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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 6, 1996
QUINTILES TRANSNATIONAL CORP.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 340-23520 56-1714315
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification Number)
4709 CREEKSTONE DRIVE, RIVERBIRCH BUILDING, SUITE 300,
DURHAM, NORTH CAROLINA 27703-8411
(Address of principal executive offices)
(919) 941-2000
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
The Exhibit Index for this filing is located on sequentially numbered page .
----
The total number of pages contained in this filing is .
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ITEM 5. OTHER EVENTS.
On October 6, 1996, Quintiles Transnational Corp., a North Carolina
corporation ("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, par
value $.01 per share ("Common Stock"), for all of the outstanding ordinary
shares and cumulative participating preferred ordinary shares ("Innovex Shares")
of Innovex (the "Exchange").
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, 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 "Closing Date").
It is the intention of the parties to consummate the Exchange and the other
transactions contemplated by the Exchange Agreement (the "Closing") as soon as
possible following approval of the issuance of the Exchange Shares by the
shareholders of Quintiles and satisfaction of all covenants and conditions to
the parties' respective obligations to consummate the Exchange (or, to the
extent permitted, waiver thereof) at such other time as designated in writing by
Quintiles and Innovex.
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 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 .07981 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 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 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 of 1933, as amended (the "Securities Act"), pursuant to the
exemptions from registration contained in Section 4(2) of, and
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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, the form of which has been attached to the Exchange 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
register for resale 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.
On October 7, 1996, the Registrant issued a press release regarding the
Exchange. The text of the press release is as follows:
QUINTILES SIGNS DEFINITIVE SHARE EXCHANGE AGREEMENT WITH INNOVEX
RESEARCH TRIANGLE PARK, NC - October 7, 1996 - Quintiles Transnational
Corp. (Nasdaq: QTRN) announced today the signing of a definitive share
exchange agreement with the shareholders of Innovex Ltd., an international
contract pharmaceutical organization based in Marlow, United Kingdom. If
the agreement is completed, Quintiles would have the broadest array of
services to meet the needs of the pharmaceutical and other healthcare
sectors. With the Innovex alliance, Quintiles could expand its
full-service capabilities beyond development of drugs and offer its
customers sales and marketing services. This combination would create the
world's first and largest full-service contract pharmaceutical and
healthcare company.
The agreement calls for an exchange of all of Innovex stock for 10
million shares of Quintiles stock in a pooling of interests transaction. If
the deal closes, Quintiles plans to retire approximately $60 million of
existing Innovex obligations. Completion of the agreement, which is
subject to Quintiles shareholder approval and regulatory approval, is
expected later this year.
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. Innovex's expertise would be highly
synergistic with and complementary to Quintiles' global clinical research
and data management capabilities. With Innovex, Quintiles could supplement
its strong revenue growth derived from its core development business with a
new avenue of strong revenue growth derived from sales and marketing.
Innovex recorded net revenue of $129.1 million for its fiscal year
ending March 31, 1996, and $80.4 million for its year ending March 31,
1995, a 61 percent growth rate. Quintiles reported net revenue of $156.4
million for its fiscal year ending December 31, 1995, and net revenue of
$90.1 million for the year ending December 31, 1994, a 74 percent growth
rate. Quintiles' annual growth rate has averaged more than 50 percent for
the last five years. The proposed combination of the two companies, both
of which have excellent profit records,
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is expected to be accretive to earnings per share by approximately 5 to 7
cents for 1997. Quintiles expects to take a one-time charge related to the
transaction; the amount has not been determined.
"This is fundamentally a growth transaction because of the
opportunities that exist in pharmaceutical outsourcing and healthcare
today," said Quintiles Transnational Corp. Chairman and CEO Dennis
Gillings, Ph.D. "We aim to be aggressive about competing for market share
and we believe we are ahead of our competition. The combined company of
Quintiles and Innovex, if the deal is completed, would be the largest and
fastest-growing services company in this arena. We will provide a unique
configuration of services to the pharmaceutical and healthcare sectors,
comprising a broader spectrum than any other service company."
With Innovex, the integration of the development and promotion
functions allows Quintiles to help its clients achieve and maximize faster
the keys to the success of a drug -- including superior claims, broader
indications and improved convenience. The coordination of delivery and
promotion also allows Quintiles to integrate better the data generated from
the two functions toward the formation of outcomes research and disease
management initiatives.
