income taxes 1,123,864 237,525
------------ -----------
Net income $ 1,000,651 $ 292,084
============ ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-39
<PAGE> 113
BRI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended November 30, 1995 and 1994
-----------
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Currency
---------------------- Paid-in Retained Translation Unearned
Shares Amount Capital Earnings Adjustment ESOP Shares Total
-------------- ------ ----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1993, as previously
reported and restated for
the BSL pooling (Note 3)
(unaudited) 308,753 $30,875 $ 635,003 $1,328,463 $ - $(1,310,417) $ 683,924
Prior period adjustments,
net of tax (Note 12) - - - (433,727) - - (433,727)
--------- ------- ---------- ---------- ------- ----------- ----------
Balance at November 30,
1993, as adjusted
(unaudited) 308,753 30,875 635,003 894,736 - (1,310,417) 250,197
Sale of common stock at
$46.07 per share 1,010 101 46,430 - - - 46,531
Issuance of common stock
for compensation 1,800 180 83,448 - - - 83,628
Issuance of common stock
in connection with the HCR
acquisition (Note 3) 14,920 1,492 685,872 - - - 687,364
Purchase and cancellation
of stock at $46.07 per
share (3,709) (371) (170,516) - - - (170,887)
Additional debt incurred
to purchase shares for
ESOP - - - - - (150,000) (150,000)
Retirement of ESOP-related
debt - - - - - 236,535 236,535
Foreign currency
translation adjustments - - - - 38,760 - 38,760
Net income - - - 292,084 - - 292,084
--------- ------- ---------- ---------- ------- ----------- ----------
Balance at November 30,
1994 322,774 32,277 1,280,237 1,186,820 38,760 (1,223,882) 1,314,212
Issuance of common stock
for compensation 1,569 157 72,127 - - - 72,284
Purchase and cancellation
of stock at $56.93 per
share (2,346) (234) (133,323) - - - (133,557)
Reduction of liability
under stock option plan,
net of tax (Note 9) - - 692,914 - - - 692,914
Retirement of ESOP-related
debt - - - - - 268,049 268,049
Issuance of common stock
in settlement of accrued
liabilities 1,812 181 84,753 - - - 84,934
Foreign currency
translation adjustments - - - - (22,146) - (22,146)
Net income - - - 1,000,651 - - 1,000,651
--------- ------- ---------- ---------- ------- ----------- ----------
Balance at November 30,
1995 323,809 $32,381 $1,996,708 $2,187,471 $16,614 $ (955,833) $3,277,341
--------- ------- ---------- ---------- ------- ----------- ----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-40
<PAGE> 114
BRI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended November 30, 1995 and 1994
------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 1,000,651 $ 292,084
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization 1,336,553 698,764
Compensation expense under stock option plan 32,558 591,000
Issuance of stock for compensation 72,284 83,628
Allowance for doubtful accounts 32,938 146,637
Deferred income taxes (130,893) (689,108)
Increase (decrease) in cash due to changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable (2,841,612) (3,715,421)
Prepaid expenses 6,723 (122,187)
Other assets (95,978) 86,884
Income taxes payable (404,371) 402,118
Accounts payable and accrued liabilities 541,288 779,312
Deferred rent 23,448 23,644
Advance billings to clients 1,794,498 432,446
Client deposits (60,099) (44,966)
----------- -----------
Net cash provided (used) by operating activities 1,307,988 (1,035,165)
----------- -----------
Investing activities:
Cash paid for acquisition, net of cash acquired - (242,290)
Purchase of property and equipment (1,342,791) (1,154,234)
----------- -----------
Net cash used by investing activities (1,342,791) (1,396,524)
----------- -----------
Financing activities:
Borrowings on line of credit, net 67,000 951,204
Cash overdraft 313,906 964,488
Borrowings on notes payable 568,243 1,355,163
Payments on notes payable (585,963) (531,106)
Payments under non-compete agreements (284,637) (70,059)
Purchase of treasury stock (133,557) (10,000)
Proceeds from issuance of common stock - 46,531
Cash paid in settlement of stock options (48,173) -
----------- -----------
Net cash provided (used) by financing activities (103,181) 2,706,221
----------- -----------
Effect of exchange rate changes on cash (22,146) 38,760
----------- -----------
Net increase (decrease) in cash (160,130) 313,292
Cash at beginning of year 490,717 177,425
----------- -----------
Cash at end of year $ 330,587 $ 490,717
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-41
<PAGE> 115
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
1. Organization
BRI International, Inc., formerly known as Biometric Research
Institute, Inc., (the Company) was incorporated on June 2, 1975 under
the laws of the District of Columbia. During the year ended November
30, 1993, the Company reincorporated and reorganized under the laws of
the Commonwealth of Virginia. The Company is a full-service contract
research organization specializing, on a global basis, in the design
and evaluation of preclinical and clinical research for the
pharmaceutical, biotechnology and medical device industries.
2. Accounting policies
Principles of consolidation
The accompanying financial statements include the accounts of BRI
International, Inc. and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated.
Translation of non-U.S. financial statements
Assets and liabilities of non-U.S. operations are translated at the
period-end rates of exchange, and the statement of operations is
translated at the average rates of exchange for the period. Gains or
losses from translating non-U.S. dollar financial statements are
accumulated as a separate component of stockholders' equity.
Transaction gains and losses are recognized currently and are
immaterial in 1995 and 1994.
Revenue recognition
Revenue from time and material contracts is recognized as costs are
incurred at amounts consistent with the agreed-upon billing rates.
Revenue from cost-plus and fixed-price contracts is recognized under
the percentage-of-completion method of accounting, with costs and
estimated profits included in service revenue as work is performed,
calculated based on the relationship between costs incurred and total
estimated costs. If actual and estimated costs to complete a contract
indicate a loss, provision is made currently for the loss anticipated
on the contract.
Use of accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date
F-42
<PAGE> 116
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. These estimates involve
judgments with respect to, among other things, various future economic
factors which are difficult to predict and are beyond the control of
the Company. Therefore, actual amounts could differ from these
estimates.
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets, which range from three to ten years. Leasehold
improvements are amortized over the period of the lease or the useful
life of the improvements, whichever is shorter.
Upon disposition of property and equipment, the cost and related
depreciation or amortization are removed from the accounts and any
gain or loss is recognized currently.
Client deposits
The Company requires an advance deposit in the form of a retainer on
some of its contracts. The retainer generally is applied as follows:
against outstanding invoices over sixty days past due, at the option
of the Company; against charges incurred in the final month for which
services are rendered; or, if not so applied, it is returned in full
when the contract is complete.
Deferred rent
Total non-contingent minimum lease payments due under noncancelable
long-term operating leases, including future non-contingent increases,
are recognized as rent expense over the term of the lease on a pro
rata basis. The excess of such accruals over payments due under the
terms of the lease is included in deferred rent in the accompanying
balance sheet.
Unbilled receivables and advance billings
Unbilled receivables and advance billings to clients result primarily
from contract billing or payment schedules which differ from the
Company's measure of the progress achieved toward contract completion
as of the balance sheet date.
Intangible assets
Cost in excess of the net asset value of a purchased subsidiary is
being amortized over 10 years using the straight-line method. The
Company annually evaluates the recoverability of this intangible asset
utilizing qualitative factors. At such time as an impairment in value
is
F-43
<PAGE> 117
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
identified, the impairment will be quantitatively measured using a
discounted cash flow methodology and charged to expense. Accumulated
amortization of the excess of purchase price over fair value of net
assets acquired was $169,420 and $16,617 at November 30, 1995 and
1994, respectively.
Non-compete agreements arising from certain acquisitions are being
amortized on a straight-line basis over the term of the agreements,
ranging from three to four years. Accumulated amortization totaled
$190,698 and $52,147 at November 30, 1995 and 1994, respectively.
Income taxes
The Company utilizes an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future
tax consequences, the Company generally considers all expected future
events other than proposed changes in the tax law or rates. The
effect of a change in tax rates on deferred tax assets and liabilities
is recognized in net income in the period in which the tax rate change
is enacted.
The Company does not provide for withholding and income taxes on
undistributed foreign earnings. Such earnings amounted to
approximately $281,000 through November 30, 1995, cumulatively, and
are intended to be permanently invested in those operations. The
ultimate tax liability related to repatriation of such earnings is
dependent upon future tax planning opportunities and is not estimable
at the present time.
3. Acquisitions
Effective June 30, 1994, the Company issued 30,786 shares of common
stock in exchange for all of the outstanding common stock of Brookwood
Statistics Limited (BSL). This transaction was accounted for as a
pooling of interests and, accordingly, the Company's consolidated
financial statements and related disclosures include the accounts and
results of operations of BSL for the entire period presented. A
reconciliation of results of operations previously reported by the
separate entities prior to the merger and as restated for the combined
company is as follows (unaudited):
F-44
<PAGE> 118
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
<TABLE>
<CAPTION>
BRI BSL Combined
---------------- -------------- -------------
<S> <C> <C> <C>
For the period
December 1, 1993 to
June 30, 1994:
Net revenue $11,489,358 $1,594,756 $13,084,114
Net income 616,282 221,955 838,237
</TABLE>
In connection with the BSL transaction, the Company entered into
non-compete agreements with the two former stockholders of BSL (now
officers of the Company), which expire in 1998. The agreements
require payments totaling approximately $470,000 over three years.
Effective October 18, 1994, the Company purchased all of the
outstanding stock of Health Care Research and Statistical Services
N.V. (HCR) in exchange for 14,920 shares of the Company's common stock
plus $143,000. Transaction expenses totaling approximately $251,000
and net cash acquired of approximately $8,000 were also included as
part of the purchase price.
The HCR acquisition was accounted for under the purchase method of
accounting. The total net purchase price of $929,655 was allocated to
the tangible and identifiable intangible assets acquired and
liabilities assumed based upon their estimated fair values on the
acquisition date. The purchase price allocation was as follows:
<TABLE>
<S> <C>
Current assets $ 250,869
Current liabilities assumed (795,347)
Long-term liabilities assumed (160,713)
Equipment, furniture and fixtures 189,791
Other non-current assets 115,718
Excess of purchase price over net assets acquired 1,329,337
----------
$ 929,655
==========
</TABLE>
The results of operations of HCR since the date of acquisition are
included in the accompanying consolidated statement of operations.
In connection with the HCR acquisition, the Company entered into a
non-compete agreement with a former stockholder of HCR (now an officer
of the Company), which expires in 1997. This agreement requires
payments totaling approximately $70,000 over three years.
F-45
<PAGE> 119
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
4. Accounts receivable
Accounts receivable consist of billed and unbilled amounts under
contracts in progress, principally with commercial clients. All
billed and unbilled amounts are expected to be collected during the
next fiscal year.
Accounts receivable consisted of the following at November 30, 1995
and 1994, respectively:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Billed $ 9,139,169 $7,151,038
Unbilled 1,692,449 867,097
Allowance (208,338) (175,400)
----------- ----------
10,623,280 7,842,735
Other 89,582 61,453
----------- ----------
$10,712,862 $7,904,188
=========== ==========
</TABLE>
All accounts receivable are pledged to Citizens Bank of Maryland
(Citizens Bank) as collateral for certain borrowings (Note 6).
5. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities at November 30, 1995 and 1994
consisted of the following amounts:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accounts payable $1,533,980 $1,389,178
Accrued wages 1,362,432 927,142
Accrued commissions and bonuses 776,907 513,296
Other accrued expenses 170,878 550,598
Cash overdraft 1,278,394 964,488
---------- ----------
$5,122,591 $4,344,702
========== ==========
</TABLE>
6. Line of credit
The Company has a line of credit arrangement (the Line of Credit) with
Citizens Bank. During 1995 and 1994, interest under the Line of
Credit was payable monthly at Citizens Bank's prime rate plus 1%
(9.75% and 9.5% at November 30, 1995 and 1994, respectively). The
maximum borrowings available under the Line of Credit at November 30,
1995 were
F-46
<PAGE> 120
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
$2,000,000. The Line of Credit is a demand note and is collateralized
by substantially all assets of the Company. Further, all borrowings
have been personally guaranteed by certain shareholders of the
Company. At November 30, 1995, the Company had drawn down $1,367,000
under the Line of Credit.
In December 1995, the Company obtained an increase in the Line of
Credit to a maximum of $3,000,000 and a reduction in the interest rate
to the bank's prime rate plus 0.5%. The Line of Credit is set to
expire June 30, 1996.
The revised terms of the Line of Credit and other debt with Citizens
Bank subject the Company to certain covenants, the most restrictive of
which require the Company to maintain a minimum consolidated tangible
net worth of $2,000,000, minimum tangible net worth from U.S.
operations of $1,500,000, and a debt to worth ratio (excluding the
unearned shares of common stock held by the ESOP) not to exceed 3.75
to 1.0. At November 30, 1995, the Company was in compliance with
these covenants. The Company is currently re-negotiating the Line of
Credit agreement with Citizens Bank and anticipates renewing the
agreement under similar terms and conditions.
7. Long-term debt
At November 30, 1995 and 1994, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Note payable, bearing interest at 7.55% per annum, due in monthly
principal and interest installments of approximately $9,000
through January 1998, collateralized by all corporate assets
and the personal guarantees of certain shareholders.
$107,852 $272,651
Various notes payable, due in monthly principal installments of
approximately $20,000 plus interest at prime plus 1% (9.75%
and 9.5% at November 30, 1995 and 1994, respectively) through
October 1999, collateralized by all corporate assets and the
personal guarantees of certain shareholders. 856,563 913,368
</TABLE>
F-47
<PAGE> 121
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
<TABLE>
<S> <C> <C>
Note payable in connection with establishment of the Employee Stock
Ownership Plan (ESOP), due in monthly principal installments
of $15,417, with a balloon payment of the remaining principal
due July 1997. The note requires monthly interest payments at
the lender's prime rate (8.75% and 8.5% at November 30, 1995
and 1994, respectively), and is collateralized by the personal
guarantees of certain shareholders. 955,833 1,140,833
Note payable to an officer in connection with the purchase of
additional shares for the ESOP, bearing interest at 7.25%, due
in monthly principal plus interest payments of $14,136 through
May 1995. -- 83,049
Notes payable to former shareholders in connection with the purchase
of treasury stock, due in monthly principal payments of
various amounts plus interest at the prime rate (8.75% and
8.5% at November 30, 1995 and 1994, respectively) through
January 1998, collateralized by the shares of stock purchased. 86,769 136,522
Notes payable, at an average interest rate of 12.2%, due in monthly
payments of various amounts of principal plus interest,
through November 1998. 288,809 74,270
Other long-term debt 137,621 98,523
---------- ----------
Total 2,433,447 2,719,216
Less current portion (849,052) (687,424)
---------- ----------
Long-term portion $1,584,395 $2,031,792
========== ==========
</TABLE>
At November 30, 1995, the scheduled future principal maturities for
long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending November 30,
-----------------------
<S> <C>
1996 $ 849,052
1997 1,166,998
1998 281,128
1999 136,269
----------
Total $2,433,447
==========
</TABLE>
F-48
<PAGE> 122
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
8. Leases
The Company leases its facilities under noncancelable operating leases
which include renewal and escalation clauses. Total rent expense was
approximately $1,344,000 and $1,088,000 for the years ended November
30, 1995 and 1994, respectively. In addition, the Company leases some
of its office equipment under operating leases which expire at various
dates over the next five years. Future minimum lease commitments due
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ending November 30,
-----------------------
<S> <C>
1996 $1,481,767
1997 1,564,082
1998 1,557,291
1999 1,175,095
2000 1,031,687
Thereafter 1,846,161
----------
$8,656,083
==========
</TABLE>
9. Equity transactions
Stock option plans
The Company has a non-qualified stock option plan (the Non-Qualified
Plan) for company executives, key employees and other persons or
entities and has reserved for issuance under the plan 85,000 shares of
authorized, but unissued, common stock. The Non-Qualified Plan is
administered by a committee of the Board of Directors which determines
the number of shares to be granted. An option entitles the holder to
purchase shares of the Company's common stock at a price per share
immediately preceding such grant as determined by the annual valuation
of the Company for purposes of the ESOP. Except as described below,
non-qualified stock options are exercisable upon issuance but expire
in five years from the date of grant if they are not exercised.
As of November 30, 1994, all holders of non-qualified stock options
had the right, on or before the option expiration date, to sell some
or all of their stock options to the Company. In such cases, the
Company pays the option holder the difference between the exercise
price and the current fair market value as determined by the most
recent annual stock valuation. During 1995, the Company allowed
existing option holders a one-time election to modify the terms of
their outstanding non-qualified stock options, by relinquishing the
right to sell them to the Company in exchange for a three-year
extension of the exercise period, the ability to transfer them to
other stock or option holders of the Company and a continuation of the
exercise period beyond termination of employment. Holders of options
to purchase 43,864
F-49
<PAGE> 123
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
shares elected to modify and retain their outstanding options, while
holders of options to purchase 6,877 shares elected to transfer them
to other individuals, subject to the revised terms. Conversely,
options for 2,491 shares were retained by their holders under their
original terms and were outstanding at November 30,1995. The Company
recognizes a current liability associated with all unmodified
outstanding options, representing the amount which the holders would
realize upon sale of their options to the Company. As a result of the
modifications to and transfers of non-qualified stock options during
1995, $1,009,201 of the liability under stock option plan, less a tax
effect of $316,287, was added to additional paid-in capital. Included
in expenses are $33,000 and $591,000 for 1995 and 1994, respectively,
related to the option buy-back feature.
In addition, the Company has previously followed the practice of
offering to its executives and certain key employees the right to
elect to take their annual bonuses in a number of alternative forms
including cash, common stock or options to acquire common stock. If
options are elected, they are considered options issued under the
Non-Qualified Plan, subject to all the same terms and conditions
described above. All options issued in satisfaction of 1995 annual
bonus awards incorporated the modified terms described above.
The following table summarizes option activity under the Non-Qualified
Plan through November 30, 1995:
<TABLE>
<CAPTION>
Number Option Price per
of Shares Share
---------- ----------------
<S> <C> <C>
Shares under option at November 30, 1993 42,978 $27.75-$46.46
Options granted 12,991 46.07-46.46
Options repurchased (1,549) 27.75-38.41
--------
Shares under option at November 30, 1994 54,420 27.75-46.46
Options granted 11,134 46.07-56.93
Options repurchased (1,913) 27.75
Options canceled (36) 46.46
--------
Shares under option at November 30, 1995 63,605 $27.75-$56.93
========
Shares authorized in the Plan as of November 30, 1993
60,000
Shares added to the Plan during the year ended 25,000
--------
November 30, 1994
Total shares authorized in the Plan as of 85,000
November 30, 1994 and 1995
Options outstanding (63,605)
--------
Shares available in the Plan as of November 30, 1995 21,395
========
</TABLE>
F-50
<PAGE> 124
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
In December 1995, the Company introduced an Incentive Stock Option
Plan (the ISO Plan). Under the ISO Plan, 50,000 shares of authorized,
but unissued, common stock have been reserved for issuance to company
executives and key employees. The options are exercisable at prices
determined in a manner consistent with the establishment of exercise
prices under the Non-Qualified Plan and expire at the end of 5 years.
Unlike non-qualified options, however, options granted under the ISO
Plan become exercisable at the rate of one third per year commencing
on the first anniversary of the grant date, provided that the fair
market value of the underlying common stock has attained certain
specified levels as of the time of exercise, but are fully exercisable
without restriction within the last 30 days prior to expiration or
upon a change in control of the Company. During the first quarter of
1996, options to purchase 6,900 shares of common stock were issued
under the ISO Plan.
Stockholder's agreement
In February 1994, the Company and the Company's Chairman entered into
a revised stockholder's agreement (the Agreement) under which the
Chairman agreed to certain restrictions on his shares of the Company's
common stock (the Shares) in consideration for the Company's agreement
to purchase the Shares in certain circumstances. The Agreement
terminates with respect to any of the Shares which become registered
for sale to the public pursuant to the Securities Act of 1933.
Under the terms of this Agreement, the Company is obligated to
purchase all of the Shares owned by the Chairman as of the date of his
death, and shall have the option, but not the obligation, to purchase
any of the Shares previously transferred by the Chairman and governed
by the provisions of the Agreement. The purchase price for the Shares
shall be the fair value determined by the annual stock valuation for
the ESOP. At November 30, 1995, 92,837 shares valued at $5,285,210
(per the most recent annual stock valuation) were owned directly by
the Chairman.
The Agreement also gives the Chairman the right to require the Company
annually to redeem shares with an aggregate fair value of not more
than $150,000. During 1994, the Chairman exercised this right; such
shares were purchased by the Company and contributed to the ESOP in
exchange for a note with a face value of $150,000. The note is
included in long-term debt as of November 30, 1994 (Note 7), and was
repaid in full during 1995. The Chairman has not exercised this right
for 1995.
F-51
<PAGE> 125
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
10. Retirement plan
The Company has a retirement plan for the benefit of its employees
consisting of two portions. The Employee Stock Ownership Plan (the
ESOP Portion) is a stock bonus plan. The second portion (the 401(k)
Portion) constitutes a cash or deferred arrangement.
The 401(k) Portion provides the opportunity for participants to elect
to make contributions of up to 20% of annual gross compensation.
These funds are invested in Lincoln National Pension funds, as
directed by the participant. Participants are fully vested in these
funds. There is no employer match for the 401(k) Portion of the Plan.
The ESOP Portion is designed to invest primarily in Company stock. The
ESOP initially acquired shares of stock from a founder and former
officer of the Company utilizing principally the proceeds of a
$1,850,000 bank loan made to the Company. The Company considers the
loan repayments as its minimum contribution to the ESOP, and allocates
shares held by the ESOP to employees' accounts in proportion to loan
repayments. Unallocated (unearned) ESOP shares are recorded as a
separate reduction of stockholders' equity. As of November 30, 1995,
the ESOP held 91,643 shares of common stock of the Company, of which
59,611 had been allocated to employees' accounts and 32,032 remained
unallocated. The Plan provides for additional Company contributions
at the discretion of the Board of Directors. Participants become
vested in the employer contributions at the rate of 20% per year
starting after year two; thus, employees are fully vested in the
Company's contributions after six years of employment. Contributions
to the ESOP Portion of the plan were approximately $330,000 annually
for 1995 and 1994.
11. Income taxes
Income (loss) before taxes for the years ended November 30, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
U.S. $2,146,900 $224,633
Non-U.S. (22,385) 304,976
---------- --------
$2,124,515 $529,609
========== ========
</TABLE>
F-52
<PAGE> 126
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
The provision for (benefit from) income taxes charged (credited) to
operations during the years ended November 30, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Current:
U.S. Federal $ 898,758 $ 638,005
State and local 168,698 131,488
Foreign 187,301 157,140
---------- ----------
Total current 1,254,757 926,633
---------- ----------
Deferred:
U.S. Federal (55,989) (574,277)
State and local (74,904) (114,831)
Foreign - -
---------- ----------
Total deferred (130,893) (689,108)
---------- ----------
Total provision for income taxes $1,123,864 $ 237,525
========== ==========
</TABLE>
The actual provision for income taxes as a percentage of pre-tax
income varies from the U.S. Federal statutory income tax rate for the
following reasons:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
U.S. Federal statutory tax rate 34.0% 34.0%
State income taxes, net of Federal income tax
benefits 4.6 6.5
Foreign losses for which no benefit has been -
recognized 11.5
Other 2.8 4.3
------ ------
52.9% 44.8%
====== ======
</TABLE>
F-53
<PAGE> 127
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
Deferred tax assets (liabilities) are comprised of the following at
November 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Allowance for doubtful accounts $ 73,909 $ 67,216
Depreciation (11,911) (34,881)
Accruals 120,807 116,826
Deferred rent 278,074 270,048
Cash to accrual adjustment - (179,140)
Stock option plan 36,510 432,287
Client deposits 176,073 199,711
Other 56,969 9,616
-------- ---------
Net deferred tax asset $730,431 $ 881,683
======== =========
</TABLE>
12. Prior period adjustments
During 1994, the Company performed a detailed evaluation of its
existing stock option plan and its accounting for its branch operation
in Belgium. As a result of these procedures, the following
adjustments to the November 30, 1993 retained earnings were recorded:
<TABLE>
<S> <C>
To correct for unrecorded liability related to stock
option buy-back provision $(537,047)
To correct for errors in the elimination of intercompany
balances with Belgium branch office (177,582)
Future tax benefits resulting from prior period
adjustments 280,902
---------
$(433,727)
=========
</TABLE>
13. Subsequent event
Effective February 28, 1996, the company issued 49,400 shares of
common stock in exchange for all of the outstanding common stock of
Medical Technology Consultants Europe Limited (MTCE). This
transaction will be accounted for as a pooling of interests. The
results of operations of the separate entities, presented on a pro
forma basis as if consolidated during the periods covered by the
accompanying financial statements, are as follows (unaudited):
F-54
<PAGE> 128
BRI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------
<TABLE>
<CAPTION>
BRI MTCE Combined
----------- ----------- -----------
<S> <C> <C> <C>
For the year ended
November 30,1994:
Net revenue $24,770,312 $3,848,768 $28,619,080
Net income 292,084 473,835 765,919
For the year ended
November 30, 1995:
Net revenue $38,199,793 $4,438,468 $42,638,261
Net income 1,000,651 155,023 1,155,674
</TABLE>
In connection with the MTCE transaction, the Company entered into
non-compete agreements with six former stockholders of MTCE, which
expire in 1999, requiring total consideration of approximately $98,000
per year for three years.
14. Supplemental disclosures of cash flow information
Supplemental disclosures of cash flow information for the years ended
November 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Federal and state income taxes paid $1,653,795 $327,299
Interest paid 406,731 192,945
Issuance of common stock in connection with
acquisition - 687,364
Issuance of notes payable for non-compete
agreements - 542,964
Issuance of notes payable for purchase of
treasury stock - 160,887
</TABLE>
F-55
<PAGE> 129
BIOMETRIC RESEARCH INSTITUTE, INC.
Balance Sheet (Unaudited)
November 30, 1993
----------
ASSETS
<TABLE>
CAPTION>
(in 000's)
<S> <C>
CURRENT ASSETS
Cash $ 177
Accounts receivable - contracts, less allowance for doubtful
accounts of $29 4,253
Other current assets 203
------
Total Current Assets 4,633
------
Property and Equipment 2,750
Less accumulated depreciation 1,376
------
Total Property and Equipment - Net 1,374
------
Intangibles and Other Assets 167
------
TOTAL ASSETS $6,174
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 130
BIOMETRIC RESEARCH INSTITUTE, INC.
Balance Sheet (Unaudited)
November 30, 1993
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in 000's)
<S> <C>
CURRENT LIABILITIES
Line of credit and current portion of long-term debt $ 326
Current portion of guaranteed ESOP debt 185
Current portion of capital lease obligations 87
Accounts payable and accrued expenses 1,716
Unearned Income 860
Income taxes and other current liabilities payable 223
-------
Total Current Liabilities 3,397
-------
LONG-TERM LIABILITIES
Long-term debt less current portion 143
Accrued rent payable 680
Guaranteed ESOP debt 1,125
Capital lease obligation 156
-------
Total Other Liabilities 2,104
COMMITMENTS AND CONTINGENCIES -
-------
Total Liabilities 5,501
-------
STOCKHOLDERS' EQUITY
Common stock 28
Additional paid in capital 648
Treasury stock (10)
Retained earnings 1,317
-------
Total 1,983
Less: Debt guarantee for ESOP (1,310)
-------
Total Stockholders' Equity 673
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,174
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 131
BIOMETRIC RESEARCH INSTITUTE, INC.
STATEMENT OF OPERATIONS (Unaudited)
FOR THE YEAR ENDED NOVEMBER 30, 1993
------------
<TABLE>
<CAPTION>
(in 000's)
<S> <C>
CONTRACT REVENUE $17,824
DIRECT COSTS 7,401
-------
GROSS MARGIN ON REVENUE 10,423
-------
OTHER EXPENSES
Overhead 5,460
Selling, General and Administrative 4,190
Depreciation and amortization 372
-------
Total 10,022
-------
INCOME FROM OPERATIONS 401
-------
OTHER INCOME (EXPENSE)
Interest expense (162)
Miscellaneous income 10
-------
Total (152)
-------
INCOME BEFORE PROVISION FOR
INCOME TAXES 249
PROVISION FOR INCOME TAXES 71
-------
NET INCOME BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 178
CUMULATIVE EFFECT ON PRIOR
YEARS TO NOVEMBER 30, 1992
OF CHANGING METHOD OF RECOG-
NITION OF DEFERRED INCOME
TAXES 158
-------
NET INCOME $ 20
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 132
BIOMETRIC RESEARCH INSTITUTE, INC.
Statement of Stockholders' Equity (Unaudited)
For the Year Ended November 30, 1993
------------
<TABLE>
<CAPTION>
(in 000's)
Common Additional Debt
Stock Paid in Retained Treasury Guaranteed
Class A Capital Earnings Stock for ESOP Total
------- -------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 30, 1992 $27 $278 $1,297 $ - $(1,495) $107
ISSUANCE OF 8,140 SHARES
OF COMMON STOCK 1 370 - - - 371
PURCHASE OF 219 SHARES
OF TREASURY STOCK - - - (10) - (10)
ESOP PAYMENTS - - - - 185 185
NET INCOME - - 20 - - 20
--- ---- ------ ---- ------- ----
BALANCE, NOVEMBER 30, 1993 $28 $648 $1,317 (10) $(1,310) $673
=== ==== ====== ==== ======= ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 133
BIOMETRIC RESEARCH INSTITUTE, INC.
STATEMENT OF CASH FLOWS (Unaudited)
FOR THE YEAR ENDED NOVEMBER 30, 1993
-----------
<TABLE>
<CAPTION>
(in 000's)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20
Adjustments to reconcile net income
to net cash used in operating
activities
Depreciation and amortization 372
Issuance of stock for compensation 84
(Increase) decrease in assets
Accounts receivable (627)
Other receivables (8)
Prepaid expenses (139)
Deferred tax charge (107)
Increase (decrease) in liabilities
Income taxes payable (235)
Accounts payable, accrued expenses
and payroll (107)
Accrued rent payable 415
Customer deposits 220
Deferred income taxes payable (122)
-----
Net Cash Used In Operating
Activities (234)
-----
CASH FLOWS FROM INVESTING ACTIVITIES
Other loan advances (5)
Collection of other loan receivable 13
Purchase of fixed assets (701)
Deposits placed (26)
Deposit repayments 18
Loan origination fees
-----
Net Cash Used In Investing
Activities (701)
-----
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on notes payable
- line of credit 240
Borrowing on notes payable 262
Payments on notes payable (63)
Purchase of treasury stock (10)
Proceeds from issuance of common stock 371
Dividends Paid (30)
-----
Net Cash Provided By Financing Activities 770
-----
NET DECREASE IN CASH (165)
CASH, BEGINNING OF YEAR 342
-----
CASH, END OF YEAR $ 177
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 134
BIOMETRIC RESEARCH INSTITUTE, INC.