Senior management at both companies have enthusiastically endorsed
what Innovex Chairman Barrie Haigh called "the unbeatable mix of Quintiles'
scientific strength with Innovex's global commercialization strengths -- a
mix of enormous benefit to our customers. Our sales and marketing services
have been the fastest-growing segment of our business. Together with
Quintiles' full-service systems, we would open up exciting new business
development avenues."
The combined company would be chaired by Dennis Gillings who would
also continue as Chief Executive Officer. Quintiles' new company structure
would have three divisions, all of which would report to President and
Chief Operating Officer Santo J. Costa. Current Quintiles Chief Financial
officer Rachel Selisker would serve in that role for the combined company.
Barrie Haigh would serve as Vice Chairman and would oversee the business
development function for all divisions. Haigh and current Innovex Group
Finance Director Paul Knott are expected to be named to the Quintiles
Transnational Corp. Board of Directors.
As part of the proposed transaction, the company is expected to enter
into employment and non-competition agreements with Haigh, Knott, and
certain other Innovex management. The Innovex shareholders will receive
unregistered shares at closing but will receive certain registration rights
commencing during the first quarter of 1997, subject to market conditions
and other customary limitations.
Quintiles recently announced the signing of a definitive agreement to
acquire BRI International, a contract research organization headquartered
in Arlington, VA, with 445 employees. BRI's net revenues for the fiscal
years ending November 30, 1995, and November 30, 1994, were respectively,
$42.6 million and $28.6 million, reflecting a 49 percent growth rate.
Among its other services, BRI offers the world's largest outsourcing
capability to the medical device industry. The transaction is expected to
close later this year and could add up to 5 cents to Quintiles' earnings
per share in 1997.
Quintiles' worldwide services encompass healthcare product development
and information management. Quintiles offers globally integrated research
and development and strategic consulting services to pharmaceutical,
biotechnology, medical device, and healthcare management industries, as
well as to local and national governments. The company's core competencies
include clinical research and data management, and consulting on healthcare
policy,
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disease management and regulatory issues. Quintiles is headquartered near
Research Triangle Park, NC, and has 41 operating units in 19 countries.
Information in this press release contains "forward-looking
statements." These statements involve risks and uncertainties that could
cause actual results to differ materially, including without limitation,
whether the proposed share exchanges actually occur, the ability of the
combined businesses to be integrated with Quintiles' current operations,
actual operation performance, the ability to maintain large client
contracts or to enter into new contracts, and the actual costs of the
combining of the businesses.
10/7/96
/CONTACT: Pat Grebe, Media Relations ([email protected]);
Greg Connors, Investor Relations ([email protected])
919-941-2000
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
Unaudited Interim Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Income Statements for
the three months ended June 30, 1995 and 1996
Unaudited Condensed Consolidated Balance Sheets as at
March 31, 1996 and June 30, 1996
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1995 and 1996
Unaudited Condensed Consolidated Statements of Total
Recognized Gains and Losses for the three months
ended June 30, 1995 and 1996
Notes to Unaudited Condensed Consolidated Financial
Statements
Audited Annual Combined Financial Statements
Independent Auditors' Report
Combined Income Statements for the three years ended
March 31, 1994, 1995 and 1996
Combined Balance Sheets as at March 31, 1995 and 1996
Combined Statements of Cash Flows for the three years
ended March 31, 1994, 1995 and 1996
Combined Statements of Total Recognized Gains and
Losses for the three years ended March 31, 1994,
1995 and 1996
Combined Statements of Changes in Shareholders' Equity
for the three years ended March 31, 1994, 1995 and 1996
Notes to Combined Financial Statements
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(b) Unaudited Pro Forma Financial Information.
Unaudited Pro Forma Combined Condensed Financial Information of
Quintiles, Innovex and BRI International, Inc.