Statement of Cash Flows (Unaudited)
For the Year Ended November 30, 1993
------------
<TABLE>
<CAPTION>
(in 000's)
<S> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Actual Cash Payments For
Federal and State Income Taxes $ 427
=====
Interest $ 158
=====
Reduction of Debt For ESOP payment
Debt Guaranteed For ESOP (Equity) $ 185
Guaranteed ESOP Debt (Liability) (185)
=====
Net Cash Payment $ -
=====
Issuance of Stock For Compensation $ 84
=====
Issuance of Stock For Payment on ESOP Contribution Obligation $ 250
=====
Purchase of Property and Equipment Under Capital Leases $ 131
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 135
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
------------
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) Organization
Biometric Research Institute, Inc. was incorporated on June 2, 1975 under the
laws of the District of Columbia. During the year ended November 30, 1993,
Biometric Research Institute, Inc. reincorporated and reorganized under the
laws of the Commonwealth of Virginia. Biometric Research Institute, Inc. is a
scientific research consulting firm specializing in the design and evaluation
of preclinical and clinical research on a contractual basis in the health care
industry.
(B) Accounting Method
The Company uses the accrual method of accounting for both financial reporting
and income tax return reporting purposes. Under the accrual method of
accounting, revenue is recognized when earned and expenses are recognized when
incurred.
(C) Revenue Recognition
Revenue from time and material contracts is recognized as costs are incurred
at amounts represented by the agreed upon billing amounts.
Revenue from cost-type contracts is recognized as costs are incurred on the
basis of direct costs plus allowable indirect costs and an allocable portion
of a fixed fee.
Revenue from fixed-price type contracts is recognized under the
percentage-of-completion method of accounting, with costs and estimated
profits included in contract revenue as work is performed. If actual and
estimated costs to complete a contract indicate a loss, provision is made
currently for the loss anticipated on the contract.
(D) Accounts Receivable
The Company uses the specific identification method for reflecting an
allowance for bad debts. Accounts receivable have been adjusted for all known
uncollectible accounts and the net balance at November 30, 1993, is deemed
by management to be fully collectible.
(E) Property and Equipment
Property and equipment are recorded at the original cost to the Company. They
are depreciated over predetermined and estimated useful lives of five years
using the straight line method. Assets acquired after 1990 are being
depreciated under the modified ACRS method defined by the Internal Revenue
Code over predetermined lives of five to seven years. Depreciation expense
using the ACRS method was not deemed to be materially different from such
expense determined using economic lives as required by generally accepted
accounting principles.
F-62
<PAGE> 136
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
------------
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) Property and Equipment (continued)
Leasehold improvements are amortized over the period of the lease or the
useful life of improvements, whichever is shorter.
Costs of repairs and maintenance of the property and equipment are expensed as
incurred.
(F) Loan Origination Fee
The loan origination fee is being amortized on the straight-line method over
the five year life of the loan.
(G) Customer Retainers
The Company requires an advance deposit in the form of a retainer on some of
its contracts which generally equals ten percent of the total contract value.
The retainer is applied as follows: against an outstanding invoice amount
over sixty days past due, at the option of the Company; against charges
incurred in the final month for which services are rendered; or, if not so
applied, it is returned in full when the contract is complete.
(H) Accrued Rent Payable
Total non-contingent minimum lease payments due under noncancellable long-term
operating leases, including future non-contingent increases, are recognized as
rent expense over the term of the lease on a pro rata basis. The excess of
such accruals over payments due under the terms of the lease is included in
accrued rent payable in the accompanying Balance Sheets.
(I) Income Taxes
To the extent that items of revenue and expense are recognized in different
periods for income tax and financial reporting purposes, deferred income taxes
are provided to give effect to these temporary differences which are
principally due to the limitations on deductions of accrued vacation,
different methods of depreciation and the net deferred revenue from change
in accounting for tax purposes from the cash basis to the accrued basis.
Transactions, primarily accounts receivable, accounts payable, customer
retainers and accrued expenses, will affect different periods for financial
statement and income tax reporting purposes. Deferred Federal and state
income taxes are provided for these temporary differences.
F-63
<PAGE> 137
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
------------
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) Classification of Expenses
The Company classifies expenses into two categories: direct contract costs
and overhead (which includes fringe benefits, overhead expenses, general and
administrative expenses, corporate development expenses, and marketing and
proposal expenses). The classifications are in accordance with agreements
reached with Health and Human Services Administration (HHS) as to the rate
structure the Company uses in billing out government contracts.
NOTE 2 -- ACCOUNTS RECEIVABLE
The accounts receivable consist of billed and unbilled accounts under
contracts in progress, with governmental and principally commercial units.
All billed and unbilled amounts are expected to be collected during the next
fiscal year.
All accounts receivable are pledged to Citizens' Bank of Maryland as security
for the facility.
NOTE 3 -- NOTE PAYABLE
(A) Line of Credit
For the year ended November 30, 1993, the Company had a line of credit
arrangement with a bank. Interest under the arrangement is payable monthly at
the bank's prime rate plus 1%. The maximum available under the line of credit
at November 30, 1993 was $1,000,000. The line of credit is a demand note and
is secured by all corporate assets, the personal guarantees of certain
shareholders, and by a fist lien on all accounts receivable and other assets
of the Company. At November 30, 1993, the Company had an outstanding note
payable of $240,000 to the bank.
(B) Guarantee of ESOP Debt
The Company is owned in part by an Employee Stock Ownership Plan which
purchased shares of stock from the Company principally utilizing the proceeds
of a ten year $1,850,000 bank loan which requires a balloon payment after five
years, and bears interest at the bank's prime rate. The Company has
guaranteed repayment of the bank loan and will make annual contributions to
the trust sufficient for the trust to make its debt payments. The recipient
of the initial stock acquisition proceeds is also a guarantor of the loan.
During the year ended November 30, 1993, annual principle payments of $185,000
were made. For financial statement purposes at December 31, 1993, the ESOP
loan is reflected as long-term debt of $1,125,000, net of current portion of
$185,000, and the corresponding guarantee is recorded as a separate reduction
of stockholders' equity.
F-64
<PAGE> 138
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
------------
NOTE 4 -- LONG-TERM DEBT
At November 30, 1993, long term debt consisted of (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Notes payable to National Westminster Bank Plc 97
Note payable, due in monthly installments of $3,796
including principal and interest at 8.5%, secured by all
corporate assets and the personal guarantee of certain
shareholders. Final payment due in January 1997 132
----
Total 229
Less: Current Portion (86)
----
Long Term Portion $143
====
</TABLE>
At November 30, 1993, the scheduled future principle maturities for the
long-term obligation is as follows:
<TABLE>
<CAPTION>
Year Ending
November 30 Amount
----------- ------
(in 000's)
<S> <C>
1994 86
1995 90
1996 45
1997 8
----
Total $229
====
</TABLE>
F-65
<PAGE> 139
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
------------
NOTE 5 -- INCOME TAXES
Through fiscal year 1991, the Company filed its tax returns using the cash
method of accounting. As a result of the provisions of the Tax Reform Act of
1986, the Company is required to file Federal income tax returns using the
accrual method of accounting beginning in fiscal year 1992. The total Federal
income tax liability at November 30, 1991, which resulted principally from
temporary differences between the cash and accrual methods of accounting, will
be paid, adjusted for possible changes in the tax rates, over a four-year
period which begins in 1992. The classification of deferred taxes is based on
their expected reversal date; accordingly, the portion of deferred taxes
expected to reverse in the current year has been classified as current in the
accompanying Balance Sheets.
For the year ended November 30, 1993, the components of the provision for
income taxes consisted of:
At November 30, 1993, income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current
Federal $ 348
State 62
-----
Total Current Portion 410
-----
Deferred (benefit)
Federal (287)
State (52)
-----
Total Deferred Portion (339)
-----
Provision For Income Taxes $ 71
=====
</TABLE>
F-66
<PAGE> 140
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
------------
NOTE 5 -- INCOME TAXES (CONTINUED)
The deferred income taxes payable at November 30, 1993, resulted from
financial statement income that was not recognized for income tax purposes.
The components of such temporary differences included the change in tax
method of accounting, non deductible fringe benefit expenses, accelerated
depreciation and other items.
During the year ended November 30, 1993 the company changed its method of
recognition of deferred income taxes from that which was required by APB 11 to
that which is required by SFAS 96 and SFAS 109. This change resulted in a
cumulative offset of years prior to November 30, 1992 of $158,000 and is
reflected in the income statement for the year ended November 30, 1993 as a
current deduction.
F-67
<PAGE> 141
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
______________
NOTE 6 -- RETIREMENT PLAN
The Company has a retirement plan for the benefit of its employees
consisting of two portions. The first portion (the "ESOP Portion") is a
stock bonus plan. The second portion (the "401(k) portion") constitutes a
cash or deferred arrangement.
The 401(k) portion provides the opportunity for participants to elect
to make salary reduction contributions of up to 20% of annual gross
compensation. The maximum individual contribution allowed was $8,728, as
indexed for inflation. These funds are invested in Lincoln National Pension
funds, as directed by the participant. Participants are fully vested in
these funds.
The ESOP portion is designed to invest primarily in Company stock. The
plan provides for corporate contributions to be determined annually by the
Board of Directors with a minimum payment per the terms of the ESOP loan
(Note 3). Participants become vested in the employer contribution as
follows: 20% per year starting in year two, thus employees are fully vested
in the Company's contribution after six years of employment. Contributions to
the ESOP portion of the plan for the year ended November 30, 1993 were
$335,000.
NOTE 7 -- OPERATING LEASES
The Company is obligated under noncancellable operating leases for its
office space in Virginia, Belgium and California. A lease for its Virginia
office was entered into effective beginning on September 1, 1992 and expires
in August 2002. The California facility lease expires November 30, 1997.
These leases contain annual escalation clauses for both increases in the
property taxes and general operating and maintenance costs of the landlord and
minimum rent increases through either fixed escalations or adjustments based
on movements in the Consumer Price Index. In addition, both leases provide
for rent abatement, incentives and the Virginia lease includes a cash payment
incentive. The Belgium lease payments are at a fixed rate throughout the
lease term.
In addition, the Company leases some of its office equipment under operating
leases that expire at various dates over the next three years.
In most cases, the Company expects that in the normal
course of business, operating leases will be renewed or replaced by other
operating leases.
F-68
<PAGE> 142
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
______________
NOTE 7 -- OPERATING LEASES (CONTINUED)
The following is a schedule by years of future minimum rental payments
required under the operating leases that have an initial or remaining
noncancellable lease term in excess of one year at November 30, 1993 (in
thousands):
<TABLE>
<CAPTION>
Year Ending Office
November 30, Space Equipment Total
------------ ------ --------- ------
<S> <C> <C> <C>
1994 $ 678 $32 $ 710
1995 650 30 680
1996 664 17 681
1997 742 5 747
1998 715 715
Thereafter 2,951 - 2,951
------ --- ------
Total Minimum
Rental Payments $6,400 $84 $6,484
====== === ======
</TABLE>
Total rental expense of operating leases for the year ended November 30,
1993 was $657,000.
NOTE 8 -- OBLIGATIONS UNDER CAPITAL LEASE
The Company leases office equipment under long-term lease arrangements
which expire at various dates over the next five years. These leases are
classified as capital leases. The following is a schedule by years of future
minimum lease payments under capital leases together with the net present
value of the minimum lease payment as of November 30, 1993:
<TABLE>
<CAPTION>
Year Ending
November 30, Amount
------------ ------
(in 000's)
<S> <C>
1994 $122
1995 99
1996 75
1997 -
1998 10
----
Total future minimum lease payments 306
Less: Amount representing interest (64)
----
Net present value of future minimum
lease payments $242
====
</TABLE>
F-69
<PAGE> 143
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
______________
NOTE 8 -- OBLIGATIONS UNDER CAPITAL LEASE (CONTINUED)
The amount necessary to reduce the minimum lease payments to their net
present value is calculated at the lessor's implicit interest rates. The net
present value of the minimum lease payments and other balances related to
capitalized leases are included in the accompanying financial statements as
follows:
<TABLE>
<CAPTION>
(in 000's)
<S> <C>
Capitalized lease obligations
Current portion of long term debt $ 87
Long term debt, net of current portion 156
-----
Total capitalized lease obligation $ 243
=====
Equipment under capital leases
Original asset values $ 508
Less: accumulated amortization (279)
-----
Net Balance At End Of Year $ 229
=====
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
(A) Contract Status - Government Contracts
The Company has authorized but uncompleted government contracts and
subcontracts on which work is in progress at November 30, 1993 approximately
as follows:
<TABLE>
<CAPTION>
(in 000's)
<S> <C>
Total contract price of initial contract
awards, including exercised options &
approved change orders (modifications) $ 6,627
Completed & Billed to date (6,118)
-------
Authorized Backlog $ 509
=======
</TABLE>
F-70
<PAGE> 144
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
______________
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
(B) Provisional Indirect Cost Rates
Billings under cost-based government contracts are calculated using
provisional rates which permit recovery of certain indirect costs. These
rates are subject to audit on an annual basis by the government agencies'
cognizant audit agency. The cost audit will result in the negotiation and
determination of the final indirect cost rates which the Company may use for
the period(s) audited. The final rates, if different from the provisional
rates, may create an additional overhead receivable or over-applied rate
liability.
As of November 30, 1993, the Company has no final settlements on
indirect rates. The Company's first cost-based contract began in the year
ended November 30, 1990. The Company periodically reviews its cost estimates
and experience rates, and adjustments, if needed, are made and reflected in
the period in which the estimates are revised. In the opinion of management,
redetermination of any cost-based contracts for the open years will not have
a material effect on the Company's financial position or results of
operations for the period.
(C) Stock Option Plan
The Company has a non-qualified stock option plan for company
executives, key employees and other persons or entities and reserved for
issuance under the plan 50,000 shares of authorized, but unissued common
stock. The plan is administered by a committee of the Board of Directors
which determines the number of shares to be granted. An option entitles the
holder to purchase shares of the company's stock at a price per share as
determined by the annual valuation of the Company for purposes of the
Employee Stock Ownership Plan immediately preceding such grant. Options are
exercisable upon issuance but expire in five years from the date of grant, if
they are not exercised.
An option holder may, on or before the option expiration date, exercise
their option and then sell some or all of his or her stock option to the
Company. In such case, the Company will pay the option holder the difference
between his or her exercise price and the current fair market value as
determined by the most recent annual valuation.
In addition, the Company offers to company executives and certain key
employees the right to elect to take their annual bonus, if awarded, in a
number of alternative forms including cash, common stock and options to
acquire common stock. If options are elected under the alternatives, they
are considered options issued under the non-qualified option plan and as such
are subject to all the same terms and conditions.
F-71
<PAGE> 145
BIOMETRIC RESEARCH INSTITUTE, INC.
Notes to Financial Statements (Unaudited)
November 30, 1993
______________
NOTE 9 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following table summarizes the option activity:
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
--------- ------------
<S> <C> <C>
Shares under option at 11/30/92 43,365
Options granted 4,141 $ 46.46
Options repurchased (4,467) $ 46.46
Options released or freed up (61) $27.75-38.41
------
Shares under option at 11/30/93 42,978
======
</TABLE>
RECONCILIATION OF SHARES IN THE PLAN
<TABLE>
<CAPTION>
Number of
Shares
---------
<S> <C>
Shares authorized for the plan as of 11/30/92 50,000
Shares added to the plan FYE 11/30/93 10,000
-------
Total shares authorized in the plan 60,000
Options outstanding (42,978)
-------
Shares available in plan 17,022
=======
</TABLE>
F-72
<PAGE> 146
Appendix A
Merger Agreement
<PAGE> 147
================================================================================
MERGER AGREEMENT
Dated as of September 16, 1996,
by and among
QUINTILES TRANSNATIONAL CORP.
and
BRI ACQUISITION CORP.
and
BRI INTERNATIONAL, INC.
================================================================================
<PAGE> 148
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Payments Into Escrow; Stockholders' Representative . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4. Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1. Ownership of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2. Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4. Power and Authority of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5. Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6. Financial Statements; No Material Changes; Budget and Projections . . . . . . . . . . . . . . . . . 9
2.7. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.8. Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.9. Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.11. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.13. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.14. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.16. Independent Contractor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.17. Liabilities; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.19. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.20. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.21. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.22. Working Capital; Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.23. Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.24. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.25. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.26. Interests in Clients, Suppliers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.27. Bank Accounts, Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.28. No Changes Since Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.29. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.30. Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.31. Matters Affecting Key Employees or Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.32. Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.33. Absence of Certain Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.34. Information for Registration Statement and Prospectus . . . . . . . . . . . . . . . . . . . . . . . 27
2.35. FDA Debarment and Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.36. Client Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.37. Opinion of the Company's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
<PAGE> 149
<TABLE>
<S> <C>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1. Existence and Good Standing of Purchaser and Acquisition; Power and Authority . . . . . . . . . . . 29
3.2. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.3. Restrictive Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4. Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.5. Information for Registration Statement and Prospectus. . . . . . . . . . . . . . . . . . . . . . . . 31
3.6. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.8. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IV
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1. Conduct of Business of the Company and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2. Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.3. Review of Properties, Books and Records; Response to Inquiries . . . . . . . . . . . . . . . . . . . 36
ARTICLE V
CONDITIONS TO PURCHASER'S AND ACQUISITION'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.1. Opinion of the Company's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.2. Good Standing and Other Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.3. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.4. Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.5. Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6. Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.7. No Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.8. Pooling Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.9. Opinions of Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.10. Affiliates Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.11. Governmental and Other Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.12. Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.13. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.14. Intra-Company Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.15. Current Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.16. Excessive Dissent; Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.17. Registration Statement; NASDAQ Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.1. Opinion of Purchaser's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.2. Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3. Governmental and Other Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
<PAGE> 150
<TABLE>
<S> <C>
6.4. Excessive Dissent; Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.6. Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7. Registration Statement; NASDAQ Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8. No Pending Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9. Opinions of Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.10. Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.11. Tax Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.1. Non-Competition; Non-Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.2. Stock Transfer Restrictions and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.3. Approval of Transactions; Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.4. Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.5. No Solicitation of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.6. ESOP Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.7. 401(k) Spin Off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.2. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.1. Materiality Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.2. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.3. Exclusivity of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.4. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.5. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.6. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.7. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.9. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.12. Construction of Certain Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.13. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.15. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.16. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
<PAGE> 151
<TABLE>
<S> <C>
EXHIBITS
A Plan of Merger
B Stockholder and Exchange Information
C Form of Escrow Agreement
D Form of Company's Counsel's Legal Opinion
E Form of Affiliates' Letter
F Form of Purchaser's Counsel Legal Opinion
SCHEDULES
2.1 Ownership of Stock
2.3 Capital Stock
2.5 Subsidiaries and Investments
2.7 Books and Records
2.8 Title to Properties; Encumbrances
2.9 Tangible Assets
2.11 Leases
2.12 Contracts
2.13 No Conflict
2.14 Litigation
2.16 Independent Contractors
2.17 Indebtedness
2.18 Insurance
2.19 Intellectual Properties
2.20 Licenses
2.23 Employees
2.24 Employee Benefit Plans
2.25 Environmental Matters
2.26 Interests in Clients, Suppliers, Etc.
2.27 Bank Accounts; Powers of Attorney
2.30 Broker's or Finder's Fees
2.31 Key Employees
2.36 Client Relations
5.11 Required Consents
5.14 Intra-Company Debt
</TABLE>
<PAGE> 152
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made and dated as of
September 16, 1996, by and among QUINTILES TRANSNATIONAL CORP., a North
Carolina corporation (the "Purchaser"), BRI ACQUISITION CORP., a North Carolina
corporation and wholly-owned subsidiary of the Purchaser ("Acquisition"), and
BRI INTERNATIONAL, INC., a Virginia corporation (the "Company").
WITNESSETH:
WHEREAS, the parties hereto desire for Acquisition and the Company to
engage in, and the Boards of Directors of the Purchaser, Acquisition and the
Company have approved, the merger of the Company with and into Acquisition (the
"Merger") upon the terms and subject to the conditions set forth herein and in
the related Plan of Merger attached as Exhibit A hereto (the "Plan of Merger");
and
WHEREAS, the Company and the Purchaser intend and desire for the
Merger to constitute a "pooling of interests" for accounting purposes and a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Tax Code"), for income tax purposes;
NOW, THEREFORE, in consideration of the premises, covenants and
agreements set forth in this Agreement and of other good and valuable
consideration, the receipt and legal sufficiency of which they hereby
acknowledge, and intending to be legally bound hereby, the Purchaser,
Acquisition and the Company hereby agree as follows:
<PAGE> 153
ARTICLE I
THE MERGER
1.1 The Merger.
(a) Upon the performance of all covenants and obligations
of the parties contained herein and upon the fulfillment of all conditions to
the obligations of the parties contained herein (other than such covenants,
obligations and conditions as shall have been waived in accordance with the
terms hereof), and in accordance with the North Carolina Business Corporation
Act, as amended (the "NCBCA"), and the Virginia Stock Corporation Act, as
amended (the "Virginia Code"), at the Effective Time (as defined in subsection
(b), below), the Company shall be merged with and into Acquisition in
accordance with the Plan of Merger and this Agreement, the separate existence
of the Company shall cease, and Acquisition shall be the surviving corporation
(sometimes referred to herein as the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of North Carolina.
The name of the Surviving Corporation shall be "BRI Acquisition Corp."
(b) The Merger shall be effected by the filing of
articles of merger with the Secretary of State of the State of North Carolina
and the State Corporation Commission of the Commonwealth of Virginia in
accordance with the provisions of Article 11 of the NCBCA and Section 13.1-720
of the Virginia Code, respectively. The merger shall become effective at the
time set forth in the articles of merger, which shall be filed
contemporaneously with the closing conducted pursuant to Section 1.3 below.
The time and date when the Merger shall become effective is hereinafter
referred to as the "Effective Time".
(c) (i) For purposes of exchanging shares of the
common stock of the Company (issued and outstanding shares of common
stock of the Company are referred to herein as "Company Stock";
holders of Company Stock are referred to herein as "Stockholders") for
shares of Common Stock of the Purchaser, pursuant to the Plan of
Merger, each share of the Company Stock issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding
and, except for shares of Company Stock held by a Stockholder who
exercised dissenter's rights under the Virginia Code and shares of
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Company Stock held in the Company's treasury, shall be converted into
4.3013 shares of the Common Stock of the Purchaser (the "Exchange
Ratio").
(ii) For purposes of exchanging options to obtain
Company Stock ("Company Options") for options to obtain shares of
Common Stock of the Purchaser ("Purchaser Options"), pursuant to the
Plan of Merger, each Company Option to obtain one share of the Company
Stock shall be converted into the right to receive a Purchaser Option
to receive a number of shares of Common Stock of the Purchaser equal
to 4.3013. The per share exercise price for any Purchaser Options
received under this clause (ii) shall equal the per share exercise
price of the Company Options exchanged for such Purchaser Options
divided by 4.3013.
(d) In the event that, between the date of this Agreement
and the Effective Time, the Purchaser changes the number of shares of Common
Stock of the Purchaser that are issued and outstanding, as a result of a stock
split, stock dividend, or similar recapitalization, the Exchange Ratio shall be
proportionately adjusted.
(e) The Purchaser and the Company intend for the
transactions contemplated by this Agreement to qualify for "pooling of
interests" treatment for purposes of the Purchaser's accounting.
1.2. Payments Into Escrow; Stockholders' Representative. (a) When
making the issuances required by Section 1.1 above and pursuant to the Plan of
Merger, and notwithstanding any provision therein to the contrary, the
Purchaser shall withhold from each Stockholder and deliver to the Escrow Agent
(as defined in the Escrow Agreement referred to below) ten percent (10%) of the
shares of the Purchaser's Common Stock issuable pursuant to Section 1.1(c)(i)
above and the Plan of Merger, to be held and distributed by the Escrow Agent
pursuant to the terms of this Agreement and the Escrow Agreement attached as
Exhibit C hereto (the "Escrow Agreement"; such escrow sometimes referred to
herein as the "Escrow Fund"). All such shares of the Purchaser's Common Stock
shall be issued in the name of the Escrow Agent as escrow agent under the
Escrow Agreement, which shall transfer such shares to the former Stockholders
entitled thereto upon any release of such shares from deposit under the Escrow
Agreement. The Escrow Agent shall hold such shares for the accounts of the
Stockholders in accordance with the Escrow Agreement,
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<PAGE> 155
and shall (to the extent legally permissible and provided that written
instructions in form and substance satisfactory to the Escrow Agent have been
provided by the Stockholder) vote such shares in accordance with the written
instructions of the Stockholder for whose account such shares are held. Any
cash or other taxable dividends paid with respect to such shares shall be paid
to the Stockholders in accordance with each Stockholder's respective
proportionate interest in the shares being held in escrow.
(b) Stockholder's Representative. James T. Ogle shall,
by virtue of the Merger and the resolutions to be adopted at the Shareholder
Meeting described in Section 7.3(a), be irrevocably appointed attorney-in-fact
and authorized and empowered to act, for and on behalf of any or all of the
Stockholders (with full power of substitution in the premises) in connection
with the indemnity provisions of Article VIII as they relate to the
Stockholders generally, the Escrow Agreement, and such other matters as are
reasonably necessary for the consummation of the transactions contemplated
hereby including, without limitation, to act as the representative of the
Stockholders to review and authorize all claims authorized or directed by the
Escrow Agreement and dispute or question the accuracy thereof, to compromise on
their behalf with the Purchaser any claims asserted thereunder and to authorize
payments to be made with respect thereto and to take such further actions as
are authorized in this Agreement (the above named representative, as well as
any subsequent representative of the Company's Stockholders appointed by him or
after his death or incapacity elected by vote of holders of a majority of
Company Stock outstanding immediately prior to the Effective Time being
referred to herein as the "Stockholder's Representative"). The Stockholder's
Representative shall not be liable to any Stockholder, the Purchaser, the
Surviving Corporation or their respective affiliates or any other person with
respect to any action taken or omitted to be taken by the Stockholder's
Representative under or in connection with this Agreement or the Escrow
Agreement unless such action or omission results from or arises out of fraud,
gross negligence, willful misconduct or bad faith on the part of the
Stockholder's Representative; provided, however, the Stockholders'
Representative shall not be liable to any Stockholder in the event that in the
exercise of the Stockholders' Representative reasonable judgment he believes
there will not be adequate resources available to cover his potential costs and
expenses to contest a claim made by Purchaser against the Escrow Fund. Each of
the Purchaser and Acquisition shall be entitled to rely on such appointment and
treat such Stockholder's Representative as the duly appointed attorney-in-fact
of each Stockholder. Each Stockholder who votes in favor of the Merger
pursuant to the terms hereof, by such vote, without any further action, and
each Stockholder who receives shares of the Purchaser's Common Stock
4
<PAGE> 156
in connection with the Merger, by acceptance thereof and without any further
action, confirms such appointment and authority and acknowledges and agrees
that such appointment is irrevocable and coupled with an interest.
(c) Reimbursement. Pursuant to the Escrow Agreement,
the Stockholders' Representative shall be reimbursed out of the Escrow Fund for
all costs and expenses, not exceeding $250,000 in the aggregate, (the "Escrow
Expense Basket") incurred by him or her in connection with serving as
representative of the Stockholders hereunder and under the Escrow Agreement.
Certain costs and expenses of the Escrow Agent ("Escrow Agent Expenses") also
are payable by the Stockholders, first out of the Escrow Expense Basket. In
the event that the Stockholders' Representative reasonably believes that he
will not have adequate resources available to cover his potential costs and
expenses, or that the Escrow Expense Basket will be inadequate to cover Escrow
Agent Expenses, he will consult with the Stockholders who hold a majority of
Company Stock as of the date hereof in order to make alternative arrangements
for the costs and expenses of the Stockholders' Representative or the Escrow
Agent. Absent an agreement to the contrary, obligations of the Stockholders to
pay costs and expenses of the Escrow Agent in excess of the Escrow Expense
Basket are in accordance with each Stockholder's pro rata interest of the
Escrow Fund as determined on the Closing Date.
1.3. Closing. Consummation of the Merger and the other
transactions contemplated by this Agreement and the Plan of Merger (the
"Closing") shall take place at 10:00 a.m. at the offices of Smith, Anderson,
Blount, Dorsett, Mitchell & Jernigan, L.L.P. as soon as practicable after the
satisfaction (or waiver, if permissible) of the conditions set forth in this
Agreement, or at such other time and date as the Purchaser and the Company
shall designate by written instrument (such specified or other time and date,
the "Closing Date").
1.4 Transaction Documents. As used in this Agreement, the term
"Transaction Documents" shall mean, collectively, this Agreement, the Plan of
Merger (and the articles of merger), the Escrow Agreement, and all agreements,
instruments, certificates and other documents executed or delivered in
accordance with the terms of this Agreement or any Transaction Document.
"Employment Agreements" shall mean those agreements entered into by the Key
Employees prior to or contemporaneously with the execution of this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser and Acquisition,
solely for the benefit of the Purchaser and Acquisition, and agrees as follows:
2.1. Ownership of Stock. As of the date of this Agreement, except
as set forth in Schedule 2.1 attached hereto, each Stockholder is the lawful
owner of the number of shares of Stock listed opposite such Stockholder's name
in Exhibit B hereto as "Number of Company Shares Held," free and clear of all
liens, encumbrances, restrictions and claims of every kind. At Closing, the
Company shall use reasonable efforts to deliver to the Purchaser certificates
from the Stockholders (other than dissenting Stockholders) certifying that, as
of the Closing Date, such Stockholders are the lawful owners of the Company
Shares to be transferred by such Stockholders, free and clear of all liens,
encumbrances, restrictions and claims of every kind (except for liens set forth
on Schedule 2.1 attached hereto, which liens shall be removed prior to or upon
Closing, and which the Company shall cause to be transferred immediately upon
Closing to the Purchaser Common Stock that is issued in exchange for the
Company Stock that is subject to such liens), and such shares owned by such
Stockholders shall represent not less than ninety and one-tenth percent (90.1%)
of all issued and outstanding Company Stock as of the Closing Date.