Introduction to Unaudited Pro Forma Financial Information
Unaudited Pro Forma Combined Condensed Balance Sheet as of
June 30, 1996
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
Unaudited Pro Forma Combined Condensed Statement of Income for the
six months ended June 30, 1996
Unaudited Pro Forma Combined Condensed Statement of Income for the
six months ended June 30, 1995
Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1995
Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1994
Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1993
Unaudited Pro Forma Combined Condensed Financial Information of
Quintiles and Innovex
Introduction to Unaudited Pro Forma Financial Information
Unaudited Pro Forma Combined Condensed Balance Sheet as of
June 30, 1996
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
Unaudited Pro Forma Combined Condensed Statement of Income for the
six months ended June 30, 1996
Unaudited Pro Forma Combined Condensed Statement of Income for the
six months ended June 30, 1995
Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1995
Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1994
Unaudited Pro Forma Combined Condensed Statement of Income for the
year ended December 31, 1993
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2 Share Exchange Agreement dated as of October 4, 1996, among
Innovex Limited, Quintiles Transnational Corp. and the
shareholders of Innovex Limited (including forms of Escrow
Agreement and Registration Rights Agreement)
23 Consent of KPMG
</TABLE>
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ITEM 7(A)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Income Statements for the three months ended June 30,
1995 and 1996......................................................................... 2
Unaudited Condensed Consolidated Balance Sheets as at March 31, 1996 and June 30,
1996.................................................................................. 3
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended
June 30, 1995 and 1996................................................................ 5
Unaudited Condensed Consolidated Statements of Total Recognized Gains and Losses for the
three months ended June 30, 1995 and 1996............................................. 6
Notes to Unaudited Condensed Consolidated Financial Statements.......................... 7
AUDITED ANNUAL COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report............................................................ 10
Combined Income Statements for the three years ended March 31, 1994, 1995 and 1996...... 11
Combined Balance Sheets as at March 31, 1995 and 1996................................... 12
Combined Statements of Cash Flows for the three years ended March 31, 1994, 1995 and
1996.................................................................................. 13
Combined Statements of Total Recognized Gains and Losses for the three years ended March
31, 1994, 1995 and 1996............................................................... 14
Combined Statements of Changes in Shareholders' Equity for the three years ended March
31, 1994, 1995 and 1996............................................................... 15
Notes to Combined Financial Statements.................................................. 16
</TABLE>
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INNOVEX PLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996 1996
------- ------- -------
<S> <C> <C> <C>
L'000 L'000 US$'000
(NOTE
1)
NET SALES................................................... 15,842 33,505 52,030
COSTS AND EXPENSES
Cost of finished goods sold................................. (479) (335) (520)
Personnel costs............................................. (9,742) (21,215) (32,945)
Depreciation and amortization............................... (1,002) (1,721) (2,673)
Other operating expenses.................................... (4,116) (7,794) (12,103)
------- ------- -------
OPERATING INCOME............................................ 503 2,440 3,789
OTHER INCOME AND EXPENSES
Financial income and expenses............................... (540) (756) (1,174)
------- ------- -------
(LOSS)/INCOME BEFORE INCOME TAXES........................... (37) 1,684 2,615
Income taxes................................................ (31) (618) (960)
------- ------- -------
NET (LOSS)/INCOME BEFORE NON-EQUITY INTEREST DIVIDENDS...... (68) 1,066 1,655
Non-equity interest dividend................................ -- (206) (319)
------- ------- -------
NET (LOSS)/INCOME........................................... (68) 860 1,336
======= ======= =======
</TABLE>
2
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INNOVEX PLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 1996 AND JUNE 30, 1996
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1996 1996 1996
--------- -------- --------
<S> <C> <C> <C>
L'000 L'000 US$'000
(NOTE 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... 3,041 3,686 5,724
Accounts receivable............................................. 25,546 28,974 44,994
Finished goods and goods for resale............................. 302 271 421
Deferred income taxes........................................... 1,542 1,027 1,595
--------- -------- --------
TOTAL CURRENT ASSETS............................................ 30,431 33,958 52,734
FIXED ASSETS
Intangible assets............................................... 10,240 9,640 14,970
Property, plant and equipment................................... 18,104 20,148 31,288
--------- -------- --------
TOTAL ASSETS 58,775 63,746 98,992
======= ====== ======
</TABLE>
3
<PAGE> 10
INNOVEX PLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 1996 AND JUNE 30, 1996
<TABLE>
<CAPTION>
JUNE
MARCH 31, JUNE 30, 30,
1996 1996 1996
--------- --------- -------
<S> <C> <C> <C>
L'000 L'000 US$'000
(NOTE
1)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term borrowings and current portion of long term
obligations.............................................. 7,001 9,196 14,281
Accounts payable and accrued expenses...................... 20,267 15,178 23,570
Advance payments received.................................. 15,406 15,543 24,137
Income taxes............................................... 1,517 183 283
Current portion of deferred consideration payable.......... 2,165 4,854 7,538
--------- --------- -------
TOTAL CURRENT LIABILITIES.................................. 46,356 44,954 69,809
LONG TERM OBLIGATIONS...................................... 6,717 22,793 35,395
PROVISIONS FOR LIABILITIES AND CHARGES..................... 2,780 2,845 4,418
DEFERRED CONSIDERATION PAYABLE............................. 2,929 -- --
--------- --------- -------
58,782 70,592 109,622
--------- --------- -------
SHAREHOLDERS' EQUITY
'A' and 'B' Ordinary shares................................ 115 -- --
Ordinary shares............................................ -- 72 112
Preferred ordinary shares.................................. -- 43 66
Preference shares.......................................... -- 110 171
--------- --------- -------
115 225 349
Premiums in excess of par value............................ 140 10,880 16,896
Accumulated deficit........................................ (262) (17,951) (27,875)
--------- --------- -------
(7) (6,846) (10,630)
--------- --------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. 58,775 63,746 98,992
--------- --------- -------
SHAREHOLDERS' EQUITY
Amounts attributable to equity interests................... (7) (17,836) (27,697)
Amounts attributable to non-equity interests............... -- 10,990 17,067
--------- --------- -------
(7) (6,846) (10,630)
======= ======= =======
</TABLE>
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INNOVEX PLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996 1996
------ ------ -------
<S> <C> <C> <C>
L'000 L'000 US$'000
(NOTE 1)
Net cash provided by/(used in) operating activities(1)........... 2,032 (4,363) (6,775)
Net cash used in returns on investments and servicing of
finance........................................................ (482) (605) (940)
Total tax paid................................................... (15) (1,475) (2,291)
Net cash used in investing:
Cash consideration paid in connection with the April
Reorganisation.............................................. -- (1,620) (2,515)
Other.......................................................... (1,880) (917) (1,424)
------ ------ -------
Net cash flows before financing.................................. (345) (8,980) (13,945)
Net cash (used in)/provided by financing:
Issue of redeemable preference shares.......................... -- 11,000 17,082
Issue of preference shares..................................... -- 28 43
Other.......................................................... (1,882) (1,426) (2,214)
------ ------ -------
(Decrease)/increase in cash and cash equivalents................. (2,227) 622 966
Exchange adjustments............................................. 64 23 36
Cash and cash equivalents at beginning of period................. 3,565 3,041 4,722
------ ------ -------
Cash and cash equivalents at end of period....................... 1,402 3,686 5,724
====== ====== =======
</TABLE>
- ---------------
(1) The net cash used in operating activities of L4.4 million in the first
quarter of the 1997 financial year included the special pension
contribution of L1.5 million paid to the pension fund of Barrie S. Haigh
and non-recurring costs of L0.4 million in relating to the April
Reorganization (see Note 2 to Unaudited Condensed Financial Information).
5
<PAGE> 12
INNOVEX PLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996 1996
------ ------ --------
<S> <C> <C> <C>
L'000 L'000 US$'000
(NOTE 1)
Net (loss)/income.............................................. (68) 860 1,336
Exchange adjustments on foreign currency net investments....... 162 (116) (180)
------ ------ --------
Total recognized gains and losses for the period............... 94 744 1,156
====== ====== =======
</TABLE>
6
<PAGE> 13
INNOVEX PLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements present the
financial position and results of operations of Innovex PLC and its subsidiaries
(hereafter referred to as the "Group") and have been prepared in accordance with
generally accepted accounting principles in the United Kingdom ("U.K. GAAP")
which differ in certain significant respects from those applicable in the United
States ("U.S. GAAP"). See Note 27 of Notes to the Combined Financial Statements
included elsewhere in this Prospectus for a discussion of the principal
differences between U.K. GAAP and U.S. GAAP affecting the Group.
The interim financial information included in these Condensed Consolidated
Financial Statements is unaudited but reflects all adjustments (consisting only
of normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
interim Condensed Consolidated Financial Statements should be read in
conjunction with the Combined Financial Statements and notes thereto included
elsewhere in this Prospectus.