Notwithstanding any failure of the Company to obtain all or any of such
certificates from Stockholders, however, and notwithstanding the inability of
the Company to verify the statements made in any such certificates, the parties
hereby agree that, solely for purposes of Article VIII of this Agreement (and
any liability that may at any time arise thereunder), the Company shall be
deemed to have represented and warranted to the Purchaser and Acquisition that:
(i) as of the Closing Date, the Stockholders will be the lawful owners of the
Company Shares to be transferred, free and clear of all liens, encumbrances,
restrictions and claims of every kind (except for liens set forth on Schedule
2.1 attached hereto, which liens shall be removed prior to or upon Closing, and
which the Company shall cause to be transferred immediately upon Closing to the
Purchaser Common Stock that is issued in exchange for the Company Stock that is
subject to such liens), and such shares owned by the Stockholders shall
represent not less than ninety and one-tenth percent (90.1%) of all issued and
outstanding Company Stock as of the Closing Date, (ii) each Stockholder has the
full legal right, power and authority to enter into and deliver any Transaction
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Documents to which such Stockholder is a party, perform such Stockholder's
obligations thereunder and consummate the transactions contemplated thereby,
and (iii) any Transaction Documents to which any Stockholder is a party
constitute the valid and legally binding obligations of such Stockholder,
enforceable against such Stockholder in accordance with their respective terms.
The delivery to the Purchaser of the Company Stock for cancellation pursuant to
the provisions of this Agreement and the Plan of Merger will constitute the
surrender of all of the capital stock of the Company, except for shares of
Company Stock held by a Stockholder who exercises dissenter's rights under the
Virginia Code and shares of Company Stock held in the Company's treasury, free
and clear of all liens, encumbrances, restrictions and claims of every kind.
Each Stockholder is a resident of the state or country set forth adjacent to
such Stockholder's name in Exhibit B.
2.2. Existence and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia. The Company has the power to own its property and to
carry on its business as now being conducted. The Company is duly qualified to
do business and is in good standing in each jurisdiction in which the character
or location of the properties owned or leased by the Company or the nature of
the business conducted by the Company makes such qualification necessary under
applicable law.
2.3. Capital Stock. The Company has an authorized capitalization
consisting of 500,000 shares of Common Stock, $.10 par value per share. As of
the date of this Agreement, 375,448.04 shares of the Company's Stock are issued
and outstanding and are held by the persons and in the amounts set forth in
Schedule 2.3 attached hereto as "Shares Held as of Date of Agreement" and no
other shares of the Company's capital stock are issued or outstanding. As of
the Closing Date, 375,448.04 shares of the Company Stock, plus such additional
shares of the Company Stock as may be issued in the ordinary course of business
upon the exercise of Company Options between the date of this Agreement and the
Closing Date, will be issued and outstanding and no other shares of the
Company's capital stock will be issued or outstanding. All such outstanding
shares so designated have been and will be on the designated dates duly
authorized and validly issued and are and will be on the designated dates fully
paid and nonassessable. Except as shown on Schedule 2.3 as "Rights Outstanding
as of Date of Agreement", there are and will be on the Closing Date no
outstanding options, warrants, rights (pre-emptive or otherwise), calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any
7
<PAGE> 159
character providing for the purchase, issuance or sale
of any shares of the capital stock of the Company, other than as contemplated
by this Agreement.
2.4. Power and Authority of the Company. The Company has all
requisite power and authority to enter into and deliver this Agreement, the
Plan of Merger and the other Transaction Documents to which it is party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The Company's execution,
delivery and performance of this Agreement, the Plan of Merger and the other
Transaction Documents to which it is party and the Company's consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all corporate action required of the Company by applicable law,
its articles of incorporation or bylaws (other than the approval and adoption
of this Agreement, the Plan of Merger and the Merger, by the affirmative vote
of the Stockholders in accordance with the Virginia Code and the Company's
articles of incorporation and bylaws). This Agreement, the Plan of Merger and
the other Transaction Documents to which the Company is a party constitute the
valid and legally binding obligations of the Company, enforceable against the
Company in accordance with their respective terms.
2.5. Subsidiaries and Investments.
(a) The Company does not own, directly or indirectly, any
capital stock or other equity or ownership or proprietary interest in any
corporation, partnership, association, trust, joint venture or other entity
except as set forth in Schedule 2.5 attached hereto (each entity set forth in
Schedule 2.5 being referred to herein as a "Subsidiary"; collectively, the
"Subsidiaries").
(b) Neither the Company nor any Subsidiary is a party to
any joint venture or partnership agreement except as disclosed in Schedule 2.5.
Each Subsidiary is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization. Each Subsidiary has the
power and authority to own, lease and operate its assets and conduct its
business, and is duly qualified to do business in each jurisdiction in which
the ownership, leasing or operation of its assets or the conduct of its
business requires such qualification or where the failure so to qualify would
have a material adverse affect on its business. The authorized capital stock
of each Subsidiary is described in Schedule 2.5. All issued and outstanding
shares of Common Stock of the Subsidiaries are duly authorized, validly issued,
fully paid and non-assessable, were not issued in violation of any preemptive
or other right of any person to
8
<PAGE> 160
acquire securities of any Subsidiary and, except as disclosed in Schedule 2.5,
constitute in the aggregate all the issued and outstanding shares of all
classes of capital stock of the Subsidiaries. There is no outstanding option,
convertible security, preemptive right, warrant, call or agreement (other than
this Agreement) relating to the Common Stock of any Subsidiary. The Company
has, and will continue to have, to and including the Closing Date, good,
marketable and indefeasible title to all of the shares of Common Stock of the
Subsidiaries held by the Company and the absolute right to sell, assign,
transfer and deliver such shares (subject to compliance with applicable
securities laws). Except as set forth on Schedule 2.5, no Common Stock of any
Subsidiary is held by any entity other than the Company or one or more other
Subsidiaries. Schedule 2.5 indicates all indebtedness of any Subsidiaries to
the Company or any affiliate of the Company.
2.6. Financial Statements; No Material Changes; Budget and
Projections.
(a) The Company heretofore furnished the Purchaser with
the consolidated balance sheets of the Company and the Subsidiaries as of
November 30, 1995 and November 30, 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended, all audited by Coopers & Lybrand L.L.P. The Company also has furnished
the Purchaser with the consolidated balance sheet of the Company and the
Subsidiaries as of May 31, 1996 (the "Balance Sheet") and the related
consolidated statements of income, shareholders' equity and cash flows for the
six months then ended, all audited by Ernst & Young LLP. Further, the Company
will provide prior to the Closing Date to the Purchaser, internally prepared
and unaudited, a consolidated balance sheet and statement of income for the
Company and the Subsidiaries for each of the one month periods ending June 30,
1996, July 31, 1996, August 31, 1996 and September 30, 1996, each of which will
be prepared on a basis consistent with the aforementioned financial statements
audited by Ernst & Young LLP. All such financial statements, including the
notes thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated,
and are correct, complete, and consistent with the Company's books and records
(which are correct and complete). The Balance Sheet and all such other balance
sheets fairly present in all material respects the financial condition of the
Company and the Subsidiaries on a consolidated basis at the respective dates
thereof, and reflect all claims against and all debts and liabilities of the
Company and the Subsidiaries, fixed or contingent, required to be set forth in
the Balance Sheet or such other balance sheets, as the case may be, as at the
respective dates thereof; and the related statements of income, shareholders'
equity and cash flows fairly present the results of the operations of the
Company and the
9
<PAGE> 161
Subsidiaries on a consolidated basis and the changes in their financial
position for the periods indicated. There are no material intercompany
transactions between the Company or any Subsidiary and any Stockholder or
Subsidiary (or any affiliate of any thereof) which are not disclosed in such
financial statements or the Schedules to this Agreement. The Company's
consolidated net worth (determined in accordance with generally accepted
accounting principles) as of the date of this Agreement is not less than
$5,200,000, and as of the Closing Date shall not be less than $5,200,000.
(b) Since May 31, 1996 (the "Balance Sheet Date") there
has been (x) no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects of the Company and the Subsidiaries, taken as a whole, whether as
a result of any legislative or regulatory change, revocation of any license or
rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation or act of God or other public force
or otherwise and (y) no change in the assets, liabilities or equity, or in the
business or condition, financial or otherwise, or in the results of operations
or prospects of the Company or any Subsidiary except in the ordinary course of
business which, in the aggregate, would cause the Company's consolidated net
worth to fall below $5,200,000.
(c) The Company has represented to the Purchaser that its
good faith estimate is that the anticipated consolidated net revenue to be
collected by the Company and the Subsidiaries for the fiscal year ending
November 30, 1996 will be at least $48,600,000, and its good faith estimate is
that the anticipated consolidated operating profit to be achieved by the
Company and the Subsidiaries (pre-tax and pre-interest) for the fiscal year
ending November 30, 1996 will be at least $4,050,000. The aforementioned
projections by the Company of anticipated consolidated net revenues and net
operating profit are reasonable and consistent with the Company's current and
historical financial performance and were prepared in accordance with generally
accepted accounting principles.
2.7. Books and Records. Except as set forth on Schedule 2.7, the
minute books of the Company and the Subsidiaries, as previously made available
to the Purchaser and its representatives, contain accurate records of all
meetings of and corporate action taken by the shareholders and Board of
Directors (including committees thereof). Neither the Company nor any
Subsidiary
10
<PAGE> 162
has any of its records, systems, controls, data or information (other than
certain work papers held by accountants) recorded, stored, maintained, operated
or otherwise wholly or partly dependent upon or held by any means (including
any electronic, mechanical or photographic process, whether computerized or
not) which (including all means of access thereto and therefrom) are not under
the exclusive ownership and direct control of the Company or such Subsidiary,
as the case may be.
2.8. Title to Properties; Encumbrances. Except as set forth in
Schedule 2.8 attached hereto and except for properties and assets reflected in
the Balance Sheet or acquired since the Balance Sheet Date which have been sold
or otherwise disposed of in the ordinary course of business, the Company and
each Subsidiary has good, valid and marketable title to (a) all of its
properties and assets (real and personal, tangible and intangible), including
without limitation all of the properties and assets reflected in the Balance
Sheet, except as indicated in the notes thereto, and (b) all of the properties
and assets purchased by the Company or such Subsidiary since the Balance Sheet
Date; in each case subject to no encumbrance, lien, security interest,
mortgage, pledge, charge or other restriction of any kind or character, except
for (i) liens reflected in the Balance Sheet, (ii) liens consisting of zoning
or planning restrictions, easements, permits and other restrictions or
limitations on the use of real property or irregularities in title thereto
which do not detract from the value of, or impair the use of, such property by
the Company or such Subsidiary in the operation of its business, (iii) liens
for current taxes, assessments or governmental charges or levies on property
not yet due and delinquent and (iv) liens described in Schedule 2.8 (liens of
the types described in clauses (i), (ii) and (iii) above are hereinafter
sometimes referred to as "Permitted Liens").
2.9. Tangible Assets. Schedule 2.9 attached hereto contains an
accurate and complete list, as of May 31, 1996, of all tangible assets of the
Company and each Subsidiary, whether owned or leased (as so indicated), having
a value (individually or in the aggregate with other like items) in excess of
$10,000. The tangible assets listed in Schedule 2.9 are in a state of good
maintenance and repair, are adequate and suitable for the purposes for which
they are currently being used and constitute all of the tangible assets (having
such value) used in or necessary to conduct the Company's or Subsidiary's
business, as the case may be, as currently conducted.
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2.10. Real Property. Except as described in Schedule 2.11 attached
hereto in respect of Section 2.11 below, neither the Company nor any Subsidiary
owns, in whole or in part, any interest in any real property.
2.11. Leases. Schedule 2.11 attached hereto contains an accurate
and complete list and summaries of the terms of each lease to which the Company
or any Subsidiary is a party (as lessee or lessor). Each lease set forth in
Schedule 2.11 (or required to be set forth in Schedule 2.11) is in full force
and effect; all rents and additional rents due to date on each such lease have
been paid; in each case, the lessee has been in peaceable possession since the
commencement of the original term of such lease and is not in default
thereunder, and no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor; and there exists no
event of default or event, occurrence, condition or act (including the
transactions contemplated by this Agreement) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a default under such lease. Neither the Company nor any Subsidiary has
violated any of the terms or conditions under any lease set forth in Schedule
2.11 (or required to be set forth in Schedule 2.11) in any material respect,
and there is no reason to believe there will be a violation by the Company or
any Subsidiary in the future; provided, however, the parties acknowledge and
agree that no action or inaction by the Purchaser or the Surviving Corporation
after the Closing shall be grounds to assert a breach of this representation by
the Company or any Subsidiary. The Company and each Subsidiary is in good
relations with each other party thereto, and all of the covenants to be
performed by any other party under any such lease have been fully performed.
The property leased by the Company and the Subsidiaries is in a state of good
maintenance and repair and is adequate and suitable for the purposes for which
it is presently being used.
2.12. Contracts. Except as set forth in Schedule 2.12 attached
hereto, neither the Company nor any Subsidiary has or is bound by (a) any
agreement, contract or commitment relating to the performance by the Company or
such Subsidiary of services for or on behalf of any person or entity pursuant
to which the counterparty or counterparties thereto have an aggregate payment
obligation of more than Fifty Thousand Dollars ($50,000) during any twelve (12)
month period, (b) any agreement, contract or commitment relating to the
engagement as an independent contractor or employment of any person by the
Company or any Subsidiary, or any bonus, deferred compensation, pension, profit
sharing, stock option, employee stock purchase, retirement or other
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employee benefit plan, (c) any agreement, indenture or other instrument which
contains restrictions with respect to the payment of dividends or any other
distribution in respect of the Company's capital stock, (d) any agreement,
contract or commitment relating to capital expenditures, (e) any loan or
advance to, or investment in, any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or other entity
(each a "Person") or any agreement, contract or commitment relating to the
making of any such loan, advance or investment, (f) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any Person
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (g) any management service, consulting or any
other similar type contract, (h) any agreement, contract or commitment limiting
the freedom of the Company or any Subsidiary to engage in any line of business
or any geographic area, or to compete with any Person, (i) any agreement,
contract or commitment which involves $20,000 or more or (j) any agreement,
contract or commitment which might reasonably be expected to have a potential
adverse impact on the business or operations of the Company or any Subsidiary.
Each contract or agreement set forth in Schedule 2.12 (or required to be set
forth in Schedule 2.12) is in full force and effect, and there exists no, and
neither the Company nor any Subsidiary has received any notice or other
communication asserting the actual or alleged existence of any, default or
event of default or event, occurrence, condition or act (including the
consummation of the transactions contemplated by this Agreement) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder. Neither the
Company nor any Subsidiary has violated any of the terms or conditions of any
contract or agreement set forth in Schedule 2.12 (or required to be set forth
in Schedule 2.12, or which would at any time within the past six years have
been required to be set forth in a schedule listing the types of agreements and
instruments set forth in Schedule 2.12) in any material respect, and there is
no reason to believe there will be a violation by the Company or any Subsidiary
in the future; provided, however, the parties acknowledge and agree that no
action or inaction by the Purchaser or the Surviving Corporation after the
Closing shall be grounds to assert a breach of this representation by the
Company or any Subsidiary. Except as indicated in Schedule 2.12 attached
hereto, the Company or the applicable Subsidiary is in good relations with each
other party thereto, and all of the covenants to be performed by any other
party thereto have been fully performed. The Company and each Subsidiary is in
good relations with and has not experienced, and does not anticipate, any
dispute with any supplier, vendor, contractor, or customer with which the
Company or such Subsidiary has conducted business during the one year
period ending with the date of this
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Agreement; provided, however, the parties acknowledge and agree that no action
or inaction by the Purchaser or the Surviving Corporation after the Closing
shall be grounds to assert a breach of this representation by the Company or
any Subsidiary.
2.13. No Conflict. The execution and delivery of this Agreement by
the Company do not, and the performance of this Agreement by the Company shall
not, (a) conflict with or violate the articles of incorporation or bylaws of
the Company, (b) subject to (i) obtaining the requisite approval and adoption
of this Agreement by the holders of Company Stock in accordance with the
Virginia Code and the Company's articles of incorporation and bylaws; (ii)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, any governmental authority pursuant to the
applicable requirements, if any, of the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), state securities laws and the rules and regulations thereunder
("Blue Sky Laws"), the National Association of Securities Dealers, Inc. (the
"NASD"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations thereunder (the "HSR Act"), and the filing and
recordation of appropriate transaction documents as required by the NCBCA and
the Virginia Code; and (iii) obtaining the consents, approvals, authorizations
or permits described in Schedule 2.13 hereto, conflict with or violate any
laws, or (c) result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the properties or
assets of the Company pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease or other instrument or obligation to which the
Company is a party.
2.14. Litigation. Except as set forth in Schedule 2.14 attached
hereto, there is no action, suit, proceeding at law or in equity, arbitration
or administrative or other proceeding or investigation by or before any
governmental or other instrumentality or agency pending, threatened, or which
might be threatened, against or affecting the Company, any Subsidiary or any
affiliate of the Company or any of their respective properties or rights which
could affect the right or ability of the Company or any Subsidiary to carry on
its business as now conducted, or which could affect the condition, whether
financial or otherwise, or properties of the Company or any Subsidiary; and the
Company is not aware of any basis for any such action, proceeding or
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investigation. Neither the Company nor any of its Subsidiaries or other
affiliates is subject to any judgment, order or decree entered in any lawsuit
or proceeding which may affect any of the Company's or any Subsidiary's
operations or business practices, or the ability of the Company or any
Subsidiary to acquire any property or conduct business in any area.
2.15. Taxes. The Company and each Subsidiary has filed or caused to
be filed, within the times and manners prescribed by law, all federal, state,
local and foreign tax returns and tax reports which are required to be filed
by, or with respect to, the Company or such Subsidiary. True and complete
copies of all such returns have been provided to the Purchaser. Such returns
and reports reflect accurately all liability for taxes of the Company and the
Subsidiaries for the periods covered thereby. All federal, state, local and
foreign income, profits, franchise, sales, use, occupancy, excise and other
taxes and assessments (including interest and penalties) payable by or due from
the Company or any Subsidiary have been fully paid or adequately disclosed and
fully provided for in the books and financial statements of the Company or
Subsidiary, as applicable. The federal income tax liability of the Company has
been finally determined for all fiscal years to and including the fiscal year
ended November 30, 1992. No examination of any tax return of the Company or
any Subsidiary is currently in progress, and no basis for any assessment
exists. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return of the Company or any
Subsidiary.
2.16. Independent Contractor Status. Schedule 2.16 attached hereto
sets forth a complete list of the Persons, including without limitation all
investigators and monitors or clinical research associates and other study
personnel, engaged by the Company or any Subsidiary at any time within the two
years preceding the Closing Date to render management, consulting, research,
investigative or similar services to the Company or any Subsidiary as an
independent contractor (collectively, the "the Company Contractors"). The
Company has provided to the Purchaser true and complete copies of all
agreements entered into between the Company or any Subsidiary and any Company
Contractor requested by the Purchaser. Each Company Contractor is and at all
times has been, and each person who at any prior time would have been required
to be included in a schedule listing the types of persons set forth in Schedule
2.16 at all times was, an independent contractor to, and not an employee of,
the Company or the applicable Subsidiary for purposes of all applicable federal
and state income tax withholding requirements and otherwise.
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2.17. Liabilities; Indebtedness.
(a) There are no liabilities, obligations or indebtedness
of or claims against the Company or any Subsidiary, whether known or unknown,
due or not yet due, asserted or unasserted (whether or not probable of
assertion), actual or potential, choate or inchoate, fixed, contingent, or
otherwise, arising from, or in connection with, or based upon acts, omissions,
events, things, facts, conditions, matters or occurrences existing, occurring
or taking place on or before the Closing Date, whether or not discovered,
known, asserted, expected or contemplated by any party or third party, or in
any way choate on the Closing Date and the Purchaser shall not suffer or be
subject to any Losses (as defined in Section 8.2(a), below) arising from the
foregoing, whether such Losses occur before or after the Closing Date, except:
(i) those liabilities as set forth in the Balance Sheet or referred to in the
notes thereto, and (ii) liabilities incurred subsequent to the Balance Sheet
Date and prior to Closing in the ordinary course of business to the extent that
all such liabilities when applied to the balance sheet of the Company as of the
Closing Date, do not in the aggregate cause the Company's consolidated net
worth to fall below $5,200,000. Neither the Company nor any Subsidiary is in
default in respect of the terms or conditions of any indebtedness.
(b) Schedule 2.17 attached hereto is a complete and
correct listing of all (i) existing indebtedness for money borrowed of the
Company and the Subsidiaries, (ii) guarantees of the Company or any Subsidiary
and (iii) letters of credit and other credit enhancements extended to the
Company or any Subsidiary (all obligations described by (i) through (iii) being
referred to herein as "Indebtedness"). The Company and each Subsidiary has
performed and is in compliance with all of the terms of such Indebtedness and
all instruments and agreements relating thereto, and, except as indicated on
Schedule 2.17 attached hereto, no default or event of default, or event or
condition which with the giving of notice, the lapse of time, a determination
of materiality, the satisfaction of any other condition or any combination of
the foregoing, would constitute such a default or event of default, exists with
respect to any such Indebtedness. The sum of the Indebtedness of the Company
and the Subsidiaries, taken as a whole, does not exceed Eight Million Dollars
($8,000,000).
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2.18. Insurance.
(a) Set forth in Schedule 2.18 attached hereto is a
complete list of insurance policies which the Company or any Subsidiary
maintains with respect to its business, properties and employees, together with
a description of all claims made at any time thereon in excess of $300,000, and
at any time since the date two years prior to the date of this Agreement in
excess of $20,000. Such policies are in full force and effect and, except to
the extent provided in the terms and conditions of such policies, are free from
any right of termination on the part of the applicable insurance carriers.
Such policies, with respect to their amounts and types of coverage, are
adequate to insure fully against risks to which the Company and the
Subsidiaries and their respective property and assets are normally exposed in
the operation of their respective businesses, including without limitation
professional liability, and do not require the payment of any unusual premium,
surcharge, or other increase above customary insurance rates available to other
companies engaged in similar businesses, as a result of the nature of the
Company's or the Subsidiaries' businesses or the manner in which such
businesses have been conducted, including but not limited to past loss or claim
experience or risks of operations pertinent to insurability. There are no
outstanding unpaid premiums except in the ordinary course of business, and
neither the Company nor any Subsidiary has received any notice of cancellation
or non-renewal of any such policy. Except as set forth in Schedule 2.18,
neither the Company nor any Subsidiary is aware of any risks, situations,
occurrences or other matters which have not been disclosed, but were required
to be disclosed, to insurance carriers or brokers in connection with any
applications for insurance. Since January 31, 1995, there has not been any
material adverse change in the relationship of the Company or any Subsidiary
with its insurers or in the premiums payable pursuant to such policies. There
exists no event of default or event, occurrence, condition or act (including
the transactions contemplated by this Agreement) which, with the giving of
notice, the lapse of time or the happening of any further event or condition
would become a default or occasion a premium increase under any such policy or
give rise to, and the Company has no anticipation of, any termination or
cancellation thereof or premium increase therefor. The Company and all
Subsidiaries have been adequately covered by policies of insurance of the types
described in Schedule 2.18 for the periods indicated in Schedule 2.18.
(b) Pursuant to contractual relations, at all times
following the date of this Agreement until the Closing Date, the Company shall
require all investigators selected by the Company or any Subsidiary to maintain
appropriate levels of insurance coverage. At no time has
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the Company suffered any Losses (as defined in Section 8.2) due to the failure
of any investigator, contract monitor or other independent monitor selected by
the Company or any Subsidiary, or of any persons employed by such Persons to
perform any study project or other assignment at all times when performing
services for the Company or any Subsidiary, to maintain appropriate levels of
medical malpractice insurance coverage or otherwise to be adequately insured by
appropriate contract endorsements or other means, and any such Losses incurred
by (i) the Company from and after the date hereof and prior to Closing, as a
result of such failure existing prior to the date hereof, or (ii) the Purchaser
or the Surviving Corporation from and after Closing as a result of such failure
existing prior to the Closing Date, shall be deemed a breach of this
representation and warranty. In connection with all studies or other services
performed by the Company or any Subsidiary with respect to the testing of any
products (including without limitation any devices), the Company and the
Subsidiaries request to be fully indemnified by the sponsor or other party
requesting such studies or other services, although the Company has not
obtained such indemnification coverage in all cases. Notwithstanding the facts
recited in the preceding sentence, any Losses (as defined in Section 8.2)
incurred by Purchaser or the Surviving Corporation from and after Closing due
to the failure of the Company or any Subsidiary to be fully indemnified prior
to the Closing Date by the sponsor or any other party requesting such studies
or other services shall be deemed a breach of this representation and warranty.
Nothing herein shall obligate the Purchaser or the Surviving Corporation to
require any investigator, contract monitor or other independent monitor, or
person employed by any of such Persons, to purchase or maintain insurance, and
any such failure by the Purchaser or the Surviving Corporation shall not
relieve the Company of any of its obligations pursuant to this Section 2.18.
2.19. Intellectual Property. To the best of the knowledge of the
Company, the lawful operation of the business of the Company and the
Subsidiaries as currently conducted and as currently planned to be conducted
requires no rights under Intellectual Property (as hereinafter defined) other
than rights under Intellectual Property listed in Schedule 2.19 attached hereto
and rights granted to the Company or any Subsidiary pursuant to agreements
listed in Schedule 2.19. To the best of the knowledge of the Company, within
the six year period immediately prior to the date of this Agreement, neither
the Company nor any Subsidiary has made use of any Intellectual Property rights
other than rights under Intellectual Property listed in Schedule 2.19 and
rights granted to the Company or the Subsidiaries pursuant to agreements listed
in Schedule 2.19. Except as otherwise set forth in Schedule 2.19, the Company
or its Subsidiaries own all right, title
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and interest in the Intellectual Property listed in Schedule 2.19, including
without limitation exclusive rights to use and license the same. Without
limiting the foregoing, and except as otherwise set forth in Schedule 2.19, the
Company or its Subsidiaries own all right, title and interest (including
without limitation exclusive rights to use and license the same) in all
compilations of data concerning the Company's and the Subsidiaries' business
and services, and has not disclosed the same to any person or entity not
subject to a legally binding obligation to the Company or a Subsidiary to
maintain the same in confidence. Each item of Intellectual Property listed in
Schedule 2.19 has been duly registered with, filed in, or issued by a domestic
or foreign governmental agency to the extent specified in Schedule 2.19, and,
to the best of the knowledge the Company, each such registration, filing and
issuance remains in full force and effect. To the best of the knowledge of the
Company, no claim adverse to the interests of the Company or any Subsidiary in
the Intellectual Property or agreements listed in Schedule 2.19 has been made
in litigation and no such claim has been threatened or asserted, no basis or
alleged basis exists for any such claim, and no Person has infringed or
otherwise violated the Company's or any Subsidiary's right in any of the
Intellectual Property or agreements listed in Schedule 2.19. To the best of
the knowledge of the Company, neither the Intellectual Property listed in
Schedule 2.19 nor the Company's or any Subsidiary's use thereof infringes or
has infringed at any time upon the valid Intellectual Property rights of
another, and no litigation is pending wherein the Company or any Subsidiary is
accused of infringing or otherwise violating the Intellectual Property right of
another, or of breaching a contract conveying rights under Intellectual
Property; no such claim has been asserted or threatened against the Company or
any Subsidiary, nor is the Company aware of any facts that would give rise to
such a claim. For purposes of this Section 2.19, "Intellectual Property" means
domestic and foreign patents, patent applications, registered and unregistered
trademarks and service marks, registered and unregistered copyrights, computer
programs and databases, trade secrets and proprietary information.
2.20. Licenses. Schedule 2.20 attached hereto contains an accurate
and complete list of all licenses, franchises, permits, rights and other
authorizations (collectively, "Licenses") used, or anticipated to be used, in
the operation of the business of the Company or any Subsidiary or otherwise
held by the Company or any Subsidiary. The Company and its Subsidiaries own or
otherwise lawfully use each License necessary or required by applicable law to
conduct their respective businesses as conducted as of the date of this
Agreement, free and clear of all liens,
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encumbrances, restrictions and claims of every kind. All of the Licenses are
in full force and effect, not subject to any current default or right of
cancellation, termination or revocation.
2.21. Compliance with Laws. The Company and each Subsidiary is,
will be as of the Closing Date, and at all times has been in compliance with
all applicable laws, regulations, orders, judgments and decrees. There exists
no event, occurrence, condition or act which, with the giving of notice, the
lapse of time or the happening of any further event or condition would
constitute a violation of any applicable law, regulation, order, judgment or
decree. None of the Company, any Subsidiary, or any of their respective
affiliates, nor any Person acting for or on behalf of any thereof has at any
time made or participated in any bribe, kickback or illegal payment.
2.22. Working Capital; Accounts Receivable. The current working
capital of the Company is sufficient for the purposes of the Company's
operations over the next twelve (12) months, as currently conducted by the
Company. The amount of all accounts receivable, both billed and unbilled,
invoices and other debts due and recorded in the respective financial
statements or records and books of account of the Company as being due to the
Company as at the Closing Date (less the amount of all provisions or reserves
therefor made in the respective records and books of account of the Company)
are good and collectible in full in the ordinary course of business and in any
event not later than two hundred forty (240) days after the Closing Date; and
none of such accounts receivable or other debts is or will at the Closing Date
be subject to any counterclaim or set-off except to the extent of any such
provision or reserve. There has been no material adverse change since the
Balance Sheet Date in the amount of accounts receivable or other debts due the
Company or the allowances with respect thereto, or accounts payable of the
Company, from that reflected in the Balance Sheet.
2.23. Employee Relations. Schedule 2.23 attached hereto contains an
accurate list of all of the Company's and each Subsidiary's employees, showing
for each his or her position, date of employment, most recent annual
compensation, and current annualized salary. The Company and the Subsidiaries
are in substantial compliance with all federal, state and other applicable
laws, domestic or foreign, respecting employment and employment practices,
terms and conditions of employment and wages and hours, and has not and is not
engaged in any unfair labor practice. No unfair labor practice complaint
against the Company or any Subsidiary is pending before the National Labor
Relations Board or any other governmental authority. There is no labor strike,
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dispute, slowdown or stoppage actually pending or threatened against or
involving the Company or any Subsidiary. No representation question exists
respecting the employees of the Company or any Subsidiary. Except as set forth
on Schedule 2.14, no grievance which might have an adverse effect upon the
Company or any Subsidiary or the conduct of their respective businesses exists,
no arbitration proceeding arising out of or under any collective bargaining
agreement is pending, and no claim therefor has been asserted. No collective
bargaining agreement is currently being negotiated by the Company or any
Subsidiary. Except as set forth in Schedule 2.14, neither the Company nor any
Subsidiary has experienced any unfair labor practice complaint, labor strike,
dispute, slowdown or stoppage or grievance which might have an adverse effect
on the Company or any Subsidiary during the last three years. The Company is
not aware of any employee or group of employees the loss of which could have a
material adverse effect on the business or financial condition of the Company
or any Subsidiary who have expressed or communicated to the Company or any
Subsidiary any current grievance or any intent to leave or contemplation of
leaving the Company's or any Subsidiary's employ. There has not been as of the
date of this Agreement any material adverse change in relations with employees
of the Company or any Subsidiary as a result of any announcement of the
transactions contemplated by this Agreement. Set forth on Schedule 2.23 is a
list, as of the date of this Agreement, of all "affiliates" of the Company as
that term is used in SEC Accounting Series Release Nos. 130 and 135 and SEC
Rule 145 (such list may be updated by the Company on the Closing Date).
2.24. Employee Benefit Plans.
(a) Set forth in Schedule 2.24 attached hereto is an
accurate and complete list of all employee benefit plans of any variety
whatsoever (the "Employee Benefit Plans"), including without limitation any
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations thereunder ("ERISA")
(whether or not any such Employee Benefit Plans are otherwise exempt from the
provisions of ERISA), established, maintained or contributed to by or with
respect to the Company or any Subsidiary at any time. The Company has provided
the Purchaser with true and complete copies of all documents governing or
relating to each such Employee Benefit Plan.
(b) Each Employee Benefit Plan has been administered in
all material respects in accordance with its terms and is in compliance in all
material respects with the applicable provisions, if any, of ERISA and the
Internal Revenue Code of 1986, as amended (the "Code").
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All reports, returns and similar documents with respect to the Employee Benefit
Plans required to be filed with any government agency or distributed to any
Employee Benefit Plan participant have been duly and timely filed or
distributed. There are no investigations by any government agency, and no
termination proceedings or other claims, suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any liability
to the Company or any Subsidiary or such Employee Benefit Plan, other than
routine claims for benefits pursuant to the terms of such Employee Benefit
Plans. All of the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified; the Employee Benefit Plans and the trusts related thereto are exempt
from Federal income taxes; no such determination letter has been revoked and
revocation has not been threatened; and no such Employee Benefit Plan has been
amended since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
increase its cost. No Employee Benefit Plans have been terminated; there have
not been any "reportable events" (as defined in Section 4043 of ERISA and the
regulations thereunder) with respect thereto; and no Employee Benefit Plan has
an "accumulated funding deficiency" within the meaning of Section 412(a) of the
Code or any unfunded liability of any kind.
2.25. Environmental Matters.
(a) For purposes of this Section 2.25, the following
terms shall have the following meanings: (A) "Facilities" shall mean any and
all buildings, structures and properties of any sort owned, leased, operated or
occupied by the Company or any Subsidiary at any time; (B) "Hazardous
Materials" shall mean any solid or liquid substance, waste, or material
characterized, defined or listed as "hazardous" or "toxic" or regulated under
Environmental Laws (as defined below), including any and all constituents of
such substance, waste, or material. The term "Hazardous Materials" shall
include, without limitation, solid or liquid raw materials, wastes, petroleum
and petroleum products, and source, special nuclear or by-product material as
defined by the Atomic Energy Act of 1954, as amended; (C) "CERCLA" shall mean
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended; (D) "RCRA" shall mean the Resource Conservation and Recovery
Act, as amended; (E) "Claim" shall mean any and all claims, demands, causes of
actions, suits, proceedings, administrative proceedings, losses, judgments,
decrees, debts, damages, liabilities, court costs, attorneys' fees and any
other expenses incurred, assessed or sustained by or against the Company or any
Subsidiary; and (F)
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"Environmental Laws" shall mean any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
judicial decisions, permits, concessions, grants, franchises, licenses,
agreements or other governmental restrictions or requirements relating to the
environment or hazardous or toxic materials or substances, the protection of
human health and the environment, or the release of any materials or substances
into the environment, whether existing or hereafter enacted or issued which
govern behavior, activities or conditions with respect to the Facilities prior
to the Closing Date.
(b) Compliance with Environmental Laws. To the best of
its knowledge, the Company has heretofore provided to the Purchaser all
material information relating to the following items: (i) the nature,
quantities and ultimate disposal locations of any Hazardous Materials
generated, transported, treated or disposed of by the Company or any
Subsidiary, together with a description of the location of each such activity,
and (ii) a summary of the nature and quantities of any Hazardous Materials that
have been disposed of or found at any site or facility owned, operated or
occupied presently or at any previous time by the Company or any Subsidiary.
To the best of the knowledge of the Company, the Company and each Subsidiary is
in compliance with all applicable Environmental Laws, including without
limitation those relating to product registration, pollution control and
environmental contamination and those governing the generation, use,
collection, discharge, or disposal of Hazardous Materials and record keeping,
notification and reporting requirements respecting Hazardous Materials. Except
as disclosed in Schedule 2.25 attached hereto, to the best of the knowledge of
the Company, neither the Company nor any Subsidiary has violated or been
alleged to have violated any Environmental Law, nor has the Company or any
Subsidiary been subject to any administrative or judicial proceeding pursuant
to any Environmental Law at any time. Except as disclosed in Schedule 2.25, to
the best of the knowledge of the Company, there are no facts or circumstances
which could form the basis for the assertion of any Claim against the Company
or any Subsidiary relating to environmental matters, including without
limitation any Claim arising from past or present environmental practices
asserted under CERCLA or RCRA or any other Environmental Law, which might have
an adverse effect on the business, results of operations, financial condition
or prospects of the Company or any Subsidiary.
(c) Asbestos, Urea Formaldehyde, and Underground Storage
Tanks. To the best of the knowledge of the Company, there is not and never has
been constructed, placed, deposited,
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stored, disposed of nor located on or at any Facility any asbestos or
asbestos-containing-materials or any insulating materials containing urea
formaldehyde in any form, and no underground treatment or storage tanks
(excluding non-industrial waste septic tanks) or sumps are or have ever been
located on or at the Facilities, except as listed in Schedule 2.25.
(d) Investigations. There have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted by,
on behalf of, or which are in the possession or control of the Company or any
Subsidiary in relation to the Facilities.
(e) Liens. To the best of the knowledge of the Company,
there are no liens arising under or pursuant to any Environmental Laws on the
Facilities and no actions by any governmental authority have been taken or are
in process which likely would subject the Facilities to such liens, and neither
the Company nor any Subsidiary would be required to place any notice or
restriction relating to the presence of any Hazardous Materials at the
Facilities or in any deed to the Facilities.
2.26. Interests in Clients, Suppliers, Etc. Except as described in
Schedule 2.26 attached hereto, none of the Company, any Subsidiary, nor any
executive officer or director of the Company or any Subsidiary possesses,
directly or indirectly, any financial, equity or controlling interest in any
corporation, firm, association or business organization which is a client,
supplier, customer, lessor, lessee, or competitor of the Company or any
Subsidiary, other than (i) investments in mutual or other funds that own less
than 10% of any such entity, and (ii) ownership of less than one percent (1%)
of the outstanding stock of any such entity whose stock is publicly traded.
2.27. Bank Accounts, Powers of Attorney. Set forth in Schedule 2.27
attached hereto is an accurate and complete list showing (a) the name and
address of each bank in which the Company or any Subsidiary has an account or
safe deposit box, the number of any such account or any such box and the names
of all persons authorized to draw thereon or to have access thereto, and (b)
the names of all persons, if any, holding powers of attorney (including without
limitation with respect to tax matters) from the Company or any Subsidiary and
a summary statement of the terms thereof.
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2.28. No Changes Since Balance Sheet Date. Since the Balance Sheet
Date, except with the prior written consent of the Purchaser or as otherwise
disclosed in the Schedules to this Agreement, neither the Company nor any
Subsidiary has (a) incurred any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) except in the ordinary course of
business in an amount less than $25,000, (b) permitted any of its assets to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind (other than Permitted Liens), (c) sold,
transferred or otherwise disposed of any assets except in the ordinary course
of business for an amount less than $25,000, (d) made any capital expenditure
or commitment therefor except in the ordinary course of business in an amount
less than $25,000, (e) declared or paid any dividend or made any distribution
on any shares of its capital stock, or redeemed, purchased or otherwise
acquired any shares of its capital stock or any option, warrant or other right
to purchase or acquire any such shares, (f) made any bonus or profit sharing
distribution or payment of any kind, (g) increased its indebtedness for
borrowed money such that the aggregate indebtedness for borrowed money of the
Company and the Subsidiaries, taken as a whole, exceeds $8,000,000, or made any
loan to any Person, except for advances and loans made to employees and
Subsidiaries in the ordinary course of business, (h) written off as
uncollectible any notes or accounts receivable except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate exceeds $25,000, (i) granted any increase in
the rate of wages, salaries, bonuses or other remuneration of any executive
employee or other employees, except for increases granted in the ordinary
course of business, none of which individually exceeded $10,000 (except for no
more than two individuals receiving raises in excess of $20,000), (j) cancelled
or waived any claims or rights, (k) made any change in any method of accounting
or auditing practice, (l) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner and in the ordinary course
of business (any transactions valued in excess of $10,000 shall not be deemed
to be in the ordinary course for this purpose) or (m) agreed, whether or not in
writing, to do any of the foregoing.
2.29. Disclosure. None of this Agreement, the financial statements
referred to in Section 2.6 hereof (including the notes thereto), or any
schedule, exhibit or certificate attached hereto or delivered in accordance
with the terms hereof or any document or statement in writing which has been
supplied by or on behalf of the Company in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits any statement of a
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material fact necessary in order to make the statements contained herein or
therein not misleading. All information concerning the Company or any
Subsidiary which is material to the transactions contemplated hereby has been
provided to the Purchaser, including without limitation any and all appraisals,
valuations, estimates or other projections concerning the Company or its
securities or any Subsidiary prepared within the past two years. There is no
fact known to the Company which adversely affects the business, prospects,
valuation or financial condition of the Company or any Subsidiary or their
respective properties or assets which has not been set forth in this Agreement,
the financial statements referred to in Section 2.6 hereof (including the notes
thereto), or any schedule, exhibit or certificate attached hereto or delivered
in accordance with the terms hereof or any document or statement in writing
which has been supplied by or on behalf of the Company in connection with the
transactions contemplated by this Agreement.
2.30. Broker's or Finder's Fees. Except as indicated on Schedule
2.30, attached hereto, no agent, broker, person or firm acting on behalf of any
Stockholder or the Company is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated by this
Agreement.
2.31. Matters Affecting Key Employees or Stockholders. None of the
employees listed in Schedule 2.31 attached hereto (each a "Key Employee") is
subject to any agreement, law, regulation, judgment, decree or obligation which
adversely affects or which might adversely affect such Key Employee's ability
to act as an employee of the Purchaser following consummation of the
transactions contemplated by this Agreement. Each Key Employee has all
requisite power and authority to enter into and deliver the Employment
Agreements and the other Transaction Documents to which such Key Employee is a
party, to perform such Key Employee's obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The Employment
Agreements and the other Transaction Documents to which each Key Employee or
Stockholder is a party constitute the valid and legal binding obligations of
such Key Employee or Stockholder, as the case may be, enforceable against such
Key Employee or Stockholder in accordance with their respective terms. The
representations and warranties of each Key Employee contained in the Employment
Agreement to which such Key Employee is a party are true and correct.
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2.32. Copies of Documents. The Company has caused to be made
available for inspection and copying by the Purchaser and its advisers true,
complete and correct copies of all documents referred to in this Article II or
in any schedule attached to this Agreement.
2.33. Absence of Certain Conditions. There exists no event,
occurrence, condition or act which, with the giving of notice, the lapse of
time or the happening of any further event or condition would constitute a
breach of or cause any of the representations and warranties in this Article II
to become untrue.
2.34. Information for Registration Statement and Prospectus. No
information furnished by or on behalf of the Company or any of its employees,
accountants or representatives which will be included in the Registration
Statement (as defined in Section 7.3(b)) or the prospectus referenced therein
will contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not
misleading. The Registration Statement will meet and comply in all material
respects with all applicable rules under the Securities Act of 1933 (the
"Securities Act") as it relates to the Company.
2.35. FDA Debarment and Disqualification.
(a) (i) None of the Company, any Subsidiary, or any of
their respective employees has been debarred by the U.S. Food and Drug
Administration (the "FDA") pursuant to the Generic Drug Enforcement Act of 1992
(21 U.S.C. 301 et. seq.; referred to herein as the "Drug Enforcement Act"), and
(ii) to the best of the knowledge of the Company, none of the Company, any
Subsidiary, or any of their respective employees is under investigation by the
FDA for debarment action pursuant to the Drug Enforcement Act.
(b) To the best of the knowledge of the Company, no
subcontractor utilized by the Company or any Subsidiary, no investigator
selected by the Company or any Subsidiary and no person employed by any such
investigator to perform any study project or other assignment is under
investigation by the FDA for debarment action or has been debarred pursuant to
the Drug Enforcement Act.
(c) To the best of the knowledge of the Company, the
Company, each Subsidiary, all Company and Subsidiary employees, any
subcontractors utilized by the Company
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or any Subsidiary, any investigators selected by the Company or any Subsidiary
and any persons employed by such investigators to perform any study project or
other assignment, are in good standing with the FDA and all other governmental
agencies regulating the Company, the Subsidiaries or their respective
businesses.
(d) The Company maintains a process by which the Company
and the Subsidiaries monitor debarment actions affecting individuals or
entities utilized by the Company or the Subsidiaries in the provision of client
services.
2.36. Client Relations. Set forth in Schedule 2.36 attached hereto
is (i) a list of the twenty (20) clients of the Company and the Subsidiaries
which accounted for the largest percentage of the net revenue of the Company
and the Subsidiaries, taken as a whole, for the fiscal year ended November 30,
1995 (including unaudited revenue rankings), and (ii) a client backlog report
indicating services to be rendered and the estimated revenues to be derived
from such services. None of the clients listed in Schedule 2.36 has registered
any material complaint regarding the services rendered by the Company or any
Subsidiary, indicated any desire or intention to reduce the level of services
under any contract with the Company or any Subsidiary, or stated verbally or in
writing any intention to terminate any contract with the Company or any
Subsidiary.
2.37. Opinion of the Company's Financial Advisor. The Board of
Directors of the Company has received the opinion of Smith Barney Inc. to the
effect that the Exchange Ratio is fair, from a financial point of view, to the
holders of Company Stock.
The subject matter covered by any section, subsection or provision of
this Article II shall not be exclusive as to such subject matter to the extent
covered by another section, subsection or provision of this Article II, and the
specificity of any representation or warranty or other provision or part
thereof shall not affect or limit the generality of any other representation or
warranty or other provision or part thereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser and Acquisition jointly and severally represent and
warrant to the Company and agree as follows:
3.1. Existence and Good Standing of Purchaser and Acquisition;
Power and Authority.
(a) The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. The Purchaser has the corporate power and authority to make,
execute, deliver and perform this Agreement, and this Agreement has been duly
authorized and approved by all required corporate action of the Purchaser. The
Purchaser has all requisite power and authority to enter into and deliver this
Agreement and the other Transaction Documents, perform its obligations
hereunder and thereunder and consummate the transactions contemplated hereby
and thereby. The Purchaser's execution, delivery and performance of this
Agreement and the other Transaction Documents and the Purchaser's consummation
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all corporate, shareholder and other action required of the
Purchaser by applicable law, its articles of incorporation or bylaws. This
Agreement and the other Transaction Documents to which the Purchaser is a party
constitute the valid and legally binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms.
(b) Acquisition is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina.
Acquisition has all requisite power and authority to enter into and deliver
this Agreement, the Plan of Merger and the other Transaction Documents and to
perform its obligations hereunder and thereunder and consummate the
transactions contemplated hereby and thereby. Acquisition's execution,
delivery and performance of this Agreement, the Plan of Merger and the other
Transaction Documents and Acquisition's consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
corporate, shareholder and other action required of Acquisition by applicable
law, its Articles of Incorporation or Bylaws. This Agreement, the Plan of
Merger and the other Transaction Documents to which Acquisition is a party
constitute the valid and legally binding
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obligations of Acquisition, enforceable against Acquisition in accordance with
their respective terms.
3.2. Capital Stock.
(a) The Purchaser has an authorized capitalization
consisting of 50,000,000 shares of Common Stock, $.01 par value per share. As
of the date of this Agreement, 21,770,412 shares of the Purchaser's Common
Stock are issued and outstanding, and no other shares of the Purchaser's Common
Stock are issued or outstanding. The shares of the Purchaser's Common Stock
issuable on conversion of the Company Stock in the Merger, when issued in
accordance with the terms of this Agreement and the Plan of Merger, or upon the
exercise of Purchaser Options, will be validly issued, fully paid,
nonassessable and not subject to preemptive rights. The Purchaser shall (i) on
or prior to the Closing Date, take all action necessary to reserve for issuance
the number of shares of Common Stock of the Purchaser that will become issuable
upon the exercise of Purchaser Options and (ii) promptly after the Closing
Date, issue to each holder of an outstanding Purchase Option a document
evidencing the assumption by the Purchaser of the Company's obligations with
respect thereto.
(b) (i) Acquisition has an authorized capitalization
consisting of 100,000 shares of common stock, One Dollar ($1.00) par value per
share, of which 1,000 shares are issued and outstanding and are held by the
Purchaser. All such outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable.
(ii) Acquisition was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement.
(iii) As of the Effective Time, all of the
outstanding capital stock of Acquisition will be owned directly by the
Purchaser. As of the Effective Time, there will be no options, warrants or
other rights (including registration rights), agreements, arrangements or
commitments to which Acquisition is a party of any character relating to the
issued or unissued capital stock of, or other equity interests in, Acquisition
or obligating Acquisition to grant, issue or sell any shares of the capital
stock of, or other equity interests in, Acquisition, by sale, lease, license or
otherwise. There are no obligations, contingent or otherwise, of Acquisition
to repurchase, redeem or otherwise acquire any shares of the capital stock of
Acquisition.
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(iv) As of the date hereof and the Effective Time,
except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this
Agreement, Acquisition has not and will not have incurred any obligations or
liabilities or engaged in any business activities or entered into any
agreements or arrangements with any person except as contemplated by this
Agreement and the other Transaction Documents.
3.3. Restrictive Documents. Except for obtaining the consents,
approvals, authorizations and permits of, and making filings with or
notifications to, any governmental authority pursuant to the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the NASD, the HSR Act, and the filing and recordation of appropriate
transaction documents as required by the NCBCA and the Virginia Code, neither
the Purchaser nor Acquisition is subject to any charter, bylaw, mortgage, lien,
lease, agreement, instrument, order, law, rule, regulation, judgment or decree,
or any other restriction of any kind or character which would be violated by,
prevent or impair materially (whether by acceleration of any liability,
creation of any lien or encumbrance or otherwise) or require any declaration,
filing, registration, notice, approval or consent to, with or of any person or
entity in connection with consummation of the transactions contemplated by this
Agreement or compliance by the Purchaser or Acquisition with the terms,
conditions and provisions hereof.
3.4. Broker's or Finder's Fees. No agent, broker, person or firm
acting on behalf of the Purchaser or Acquisition is, or will be, entitled to
any commission or broker's or finder's fees from any of the parties hereto, or
from any Person controlling, controlled by or under common control with any of
the parties hereto, in connection with any of the transactions contemplated
herein.
3.5 Information for Registration Statement and Prospectus. No
information furnished by and with respect to the Purchaser or Acquisition which
will be included in the Registration Statement (as defined in Section 7.3(b),
or the prospectus referenced therein, will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading. The Registration Statement will
meet and comply in all material respects with all applicable rules under the
Securities Act of 1933 (the "Securities Act") as it relates to the Purchaser or
Acquisition or their respective affiliates.
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3.6 SEC Reports.
(a) Since January 1, 1993, the Purchaser has filed all
forms, financial statements, documents and reports with the SEC required to be
filed by it pursuant to Federal securities laws and the SEC rules and
regulations thereunder (the "SEC Reports"). The SEC Reports were prepared in
all material respects in accordance with the requirements of applicable law,
including the Securities Act and the Exchange Act (as hereinafter defined) and
rules and regulations thereunder and did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The Purchaser has heretofore furnished to the Company
complete and correct copies of all amendments and modifications that have not
been filed by the Purchaser with the SEC to all agreements, documents and other
instruments that previously had been filed by the Purchaser with the SEC and
are currently in effect.
3.7. Taxes. The Purchaser and each of its subsidiaries has filed
or caused to be filed, within the times and manners prescribed by law, all
federal, state, local and foreign tax returns and tax reports which are
required to be filed by, or with respect to, the Purchaser or such subsidiary.
All federal, state, local and foreign income, profits, franchise, sales, use,
occupancy, excise and other taxes and assessments (including interest and
penalties) payable by or due from the Purchaser or any of its subsidiaries have
been fully paid or adequately disclosed and fully provided for in the books and
financial statements of the Purchaser or its subsidiaries, as applicable. To
the Purchaser's knowledge, no audit of any tax return of the Purchaser or any
of its subsidiaries is currently in progress.
3.8. Disclosure. None of this Agreement, or any schedule, exhibit
or certificate attached hereto or delivered in accordance with the terms hereof
or any document or statement in writing which has been supplied by or on behalf
of the Purchaser or Acquisition in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits any statement of a material fact necessary in order to make the
statements contained herein or therein not misleading.
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The subject matter covered by any section, subsection or provision of
this Article III shall not be exclusive as to such subject matter to the extent
covered by another section, subsection or provision of this Article III, and
the specificity of any representation or warranty or other provision or part
thereof shall not affect or limit the generality of any other representation or
warranty or other provision or part thereof.
ARTICLE IV
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW
4.1. Conduct of Business of the Company and Subsidiaries. During
the period from the date of this Agreement to the Closing Date, the Company and
each Subsidiary shall conduct its operations only according to its ordinary and
usual course of business and preserve intact its business organization, make
reasonable efforts to keep available the services of its officers and
employees, make reasonable efforts to maintain satisfactory relationships with
licensors, suppliers, distributors, clients and others having business
relationships with the Company or any Subsidiary, and perform in all material
respects all of the Company's and the Subsidiaries' obligations under all
contracts and agreements to which the Company or any Subsidiary is a party or
by which it or any of its assets or properties are bound. Notwithstanding the
immediately preceding sentence, prior to the Closing Date, except as may be
first approved in writing by the Purchaser or as is otherwise permitted or
required by this Agreement, the Company and each Subsidiary shall cause (a) the
Company's and each Subsidiary's articles incorporation (or other organizational
documents) and bylaws to be maintained in their forms on the date of this
Agreement, (b) the compensation payable or to become payable by the Company and
each Subsidiary to each officer, employee or agent of the Company or such
Subsidiary to be maintained at their levels on the date of this Agreement
(subject to changes in the ordinary course of business not to exceed $10,000
for any individual), (c) the Company and each Subsidiary to refrain from making
any bonus, pension, retirement or insurance payment or arrangement to or with
any such persons except those that may have already been accrued on or prior to
the Closing Date in the ordinary course of business and consistent with past
practices, (d) the Company and each Subsidiary to refrain from entering into
any contract or commitment having a value of more than $50,000, except for (i)
contracts, which may require a payment of $75,000 or less, for "tail" insurance
coverage, effective as of the Effective Time, for the benefit of the existing
officers and directors of the Company and the
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Subsidiaries who are currently covered by officers' and directors' liability
insurance, and (ii) other contracts or commitments reviewed and approved by the
Purchaser prior to the effectiveness thereof, (e) the Company and each
Subsidiary to refrain from making any change affecting any bank, safe deposit
or power of attorney arrangements of the Company or such Subsidiary, (f) the
Company and each Subsidiary to refrain from issuing or selling, or issuing any
rights to purchase or subscribe for, or subdividing or otherwise changing in
any respect any shares of the Company's or any Subsidiary's capital stock,
except for any issuances of Company Stock upon the exercise of any Company
Options, and (g) the Company and each Subsidiary to refrain from taking any of
the actions referred to in Section 2.28 hereof. The Company agrees not to take
or omit to take any action which would cause the representations and warranties
contained in Article II hereof to be or become untrue or incorrect. During the
period from the date of this Agreement to the Closing Date, the Company and the
Subsidiaries shall confer on a regular and frequent basis with one or more
designated representatives of the Purchaser to report operational matters and
to report the general status of ongoing operations. The Company and each
Subsidiary shall notify the Purchaser of any unexpected emergency or other
change in the normal course of the Company's or the Subsidiary's business or in
the operation of its properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), adjudicatory proceedings, budget meetings or submissions
involving any property of the Company or any Subsidiary, and keep the Purchaser
fully informed of such events and permit its representatives prompt access to
all materials prepared in connection therewith.
4.2. Exclusive Dealing.
(a) Unless and until this Agreement shall have been
terminated in accordance with its terms, the Company and its officers,
directors and affiliates shall refrain from taking any action directly or
indirectly to encourage, initiate or engage in discussions or negotiations
with, or provide any information to, any Person other than the Purchaser
concerning any proposal for (i) the sale of all or substantially all of the
assets, or a majority of the voting common stock of the Company, whether by
merger or other business combination involving the Company; or (ii) the
issuance of an additional number of shares of common stock of the Company such
that immediately after such issuance (or series of issuances), any Person,
together with Persons controlled by or under common control with such Persons,
shall own, in the aggregate, a majority of the voting common stock of the
Company (any such proposal being referred to herein as an "Acquisition
Proposal"); provided, however, that nothing contained in this Section 4.2 shall
be
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deemed to prohibit or restrict the ability of the Company to consummate a
public offering of its securities. The Company shall notify the Purchaser
immediately of any Acquisition Proposals, or if any request for confidential
information regarding the Company in connection with any Acquisition Proposal
is received, and shall provide to the Purchaser such information regarding any
such Acquisition Proposal or request as the Purchaser shall request; provided,
however, that nothing in this Section 4.2 shall require the Company to violate
any binding confidentiality agreements entered into with third parties and
effective prior to July 1, 1996, so long as the Company shall immediately
reject any Acquisition Proposal or request for information required to be held
confidential by any such confidentiality agreements and shall comply with the
remaining terms of this Agreement.
(b) Subject to subsection (c), below, if the Stockholders
or the Company enter into any transaction pursuant to any Acquisition Proposal
within two years from the date of this Agreement, other than the transactions
contemplated by this Agreement, and (A) this Agreement is terminated or
abandoned as a result of the failure of the Stockholders to approve the Merger
at the Shareholders Meeting, or (B) this Agreement is terminated as a result of
the dissent of Stockholders representing in excess of nine and nine-tenths
percent (9.9%) of the issued and outstanding Company Stock, or (C) this
Agreement is terminated by the Purchaser as a result of (1) any intentional and
material breach by the Company of any binding agreement contained in Articles
I, IV, VII or VIII of this Agreement, or (2) the intentional and material
breach by the Company of any representation or warranty contained in this
Agreement, or (3) the intentional failure of the Company to satisfy or cause
the satisfaction of any condition stated in Article V, then the Company shall
pay to the Purchaser, immediately upon the consummation of such transaction, an
overbid fee of $3,500,000. Any payment of an overbid fee pursuant to this
subsection (b) shall be deemed to fully satisfy all obligations of the Company
to the Purchaser and Acquisition arising solely from the events described in
this Section 4.2.
(c) Notwithstanding the foregoing, the Company shall not
be liable under this Section 4.2 for any event described in subsection (a) or
(b) above which shall occur following: (x) a termination of this Agreement by
the Company due to the material breach by Purchaser or Acquisition of any of
their respective obligations under this Agreement, (y) a termination of this
Agreement by the Purchaser or the Company due to failure to receive any
necessary regulatory approval (provided that the Company shall have made all
reasonable efforts to obtain such
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approval) or (z) a termination of this Agreement by the Purchaser or
Acquisition based upon one or more breaches of this Agreement by the Company
which, in the aggregate, are not reasonably likely to diminish the value of the
Company as part of the Surviving Corporation by an amount in excess of
$250,000.
4.3. Review of Properties, Books and Records; Response to
Inquiries. The Purchaser may, prior to the Closing Date, through its
representatives, review the properties, books and records of the Company and
each Subsidiary and their respective financial and legal conditions as they
deem necessary or advisable to familiarize themselves with such properties and
other matters; such review, and any information known to the Purchaser, shall
not, however, affect the binding nature of representations and warranties made
by the Company hereunder or the remedies of the Purchaser for breaches of those
representations and warranties. The Company and each Subsidiary shall permit
the Purchaser and its representatives to have, after the date of execution of
this Agreement, full access to the premises, personnel, accountants and all
books and records of the Company and each Subsidiary and cause the officers of
the Company and each Subsidiary to furnish the Purchaser with such financial
and operating data and other information with respect to the business and
properties of the Company and the Subsidiaries as the Purchaser shall from time
to time reasonably request. In the event of termination of this Agreement
without consummation of the transactions contemplated hereby, the Purchaser
shall keep confidential any material information obtained from the Company or
the Subsidiaries concerning the Company's and the Subsidiaries' properties,
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be material (or becomes
so ascertainable) and, at the request of the Company, shall return to the
Company all copies of any schedules, statements, documents or other written
information obtained in connection therewith. The Purchaser will make
reasonable efforts to respond to all requests made by the Company, through its
representatives, prior to the Closing Date, to review the properties, books and
records of the Purchaser and its financial and legal condition (to the extent
that such matters are not disclosed in the SEC reports referred to in Section
3.6, above).
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ARTICLE V
CONDITIONS TO PURCHASER'S AND ACQUISITION'S OBLIGATIONS
The Purchaser's and Acquisition's obligations pursuant to this
Agreement are conditioned upon satisfaction, on or prior to the Closing Date,
of each of the following conditions:
5.1. Opinion of the Company's Counsel. The Company shall have
furnished the Purchaser with favorable opinions, dated the Closing Date, of (i)
Sherman, Meehan & Curtin, P.C., substantially in the form of Exhibit D-1
attached hereto, (ii) Hogan & Hartson L.L.P. substantially in the form of
Exhibit D-2 attached hereto, and (iii) Kent & McBride, in form and substance
substantially similar to the opinion, dated August 12, 1996, and supplemented
on September 11, 1996, to Mr. James Bongiorno of Ernst & Young LLP.
5.2. Good Standing and Other Certificates. The Company shall have
delivered to the Purchaser (a) a copy of the Company's and each Subsidiary's
articles of incorporation (or other organizational documents), including all
amendments thereto, certified as of the Closing Date (or the closest date prior
thereto practicable under the circumstances and acceptable to the Purchaser) by
the State Corporation Commission of Virginia (or other applicable governmental
authority for non-Virginia Subsidiaries), (b) certificates from the State
Corporation Commission and other applicable governmental authorities to the
effect that the Company and each U.S. Subsidiary is in good standing in the
jurisdiction of its organization and listing all charter documents of the
Company or such Subsidiary on file as of the Closing Date (or the closest date
prior thereto practicable under the circumstances and acceptable to the
Purchaser), (c) a certificate from the Secretary of State or other appropriate
official in each state or other jurisdiction in which the Company or any U.S.