Solely for the convenience of the reader, the Condensed Consolidated
Financial Statements as at and for the three-month period ended June 30, 1996
have been translated from pound sterling amounts into U.S. dollars using the
June 28, 1996 Noon Buying Rate in New York City for cable transfers in pound
sterling, as certified for customs purposes by the Federal Reserve Bank of New
York of L1.00 = U.S.$1.5529. Interim results for the three month period ended
June 30, 1996 are not necessarily indicative of the results for the full year.
The provision for income taxes in the Condensed Consolidated Income
Statements is based upon management's best estimate of the effective tax rate to
be applicable for the entire year and taking into account the anticipated impact
of foreign tax rates, available tax loss carry forwards and other relevant tax
issues in the jurisdictions in which the Group operates.
NOTE 2 REORGANIZATION
On April 3, 1996, Innovex PLC and the former holding company of the Innovex
group, Innovex Holdings Limited completed a series of transactions designed to
establish Innovex PLC as the holding company of the Innovex Group. The Company
and Innovex Holdings Limited entered into an Exchange Agreement, dated April 3,
1996, pursuant to which Innovex PLC, the entire outstanding share capital of
which consisted of two thousand ordinary shares owned by Mr. Haigh and Dr.
Knott, agreed to acquire the entire issued share capital of Innovex Holdings
Limited in exchange for 72,631,305 newly issued ordinary shares of 0.1p each,
14,285,720 cumulative participating preferred ordinary shares of 0.1p each (the
"preferred shares"), L16,980,000 of 6.03125% vendor guaranteed loan notes, due
on or about October 3, 1996, of Innovex PLC, and L1,620,000 of cash. Innovex
PLC's performance of its obligations under the loan notes was guaranteed by
Lloyds Bank pursuant to a Facilities Agreement, dated April 3, 1996, which
provides for a L15,000,000 secured guarantee and term-loan facility and a
L2,000,000 cash-backed guarantee facility. In connection with these
transactions, Innovex PLC also entered into a L3,000,000 overdraft facility,
dated April 3, 1996, with Lloyds Bank.
Pursuant to an Investment Agreement, dated April 3, 1996, Innovex PLC
issued 28,533,345 additional preferred shares and created and issued 11,000,000
7.5% cumulative redeemable preference shares of 1.0p each ("the preference
shares"), ranking senior to the preferred shares, and L6,900,000 aggregate
principal amount of 8.70% loan stock. The loan stock issued had a nominal value
of L10,200,000 and an effective interest rate of 14.85%.
The preferred shares rank for a cumulative participating net dividend in
respect of the year ending March 31, 2000 and subsequent years. The amount of
the dividend will be equal to a percentage of profit after
7
<PAGE> 14
INNOVEX PLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
tax, where the percentage equals one third of the number of preferred shares
outstanding during the relevant year as a percent of the total number of
ordinary shares and preferred shares outstanding during such years. The
preference shares are redeemable by Innovex PLC on or before March 31, 2004.
These transactions are considered as having no effect on the basis of
accounting for assets and liabilities and are viewed as having occurred among
members of a commonly controlled group in connection with a proposed
capital-raising transaction after which the controlling shareholder retained
control. Further details are given in Note 23 of Notes to the Combined Financial
Statements.
In August, the Company's share capital was consolidated at the ratio of 50
then-existing ordinary shares, nominal value 0.1 pence per ordinary share, for
each new ordinary share, nominal value 5 pence per ordinary share. To the extent
the number of ordinary shares held by any shareholder was not divisible by 50,
new ordinary shares were issued to such shareholder to make the number of
ordinary shares sold by such shareholder divisible by 50. Immediately following
this consolidation of its ordinary share capital, the Company made a bonus issue
of 49 new ordinary shares for each existing ordinary share.
NOTE 3 SUMMARY OF DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Group's condensed consolidated financial statements are prepared in
U.K. GAAP, which differ in certain significant respects from U.S. GAAP. The
following is a summary of the adjustments to net income for the three months
ended June 30, 1995 and 1996 and shareholders' equity as at June 30, 1996 that
would have been required if U.S. GAAP had been applied instead of U.K. GAAP in
the preparation of the condensed consolidated financial statements.