Subsidiary is qualified to do business to the effect that the Company or such
Subsidiary is in good standing in such state as of the Closing Date, (d) to the
extent issued by the applicable state, a certificate as to the tax status of
the Company and each U.S. Subsidiary from the appropriate officials in Virginia
and each state in which the Company or any U.S. Subsidiary is qualified to do
business, each as of the Closing Date (or the closest date prior thereto
practicable under the circumstances and acceptable to the Purchaser), and (e) a
copy of the bylaws of the Company and each Subsidiary, certified by the
Secretary of the Company as being true and correct and in effect on the Closing
Date. The Company shall have provided such certificates or other
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official documents as the Purchaser may reasonably request with respect to the
organization, existence and good standing of the Company's non-U.S.
Subsidiaries.
5.3. No Material Adverse Change. Prior to the Closing Date, there
shall be no material adverse change in the assets or liabilities, the business
or condition, financial or otherwise, or the results of operations, or
prospects of the Company and the Subsidiaries, taken as a whole, whether as a
result of any legislative or regulatory change, revocation of any license or
rights to do business, fire, explosion, accident, casualty, labor trouble,
flood, drought, riot, storm, condemnation or act of God or other public force
or otherwise, and the Company shall have delivered to the Purchaser a
certificate, dated the Closing Date, to such effect. For purposes of this
Section 5.3, and notwithstanding the provisions of Section 9.1 of this
Agreement, no adverse change shall be deemed to be material unless the effect
of such change shall be reasonably likely to diminish the value of the Company
as part of the Surviving Corporation by an amount in excess of $250,000.
5.4. Truth of Representations and Warranties. The representations
and warranties of the Company contained in this Agreement or in any schedule
attached hereto shall be true and correct in all material respects on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and the Company shall have
delivered to the Purchaser a certificate, dated the Closing Date, to such
effect.
5.5. Performance of Agreements. All of the agreements of the
Company to be performed on or before the Closing Date pursuant to the terms
hereof shall have been duly performed in all material respects, and the Company
shall have delivered to the Purchaser a certificate, dated the Closing Date, to
such effect.
5.6. Financial Performance. The actual financial performance of
the Company and the Subsidiaries as of the Closing Date shall be substantially
consistent with the minimum projected consolidated net revenue and minimum
consolidated operating profit (pre-tax and pre-interest) for the Company and
the Subsidiaries set forth in Section 2.6(c).
5.7. No Pending Litigation. No action or proceedings shall have
been instituted against the Company before a court or other government body or
by any public authority, and no claim
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shall have been asserted, to restrain or prohibit any of the transactions
contemplated hereby, and the Company shall have delivered to the Purchaser a
certificate, dated the Closing Date, to such effect.
5.8. Pooling Letter. The Company shall have executed and delivered
to the Purchaser's accountants a letter relating to "pooling of interests"
accounting in a form mutually agreeable to the Company and the Purchaser.
5.9. Opinions of Accountants. The Purchaser shall have received
letters, dated the Closing Date, from Coopers & Lybrand L.L.P., accountants for
the Company, and Ernst & Young LLP, accountants to the Purchaser, each in form
and substance satisfactory to the Purchaser, regarding the appropriateness of
pooling of interests accounting for the transactions contemplated by this
Agreement.
5.10. Affiliates Letter. The Purchaser shall have received a
letter, signed by all persons who were, at the record date for the Shareholders
Meeting called by the Company in connection with the Merger, "affiliates" of
the Company as that term is used in SEC Accounting Series Release Nos. 130 and
135 and SEC Rule 145, in the form of Exhibit E attached hereto (such
signatories are set forth on Schedule 2.23).
5.11. Governmental and Other Approvals and Consents. All (a)
governmental and other consents and approvals, if any, necessary to permit the
consummation of the transactions contemplated by this Agreement, and (b)
necessary consents to transfer the contracts or agreements listed in Schedule
5.11 shall have been received (provided, that the failure to obtain any such
consents that, in the aggregate, are reasonably likely to diminish the value of
the Company as part of the Surviving Corporation by an amount less than
$200,000, shall not constitute a failure to satisfy this condition), and all
applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall have expired or otherwise been terminated satisfactorily to the
Purchaser.
5.12. Escrow Agreement. The Company, the Stockholder's
Representative and the Escrow Agent (as defined therein) shall have entered
into an escrow agreement substantially in
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the form of that attached as Exhibit C hereto (the "Escrow Agreement," as
defined in Section 1.2 above).
5.13. Resignations. The Purchaser shall have received a written
resignation, satisfactory in form and substance to the Purchaser, from each
officer and director of the Company and any Subsidiary requested by the
Purchaser to resign on or prior to the Closing Date.
5.14. Intra-Company Debt. Except for any intra-Company debt
indicated on Schedule 5.14 attached hereto, all indebtedness of the directors,
officers and employees of the Company or any Subsidiary to the Company or any
Subsidiary, other than travel and similar advances outstanding in the ordinary
course of business, shall have been repaid in full.
5.15. Current Employees. No employee or group of employees the
departure of which could be likely to have a material adverse effect on the
business or financial condition of the Company or any Subsidiary shall have
expressed or communicated to the Company or any Subsidiary any grievance or any
intent to leave or contemplation of leaving the Company's or the Subsidiary's
employ, as the case may be.
5.16 Excessive Dissent; Stockholder Approval. As of the Closing
Date, Stockholders representing in excess of nine and nine-tenths percent
(9.9%) of the issued and outstanding Company Stock shall not have demanded or
otherwise purported to exercise their dissenters' rights, if any, pursuant to
Section 13.1-730 et seq. of the Virginia Code, and the Stockholders shall have
approved and adopted this Agreement and the Plan of Merger.
5.17 Registration Statement; NASDAQ Listing.
(a) The Registration Statement shall have been declared
effective by the Securities and Exchange Commission (the "SEC") under the
Securities Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that purpose
shall have been initiated and be continuing.
(b) All shares of Common Stock of the Purchaser to be
issued in connection with the Merger shall be quoted on the NASDAQ National
Market.
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ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The Company's obligations pursuant to this Agreement are conditioned
upon satisfaction, on or prior to the Closing Date, of each of the following
conditions:
6.1. Opinion of Purchaser's Counsel. The Purchaser shall have
furnished the Company with an opinion, dated the Closing Date, of Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., substantially in the
form of Exhibit F attached hereto.
6.2. Truth of Representations and Warranties. The representations
and warranties of the Purchaser and Acquisition contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date, and the Purchaser shall have delivered to the
Company a certificate, dated the Closing Date, to such effect.
6.3. Governmental and Other Approvals and Consents. All
governmental and other consents and approvals concerning the Purchaser or
Acquisition, if any, necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received, and all applicable
waiting periods (and any extensions thereof) under the HSR Act shall have
expired or otherwise been terminated satisfactorily to the Company.
6.4. Excessive Dissent; Stockholder Approval. As of the Closing
Date, Stockholders representing in excess of nine and nine-tenths percent
(9.9%) of the issued and outstanding Company Stock shall not have demanded or
otherwise purported to exercise their dissenters' rights, if any, pursuant to
Section 13.1-730 et seq. of the Virginia Code, and the Stockholders shall have
approved and adopted this Agreement and the Plan of Merger.
6.5. Employment Agreements. Acquisition shall have entered into
each of the Employment Agreements with the Key Employees.
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6.6. Performance of Agreements. All of the agreements of the
Purchaser and Acquisition to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects, and the Purchaser shall have delivered to the Company a certificate,
dated the Closing Date, to such effect.
6.7. Registration Statement; NASDAQ Listing.
(a) The Registration Statement shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated and be
continuing.
(b) The Company shall have received from the Purchaser or
NASDAQ/NMS evidence reasonably satisfactory to the Company that all shares of
Common Stock of the Purchaser to be issued in connection with the Merger shall
be quoted on the NASDAQ National Market immediately after the Effective Time.
6.8. No Pending Litigation. No action or proceedings shall have
been instituted against Purchaser or Acquisition before a court or other
government body or by any public authority, and no claim shall have been
asserted to restrain or prohibit any of the transactions contemplated hereby,
and the Purchaser and Acquisition shall have delivered to the Company a
certificate, dated the Closing Date, to such effect.
6.9. Opinions of Accountants. The Company shall have received
letters, dated the Closing Date, from Coopers & Lybrand L.L.P., accountants for
the Company, and Ernst & Young LLP, accountants to the Purchaser, each in form
and substance satisfactory to the Company, regarding the appropriateness of
pooling of interests accounting for the transactions contemplated by this
Agreement.
6.10. Escrow Agreement. The Purchaser and the Escrow Agent (as
defined therein) shall have entered into an escrow agreement substantially in
the form of that attached as Exhibit C hereto (the "Escrow Agreement," as
defined in Section 1.2 above).
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6.11. Tax Opinions. The Company shall have received a written
opinion from the Company's accountants, Coopers & Lybrand L.L.P., in form and
substance reasonably satisfactory to the Company, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Tax Code and that no gain or loss will be recognized by the Stockholders upon
their receipt of Common Stock of the Purchaser in the Merger in exchange for
Company Stock.
ARTICLE VII
CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES
7.1. Non-Competition; Non-Interference. The Company acknowledges
and agrees that as of the date hereof, Acquisition and the Key Employees each
have entered into an Employment Agreement containing noncompetition and
noninterference provisions (the "Noncompetition Provisions"). Subject to the
limitations on indemnification set forth in Article VIII, in the event that any
Key Employee breaches in any material respect the terms of such Key Employee's
Noncompetition Provision, the Purchaser shall have the right to seek
indemnification from the Escrow Fund for any Losses incurred by the Purchaser
as a result of such breach; provided, however, that (a) the Purchaser has made
written demand on such Key Employee to cease such breach and for Losses
incurred by the Purchaser or Acquisition as a result of such breach and such
demand has not been satisfied or otherwise resolved for a period of ninety (90)
days thereafter, and (b) in the event that any amounts are paid to the
Purchaser from the Escrow Fund pursuant to this Section 7.1, the Stockholder's
Representative (on behalf of all Stockholders) shall have all rights to (i)
subrogation which may arise in connection with the guarantee of such Key
Employee's performance of the Noncompetition Provision (whether contractual,
under common law or otherwise), and (ii) contractual, common law, statutory or
other rights of reimbursement, contribution, exoneration or indemnity (or any
similar right) from or against any Key Employee (and each Noncompetition
Provision shall so provide).
7.2. Stock Transfer Restrictions and Related Matters.
(a) Pooling of Interests Accounting. Neither Purchaser,
Acquisition, the Company nor any of their respective officers, directors or
shareholders shall take any action which
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would disqualify the transactions contemplated by this Agreement from pooling
of interests accounting treatment by the Purchaser.
(b) Tax-Free Reorganization. Neither Purchaser,
Acquisition nor the Company shall take any action which would disqualify the
transactions contemplated by this Agreement from treatment as a tax-free
reorganization of the Company within the meaning of Section 368(a) of the Code.
7.3. Approval of Transactions; Registration Statement.
(a) The Company shall cause a special meeting of the
shareholders of the Company (the "Shareholder Meeting") to be duly called and
held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC for the purpose of approving and adopting this
Agreement, the Plan of Merger and the other Transaction Documents and all other
actions contemplated hereby or thereby which require the approval of the
Company's shareholders. The Company shall use best efforts to cause each of
the Stockholders to vote all Company Stock owned by such Stockholder in favor
of the Merger.
(b) As promptly as reasonably practicable following the
execution of this Agreement, the Purchaser will prepare and file with the SEC,
and the Company will cooperate with the Purchaser in the preparation and such
filing of, a registration statement on Form S-4 relating to the transactions
contemplated by this Agreement (the "Registration Statement"), which shall
contain a prospectus relating to the shares of the Purchaser's Common Stock to
be issued in connection with the Merger and other matters (the "Prospectus").
The Company shall furnish to the Purchaser, as promptly as is practicable after
the date hereof, such data and information relating to the Company and the
Subsidiaries and such financial statements of the Company and opinions of
independent certified public accountants relating thereto, and fairness
opinions, as, in the opinion of counsel for the Purchaser, shall be required by
law, including the applicable rules and regulations of the SEC, or desirable
for the preparation of, or to be included in, the Registration Statement or the
Prospectus. The Purchaser shall provide all drafts of the Registration
Statement to the Company promptly following the preparation thereof. The
Company shall approve all disclosures concerning the Company, the Subsidiaries,
or the Stockholders in the Registration Statement (or shall notify the
Purchaser of any changes requested in such disclosures) promptly following
receipt of the request of the Purchaser for such approval. In the event that
the Company
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shall not have responded as promptly as reasonably practicable to any request
by Purchaser for approval of disclosures made in the Registration Statement,
the Company shall be deemed to have approved any disclosures concerning the
Company, the Subsidiaries or the Stockholders in the Registration Statement
contemporaneously with its mailing to shareholders of the Company. If, at any
time prior to the Shareholder Meeting, any event should occur relating to the
Company or any Subsidiary which should be set forth in an amendment of, or a
supplement to, the Registration Statement, the Company will promptly inform the
Purchaser. Whenever any event occurs which should be set forth in an amendment
of, or a supplement to, the Registration Statement, the Purchaser, with the
cooperation of the Company, will, upon learning of such event, promptly
prepare, file and, if required, mail any such required amendment or supplement
to the Registration Statement to the Company's shareholders. The Purchaser,
with the assistance of the Company, will use reasonable best efforts in good
faith to respond to the comments of the SEC, to cause the Registration
Statement to become effective under the Securities Act and to assist in mailing
same to the Company's shareholders, all as soon as is reasonably practicable.
(c) The Purchaser shall file a registration statement on
Form S-8 for the shares of Common Stock of the Purchaser issuable with respect
to the Purchaser Options no later than ten (10) business days after the Closing
Date, and the Purchaser shall use best efforts to cause such registration
statement to become effective promptly thereafter, and to remain effective for
as long as the Purchaser Options are outstanding.
(d) As promptly as practicable after the date of this
Agreement, the Purchaser and the Company shall prepare and file any other
filings required under the Exchange Act, the Securities Act or any other
federal or Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement.
(e) The Purchaser shall also use its reasonable best
efforts to cause the shares of its Common Stock to be issued in the Merger to
be approved for listing on the NASDAQ National Market.
7.4. Hart-Scott-Rodino.
(a) The Purchaser and Acquisition, if required to file a
"Notification and Report Form for Certain Mergers and Acquisitions" under the
HSR Act in connection with the Merger, shall
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promptly file such form and take all such other actions as may be necessary,
desirable or convenient to obtain the required approval under the HSR Act and
the rules of the Federal Trade Commission (the "FTC") thereunder and will
comply at the earliest practicable date with any request for additional
information received by it from the FTC or the Antitrust Division of the
Department of Justice ("Justice") pursuant to the HSR Act and shall use all
reasonable efforts to assist the Company in making any such required filings.
(b) The Company, if required to file a "Notification and
Report Form for Certain Mergers and Acquisitions" under the HSR Act in
connection with the Merger, shall promptly file such form and take all such
other actions as may be necessary, desirable or convenient to obtain the
required approval under the HSR Act and the rules of the FTC thereunder and
will comply at the earliest practicable date with any request for additional
information received by it from the FTC or Justice pursuant to the HSR Act and
shall use all reasonable efforts to assist the Purchaser in making any such
required filings.
7.5. No Solicitation of Employees. The Purchaser and the Company
agree that between the date of this Agreement and the earlier to occur of the
Effective Time and the date on which this Agreement is terminated pursuant to
its terms, neither party shall solicit, induce or recruit any of the other
party's employees to leave their employment.
7.6 ESOP Merger. The Company acknowledges that the Purchaser
intends, at Purchaser's discretion, to cause a merger of the Company's ESOP
with and into the Purchaser's ESOP. The Company covenants and agrees with
Purchaser to take any actions reasonably requested by the Purchaser to
facilitate such merger, including without limitation, obtaining consents and
approval, providing notices, and making any filings as may be necessary or
desirable.
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7.7 401(k) Spin Off. At the request of the Purchaser, the
Company will make reasonable efforts to spin off the cash or deferred
arrangement ("CODA") under its Employee Stock Ownership Plan identified in
Schedule 2.24 attached hereto in accordance with Section 414(l) of the Tax
Code, including the portions of all participant accounts attributable to such
CODA, into a separate qualified plan which satisfies the requirements of
Sections 401(a) and 401(k) of the Tax Code.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNITY
8.1. Survival of Representations. The respective representations
and warranties of the Company, the Purchaser and Acquisition contained in this
Agreement or in any schedule attached hereto shall survive the consummation of
the Merger and the other transactions contemplated hereby and shall remain in
full force and effect notwithstanding any investigation or examination of, or
knowledge with respect to, the subject matter thereof by or on behalf of the
Company, the Purchaser or Acquisition, as the case may be, until the date three
hundred and sixty-five (365) days following the Closing Date (the period ending
on such date being referred to herein as the "Representations Period"). No
claim for indemnification pursuant to Section 8.2(a) below may be brought after
the expiration of the Representations Period, except for claims made in good
faith in writing prior to such expiration setting forth in reasonable detail
the basis for such claims (whether or not any action or proceeding is
instituted with respect to such claims prior to the expiration of the
Representations Period) (it being understood, without limitation, that any and
all Losses arising after the expiration of the Representations Period shall be
recoverable upon notice properly given prior to the expiration of the
Representations Period in accordance with this Section 8.1).
8.2. Indemnification.
(a) From and after the Closing, the Purchaser,
Acquisition and their affiliates (including the Surviving Corporation and the
Subsidiaries), and all of their respective officers, directors, employees
(other than the Key Employees), agents and shareholders (other than
Stockholders) (each, an "Indemnitee") shall be defended, indemnified and held
harmless pursuant
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to this Agreement and the Escrow Agreement to the full extent permitted in law
or equity, from and against any and all losses, claims, actions, damages,
liabilities, costs and expenses (including attorneys' fees and expenses)
(collectively, "Losses") relating to or arising from or in connection with (i)
any misrepresentation, or any non-fulfillment of any representation, warranty,
covenant, obligation or agreement by the Company contained in or made pursuant
to this Agreement or any of the other Transaction Documents or in any other
agreement, officer's certificate or other certificate delivered to the
Purchaser or Acquisition in connection with this Agreement, (ii) any
litigation, action, claim, proceeding or investigation by any third party
relating to or arising out of the business or operations of the Company (or any
affiliate controlled by the Company) prior to the Closing Date, (iii) any
matter (collectively, the "Acknowledged Claims") described on Schedules 2.7 or
2.14 and (iv) the enforcement by the Purchaser of its rights pursuant to this
Section 8.2, or any litigation, proceeding or investigation relating to any of
the foregoing. In addition, each Indemnitee shall be advanced or reimbursed
out of the Escrow Fund on demand and prior to a final determination pursuant to
the this Agreement and the Escrow Agreement, for any and all expenses
reasonably incurred by such Indemnitee in investigating, preparing for,
defending or taking any other action in respect of any such Loss or any
proceeding related thereto, whether or not such Indemnitee is a party to such
proceeding; provided, that any amounts so advanced or reimbursed will be
returned by such Indemnitee upon the actual and final determination by a court
of competent jurisdiction that such Indemnitee is not entitled to
indemnification hereunder and under the Escrow Agreement.
(b) Notwithstanding the foregoing provisions of this
Section 8.2, (i) the maximum aggregate recourse by the Indemnitees pursuant to
subsection (a) above shall not exceed the aggregate value (calculated with
reference to closing prices on the Closing Date) of the Common Stock of the
Purchaser issued in connection with the Merger and deposited in escrow pursuant
to the Escrow Agreement (the "Indemnity Cap"), (ii) the Indemnitees shall not
be entitled to indemnification under Section 8.2(a) above for any amount unless
and until the aggregate of all amounts for which the Indemnitees would
otherwise be entitled to be indemnified exceeds $250,000 (in the aggregate),
all amounts in excess for which the Indemnitees shall be indemnified in full up
to the Indemnity Cap, and (iii) the sole recourse of any Indemnitee shall be
from, out of, and to the extent of the Common Stock of the Purchaser deposited
with the Escrow Agent pursuant to the Escrow Agreement. For purposes of
determining whether the aggregate of all amounts for which the Purchaser and
its affiliates would otherwise be entitled to be indemnified
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exceeds $250,000, the amount of each indemnifiable claim and the aggregate
amount of all indemnifiable claims shall not be limited by the definition of
"material" in Section 9.1 of this Agreement, or the use of the term "material"
or its related forms in any representations or warranties, or by the
establishment of any dollar threshold in any representation or warranty for
inclusion of any event or matter therein. Accordingly, indemnifiable claims
may consist of Losses (whether or not arising from a breach of an individual
representation, warranty, covenant or indemnity) that individually or in the
aggregate do not constitute material amounts or amounts in excess of specified
thresholds, provided such amounts in the aggregate exceed $250,000.
(c) Prior to Closing, and from and after any termination
of this Agreement pursuant to Section 9.16 hereof, the Company shall be liable
for any Losses arising from the circumstances or events described in
subsections (i), (ii) (iii) and (iv) of subsection (a), above. Following
Closing, the Company shall have no liability under this Section 8.2, and no
Stockholder shall threaten or bring any claim or action whatsoever against the
Company for contribution to any amounts payable under or with respect to this
Section 8.2 by such Stockholder.
(d) The Indemnitee's right of indemnification pursuant to
this Section 8.2 shall survive the consummation of the transactions
contemplated by this Agreement and shall be secured by the shares of Common
Stock of the Purchaser deposited with the Escrow Agent, pursuant to the Escrow
Agreement, and shall be the exclusive right and remedy available to the
Indemnitees.
(e) From and after Closing, the Purchaser shall indemnify
and hold harmless the officers, directors and shareholders of the Company to
the full extent permitted by law or equity, from and against any and all
losses, claims, actions, damages, liabilities, costs and expenses ("Company
Losses") relating to or arising out of, or based on any breach by the Purchaser
of any representation or warranty made in Section 3.5 of this Agreement,
provided that the Purchaser shall not be liable in any such case to the extent
that any such Company Losses arise out of, or are based on, any untrue
statement or alleged untrue statement or omission (or alleged omission) based
upon information furnished to the Purchaser by the Company or its officers,
directors, employees, agents or representatives for inclusion in the
Registration Statement, and that the aggregate liability of the Purchaser for
Company Losses under this Section 8.2(e) and for any other losses, claims,
actions, damages, liabilities, costs or expenses that may be incurred by the
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Company or any Stockholders due to any one or more breaches by the Purchaser of
its obligations under this Agreement shall not exceed ten percent (10%) of the
aggregate value (calculated with reference to closing prices on the Closing
Date) of the Common Stock of the Purchaser issued in connection with the Merger
(except nothing herein shall purport to limit any anti-fraud common law or
statutory rights any officer, director or shareholder of the Company may have).
ARTICLE IX
MISCELLANEOUS
9.1. Materiality Standard. For purposes of this Agreement when the
term "material" is used, a matter shall be deemed "material" if the matter
involves or affects an amount in excess of $20,000 individually or $50,000 in
the aggregate with all other matters. Notwithstanding the foregoing, the
parties hereto acknowledge and agree that for purposes of Section 4.2, Article
V, Article VI and Section 9.16, when the term "material" is used, a matter
shall not be deemed "material" unless and until the Losses reasonably likely to
be associated with such matter exceed Two Hundred Fifty Thousand Dollars
($250,000).
9.2. Expenses. Each party hereto shall pay all of its own expenses
relating to the transactions contemplated by this Agreement, including without
limitation the fees and expenses of its respective counsel.
9.3. Exclusivity of Remedies. Prior to the Closing and in the
event that this Agreement shall have been terminated in accordance with its
terms, nothing in this Agreement shall limit or restrict in any manner any
rights or remedies any party hereto may have against any other party hereto at
law, in equity or otherwise, except as set forth in Section 4.2. From and
after the Closing, the indemnification provided in Article VIII and the Escrow
Agreement shall be the Indemnitee's sole and exclusive remedy for the matters
set forth in Sections 8.2(a)(i)-(iv), and the Escrow Fund shall be the sole and
exclusive source of such indemnification.
9.4. Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of
the State of North Carolina, without regard to the choice of law provisions
thereof.
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9.5. Further Assurances. In addition to the actions, documents and
instruments specifically required by this Agreement or any other Transaction
Document to be taken or delivered on or before the Closing Date or from time to
time thereafter, each of the parties to this Agreement shall, before and after
the Closing Date, without further consideration, take such other actions and
execute and deliver such other documents and instruments as another party
hereto reasonably may request in order to effect and perfect the transactions
contemplated by this Agreement and the other Transaction Documents.
9.6. Captions. The Article and Section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9.7. Publicity. Except as otherwise required by applicable law, no
party and no affiliate of any party shall issue any press release or make any
other public statement relating to, connected with or arising out of this
Agreement or the matters contained herein without the other parties' prior
written approval of the contents and the manner of presentation and publication
thereof.
9.8. Notices. Any notice or other communication required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by telex, telecopy or by registered or certified mail or by recognized
overnight courier, postage prepaid, addressed as follows:
If to the Purchaser, to:
Quintiles Transnational Corp.
4709 Creekstone Drive, Riverbirch Building, Suite 300
Durham, North Carolina 27703
Attention: Gregory D. Porter, Esq.
Telecopy No.: (919) 941-2090
with a copy to its counsel,
Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, LLP
Post Office Box 2611
Raleigh, North Carolina 27602-2611
Attention: Gerald F. Roach, Esq.
Telecopy No.: (919) 821-6800
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<PAGE> 203
If to the Company, to:
BRI International, Inc.
International Headquarters
1300 North 17th Street, Suite 300
Arlington, Virginia 22209
Attention: Frank L. Hurley, Ph.D.
Telecopy No.: (703) 522-2970
with a copy to its counsel,
Hogan & Hartson L.L.P.
21 Garlick Hill
London, EC4V 2AU, England
Attention: Daniel H. Maccoby, Esq.
Telecopy No.: (202) 637-5910
Hogan & Hartson L.L.P.
8300 Greensboro Drive
McLean, Virginia 22102
Attention: Richard Horan, Esq.
Telecopy No.: (703) 448-7650
or to such other address or number as shall be furnished in writing by any such
party in such manner, and such notice or communication shall be deemed to have
been given as of the date so delivered, sent by telecopier, telex or mailed.
9.9. Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto without the other
parties' prior written consent. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns.
9.10. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
52
<PAGE> 204
9.11. Entire Agreement. This Agreement, including the other
documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
All exhibits and schedules referred to in this Agreement are intended to be and
hereby are specifically made a part of this Agreement.
9.12. Construction of Certain Disclosures. No information disclosed
in any schedule to this Agreement shall be deemed to be disclosed for purposes
of any other section hereof or schedule hereto unless otherwise specifically
stated therein. The representations and warranties set forth in Articles II
and III above, respectively, are cumulative. The subject matter covered by any
section of either such article shall not be exclusive as to such subject matter
to the extent covered by another section of such article, and the specificity
of any representation or warranty shall not affect or limit the generality of
any other representation or warranty made or given by the same party.
9.13. Amendments. This Agreement may be waived, amended,
supplemented or modified only by a written agreement executed by each of the
parties hereto.
9.14. Severability. In case any provision in this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
9.15. Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
on behalf of any Person other than the parties hereto, except as follows: (a)
the Indemnitees shall have the benefit of Section 8.2, and (b) the Stockholders
and the officers and directors of the Company shall have the benefit of Section
8.2(e).
9.16. Termination of Agreement.
(a) The parties hereto shall be entitled to terminate
this Agreement as follows, provided that no such termination shall limit or
terminate any liability of one party to another for
53
<PAGE> 205
any breach hereof, and provided further that the provisions of Sections 7.1(c)
(confidentiality), 8.2 (indemnification) and 9.7 (publicity) shall survive any
such termination:
(i) the parties hereto may terminate this
Agreement by mutual written consent at any time;
(ii) (A) the Purchaser may terminate this
Agreement by written notice to the Company on or prior to the Closing Date if
the Company shall have breached in any material respect any representation,
warranty or covenant contained in this Agreement or if the consummation of the
transactions contemplated hereby shall not have occurred on or before December
31, 1996, and (B) the Company may terminate this Agreement by written notice to
the Purchaser and Acquisition on or prior to the Closing Date if the Purchaser
or Acquisition shall have breached in any material respect any representation,
warranty or covenant contained in this Agreement or if the consummation of the
transactions contemplated hereby shall not have occurred on or before December
31, 1996;
(iii) any party may terminate this Agreement by
written notice to the other parties hereto on or prior to the Closing Date if
any court or other governmental instrumentality of competent jurisdiction shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement; and
(b) Notwithstanding approval of this Agreement and the
Plan of Merger by the shareholders of Acquisition and the Company, the parties
hereto agree that termination of this Agreement shall constitute mutual
termination and abandonment of the Plan of Merger and that, upon any such
termination, neither Acquisition nor the Company shall have any further rights
or obligations under or arising out of the Plan of Merger.
54
<PAGE> 206
IN WITNESS WHEREOF, the Purchaser, Acquisition and the Company have
caused their respective corporate names to be hereunto subscribed by their
respective officers thereunto duly authorized, all as of the day and year first
above written.
QUINTILES TRANSNATIONAL CORP.
By: /s/ Greg Connors
-------------------------
Name: Greg Connors
Title: Vice President
BRI ACQUISITION CORP.
By: /s/ Greg Connors
-------------------------
Name: Greg Connors
Title: Vice President
BRI INTERNATIONAL, INC.
By: /s/ Frank L. Hurley, Ph.D.
--------------------------
Name: Frank L. Hurley, Ph.D.
Title: Chairman and Chief
Scientific Officer
55
<PAGE> 207
Appendix B
Form of Plan of Merger
<PAGE> 208
PLAN OF MERGER
THIS PLAN OF MERGER (this "Plan of Merger") is made and dated as of
__________, 1996 by and among BRI Acquisition Corp., a North Carolina
Corporation (referred to herein as "Acquisition" or the "Surviving
Corporation"), Quintiles Transnational Corp., a North Carolina corporation and
the sole shareholder of Acquisition ("Quintiles"), and BRI International, Inc.,
a Virginia corporation (the "Company").
WHEREAS, Quintiles, Acquisition and the Company desire to effect the
merger of the Company with and into Acquisition upon the terms set forth
herein; and
WHEREAS, Quintiles, Acquisition and the Company have entered into a
Merger Agreement, dated as of _________, 1996 (the "Merger Agreement"), setting
forth certain representations, warranties, covenants and agreements in
connection with the transactions therein and herein contemplated; and
WHEREAS, the boards of directors of Quintiles, Acquisition and the
Company, and Quintiles as sole shareholder of Acquisition, by resolution duly
approved the Merger Agreement and this Plan of Merger, and the board of
directors of the Company has directed that the Merger Agreement and this Plan
of Merger be submitted to the shareholders of the Company for approval and
adoption.
NOW, THEREFORE, the parties hereto do hereby approve and adopt this
Plan of Merger for the purpose of setting forth the terms and conditions of the
merger referred to above and the means of carrying the same into effect.
ARTICLE I
THE MERGER
1.1 Merger. The Company shall be merged with and into Acquisition
(the "Merger") pursuant to Article 11 of the North Carolina Business
Corporation Act, as amended (the "NCBCA"), and Chapter 13.1-720 et seq. of the
Virginia Stock Corporation Act, as amended (the "Virginia Code").
1.2 Effective Time. The Merger shall be effected by the filing of
articles of merger with the Secretary of State of the State of North Carolina
and the State Corporation Commission of the Commonwealth of Virginia in
accordance with the provisions of Article 11 of the NCBCA and Section 13.1-720
et seq. of the Virginia Code, respectively. The Merger shall become effective
upon the later to occur of the filing of the articles of merger with the North
Carolina Secretary of State or the Virginia State Corporation Commission, both
of which shall be filed contemporaneously with the closing conducted pursuant
to Section 1.3 of the Merger Agreement. The time and date when the Merger
shall become effective is herein referred to as the "Effective Time".
<PAGE> 209
1.3 Effect of the Merger. At the Effective Time, the separate
corporate existence of the Company shall cease, and Acquisition, as the
Surviving Corporation, shall continue its corporate existence under the laws of
the State of North Carolina and shall thereupon and thereafter possess all of
the rights, privileges, immunities, powers and franchises of each of the
Company and Acquisition; all of the property, real, personal and mixed, and
every other asset of each of Acquisition and the Company shall vest in the
Surviving Corporation without further act or deed; the Surviving Corporation
shall assume and be liable for all the liabilities and obligations of each of
Acquisition and the Company; and all other effects of the Merger specified in
Section 55-11-06 of the NCBCA and Section 13.1-721 of the Virginia Code shall
result therefrom.
ARTICLE II
CONVERSION AND ISSUANCE OF SHARES
2.1 Conversion of Shares.
(a) Each share of common stock of the Company (the
"Company Common Stock", holders of Company Stock, the "Stockholders") issued
and outstanding immediately prior to the Effective Time (other than (i) shares
held by any Stockholder of the Company who elects to exercise rights under
Sections 13.1-730 et seq. of the Virginia Code and (ii) shares held in the
Company's treasury) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive the
number of shares of Common Stock of Quintiles, par value $0.01 per share (the
"Quintiles Common Stock"), determined according to the Exchange Ratio defined
in Section 2.1(b) below upon surrender of the certificate representing such
share.
(b) For purposes of exchanging shares of Company Common
Stock for Quintiles Common Stock, each share of Company Common Stock shall be
converted into 4.3013 shares of Quintiles Common Stock (as adjusted
correspondingly for the remaining period if, during the period commencing on
the date hereof and ending at the Effective Time, Quintiles shall have changed
the number of shares of Quintiles Common Stock issued and outstanding as a
result of a stock split, stock dividend, or similar recapitalization) (such
ratio being referred to herein as the "Exchange Ratio").
(c) No fractional shares of Quintiles Common Stock shall be
issuable by Quintiles upon the conversion of shares of Company Common Stock in
the Merger. In lieu of any such fractional shares, each holder of shares of
Company Common Stock who would otherwise have been entitled to receive a
fraction of a share of Quintiles Common Stock shall be entitled to receive
instead an amount in cash equal to such fraction multiplied by the value of a
share of Quintiles Common Stock as of the Closing Date.
(d) Prior to the Effective Time, Quintiles and the
Company shall take such action as may be necessary or appropriate for Quintiles
to assume or to issue a substitute option with respect to each outstanding
unexpired and unexercised option to purchase shares of the outstanding Company
Common Stock; (existing options to purchase Company Common Stock being referred
to as "Company Options") under the Company's Incentive Stock Option Plan, dated
October 25, 1991, as amended, or the Company's Second Amended and Restated
Stock Option Plan, dated October 10, 1995, as amended (the "Company Stock
Option Plans"), so that at the Effective Time each Company Option will become
or be replaced by an option (a "Purchaser Option") to purchase a number of
whole shares of Quintiles Common Stock equal to (i) the number of shares of
Company Common Stock that could have been purchased (assuming full vesting)
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<PAGE> 210
under the Company Option, multiplied by (ii) the Exchange Ratio (and
eliminating any fractional share). The per share exercise price of the
Purchaser Option shall be equal to (x) the per-share option exercise price
specified in the Company Option divided by (y) the Exchange Ratio. Each
Purchaser Option shall otherwise be subject to the same terms and conditions as
apply to the related Company Option, provided, however, that all such Purchaser
Options shall be fully vested and immediately exercisable as of the Effective
Time, as provided in the related Company Options. The date of grant of each
substituted Purchaser Option for purposes of such terms and conditions shall be
deemed to be the date on which the corresponding Company Option was granted.
Each assumed Company Option shall be assumed by Quintiles at the Effective
Time, and (1) all references to the Company in the stock option agreements and
the Company Stock Option Plans with respect to such Company Options shall be
deemed to refer to Quintiles; (2) Quintiles shall assume all of the Company's
obligations with respect to the related Company Option; and (3) Quintiles shall
issue to each holder of a Company Option a document evidencing the foregoing
assumption by Quintiles. It is the purpose and intention of the parties that,
subject to applicable law, the assumption of Company Options by Quintiles and
the substitution of Purchaser Options for Company Options by Quintiles, shall
meet the requirements of Section 424(a) of the Internal Revenue Code of 1986,
as amended, and that each assumed Company Option and substituted Purchaser
Option shall qualify immediately after the Effective Time as Incentive Stock
Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, to the extent that the related Company Option so qualified immediately
before the Effective Time. This Section 2.1(d) shall be interpreted to further
such purpose and intention of the parties.
(e) Each share of Common Stock of Acquisition issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become exchangeable for one fully-paid and nonassessable share of
Common Stock of the Surviving Corporation. From and after the Effective Time,
each outstanding certificate which theretofore represented shares of common
stock of Acquisition shall be deemed for all purposes to evidence ownership of
and to represent the number of shares common stock of the Surviving Corporation
into which such shares of common stock of Acquisition shall have been
converted.
(f) In the event any certificate representing Company Common
Stock shall have been lost, stolen or destroyed, upon the making of affidavit
setting forth that fact by the person claiming such certificate to be lost,
stolen or destroyed and granting indemnity against any claim that may be made
against Quintiles with respect to such certificate, Quintiles shall issue in
exchange for such lost, stolen or destroyed certificate, the Quintiles Common
Stock, and cash in lieu of any fractional shares, deliverable in respect
thereof pursuant to this Plan or Merger.
2.2 Exchange of Certificates.
(a) At the Effective Time, certificates representing all
of the issued and outstanding shares of Company Common Stock (other than any
dissenting or treasury shares) shall be cancelled, and, simultaneously with
such cancellation, Quintiles shall issue two certificates with respect to the
cancelled Company Common Stock for each Stockholder. One such certificate (the
"Balance Certificate") shall be registered in the name of the Stockholder and
shall represent Ninety Percent (90%) of the total Quintiles Common Stock
issuable pursuant to the Merger in respect of shares of Company Stock held by
such Stockholder (such total amount being referred to as the "Stockholder's
Share Amount"); the second certificate, representing the remaining Ten Percent
(10%) of such Stockholder's Share Amount (the "Escrow Certificate"), shall be
issued in the name of the Escrow Agent, as escrow agent, to be held and
disbursed pursuant to the Escrow
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<PAGE> 211
Agreement to be entered into among Quintiles, Acquisition, the Company, the
escrow agent named therein and the representative of the Stockholders named
therein.
(b) Promptly after the Effective Time, Quintiles (or its
transfer agent) shall mail to each Stockholder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive shares of Quintiles Common Stock pursuant
to Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to Quintiles (or its transfer agent )
and shall be in such form and have such other provisions as Quintiles may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Quintiles
Common Stock. Upon surrender of the Certificates for cancellation to Quintiles
(or its transfer agent), together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, the
Stockholder shall be entitled to receive in exchange therefor the Balance
Certificate, plus cash in lieu of fractional shares in accordance with Section
2.1, to which such Stockholder is entitled pursuant to Section 2.1, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Section 1.2 of the Merger Agreement, Quintiles shall cause to be distributed
to the Escrow Agent the Escrow Certificates. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares
of Company Common Stock will be deemed from and after the Effective Time, for
all corporate purposes, to evidence the ownership of the number of full shares
of Quintiles Common Stock into which such shares of Company Common Stock shall
have been so converted and the right to receive an among in cash in lieu of the
issuance of any fractional shares in accordance with Section 2.1
2.3 Dissenting Shareholders. Subject to the terms and conditions
hereof, at and after the Effective Time, any holder of shares of Company Common
Stock who complies with Sections 13.1-730 et seq. of the Virginia Code shall be
entitled to obtain payment from the Surviving Corporation of the fair value of
such Stockholder's shares of Company Common Stock, as determined pursuant to
Sections 13.1-730 et seq. of the Virginia Code.
ARTICLE III
ARTICLES OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS
3.1 Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of the Surviving Corporation shall be identical to the
Articles of Incorporation and Bylaws of Acquisition in effect immediately prior
to the Effective Time, until thereafter amended as provided by law.
3.2 Directors and Officers. The directors of the Surviving
Corporation shall be Dennis B. Gillings and Gregory D. Porter, each of whom
shall hold office until his or her respective successor shall have been elected
and qualified as provided in the bylaws of the Surviving Corporation or by law.
The officers of the Surviving Corporation shall be as listed below, each
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<PAGE> 212
holding office until his or her respective successor has been duly elected and
qualified as provided in the bylaws of the Surviving Corporation or by law:
<TABLE>
<S> <C>
Dennis B. Gillings Chief Executive Officer and President
Gregory D. Porter Vice President and Secretary
Martha Henderson Assistant Secretary
Tom Perkins Assistant Secretary
</TABLE>
ARTICLE IV
SUBMISSION TO STOCKHOLDERS; TERMINATION AND AMENDMENT
4.1 Approval by Stockholders. This Plan of Merger shall be
submitted to the Stockholders of the Company for their approval and shall have
no force or effect unless approved by the Stockholders of the Company in the
manner provided by the NCBCA and the Virginia Code.
4.2 Termination. This Plan of Merger shall terminate
automatically, whether before or after approval by the Stockholders of the
Company, if the Merger Agreement shall be terminated pursuant to Section 9.16
thereof.
4.3 Amendment. This Plan of Merger may be amended by the parties
hereto, by action taken by their respective boards of directors, at any time
before or after approval hereof by the Stockholders of the Company, but, after
any such approval, no amendment shall be made which shall reduce the amount or
change the form of the consideration to be received by the Stockholders of the
Company without the further approval of such Stockholders. This Plan of Merger
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
ARTICLE V
MISCELLANEOUS
5.1 Headings. The article and section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Plan of Merger.
5.2 Publicity. Except as otherwise required by law, none of the
parties hereto shall issue any press release or make any other public
statement, in each case relating to, connected with or arising out of this Plan
of Merger or the matters contained herein, without obtaining the prior approval
of Quintiles and the Company to the contents and the manner of presentation and
publication thereof.
5.3 Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other acts or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, its right, title or interest in, to or under any of the rights,
properties or assets of the Company or Acquisition acquired or to be acquired
by reason of, or as a result of, the Merger, or otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors shall be authorized to execute and deliver, in the
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<PAGE> 213
name and on behalf of the Company or Acquisition, all such deeds, bills of
sale, assignments and assurances and to do, in the name and on behalf of the
Company or Acquisition, all such other acts and things necessary or desirable
to vest, perfect or confirm any and all right, title or interest in, to or
under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the purposes of this Agreement and the Plan of Merger.
5.4 Counterparts. This Plan of Merger may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
IN WITNESS WHEREOF, Quintiles, Acquisition, and the Company have
caused their respective corporate names to be hereunder subscribed by their
respective officers thereunto duly authorized, all as of the day and year first
above written.
QUINTILES TRANSNATIONAL CORP.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
BRI ACQUISITION CORP.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
BRI INTERNATIONAL, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
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<PAGE> 214
Appendix C
Form of Escrow Agreement
<PAGE> 215
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and dated as of
___________, 1996 by and among Quintiles Transnational Corp., a North Carolina
corporation (the "Purchaser"), Quintiles BRI, Inc. (formerly BRI Acquisition
Corp.), a North Carolina corporation ("Acquisition"), Branch Banking and Trust
Company, a North Carolina banking corporation (the "Escrow Agent"), and James T.
Ogle, acting by virtue of the Merger Agreement (as hereinafter defined) and the
resolutions adopted at the Shareholders Meeting (as defined in the Merger
Agreement) as the attorney-in-fact and representative of the Stockholders of the
BRI International, Inc., a Virginia corporation (the "Company") (the
"Representative").
WITNESSETH:
WHEREAS, the Purchaser, Acquisition and the Company have entered into
a Merger Agreement dated as of September 12, 1996 (the "Merger Agreement";
capitalized terms used and not defined herein have the meanings assigned to
such terms in the Merger Agreement), providing for the merger of the Company
with and into Acquisition, in connection with which the Stockholders shall
receive as consideration a number of shares of registered Common Stock of the
Purchaser (the "Purchaser's Stock") determined pursuant to Article I of the
Merger Agreement, allocated among the Stockholders as provided in the Merger
Agreement;
WHEREAS, pursuant to Section 1.2(b) of the Merger Agreement, the
Representative has been appointed by the Stockholders as their attorney-in-fact
and authorized and empowered to act, for and on behalf of any or all of the
Stockholders (with full power of substitution in the premises) in connection
with the indemnity provisions of the Merger Agreement, this Escrow Agreement,
and such other matters as are reasonably necessary for the consummation of the
transactions contemplated hereby and thereby;
WHEREAS, pursuant to the Merger Agreement, the Purchaser, Acquisition
and the Company have agreed that the Indemnitees' rights of indemnification
under Article VIII of the Merger Agreement shall survive the consummation of
the transactions contemplated by the Merger Agreement, and shall be secured,
pursuant to this Agreement, by the shares of the Purchaser's Stock (together
with any accumulations thereto as provided herein, the "Escrow Shares"), to be
initially issued in the name of the Escrow Agent, as escrow agent hereunder,
and deposited in escrow with the Escrow Agent pursuant to Section 1.2 of the
Merger Agreement; and
WHEREAS, the Escrow Agent is willing to act in the capacity of Escrow
Agent hereunder subject to, and upon the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises, covenants and
agreements set forth in this Agreement and of other good and valuable
consideration, the receipt and legal sufficiency of which they hereby
acknowledge, and intending to be legally bound hereby, and as an inducement for
the execution and delivery of the Merger Agreement, the Purchaser, Acquisition,
the Escrow Agent, and the Representative hereby agree as follows:
<PAGE> 216
ARTICLE I
DESIGNATION OF ESCROW AGENT AND CAPITAL SHARES
SUBJECT TO ESCROW
1.1. Designation of Escrow Agent. The Purchaser and the
Stockholders (by and through the Representative) hereby mutually designate and
appoint Branch Banking and Trust Company, a North Carolina banking corporation
having an office and place of business located at 223 West Nash Street, Wilson,
North Carolina 27893 as Escrow Agent for the purposes set forth herein. The
Escrow Agent hereby accepts such appointment and agrees to act in furtherance
of the provisions of the Merger Agreement, but only upon the terms and
conditions provided in this Agreement.
1.2. Capital Stock Subject to Escrow. In accordance with Section
1.2 of the Merger Agreement, upon execution of this Agreement and subject to
compliance by the Company with the provisions of the Merger Agreement, the
Purchaser shall on the Closing Date (as defined in the Merger Agreement) issue
and deliver, or cause to be delivered, to the Escrow Agent stock certificates
(the "Escrow Certificates"), each of which shall be in the name of the Escrow
Agent as escrow agent hereunder, representing ten percent (10%) of the
Purchaser's Stock issued in consummation of the merger provided for by the
Merger Agreement, calculated as provided therein. The Escrow Agent shall hold
and distribute the Escrow Certificates and Escrow Shares in accordance with the
terms hereof.
1.3. Value of Escrow Shares. For all purposes pursuant to this
Agreement, including without limitation the distribution of Escrow Shares, the
value of each Escrow Share shall be equal to the closing price of the
Purchaser's Stock on the Nasdaq National Market on the Closing Date, as
certified to the Escrow Agent and the Representative by the Purchaser.
1.4. Powers of Stockholders' Representative. Pursuant to the
Merger Agreement, the Stockholders have irrevocably appointed the
Representative as their true and lawful agent and attorney-in-fact with respect
to all matters arising in connection with this Agreement, including but not
limited to the power and authority on behalf of each Stockholder (other than in
his or her own right) to do any one or all of the following:
(a) give any written notices or consents and seek any
declaratory judgments, damages or other appropriate relief from a
court or other tribunal that the Representative may consider necessary
or appropriate;
(b) give any written direction to the Escrow Agent as the
Representative may consider necessary or appropriate;
(c) make, execute and deliver such amendments of and
supplements to this Agreement or any other agreements, instruments or
documents relating hereto that the Representative may consider
necessary or appropriate and not materially adverse to the
Stockholders' interests hereunder, such authority to be conclusively
evidenced by the execution and delivery thereof; and
(d) take all actions and do all things, including but not
limited to the execution and delivery of all documents necessary or
proper, required, contemplated or deemed advisable by the
Representative, including the execution, delivery and surrender of the
2
<PAGE> 217
Escrow Certificates and accompanying stock powers, and generally to
act for and in the name of each such Stockholder with respect to this
Agreement.
ARTICLE II
TREATMENT OF ACCUMULATIONS TO ESCROW SHARES
2.1. Duration of Escrow. The Escrow Agent shall hold the
Escrow Shares as provided in this Agreement until complete distribution thereof
in accordance with the applicable provisions of Article III or Article IV
hereof.
2.2. Additional Property Subject to Escrow. At any time after the
date hereof and prior to the distribution of the Escrow Shares either (i) by
delivery to the Stockholders in accordance with Article III hereof or (ii) by
delivery to the Purchaser in accordance with Article IV hereof, or by a
combination of (i) and (ii), if any of the Stockholders shall become entitled
to receive or shall receive in connection with the Escrow Shares any (i)
non-taxable distribution of securities of the Purchaser or of any other entity
including, without limitation, any certificate in connection with any increase
or reduction of capital, reclassification, recapitalization, merger, business
combination, consolidation, sale of assets, stock split-up or spin-off; or (ii)
any non-taxable distribution of stock options, warrants or rights, whether as
an addition to or in substitution of or exchange for any of the Escrow Shares;
or (iii) non-taxable stock dividend or other non-taxable distribution payable
in securities or property of any description, all of the shares of capital
stock, or other property resulting from any such distribution, stock option,
warrant, right or stock dividend shall be deemed to be Escrow Shares and shall
be subject to the terms hereof to the same extent as the original Escrow
Shares. Any cash dividends and any taxable stock dividends paid with respect
to the Escrow Shares shall be paid to the Stockholders in accordance with their
respective proportionate interests in the Escrow Shares and any taxable stock
dividends. Each of the Stockholders shall recognize as income on a current
basis all of the cash dividends to which such Stockholder is entitled to
receive through the Representative and for any non-cash dividend and any other
non-taxable distribution shall, through the Representative, execute stock
powers or other appropriate instruments of transfer for all shares, options,
warrants or rights as required for transfer.
2.3. Retained Voting and Other Rights. The Escrow Agent shall hold
the Escrow Shares and any additional property acquired with respect thereto
pursuant to Section 2.2 above in safekeeping and dispose thereof only in
accordance with the terms of this Agreement. The Escrow Agent may treat the
Representative as the duly authorized agent and representative of the
Stockholders with respect to any additional property related to the Escrow
Shares. The Escrow Agent shall hold the Escrow Shares in accordance with this
Agreement and shall (to the extent legally permissible and provided that
written instructions in form and substance satisfactory to the Escrow Agent
have been provided by the Stockholder) vote the Escrow Shares in accordance
with the written instructions of the Stockholder for whose account such Escrow
Shares are held.
2.4 Expense Basket. A portion of the Escrow Shares equal to
$250,000 as determined by the closing price of the Purchaser's stock on the
Nasdaq National Market on the Closing Date (the "Expense Basket") shall be set
aside by the Escrow Agent to satisfy obligations of the Stockholders hereunder
(other than as to Losses) and to reimburse permitted expenses of the
Representative hereunder. The Representative shall instruct the Escrow Agent
and the Purchaser as to the use of the Expense Basket. If the Expense Basket
is exhausted, no claim against the Escrow Shares may be made for obligations
and expenses covered by the Expense Basket and the
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Stockholders shall be responsible for any excess expenses of the Escrow Agent
according to their pro rata share in the Escrow Fund as determined on the
Closing Date.
ARTICLE III
DISTRIBUTION OF ESCROW SHARES UPON TERMINATION OF THE AGREEMENT
3.1. Deadline For Claims and Termination of Agreement. The
Purchaser shall not be entitled to assert any claim against the Escrow Shares
after [Insert date that is 356 days after the Effective Time of the Merger]
(the "Claims Deadline"); provided, however, that any claim made in good faith
and in writing on or prior to the Claims Deadline (whether or not formal legal
action shall yet have been commenced based upon such claim) shall continue,
subject to final resolution as provided herein. This Agreement shall terminate
upon complete distribution of the Escrow Shares in accordance with this
Agreement.
3.2. Distribution of the Escrow Funds Upon Termination of the
Agreement.
(a) Within five (5) business days after the Claims
Deadline, the Escrow Agent shall deliver to the Stockholders that
portion of the Escrow Shares (the "Distribution Proceeds") not
previously distributed or otherwise subject to claims pursuant to
Article IV, in proportion to the initial deposits of shares made on
their behalf by the Purchaser. Thereafter, the balance of the Escrow
Shares shall continue to be held by the Escrow Agent in accordance
with the terms of this Agreement until all claims asserted against the
Escrow Shares have been finally resolved in accordance with Article IV
below; whereupon, the balance of the Escrow Shares shall be
distributed to the Stockholders as provided above in full discharge of
the Escrow Agent's obligations under this Agreement.
(b) Notwithstanding the foregoing, in the event that,
under any of the provisions contained herein, the Escrow Agent would
be required to deliver fractional interests in Escrow Shares to the
Stockholders, the Purchaser shall be entitled at its option to
purchase from the Escrow Agent such a number of Escrow Shares (or
fractional interests therein) as shall be necessary to eliminate such
fractional interests, at a purchase price equal to the closing price
of the Purchaser's Stock on the Nasdaq National Market on the Closing
Date as certified to the Escrow Agent by the Purchaser. In such
event, the Escrow Agent shall distribute to the Stockholders who
otherwise would have been entitled to fractional interests in shares
of Purchaser Stock, the cash equivalent of such fractional shares
(based on the purchase price as described above).
ARTICLE IV
DELIVERY OF CAPITAL STOCK AND OTHER PROPERTY OUT OF ESCROW
4.1. Claims Against Escrow Shares. If, at any time on or prior to
the Claims Deadline, the Purchaser (on its own behalf or on behalf of any other
Indemnitee) shall assert a claim for indemnification pursuant to Article VIII
of the Merger Agreement, the Purchaser shall submit to the Escrow Agent and to
the Representative a written claim in good faith signed by an executive officer
of the Purchaser stating: (i) that an Indemnitee has incurred or reasonably
believes it may incur Losses and the reasonable estimate of the amount of any
such Losses; (ii) in reasonable detail, the facts alleged as the basis for such
claim and the section or sections of the Merger
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Agreement alleged as the basis or bases for the claim; and (iii) if the Losses
have actually been incurred, the number of Escrow Shares to which such
Indemnitee is entitled with respect to such Losses which shall be determined by
dividing the amount thereof by the Closing price of the Purchaser's Stock on
the Nasdaq Market on the Closing Date. If the claim is for Losses which the
Indemnitee reasonably believes it may incur, the written claim of the Purchaser
shall state the reasonable estimate of such Losses, in which event a claim
shall be deemed to have been asserted against the Escrow Shares on behalf of
the Purchaser in the amount of such estimated Losses, but no payment or
distribution shall be made by the Escrow Agent out of the Escrow Shares until
such Losses have actually been incurred and the Purchaser submits a notice to
the Escrow Agent and the Representative in accordance with Section 4.2(ii),
whether or not the Losses are incurred prior to the Claims Deadline.
4.2. Resolution of Asserted Claims Against the Escrow Shares. If,
within twenty-five (25) business days after (i) the Purchaser gives notice to
the Escrow Agent and the Representative of an asserted claim pursuant to Section
4.1 above that the Indemnitee has incurred Losses, or (ii) with respect to any
claim which, when asserted under Section 4.1 above, covered Losses the
Indemnitee reasonably believed it may incur, the Purchaser shall have delivered
to the Escrow Agent and the Representative notice indicating that the Indemnitee
has incurred Losses and the amount of such Losses, the Representative shall fail
to notify the Escrow Agent and the Purchaser, in writing, that the
Representative disputes, in good faith, the right of the Purchaser to indemnity
in respect of the asserted claim, then the Escrow Agent, at the expiration of
such twenty-five (25) business day period shall make immediate payment to the
Purchaser, out of the Escrow Shares, of the amount of the asserted claims. The
Representative hereby waives any objection to, and acknowledges and agrees that
the Purchaser shall have a right of indemnification for, Losses which arise from
Acknowledged Claims (as defined in the Merger Agreement), and acknowledges and
agrees that no further notice need be given under Section 4.1 hereof with
respect to Acknowledged Claims except and until a Loss has occurred with respect
to any such Acknowledged Claim, at which time Purchaser shall, in order to be
indemnified for such Losses out of the Escrow Fund, submit notice pursuant to
Section 4.2(ii) with respect to such Losses and at which time the Representative
shall have the right to submit a notice to the Escrow Agent and the Purchaser
contesting in good faith whether the Losses are related to any Acknowledged
Claim and the amount of such Losses. The Purchaser and Representative further
acknowledge and agree that none of the Escrow Shares are to be released by the
Escrow Agent to the Stockholders until the Purchaser and the Representative
shall agree that no claim or potential claims remain against the Company, the
Purchaser, the Surviving Corporation or any other Indemnitee as to any
Acknowledged Claims and the Purchaser and the Representative shall have notified
the Escrow Agent in writing of such agreement (provided that the Purchaser and
the Representative shall each act reasonably and in good faith in evaluating
whether any such claims or potential claims remain). If any such claims or
potential claims do remain, the number of Escrow Shares which shall remain in
escrow shall be based on the Purchaser's good faith determination of the amount
of the potential Losses which are alleged or could be alleged with respect to
such claims or potential claims, and not upon a determination of the likelihood
of actual Losses. The Purchaser shall notify the Escrow Agent and the
Representative of the number of Escrow Shares to remain in escrow pursuant to
the preceding sentence. On or prior to the Claims Deadline, the Purchaser also
shall be entitled to assert a claim pursuant to Section 4.1 above with respect
to matters other than Acknowledged Claims and the Escrow Shares subject to such
claims shall not be released until any dispute with respect to the release has
been resolved as provided herein.
4.3. Resolution of Disputed Claims Against Escrow Shares. If,
within the twenty-five (25) business day period after notice of an asserted
claim is given to the Escrow Agent and the Representative under Section 4.1
above, the Representative shall notify the Escrow Agent and the Purchaser, in
writing, that the Representative reasonably disputes or denies in good faith
the
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asserted claim made by the Purchaser against the Escrow Shares, then the
Representative and the Purchaser shall use their respective reasonable best
efforts to effect a settlement and compromise of such asserted claim. Any
liability, loss, damage or expense established by reason of any such settlement
and compromise shall be certified in writing to the Escrow Agent by the
Representative and the Purchaser, and the Escrow Agent shall pay to the
Purchaser by transfer to the Purchaser of a number of Escrow Shares set forth
in the certification received from the Purchaser and the Representative any
amount due and owing to the Purchaser by reason of such settlement and
compromise in Escrow Shares. If any such settlement and compromise so
certified to the Escrow Agent establishes that no amount shall be due and owing
to the Purchaser under the asserted claim, then the Escrow Agent shall treat
the asserted claim as rejected by mutual agreement of the parties, and the
asserted claim shall be totally disregarded by the Escrow Agent as if never the
subject of assertion against the Escrow Shares.
4.4. Unresolved Claims Against Escrow Shares. If the Purchaser and
the Representative are unable to settle and compromise any disputed claim
asserted against the Escrow Shares, the Escrow Agent shall not make any
payment or distribution out of the Escrow Shares with respect to such
unresolved asserted claim unless and until the Escrow Agent shall have received
either:
(a) a certificate signed on behalf of the Purchaser and
the Representative certifying the amount of the asserted claim in
dispute and directing payment thereof; or
(b) a certified copy of an award of an arbitrator
referred to in Article VII hereof determining the amount of the
asserted claim in dispute; or
(c) a certified copy of a final judgment of a court of
competent jurisdiction determining the amount of the asserted claim
in dispute certified by the party providing such copy as being binding
and nonappealable.
Upon receipt of any such certification, the claim shall be treated as a
resolved asserted claim pursuant to Section 4.2 above and the Escrow Agent
shall pay and distribute Escrow Shares in the manner described in Section 4.2.
ARTICLE V
RESPONSIBILITIES AND DUTIES OF ESCROW AGENT
5.1. Rights, Duties, Liabilities and Immunities of Escrow Agent.
The Purchaser and the Stockholders (by and through the Representative) hereby
agree as follows with respect to the rights, duties, liabilities and immunities
of the Escrow Agent:
(a) The Escrow Agent shall act as a depository only and
shall not be responsible or liable in any manner whatsoever for the
sufficiency, correctness, genuineness, or validity of the Escrow
Shares deposited with it, or any part thereof. The Escrow Agent shall
have no implied duties or obligations, and shall not be charged with
knowledge or notice of any fact except as specifically provided
herein.
(b) The Escrow Agent shall be protected in acting upon
any written certificate, notice, request, waiver, consent, receipt or
other paper or document furnished to it, not only as to its due
execution and the validity and effectiveness of its provisions, but
also as to the truth and acceptability of any information therein
contained which the Escrow Agent in good faith believes to be genuine
and what it purports to be.
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(c) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or steps taken or made by it in good
faith, or for any mistake of fact or law, or for any things which it
may do or refrain from doing in connection herewith, except due to the
Escrow Agent's own gross negligence or willful misconduct. In no
event shall the Escrow Agent be liable for incidental, indirect,
special, consequential or punitive damages, except due to the Escrow
Agent's own gross negligence or willful misconduct.
(d) The Escrow Agent may consult with and obtain advice
from legal counsel in the event of any question as to any of the
provisions of this Agreement or its duties hereunder, and the Escrow
Agent shall incur no liability and shall be fully protected in acting
in good faith in accordance with the opinion and instructions of such
counsel. Subject to the provisions of Section 5.3 hereof, the cost of
such services shall be added to and shall become a part of the Escrow
Agent's compensation hereunder.
(e) The Escrow Agent shall have no duties except those
expressly set forth herein, and shall not be bound by any notice of a
claim or demand with respect thereto, or any waiver, modification,
amendment, termination or rescission of this Agreement, unless in a
writing received by it, and, if its duties herein are affected, unless
it shall have given its prior written consent thereto.
(f) The Escrow Agent is not a party to and is not bound
by the Merger Agreement, nor is it a party to or bound by or charged
with notice of any other agreement (other than this Agreement) out of
which the Escrow Shares might arise or to which they may relate.
(g) In the event of any disagreement between any of the
parties to this Agreement or between them or any one of them and any
other person, resulting in adverse claims or demands being made in
connection with the subject matter of this Agreement, or in the event
the Escrow Agent in good faith shall be in doubt as to what action it
should take hereunder, the Escrow Agent shall thereupon have the right
(i) to refrain from complying with any claims or demands asserted on
it as the Escrow Agent or (ii) to refuse to take any other action
hereunder, so long as such disagreement continues or exists, and in
either such event, the Escrow Agent shall not be or become liable in
any way to any person for the Escrow Agent's failure to act, and the
Escrow Agent shall be entitled to continue to refrain from acting,
until (x) the rights of all parties shall have been fully and finally
adjudicated by a court of competent jurisdiction or (y) all
differences shall have been adjusted and all doubts resolved by
agreement among all of the interested persons, and the Escrow Agent
shall have been notified thereof by a writing signed by all such
persons. The rights of the Escrow Agent under this subsection (g) are
cumulative of all other rights which it may have by law or otherwise.
(h) From and at all times after the date of this Escrow
Agreement, the Purchaser and the Stockholders (collectively, the
"Indemnifying Parties") shall, to the fullest extent permitted by law,
jointly and severally indemnify and hold harmless the Escrow Agent and
each director, officer, employee, attorney, agent and affiliate of the
Escrow Agent (collectively, the "Indemnified Parties") against any and
all actions, claims (whether or not valid), losses, damages,
liabilities, costs and expenses of any kind or nature whatsoever
(including without limitation reasonable attorneys' fees, costs and
expenses) ("Losses") incurred by or asserted against any of the
Indemnified Parties from and after the date hereof, whether direct,
indirect or consequential, as a result of or arising from or in any
way relating to any claim, demand, suit, action or proceeding
(including any inquiry or investigation) by any person, including,
without limitation, any Indemnifying Party, whether threatened or
initiated, asserting a claim for any legal or equitable remedy under
any statute or regulation, including, but not limited to, any federal
or state securities law, or under any common law or equitable cause or
otherwise, arising from or in connection with the negotiation,
preparation, execution, performance or failure of performance of this
Escrow Agreement or any transactions contemplated herein, whether or
not any such Indemnifying Party is a party to any such action,
proceeding, suit or the target of any such inquiry or investigation;
provided, however, that no Indemnified Party shall have the right to
be indemnified hereunder for any liability finally determined by a
court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such Indemnified Party. The
Stockholders (in accordance with their pro rata interest in the Escrow
Shares) and the Purchaser shall be jointly and severally liable to the
Escrow Agent for the obligations under this subsection (h); provided
however that as between the Purchaser and the Stockholders, 50% of
the indemnified amount shall be paid from the Expense Basket, if any
remains (and otherwise pursuant to Section 2.5 hereof), and 50% shall
be paid by Purchaser.
(i) The Escrow Agent is authorized, in its discretion, to
comply with orders issued or process entered by any court with
respect to the Escrow Shares, without determination by the Escrow
Agent of such court's jurisdiction in the matter.
(j) If, at any time, there shall exist any dispute with
respect to the holding or disposition of any portion of the Escrow
Shares or any other obligations of the Escrow Agent hereunder, or if
at any time the Escrow Agent is unable to determine, to the Escrow
Agent's sole satisfaction, the proper disposition of any portion of
the Escrow Shares or the Escrow Agent's proper actions with respect
to its obligations hereunder, or if the Purchaser and the
Representative have not within thirty (30) days of the furnishing by
the Escrow Agent of a notice of resignation pursuant to Section 5.4
hereof, appointed a successor escrow agent to act hereunder, then the
Escrow Agent may, in its sole discretion, take either or both of the
following actions upon written notice to Purchaser and the
Representative:
(i) Hold and decline to make further
disbursements of the Escrow Shares that the Escrow Agent would
otherwise be obligated to make hereunder until such dispute or
uncertainty shall be resolved to the sole satisfaction of the
Escrow Agent or until a successor Escrow Agent shall have been
appointed (as the case may be);
(ii) Petition (by means of an interpleader action
or any other appropriate method) the Superior Court for Wake
County, North Carolina, or if said Court should be without
subject matter jurisdiction or should decline to exercise
jurisdiction, any other state or federal court of competent
jurisdiction in North Carolina, for instructions with respect
to such dispute or uncertainty, and pay into such court all
Escrow Shares for holding and disposition in accordance with
the instructions of such court.
The Escrow Agent shall have no liability to the Purchaser, the Stockholders or
any other person with respect to any such actions taken pursuant to this
Section 5.1(j), specifically including any liability or claimed liability that
may arise, or be alleged to have arisen, out of or as a result of any delay in
the disbursement of Escrow Shares or any delay in or with respect to any other
action required or requested of the Escrow Agent, except for any Losses
resulting from the gross negligence or willful misconduct of the Escrow Agent.
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5.2. Copies of Certifications, Notices and Other Documentation.
Promptly after receipt by the Escrow Agent from the Representative or the
Purchaser of any written certificate, notice, request, waiver, consent, receipt
or other document, the Escrow Agent shall furnish a copy of any of such items
to the Representative or the Purchaser as the case may be. Upon receipt by the
Escrow Agent of the Escrow Shares to be held in escrow pursuant to this
Agreement, the Escrow Agent shall deliver a written receipt therefor to the
Purchaser and the Representative.
5.3. Compensation. The Escrow Agent shall receive a fee of $2,000
per year for its services hereunder. The first year's fee shall be payable upon
the execution of this Agreement and such fee shall not be subject to proration
in the event that the escrow arrangement terminates before the end of a year.
The Escrow Agent shall also be entitled to reimbursement for all reasonable
expenses, disbursements and advances (including reasonable attorneys' fees)
incurred or made by the Escrow Agent in accordance with any of the provisions of
this Agreement (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ),
exclusive of any such expense, disbursement or advance that may arise from its
own gross negligence or willful misconduct. All such compensation and
reimbursement of the Escrow Agent under the provisions of this Section 5.3 shall
be paid by the Stockholders and the Purchaser. The Purchaser shall have the
option at any time to pay any compensation and reimbursement due to the Escrow
Agent in satisfaction of the Stockholders' obligations hereunder, and upon any
such payment, the Purchaser may treat the amount of such payment as an immediate
liquidated claim against the Escrow Shares pursuant to Section 4.2, above. The
Purchaser shall be severally liable for 50% of such compensation and
reimbursement and the Stockholders shall be liable (in accordance with their pro
rata interest in the Escrow Fund) for 50% of such compensation and
reimbursement. The Stockholders' portion shall be paid from the Expense Basket,
if any remains. If not timely compensated and reimbursed pursuant to this
Section 5.3, the Escrow Agent shall have the option to set aside or hold a
sufficient number of Escrow Shares necessary to satisfy the amount of such
unpaid compensation or reimbursement, and the Escrow Agent shall have the right
to hold such Escrow Shares until such compensation or reimbursement is paid.
5.4. Successor Escrow Agent. The Escrow Agent or any successor to
it hereafter appointed may at any time resign by giving notice in writing to the
Representative and the Purchaser, and the Escrow Agent shall be discharged from
its duties hereunder upon the earlier of (i) appointment of a successor Escrow
Agent as hereinafter provided and (ii) upon the expiration of thirty (30) days
after such notice is given. In the event of any such resignation, a successor
Escrow Agent shall be appointed by written consent of the Representative and the
Purchaser. Any successor Escrow Agent shall deliver to the Representative and
the Purchaser a written instrument accepting the appointment hereunder, and
thereupon it shall succeed to all the rights and duties of the Escrow Agent
hereunder and shall be entitled to receive all assets then held by the
predecessor Escrow Agent hereunder.
ARTICLE VI
THE REPRESENTATIVE
6.1. General. The Representative may be removed and a new
Representative or Representatives may be appointed at any time and from time to
time by the written agreement of all of the Stockholders. Any such removal and
appointment shall be effective upon receipt by the Escrow Agent and the
Purchaser of a duly executed copy of the instrument appointing the new
Representative. In the event that the Representative shall resign or otherwise
cease to act as the Representative, the Stockholders shall immediately proceed
to select a successor Representative to act hereunder.
6.2. Responsibility. The Representative shall have no liability to
the Stockholders with respect to any action taken by him or her under this
Agreement, except with respect to the
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Representative's gross negligence or willful misconduct. The Representative
shall not be liable to any Stockholder in the event that in the exercise of the
Representative's reasonable judgment he believes there will not be adequate
resources available to cover his potential costs and expenses to contest a
claim made by Purchaser or any Indemnitee hereunder. The Representative may
act in reliance upon the advice of counsel in reference to any matter in
connection with this Agreement and shall not incur any liability to the other
Stockholders or any one of them, for any action taken in good faith in
accordance with such advice. All Stockholders (inclusive of the
Representative) shall jointly and severally indemnify the Representative,
ratably according to the respective number of shares of Purchaser Stock to be
received by each Stockholder, from and against any and all damages, losses,
demands, claims, costs, liabilities, judgments, deficiencies or expenses
incurred in connection with the Representative's actions under this Agreement
or by virtue of acting in his capacity as the Representative, except to the
extent resulting from the Representative's negligence or willful misconduct.
The Representative shall be reimbursed out of the Expense Basket for all costs
and expenses incurred by him in connection with serving as representative of
the Stockholders hereunder and under the Merger Agreement. The Escrow Agent
shall from time to time sell such amount of the Escrow Shares as necessary to
pay such Representative's costs and expenses, to the extent required by the
preceding sentence. In the event that the Stockholders' Representative
reasonably believes that he will not have adequate resources available to cover
his potential costs and expenses, he will consult with the Stockholders who
hold a majority of Company Stock as of the date hereof in order to make
alternative arrangements for the costs and expenses of the Stockholders'
Representative.
ARTICLE VII
ARBITRATION
7.1. Resolution of Disputed Claims. Any unresolved dispute under
this Agreement with respect to any matter that is the subject of an asserted
claim against the Escrow Shares shall be submitted to and settled by binding
arbitration in accordance with the Commercial Rules, existing at the date
thereof, of the American Arbitration Association. The dispute shall be
submitted by the Representative (on behalf of any Stockholders) or the
Purchaser to one arbitrator agreed to by the Representative and the Purchaser
or, if the Representative and the Purchaser cannot agree on one arbitrator, by
three arbitrators selected in accordance with said Rules, and shall be heard in
Raleigh, North Carolina. Each arbitrator must be experienced in the subject
matter in dispute.
ARTICLE VIII
MISCELLANEOUS
8.1. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Stockholders (by and through the
Representative), the Purchaser, Acquisition and the Escrow Agent, and their
respective successors and assigns, whether so expressed or not.
8.2 Waiver of Consent. No failure or delay on the part of any
party hereto in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the parties hereunder are
cumulative and not exclusive of any rights or remedies which they would
otherwise have. No modification or waiver of any provision of this Agreement,
nor consent to any departure by any party therefrom, shall in any
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event be effective unless the same shall be in writing, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand on any party in any case shall entitle
such party to any other or further notice or demand in similar or other
circumstances.
8.3. Captions. The Article and Section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8.4. Notices. Any notice or other communication required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by telex, telecopy or by registered or certified mail or by recognized
overnight courier, postage prepaid, addressed as follows:
If to the Purchaser or Acquisition, to:
Quintiles Transnational Corp.
Post Office Box 13979
Research Triangle Park, North Carolina 27709-3979
Attention: Gregory D. Porter, Esq.
with a copy to its counsel,
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P.
Post Office Box 2611
Raleigh, North Carolina 27602-2611
Attention: Gerald F. Roach, Esq.
if to the Escrow Agent, to:
Branch Banking and Trust Company
223 West Nash Street
Wilson, North Carolina 27893
Attention: Corporate Trust Department
if to the Representative, to:
James T. Ogle
1300 North 17th Street
Suite 300
Arlington, Virginia 22209-3801
with a copy to:
Hogan & Hartson L.L.P.
21 Garlick Hill
London, EC4V 2AU, England
Attention: Daniel H. Maccoby, Esq.
Telecopy No.: (202) 637-5910
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Hogan & Hartson, L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, Virginia 22102
Attention: Richard T. Horan, Jr.
and if to any Stockholder, to such Stockholder at such Stockholder's address
appearing in the Purchaser's books and records or to such other address or
number as shall be furnished in writing by any such party, and such notice or
communication shall be deemed to have been given as of the date so delivered,
sent by telecopier, telex or mailed.
8.5. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
8.6. Governing Law. The interpretation and construction of this
Agreement, and all matters relating thereto, shall be governed by the laws of
the State of North Carolina, without regard to the choice of law provisions
thereof. The non-prevailing party in any dispute arising hereunder between the
Purchaser and the Stockholders (or the Representative acting on their behalf)
shall bear and pay the costs and expenses (including without limitation
reasonable attorneys' fees and expenses) incurred by the prevailing party or
parties in connection with resolving such dispute.
8.7. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
8.8. Exclusive Remedy. From and after the Closing, the
indemnification provided in Article VIII of the Merger Agreement shall be the
Indemnitees' sole and exclusive remedy for the matters set forth in Sections
8.2(a)(i)-(iv) of the Merger Agreement and the Escrow Shares shall be the sole
and exclusive resource for such indemnification.
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IN WITNESS WHEREOF, the Purchaser, Acquisition and the Escrow Agent
have caused their corporate names to be hereunto subscribed by their respective
officers thereunto duly authorized, and the Representative has executed this
Agreement, all as of the day and year first above written.
QUINTILES TRANSNATIONAL CORP.
By:
---------------------------------
Name:
Title:
QUINTILES BRI, INC.
By:
---------------------------------
Name:
Title:
ESCROW AGENT:
BRANCH BANKING AND TRUST COMPANY
By:
---------------------------------
Name:
Title:
REPRESENTATIVE:
------------------------------------------
James T. Ogle
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Appendix D
Opinion of Smith Barney Inc.
<PAGE> 228
[SMITH BARNEY LETTERHEAD]
September 16, 1996
The Board of Directors
BRI International, Inc.
1300 North 17th Street
Arlington, Virginia 22209
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to BRI International, Inc. ("BRI") of the consideration to be received by
the holders of the common stock of BRI pursuant to the terms and subject to the
conditions set forth in the Merger Agreement, dated as of September 16, 1996
(the "Merger Agreement"), by and among Quintiles Transnational Corp.
("Quintiles"), BRI Acquisition Corp., a wholly owned subsidiary of Quintiles
("Acquisition"), and BRI. As more fully described in the Merger Agreement,
(i) BRI will be merged with and into Acquisition (the "Merger") and (ii) each
outstanding share of the common stock, par value $0.10 per share, of BRI (the
"BRI Common Stock") will be converted into the right to receive 4.3013 shares
(the "Exchange Ratio") of the common stock, par value $0.01 per share, of
Quintiles (the "Quintiles Common Stock"), subject to adjustment as specified
in the Merger Agreement.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of BRI and certain senior officers of Quintiles concerning the
businesses, operations and prospects of BRI and Quintiles. We examined certain
publicly available business and financial information relating to Quintiles and
certain business and financial information relating to BRI as well as certain
financial forecasts and other information and data for BRI and Quintiles which
were provided to or otherwise discussed with us by the respective managements
of BRI and Quintiles, including information relating to certain strategic
implications and operational benefits anticipated to result from the Merger. We
reviewed the financial terms of the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices and
trading volumes of Quintiles Common Stock; the historical and projected earnings
and other operating data of BRI and Quintiles; and the capitalization and
financial condition of BRI and Quintiles. We considered, to the extent
publicly available, the financial terms of similar transactions recently
effected which we considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
relevant in evaluating those of BRI and Quintiles. We also evaluated the
potential pro forma financial impact of the Merger on Quintiles. In addition
to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been advised by the managements of BRI and Quintiles that such
forecasts and other information and data were prepared on bases reflecting
reasonable estimates and judgments as to the future financial performance of
BRI and Quintiles and the strategic implications and operational benefits
anticipated
<PAGE> 229
The Board of Directors
BRI International, Inc.
September 16, 1996
Page 2
to result from the Merger. We also have assumed, with your consent, that the
Merger will be treated as a pooling of interests in accordance with generally
accepted accounting principles and as a tax-free reorganization for federal
income tax purposes. Our opinion, as set forth herein, relates to the relative
values of BRI and Quintiles. We are not expressing any opinion as to what the
value of the Quintiles Common Stock actually will be when issued to BRI
stockholders pursuant to the Merger or the price at which the Quintiles Common
Stock will trade subsequent to the Merger. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of BRI or Quintiles nor have we made any physical
inspection of the properties or assets of BRI or Quintiles. We were not
requested to, and did not, participate in the negotiation or structuring of the
Merger. In connection with our engagement, we were requested on a limited
basis to approach and hold discussions with third parties to solicit
indications of interest in a possible acquisition of BRI. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Smith Barney has been engaged to render financial advisory services to BRI with
respect to this opinion and will receive a fee for such services, a significant
portion of which is contingent upon the consummation of the Merger. We also
will receive a fee upon the delivery of this opinion. In the ordinary course
of our business, we and our affiliates may actively trade or hold the
securities of Quintiles for our own account or for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities. We have in the past provided investment banking services to
Quintiles unrelated to the Merger, for which services we have received
compensation. In addition, we and our affiliates (including Travelers Group
Inc. and its affiliates) may maintain relationships with BRI and Quintiles.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of BRI in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Smith Barney be made, without
our prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of BRI Common Stock.
Very truly yours,
SMITH BARNEY INC.
<PAGE> 230
APPENDIX E
Opinion of Coopers & Lybrand, L.L.P.
<PAGE> 231
October 4, 1996
Mr. J. Stewart Marr
BRI International, Inc.
1300 North 17th Street
Suite 300
Arlington, Virginia 22209
Dear Mr. Marr:
We have reviewed the transaction in which BRI International, Inc. ("BRI") will
statutorily merge into BRI Acquisition ("BRI Acquisition"), a wholly owned
subsidiary of Quintiles Transnational Corporation ("Quintiles"), whereby BRI
shareholders will exchange 100 percent of their ownership in BRI for a
predetermined number of shares of Quintiles common stock. Based on the
representations of BRI and Quintiles, as documented in their respective
Representation Letters for Tax Opinion dated October 4, 1996, which
representations are being relied upon in rendering our conclusions and
opinions, and on the facts as enumerated below, it is our opinion that the
transaction should qualify as a tax-free reorganization under Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended
(the "Code"). Therefore, neither BRI nor the BRI shareholders should recognize
gain or loss for federal income tax purposes on receipt of Quintiles shares by
BRI shareholders, or on the assumption of BRI's liabilities by BRI Acquisition
in exchange for the transfer of shares by BRI shareholders to BRI Acquisition,
except for the treatment of cash paid in lieu of fractional shares.
Furthermore, the BRI shareholders' bases in their Quintiles stock will be the
same as their bases in their BRI stock (adjusted as may be necessary for cash
paid in lieu of fractional shares). In addition, no gain or loss should be
recognized by either Quintiles or its shareholders on the exchange of Quintiles
stock by BRI Acquisition for BRI stock. Further, the holding period for the
Quintiles stock should be tacked to the holding period of the exchanged BRI
stock for tax purposes. We express no opinion as to the character of any gain,
resulting from payment of cash in lieu of fractional shares.
Notwithstanding the forgoing, this letter is not a guarantee, and we provide no
assurance that the interpretations and conclusions in this letter would be
followed if the issues became the subject of judicial or administrative
proceedings. Realization of certain of the tax results described herein,
including the characterization of the transaction as a tax free reorganization,
may be
<PAGE> 232
October 4, 1996
Page 2
subject to the risk that the Internal Revenue Service may challenge the tax
treatment and that a court may sustain that challenge. Because the taxpayers
bear the burden of proof required to support claimed tax treatment, any opinion
by Coopers & Lybrand L.L.P. as to the likelihood of realization of various tax
benefits, including the characterization of the transaction as a tax free
reorganization, will assume that Quintiles or its shareholders will undertake
the effort and expense to present fully the case in support of any matters the
Internal Revenue Service may challenge.
Finally, except as set forth in this document, we do not express any opinion
regarding any tax consequences of or relating to the merger. This opinion is
solely for the benefit of Quintiles, BRI Acquisition, and BRI. Further, the
opinion is not intended for the use of any persons other than the aforementioned
parties and, as such, no representations or opinions are extended to third
parties.
Very truly yours,
Coopers & Lybrand L.L.P.
<PAGE> 233
October 4, 1996
Page 3
SUPPORTING ANALYSIS
FACTS AND ASSUMPTIONS
BRI International Inc., Inc. ("BRI") will statutorily merge 100 percent
into BRI Acquisition ("BRI Acquisition"), a wholly owned subsidiary of
Quintiles Transnational Corporation ("Quintiles"), whereby BRI shareholders
will exchange 100 percent of their ownership in BRI stock for Quintiles stock,
receiving 4.3013 shares of Quintiles stock for every 1 share of BRI stock. The
transaction will be effectuated whereby BRI Acquisition will exchange shares of
Quintiles, which are duly registered and traded on the NASDAQ exchange, for the
shares of BRI held by BRI shareholders. Upon completion of the exchange, BRI
will merge into BRI Acquisition, a wholly owned subsidiary of Quintiles.
Finally, the merger is to be completed under the terms of the "merger
agreement" and the North Carolina and Virginia corporate codes.
Further, the assumptions relied on, as contained in the BRI and Quintiles
representation letters, include:
1. The Merger will be consummated in compliance with the material
terms of the Merger Agreement and all related agreements.
2. The ratio for the exchange of shares of stock of BRI for common stock of
Quintiles in the Merger was negotiated through arm's length bargaining.
Accordingly, the fair market value of the Quintiles common stock to be
received by BRI stockholders in the Merger will be approximately equal to the
fair market value of the BRI stock surrendered by such stockholders in exchange
therefor.
3. The management of Quintiles or BRI knows of no plan or intention by any
stockholder of BRI to sell, exchange, transfer by gift or otherwise dispose of
any of the shares of common stock of Quintiles to be received by them in the
Merger that would reduce BRI shareholders' ownership of the Quintiles stock to
a number of shares having a value, as of the date of transaction, of less than
50% of the value of all of the formerly outstanding stock of BRI as of the same
date. In addition, the management of Quintiles is not aware of any transfers of
BRI stock by any holders thereof prior to the Effective Date which were made in
contemplation of the Merger.
4. As a result of the Merger, BRI will transfer to BRI Acquisition at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets of BRI held
by it immediately prior to the Merger. For this purpose, amounts used to pay
dissenters or to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by BRI immediately
prior to the Merger will be considered as assets held by BRI immediately prior
to the Merger. The management of Quintiles is not aware of BRI having
redeemed any of the BRI stock, having made any distribution with respect to any
of the BRI stock, or having disposed of any of its assets in anticipation of
or as a part of a plan for the acquisition of BRI by BRI Acquisition.
<PAGE> 234
October 4, 1996
Page 4
5. Prior to the Merger, Quintiles will be in control of BRI Acquisition
within the meaning of Internal Revenue Code Section 368(c).
6. Quintiles has no plan or intention to cause BRI Acquisition after the
Merger to issue additional shares of the stock of BRI Acquisition that would
result in Quintiles losing control of BRI Acquisition within the meaning of
Internal Revenue Code Section 368(c).
7. Quintiles has no plan or intention to reacquire any of its stock issued in
the Merger.
8. Quintiles is the owner of all of the outstanding stock of BRI
Acquisition. Quintiles has no plan or intention after the Merger to liquidate
BRI Acquisition, to merge BRI Acquisition into another corporation; to make any
extraordinary distribution in respect of its stock in BRI Acquisition; to sell
or otherwise dispose of the stock of BRI Acquisition or to cause BRI
Acquisition to sell or otherwise dispose of any of the assets of BRI acquired
in the Merger, except for dispositions made in the ordinary course of business
or transfers described in Internal Revenue Code Section 368(a)(2)(C) of the
Code.
9. The assumption by BRI Acquisition of the liabilities of BRI pursuant to
the Merger is for a bona fide business purpose and the principal purpose of
such assumption is not the avoidance of federal income tax on the transfer of
assets of BRI to BRI Acquisition pursuant to the Merger.
10. The liabilities of BRI assumed by BRI Acquisition and the liabilities
to which the transferred assets of BRI are subject were incurred by BRI in the
ordinary course of its business. No liabilities of any person other than BRI
will be assumed by BRI Acquisition or Quintiles in the Merger, and none of the
shares of BRI to be surrendered in exchange for Quintiles common stock in the
Merger will be subject to any liabilities.
11. Immediately after the Merger, Quintiles intends to cause BRI
Acquisition to continue the historic business of BRI or use a significant
portion of the historic business assets of BRI in a business.
12. Quintiles, BRI Acquisition and BRI will pay their respective expenses,
if any, incurred in connection with the Merger. None of Quintiles, BRI
Acquisition, and BRI will pay any of the expenses of the stockholders of BRI
incurred in connection with the Merger.
13. There is no intercorporate indebtedness existing between Quintiles and
BRI or between BRI Acquisition and BRI that was issued, acquired, or will be
settled at a discount.
14. Quintiles or BRI is not an investment company as defined in Internal
Revenue Code Section 368(a)(2)(F)(iii) and (iv).
<PAGE> 235
October 4, 1996
Page 5
15. BRI is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Internal Revenue Code Section 368(a)(3)(A).
16. On the date of the Merger, the fair market value of the assets of BRI
will exceed the sum of its liabilities (including any liabilities to which its
assets are subject).
17. No stock of BRI Acquisition will be issued in the Merger.
18. The payment of cash in lieu of issuing fractional shares of stock of
Quintiles was not separately bargained for consideration and is being made for
the purpose of saving Quintiles the expense and inconvenience of issuing
fractional shares.
19. None of the compensation received by any stockholder-employee of BRI
pursuant to any employment, consulting or similar arrangement is or will be
separate consideration for, or allocable to, any of his shares of BRI stock.
None of the shares of common stock of Quintiles received by any
stockholder-employee of BRI pursuant to the Merger (other than any such shares
received in connection with the termination in the Merger of certain stock
options to purchase BRI common stock) are or will be separate consideration
for, or allocable to, any such employment, consulting or similar arrangement.
The compensation paid to any stockholder-employee of BRI pursuant to any such
employment, consulting or similar arrangement is or will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
20. BRI or its shareholders will retain all rights of ownership in any
reserved or escrowed Quintiles shares received in the transaction, including
the right to receive dividends and the right to vote such shares.
21. BRI shareholders will not control, as defined in Internal Revenue Code
Section 304(c), Quintiles immediately after the merger.
IMPACT ON BRI CORPORATION
Internal Revenue Code Section 361(a) provides that no gain or loss shall
be recognized to a corporation if such corporation is a party to a
reorganization and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation a party
to the reorganization. In order for the transaction to qualify as a tax free
reorganization, it must meet one of the definitions enumerated in Internal
Revenue Code Section 368(a)(1). Section 368(a)(1)(A) provides that the term
reorganization includes a statutory merger or consolidation. While Section
368(a)(2)(D) provides that the acquisition by one corporation, in exchange for
stock of a corporation (referred to in this subparagraph as "controlling
corporation") which is in control of the acquiring corporation, of
substantially all of the
<PAGE> 236
October 4, 1996
Page 6
properties of another corporation ("target") shall not disqualify a transaction
under paragraph 368(a)(1)(A) if no stock of the acquiring corporation is used
and such transaction would have qualified under paragraph 368(a)(1)(A) had the
merger been with and into the controlling corporation. The controlling
corporation, pursuant to section 368(c), is deemed to be in control of the
acquiring corporation if the controlling corporation owns at least 80% of the
acquiring corporation's total combined voting power and at least 80% of the
total number of shares of all other classes of stock of the acquiring
corporation. Also, "substantially all" is deemed to have the same meaning as
used in section 368(a)(1)(C) which is that the transfer must be at least 90% of
the fair market value of the net assets and at least 70% of the fair market
value of the gross assets held by the target immediately prior to the transfer.
Rev. Rul. 57-518, 1957-2 C.B. 253; Rev. Proc. 86-42, 1986-2 C.B. 722.
The Regulations issued pursuant to section 368 provide that to qualify
under section 368(a)(1)(A), the requirements of (1) a valid business purpose,
(2) continuity of the business enterprise, and (3) continuity of interest must
be satisfied. The continuity of the business enterprise can be satisfied if the
acquiring corporation continues the target corporations historic business or
continues to use a significant line of the target corporations business. Regs.
Section 1.368-1(d)(2). The continuity of interest requirement requires that
50% of the consideration received by the the target shareholders be in the form
of the acquiring corporations stock and not cash or debt. Rev. Proc. 77-37,
1977-2 C.B. 568.
Finally, the parties need to be parties to the reorganization. The
Internal Revenue Code section 368(b) provides that a party to a reorganization
includes the resulting corporation and both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another including the subsidiary in a Forward Triangular Merger.
THE TRANSACTION IN QUESTION WOULD SATISFY THE ABOVE REQUIREMENTS.
PURSUANT TO THE REPRESENTATION LETTERS PROVIDED BY BRI AND QUINTILES, QUINTILES
OWNS 100% OF ALL OUTSTANDING STOCK OF BRI ACQUISITION AND, THEREFORE, IS A
CONTROLLING CORPORATION UNDER SECTION 368(C); QUINTILES SHOULD MEET THE
SUBSTANTIALLY ALL REQUIREMENTS UNDER REVENUE RULING 57-518 SINCE IT WILL
ACQUIRE, THROUGH BRI ACQUISITION, 100% OF THE ASSETS OF BRI; AND QUINTILES
WILL NOT CAUSE ANY SHARES OF BRI ACQUISITION TO BE ISSUED IN THE TRANSACTION.
IN ADDITION, PURSUANT TO THE REPRESENTATION LETTERS OF BRI AND QUINTILES, THIS
TRANSACTION HAS A VALID BUSINESS PURPOSE AND QUINTILES WILL CONTINUE THE
HISTORIC BUSINESS OF BRI. ALSO, PURSUANT TO THE MERGER AGREEMENT, GREATER THAN
50% PERCENT OF THE CONSIDERATION RECEIVED BY BRI SHAREHOLDERS WILL BE IN THE
FORM OF QUINTILES STOCK AND, THEREFORE, SHOULD SATISFY THE CONTINUITY OF
INTEREST REQUIREMENT. FURTHERMORE, BY DEFINITION, PURSUANT TO SECTION 368(B),
QUINTILES, BRI ACQUISITION, AND BRI ARE ALL PARTIES TO THE REORGANIZATION.
CONSEQUENTLY, THE TRANSACTION SHOULD MEET THE REQUIREMENTS OF SECTION
368(A)(1)(A) AND SECTION 368(A)(2)(D) AND SHOULD BE DEEMED A REORGANIZATION.
<PAGE> 237
October 4, 1996
Page 7
AS A RESULT OF BEING DEEMED A REORGANIZATION, BRI SHOULD RECOGNIZE NO
GAIN OR LOSS PURSUANT TO SECTION 361(A). FIRST, THE MERGER MEETS THE STATUTORY
DEFINITION OF A REORGANIZATION AS ANALYZED ABOVE. SECOND, BRI IS A CORPORATION
AS ORGANIZED UNDER VIRGINIA CORPORATE LAW. THIRD, BRI IS A PARTY TO THE
REORGANIZATION, AS DEFINED IN SECTION 368(B). FINALLY, THE MERGER WILL BE
EFFECTED PURSUANT TO THE TERMS OF A PLAN OF REORGANIZATION ADOPTED BY THE
PARTIES TO A REORGANIZATION.
IMPACT ON BRI SHAREHOLDERS
Section 354(a) of the Code provides, in pertinent part, that no gain or
loss shall be recognized by shareholders of a corporation if stock or
securities in a corporation which is a party to a reorganization are, in
pursuance of a plan of reorganization, exchanged solely for stock or securities
in another corporation which is a party to the reorganization. Further, Revenue
Ruling 66-365, 1966-2 C.B. 116, provides that the receipt of cash for a
fractional share will not destroy the "solely for stock" requirement of section
354(a).
The basis of the Quintiles stock held by the BRI shareholders received in
exchange for their BRI stock will be the same as that of the exchanged BRI
stock (with possible adjustments for fractional shares), since based on the
representations received, the BRI shares will be exchanged solely for Quintiles
shares. I.R.C. Section 358(a).
Finally, the BRI shareholders' holding period for their Quintiles stock
should be tacked to the holding period of the exchanged BRI stock. I.R.C.
Section 1223(1).
EXCEPT FOR CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OR CASH RECEIVED
PURSUANT TO DISSENTERS RIGHTS, THE BRI SHAREHOLDERS SHOULD RECOGNIZE NO GAIN OR
LOSS UNDER SECTION 354(A). THE STOCK IS BEING ISSUED BY QUINTILES WHICH IS A
PARTY TO THE REORGANIZATION, AS PROVIDED IN SECTION 368(B), AND SOLELY STOCK
WAS RECEIVED BY THE BRI SHAREHOLDERS IN THE TRANSACTION. THE CONCLUSION IS
REACHED DESPITE THE FACT THAT CASH WAS RECEIVED FOR THE FRACTIONAL SHARES
SINCE, AS THE REVENUE RULING PROVIDES, THE CASH PAID WAS SIMPLY AN
ADMINISTRATIVE CONVENIENCE TO SIMPLIFY THE PROBLEMS PRESENTED BY THE ACTUAL
ISSUANCE OF FRACTIONAL SHARES, AND THUS SHOULD NOT DESTROY THE "SOLELY FOR
STOCK" REQUIREMENT. IN ADDITION, BRI'S SHAREHOLDERS WOULD HAVE A BASIS IN THEIR
QUINTILES STOCK EQUAL TO THEIR BASIS IN THEIR FORMER BRI STOCK ADJUSTED, IF
ANY, BY CASH PAID IN LIEU OF FRACTIONAL SHARES. FINALLY, THE BRI SHAREHOLDERS
SHOULD TACK THE HOLDING PERIOD OF THEIR FORMER BRI STOCK TO THE QUINTILES STOCK
ACQUIRED.
IMPACT ON BRI ACQUISITION CORPORATION
On December 20, 1995 the Internal Revenue Service issued final regulations
concerning the treatment of a subsidiary in a Forward Triangular Merger. The
regulations provide that the subsidiary will not recognize gain or loss when it
uses parent stock to complete a Forward Triangular Merger unless the stock used
is stock owned by the subsidiary which was not obtained pursuant to the plan of
reorganization. Regs. Section 1.1032-2(c).
<PAGE> 238
October 4, 1996
Page 8
PURSUANT TO THE ABOVE REGULATION, BRI ACQUISITION SHOULD NOT RECOGNIZE
ANY GAIN IN ISSUING QUINTILES STOCK IN EXCHANGE FOR BRI STOCK SINCE, BASED ON
THE MERGER AGREEMENT AND REPRESENTATION LETTERS, BRI ACQUISITION OBTAINED ITS
QUINTILES STOCK PURSUANT TO THE PLAN OF REORGANIZATION.
IMPACT ON QUINTILES CORPORATION
A parent corporation in a Forward Triangular Merger does not recognize
gain or loss on the issuance of stock in a reorganization. I.R.C.
Section 1032. PURSUANT TO THE ABOVE LAW, NO GAIN WILL BE RECOGNIZED BY
QUINTILES IN THE TRANSACTION.
CONCLUSION
1) The merger should qualify as a reorganization within the meaning of
Section 368(a)(1)(A) by reason of Section 368 (a)(2)(D). Quintiles, BRI
Acquisition, and BRI each should be considered parties to the reorganization
under Section 368(b). Accordingly, BRI should not recognize any gain or loss
on the merger.
2) Neither Quintiles nor BRI Acquisition should recognize gain or loss on the
acquisition by BRI Acquisition of BRI's assets in exchange for issuance of
Quintiles common stock, and the assumption of BRI's liabilities.
3) Each BRI shareholder will recognize no gain or loss on the exchange of
their shares solely for the stock of Quintiles. No opinion is expressed on
the character of gain, if any, with regard to cash paid in lieu of fractional
shares received in the transaction.
4) The basis of the Quintiles stock received by the BRI shareholders in
exchange for their BRI stock will be the same as the basis of their BRI stock
adjusted as may be necessary for the receipt of cash in lieu of fractional
shares.
5) The holding period for shares of Quintiles stock received in the merger by
a BRI shareholder should include the holding period for the BRI shares
exchanged.
<PAGE> 239
Appendix F
Virginia Stock Corporation Act
Sections 13.1-730 through 741
<PAGE> 240
VIRGINIA STOCK CORPORATION ACT
CHAPTER 9
ARTICLE 15
DISSENTERS' RIGHTS
Section 13.1-729. DEFINITIONS.--In this article:
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving corporation by merger of that issuer, and (ii) with respect to a
share exchange, "corporation" means the acquiring corporation by share
exchange, rather than the issuer, if the plan of share exchange places the
responsibility for dissenters' rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate
action under Section 13.1-730 and who exercises that right when and in the
manner required by Section Section 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action until
the date of payment, at the average rate currently paid by the corporation on
its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
"Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
Section 13.1-730. RIGHT TO DISSENT.--A. A shareholder is entitled
to dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate actions:
<PAGE> 241
1. Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required for the merger
by Section 13.1-718 or the articles of incorporation and the shareholder is
entitled to vote on the merger or (ii) if the corporation is a subsidiary that
is merged with its parent under Section 13.1-719;
2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation if the shareholder was
entitled to vote on the sale or exchange or if the sale or exchange was in
furtherance of a dissolution on which the shareholder was entitled to vote,
provided that such dissenter's rights shall not apply in the case of (i) a sale
or exchange pursuant to court order, or (ii) a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with
respect to a plan of merger or share exchange or a sale or exchange of property
there shall be no right of dissent in favor of holders of shares of any class
or series which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at the meeting at which the plan of
merger or share exchange or the sale or exchange of property is to be acted on,
were (i) listed on a national securities exchange or on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) or (ii)
held by at least 2,000 record shareholders, unless in either case:
1. The articles of incorporation of the corporation
issuing such shares provide otherwise;
2. In the case of a plan of merger or share exchange,
the holders of the class or series are required under the plan of merger or
share exchange to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or
membership
- 2 -
<PAGE> 242
interests and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange
or held of record by at least 2,000 record shareholders or members; or
c. A combination of cash and shares or
membership interests as set forth in subdivisions 2 a and 2 b of this
subsection; or
3. The transaction to be voted on is an "affiliated
transaction" and is not approved by a majority of "disinterested directors" as
such terms are defined in Section 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the
fair value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or
rescinded;
2. A court having jurisdiction permanently enjoins or
sets aside the corporate action; or
3. His demand for payment is withdrawn with the written
consent of the corporation.
Section 13.1-731. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--A. A
record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
1. He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
2. He does so with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote.
Section 13.1-732. NOTICE OF DISSENTERS' RIGHTS.--A. If proposed
corporate action creating dissenters' rights under Section 13.1-730 is
submitted to a vote at a shareholders'
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<PAGE> 243
meeting, the meeting notice shall state that shareholders are or may be
entitled to assert dissenters' rights under this article and be accompanied by
a copy of this article.
B. If corporate action creating dissenters' rights under Section
13.1-730 is taken without a vote of shareholders, the corporation, during the
ten-day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
13.1-734.
Section 13.1-733. NOTICE OF INTENT TO DEMAND PAYMENT.--A. If
proposed corporate action creating dissenters' rights under Section 13.1-730
is submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (i) shall deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (ii) shall not vote such shares in favor of
the proposed action.
B. A shareholder who does not satisfy the requirements of
subsection A of this section is not entitled to payment for his shares under
this article.
Section 13.1-734. DISSENTERS' NOTICE.--A. If proposed corporate
action creating dissenters' rights under Section 13.1-730 is authorized at a
shareholders' meeting, the corporation, during the ten-day period after the
effectuation of such corporate action, shall deliver a dissenters' notice in
writing to all shareholders who satisfied the requirements of Section
13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and
where and when certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the payment demand is
received;
3. Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership of
the shares before or after that date;
4. Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more than sixty
days after the date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
Section 13.1-735. DUTY TO DEMAND PAYMENT.--A. A shareholder sent a
dissenters'
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<PAGE> 244
notice described in Section 13.1-734 shall demand payment, certify that he
acquired beneficial ownership of the shares before or after the date required
to be set forth in the dissenters' notice pursuant to paragraph 3 of subsection
B of Section 13.1-734, and, in the case of certificated shares, deposit his
certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection
A of this section retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
C. A shareholder who does not demand payment and deposits his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
Section 13.1-736. SHARE RESTRICTIONS.--A. The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
Section 13.1-737. PAYMENT.--A. Except as provided in Section
13.1-738, within thirty days after receipt of a payment demand made pursuant to
Section 13.1-735, the corporation shall pay the dissenter the amount the
corporation estimates to be the fair value of his shares, plus accrued
interest. The obligation of the corporation under this paragraph may be
enforced (i) by the circuit court in the city or county where the corporation's
principal office is located, or, if none in this Commonwealth, where its
registered office is located or (ii) at the election of any dissenter residing
or having its principal office in the Commonwealth, by the circuit court in the
city or county where the dissenter resides or has its principal office. The
court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the effective date of
the corporate action creating dissenters' rights, an income statement for that
year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
2. An explanation of how the corporation estimated the
fair value of the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand
payment under Section 13.1-739; and
4. A copy of this article.
- 5 -
<PAGE> 245
Section 13.1-738. AFTER-ACQUIRED SHARES.--A. A corporation may
elect to withhold payment required by Section 13.1-737 from a dissenter
unless he was the beneficial owner of the shares on the date of the first
publication by news media or the first announcement to shareholders generally,
whichever is earlier, of the terms of the proposed corporate action, as set
forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under Section 13.1-739.
Section 13.1-739. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER.--A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 13.1-737), or reject
the corporation's offer under Section
13.1-738 and demand payment of the fair value of his shares and interest due,
if the dissenter believes that the amount paid under Section 13.1-737 or
offered under Section 13.1-738 is less than the fair value of his shares or
that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for his shares.
Section 13.1-740. COURT ACTION.--A. If a demand for payment under
Section 13.1-739 remains unsettled, the corporation shall commence a
proceeding within sixty days after receiving the payment demand and petition
the circuit court in the city or county described in subsection B of this
section to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this Commonwealth,
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this Commonwealth, it shall commence
the proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided
- 6 -
<PAGE> 246
by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is
commenced under subsection B of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under Section 13.1-738.
Section 13.1-741. COURT COSTS AND COUNSEL FEES.--A. The court in an
appraisal proceeding commenced under Section 13.1-740 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters did not act in good faith in demanding payment under
Section 13.1-739.
B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:
1. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply with
the requirements of Section Section 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed did not act in good faith with respect to the
rights provided by this article.
C. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
- 7 -
<PAGE> 247
D. In a proceeding commenced under subsection A of Section
13.1-737 the court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters who are
parties to the proceeding, in amounts the court finds equitable, to the extent
the court finds that such parties did not act in good faith in instituting the
proceeding.
- 8 -
<PAGE> 248
REVOCABLE PROXY
BRI INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of BRI International, Inc. ("BRI") hereby
appoints Frank L. Hurley, James T. Ogle and J. Stewart Marr, or any of them,
attorneys and proxies of the undersigned, with full power of substitution and
with authority in each of them to act in the absence of the other, to vote and
act for the undersigned shareholder at the Special Meeting of Shareholders to
be held at 4:00 p.m., local time, on November 21, 1996, at 1300 North 17th
Street, Suite 300, Arlington, Virginia 22209, and at any adjournments thereof,
upon the following matters:
PROPOSAL: Approval and adoption of the Merger Agreement (the "Merger
Agreement") including the Plan of Merger (the "Plan
of Merger"), attached as Exhibit A thereto, dated as
of September 16, 1996, among Quintiles Transnational
Corp., a North Carolina corporation ("Quintiles"),
Quintiles BRI, Inc. (formerly known as BRI Acquisition
Corp.), a North Carolina corporation which has
not engaged in any material operations since its
incorporation and is a wholly-owned subsidiary of
Quintiles ("Acquisition"), and BRI, and the
transactions contemplated thereunder, including a
merger (the "Merger") pursuant to which BRI would be
merged with and into Acquisition, with Acquisition
being the surviving corporation in the Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted as directed by the undersigned shareholder.
UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
The undersigned shareholder may revoke this proxy at any time before it is
voted by delivering to the Secretary of BRI either a written revocation of the
proxy or a duly executed proxy bearing a later date, or by appearing at the
Special Meeting and voting in person. The undersigned shareholder hereby
acknowledges receipt of notice of the Special Meeting and Proxy
Statement/Prospectus dated ___________, 1996 and hereby revokes any proxy or
proxies heretofore given.
(Continued and to be dated and signed on reverse side)
(Continued from other side)
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
[ ] I PLAN TO ATTEND THE NOVEMBER 21, 1996 SPECIAL SHAREHOLDERS MEETING
Date: , 1996
------------
---------------------------------
(Signature of Shareholder or
Authorized Representative)
---------------------------------
(Print name)
Please date and sign exactly as
name appears hereon. Each executor,
administrator, trustee, guardian,
attorney-in-fact and other fiduciary
should sign and indicate his or her
full title. In the case of stock
ownership in the name of two or
more persons, both persons should
sign.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A QUORUM
AT THE SPECIAL MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.
FAILURE TO RETURN THIS PROXY WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
PROPOSAL.
<PAGE> 249
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina Business
Corporation Act permit a corporation to indemnify its directors, officers,
employees or agents under either or both a statutory or non-statutory scheme of
indemnification. Under the statutory scheme, a corporation may, with certain
exceptions, indemnify a director, officer, employee or agent of the corporation
who was, is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative, or investigative, because of the fact that such person was a
director, officer, agent or employee of the corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. This indemnity may include the obligation
to pay any judgment, settlement, penalty, fine (including an excise tax
assessed with respect to an employee benefit plan) and reasonable expenses
incurred in connection with the proceeding (including counsel fees), but no
such indemnification may be granted unless such director, officer, agent or
employee (i) conducted himself in good faith, (ii) reasonably believed (1) that
any action taken in his official capacity with the corporation was in the best
interest of the corporation or (2) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of
any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of
directors, a committee of directors, special legal counsel or the shareholders
in accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with the proceeding by or in the right
of the corporation in which the director was adjudged liable to the corporation
or in connection with the proceeding in which a director was adjudged liable on
the basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification
described above under the statutory scheme, Section 55-8-57 of the North
Carolina Business Corporation Act permits a corporation to indemnify or agree
to indemnify any of its directors, officers, employees or agents against
liability and expenses (including attorneys fees) in any proceeding (including
proceedings brought by or on behalf of the corporation) arising out of their
status as such or their activities in such capacities, except for any
liabilities or expenses incurred on account of activities that were, at the
time taken, known or believed by the person to be clearly in conflict with the
best interests of the corporation. Quintiles' bylaws provide for
indemnification to the fullest extent permitted under the North Carolina
Business Corporation Act, provided, however, that Quintiles will indemnify any
person seeking indemnification in connection with a proceeding initiated by
such person only if such proceeding was authorized by the Board of Directors of
Quintiles. Accordingly, Quintiles may indemnify its directors, officers, and
employees in accordance with either the statutory or non-statutory standard.
Sections 55-8-52 and 55-8-56 of the North Carolina Business
Corporation Act require a corporation, unless its articles of incorporation
provide otherwise, to indemnify a director or officer who has been wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which such director or officer was a party. Unless prohibited by the articles
of incorporation, a director or officer also may make application and obtain
court-ordered indemnification if the court determines that such director or
officer is fairly and reasonably entitled to such indemnification as provided
in Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the North Carolina Business Corporation
Act provides that a corporation may purchase and maintain insurance on behalf
of an individual who is or was a director,
II-1
<PAGE> 250
officer, employee or agent of the corporation against certain liabilities
incurred by such persons, whether or not the corporation is otherwise
authorized by the North Carolina Business Corporation Act to indemnify such
party. Quintiles' directors and officers are currently covered under
directors' and officers' insurance policies maintained by Quintiles.
As permitted by North Carolina law, Article XI of Quintiles' Articles
of Incorporation limits the personal liability of directors for monetary
damages for breaches of duty as a director provided that such limitation will
not apply to (i) acts or omissions that the director at the time of the breach
knew or believed were clearly in conflict with the best interests of Quintiles,
(ii) any liability for unlawful distributions under N.C. Gen. Stat. Section
55-8- 33, (iii) any transaction from which the director derived an improper
personal benefit or (iv) acts or omissions occurring prior to the date the
provision became effective.
II-2
<PAGE> 251
ITEM 21 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents (unless indicated) are filed herewith and made
a part of this Registration Statement.
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
2.01 Merger Agreement dated as of September 16, 1996 by and among Quintiles, Acquisition and BRI included as
Appendix A of the Proxy Statement/Prospectus
2.02 Form of Plan of Merger, included as Appendix B of the Proxy Statement/Prospectus
4.01(1) Specimen Common Stock Certificate
4.02(2) Amended and Restated Articles of Incorporation
4.03(3) Amended and Restated Bylaws
4.04(4) Indenture, dated as of May 17, 1996, between Quintiles and Marine Midland Bank, as Trustee, with
respect to Quintiles' 4.25% Convertible Subordinated Notes due May 31, 2000
4.05(4) Form of Quintiles' 4.25% Convertible Subordinated Notes, included in Exhibit 4.04 above
4.06(4) Registration Rights Agreement, dated as of May 17, 1996, between and among Quintiles, Goldman Sachs
International and Smith Barney Inc.
5.01 Opinion of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
10.01 Form of Escrow Agreement, dated __________, 1996, by and among Quintiles, Acquisition, the Shareholder's
Representative and Branch Banking and Trust Company, included as Appendix C of the
Proxy Statement/Prospectus
23.01 Consent of Ernst & Young LLP
23.02 Consent of Coopers & Lybrand L.L.P.
23.03 Consent of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. (included in Exhibit 5.01
hereto)
23.04 Consent of KPMG
24.01* Powers of Attorney
</TABLE>
- -----------------------------------------
(1) Exhibit to Quintiles' Registration Statement on Form S-1 as filed by
Quintiles with the Securities and Exchange Commission (Registration
No. 33-75766) effective April 20, 1994 and incorporated herein by
reference.
(2) Exhibit to Quintiles' Annual Report on Form 10-K as filed by Quintiles
with the Securities and Exchange Commission on March 30, 1995 and
incorporated herein by reference.
(3) Exhibit to Quintiles' Annual Report on Form 10-K as filed by Quintiles
with the Securities and Exchange Commission on March 25, 1996 and
incorporated herein by reference.
(4) Exhibit to Quintiles' Quarterly Report on Form 10-Q as filed by
Quintiles with the Securities and Exchange Commission on August 14,
1996 and incorporated herein by reference.
* Previously Filed
II-3
<PAGE> 252
ITEM 22 UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file during, any period in which offers and sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of the
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(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 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.
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 Section 15(d) of the
Securities and 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 the
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.
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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit
II-4
<PAGE> 253
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 254
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Durham, State of
North Carolina, on October 11, 1996.
QUINTILES TRANSNATIONAL CORP.
By: /s/ DENNIS B. GILLINGS
--------------------------------------
Dennis B. Gillings
Chairman of the Board of Directors
and Chief Executive Officer
II-6
<PAGE> 255
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to Registration Statement has been signed by the
following persons on October 11, 1996 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DENNIS B. GILLINGS Chairman of the Board of Directors, President and Chief Executive
- -------------------------------- Officer
Dennis B. Gillings
* President, Chief Operating Officer and Director
- --------------------------------
Santo J. Costa
/s/ RACHEL R. SELISKER Chief Financial Officer, Vice President Finance, Treasurer
- -------------------------------- and Director (Principal Accounting and Financial Officer)
Rachel R. Selisker
* Director
- ---------------------------
William A. Sollecito
* Director
- --------------------------------
Ludo J. Reynders
* Director
- --------------------------------
Sara B. Creagh
* Director
- -------------------------
Richard H. Thompson
* Director
- ------------------------
Chester W. Douglass
* Director
- --------------------------------
John G. Fryer
Director
- --------------------------------
Eric J. Souetre
* Director
- ----------------------------
Arthur M. Pappas
* Director
- --------------------------------
Robert C. Bishop
* Director
- --------------------------------
Lawrence Lewin
</TABLE>
*By: /s/ RACHEL R. SELISKER
--------------------------------------
Rachel R. Selisker as Attorney-in-fact
II-7
<PAGE> 256
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT DESCRIPTION NUMBERED
NUMBER OF EXHIBIT PAGE
- ------- ----------- ------------
<S> <C> <C>
2.01 Merger Agreement dated as of September 16, 1996 by and among
Quintiles, Acquisition and BRI, included as Appendix A
of the Proxy Statement/Prospectus
2.02 Form of Plan of Merger, included as Appendix B of the
Proxy Statement/Prospectus
4.01(1) Specimen Common Stock Certificate
4.02(2) Amended and Restated Articles of Incorporation
4.03(3) Amended and Restated Bylaws
4.04(4) Indenture, dated as of May 17, 1996, between Quintiles
and Marine Midland Bank, as Trustee, with respect to
Quintiles' 4.25% Convertible Subordinated Notes due
May 31, 2000
4.05(4) Form of Quintiles' 4.25% Convertible Subordinated Notes
included in the Indenture, filed as Exhibit 4.04 above
4.06(4) Registration Rights Agreement between and among Quintiles,
Goldman Sachs International and Smith Barney Inc.
5.01 Opinion of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P.
10.01 Form of Escrow Agreement, dated _________, 1996, by and among
Quintiles, Acquisition, the Shareholder's Representative
and Branch Banking and Trust Company, included as
Appendix C of the Proxy Statement/Prospectus.
23.01 Consent of Ernst & Young LLP
23.02 Consent of Coopers & Lybrand L.L.P.
23.03 Consent of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. (included in Exhibit 5.01 hereto)
23.04 Consent of KPMG
24.01* Powers of Attorney
</TABLE>
- -------------------------------------
(1) Exhibit to the Registration Statement on Form S-1 as filed by
Quintiles with the Securities and Exchange Commission (Registration
No. 33-75766) effective April 20, 1994 and incorporated herein by
reference.
(2) Exhibit to the Annual Report on Form 10-K as filed by Quintiles with
the Securities and Exchange Commission on March 30, 1995 and
incorporated herein by reference.
(3) Exhibit to the Annual Report on Form 10-K as filed by Quintiles with
the Securities and Exchange Commission on March 25, 1996 and
incorporated herein by reference.
(4) Exhibit to the Quarterly Report on Form 10-Q as filed by Quintiles
with the Securities and Exchange Commission on August 14, 1996 and
incorporated herein by reference.
* Previously filed.
<PAGE> 1
EXHIBIT 5.01
OPINION OF SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
<PAGE> 2
EXHIBIT 5.01
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P.
2500 First Union Capitol Center
Raleigh, North Carolina 27601
Tel: (919) 821-1220
Fax: (919) 821-6800
October 11, 1996
Writer's Direct Dial
(919) 821-6668
Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Durham, North Carolina 27703-8411
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We are counsel for Quintiles Transnational Corp. (the "Company") in
connection with the issuance by the Company of up to 1,951,027 shares of the
Company's Common Stock, $0.01 par value per share (including 1,614,915 shares to
be issued in exchange for the shares of common stock of BRI International, Inc.
outstanding as of September 16, 1996, plus an additional number of shares which
may be issued in exchange for shares of BRI Common Stock issued upon the
exercise of outstanding options to acquire BRI Common Stock prior to the
Closing Date). These shares are described in the Company's Registration
Statement on Form S-4 (File No. 333-12573) filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), on September 24, 1996 with which this opinion will be
filed as an exhibit (the Registration Statement, as amended, being hereinafter
referred to as the "Registration Statement").
We have examined the Articles of Incorporation and Bylaws of the
Company, the minutes of the meetings of the Board of Directors of the Company
relating to the authorization and the issuance of securities and such other
documents, records, and matters of law as we have deemed necessary for purposes
of this opinion. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents as originals, the conformity to
originals of all documents submitted to us as certified copies or photocopies,
and the authenticity of the originals of such latter documents. In rendering
the opinion set forth below, we have relied on a certificate of a Company
officer, whom we believe is responsible.
<PAGE> 3
Quintiles Transnational Corp.
October 11, 1996
Page 2
Based upon the foregoing, it is our opinion, as of the date hereof, that
the 1,951,027 shares of Common Stock of the Company which are being registered
pursuant to the Registration Statement are duly authorized and, when issued and
delivered in exchange for the shares of BRI Common Stock surrendered in the
Merger, as contemplated by the Registration Statement, such shares will be
validly issued, fully paid and nonassessable.
The opinion expressed herein does not extend to compliance with state
and federal securities laws relating to the sale of these securities.
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Registration Statement and to the filing of this opinion as
Exhibit 5.01 to the Registration Statement. Such consent shall not be deemed
to be an admission that this firm is within the category of persons whose
consent is required under Section 7 of the Act, or the regulations promulgated
by the Commission pursuant to such Act.
This opinion is rendered solely for your benefit in connection with
the transactions described above. This opinion may not be used or relied upon
by any other person without our prior written consent.
Sincerely yours,
SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P.
By: /s/ GERALD F. ROACH
------------------------
Gerald F. Roach
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP
<PAGE> 2
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "SUMMARY--Selected
Historical and Unaudited Pro Forma Combined Financial Data" and "--Accounting
Treatment," "THE MERGER--Accounting Treatment" and "EXPERTS" in Amendment No. 1
to the Registration Statement on Form S-4 (No. 333-12573) and related prospectus
of Quintiles Transnational Corp. for the registration of 1,951,027 shares of its
Common Stock and to (i) the incorporation by reference therein of our report
dated January 30, 1996, with respect to the consolidated financial statements of
Quintiles Transnational Corp. incorporated by reference in its Annual Report on
Form 10-K for the year ended December 31, 1995, filed with the Securities and
Exchange Commission, (ii) the incorporation by reference therein of our report
dated April 11, 1996, with respect to the financial statements of Lewin-VHI, a
subsidiary of Value-Health, Inc., incorporated by reference from the Current
Report on Form 8-K, dated April 16, 1996, filed by Quintiles Transnational Corp.
with the Securities and Exchange Commission and (iii) the inclusion herein of
our report dated August 2, 1996, with respect to the consolidated financial
statements of BRI International, Inc. for the six-month period ended
May 31, 1996.
ERNST & YOUNG LLP
Raleigh, North Carolina
October 11, 1996
<PAGE> 1
EXHIBIT 23.02
CONSENT OF COOPERS & LYBRAND L.L.P.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 333-12573) of our report dated May 15, 1996, on
our audits of the consolidated financial statements of BRI International, Inc.
as of and for the years ended November 30, 1995 and 1994. We also consent to
the references to our firm under the captions "Selected Financial Data of BRI,"
"Accounting Treatment" and "Experts."
COOPERS & LYBRAND L.L.P.
Rockville, Maryland
October 11, 1996
<PAGE> 1
EXHIBIT 23.04
CONSENT OF KPMG
<PAGE> 2
EXHIBIT 23.04
[KPMG LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Innovex Limited
We consent to incorporation by reference in Amendment No. 1 to the Registration
Statement (No. 333-12573) on Form S-4 of Quintiles Transnational Corp. of our
report, dated July 24, 1996, relating to the combined balance sheet of the
Innovex companies, which comprise a combination of Innovex Limited and Innovex
Holdings Limited and its subsidiaries, as at March 31, 1995 and 1996 and the
related combined income statements and statements of cash flows for each of the
years in the three-year period ended March 31, 1996, which report appears in the
Form 8-K of Quintiles Transnational Corp. dated October 6, 1996. In addition,
we consent to the reference to our firm under the heading "EXPERTS" in Amendment
No. 1 to the Registration Statement (No. 333-12573) on Form S-4 of Quintiles
Transnational Corp.
/s/ KPMG
Reading, England
October 11, 1996