<TABLE>
<CAPTION>
1995 1996
----- -------
<S> <C> <C> <C>
L'000 L'000
NET (LOSS)/INCOME PER U.K. GAAP.................................... (68) 860
Adjustments to reconcile to U.S. GAAP
Amortization of goodwill......................................... (a) 74 30
Pensions......................................................... (b) 11 15
Deferred taxation................................................ (c) (100) (39)
Vacation pay accrual............................................. (d) (102) (254)
Finance costs of loan stock...................................... (e) 56 (19)
Income tax effects of U.S. GAAP adjustments...................... 29 111
----- -------
NET (LOSS)/INCOME PER U.S. GAAP.................................... (100) 704
----- -------
SHAREHOLDERS' EQUITY PER U.K. GAAP................................. (6,846)
Adjustments to reconcile to U.S. GAAP
Goodwill......................................................... (a) (1,028)
Pensions......................................................... (b) 266
Deferred taxation................................................ (c) 1,096
Vacation pay accrual............................................. (d) (1,193)
Loan stock....................................................... (e) 44
Redeemable preference shares..................................... (f) (10,990)
Income tax effects of U.S. GAAP adjustments...................... 522
-------
SHAREHOLDERS' EQUITY PER U.S. GAAP................................. (18,129)
-------
</TABLE>
8
<PAGE> 15
INNOVEX PLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
Footnote references in these tables correspond to the footnotes contained
in the description of differences between U.K. GAAP and U.S. GAAP contained in
Note 27 of Notes to the Combined Financial Statements, except for (f) described
below:
(f) Redeemable preference shares
Under U.K. GAAP, redeemable preference shares are included as a component
of shareholders' equity. The Company must redeem all preference shares in issue
by March 31, 2004.
Under U.S. GAAP, redeemable preference shares whose redemption is outside
the control of the Group, including mandatory redemption, are presented in a
separate classification between debt and shareholders' equity.
NOTE 4 NON-EQUITY DIVIDENDS
Non-equity dividends in respect of preference share dividends are at the
rate of 7.5% on the paid up amount.
NOTE 5 LONG-TERM OBLIGATIONS
Long-term obligations less current portion at June 30, 1996 consisted of
the following:
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
L000
Loan stock.............................................. 7,050
Loan facility........................................... 13,500
Capital leases.......................................... 2,243
------
22,793
======
</TABLE>
9
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Innovex PLC and Innovex Holdings Limited
We have audited the combined balance sheets of the Innovex Companies, which
comprise a combination of Innovex PLC 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. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards in the United
Kingdom and the United States of America. 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, 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 aforementioned combined financial statements present
fairly, in all material respects, the financial position of the Innovex
Companies, as at March 31, 1995 and 1996 and the results of their operations and
their cash flows for each of the years in the three-year period ended March 31,
1996 in conformity with generally accepted accounting principles in the United
Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the results of operations and
shareholders' equity as at and for the years ended March 31, 1995 and 1996, to
the extent summarized in Note 27 to the combined financial statements.
Reading, England KPMG
24 July 1996 Chartered Accountants
Registered Auditors
10
<PAGE> 17
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
COMBINED INCOME STATEMENTS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
NOTE 1994 1995 1996 1996
---- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 US$'000
(UNAUDITED
--
NOTE 1)
NET SALES................................... 40,744 51,758 83,106 129,055
COSTS AND EXPENSES
Cost of finished goods sold................. (2,860) (1,765) (2,049) (3,182)
Personnel costs............................. (21,510) (29,936) (50,056) (77,732)
Depreciation and amortization............... (2,600) (3,266) (5,186) (8,053)
Other operating expenses.................... (11,099) (13,850) (19,124) (29,698)
Non-recurring costs relating to
reorganization............................ -- -- (1,528) (2,373)
Special pension contribution................ -- -- (1,500) (2,329)
------- ------- ------- ------------
OPERATING INCOME............................ 2,675 2,941 3,663 5,688
OTHER INCOME AND EXPENSES
Gain on sale of fixed assets................ 5 -- 252 -- --
Write down of fixed assets.................. 12 (500) -- -- --
Financial income and expenses............... 6 (1,165) (1,327) (1,863) (2,893)
------- ------- ------- ------------
INCOME BEFORE INCOME TAXES.................. 1,010 1,866 1,800 2,795
Income taxes................................ 8 (797) (537) (743) (1,154)
------- ------- ------- ------------
NET INCOME.................................. 213 1,329 1,057 1,641
======= ======= ======= ==========
</TABLE>
The accompanying notes form an integral part of these Combined Financial
Statements.
11
<PAGE> 18
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
COMBINED BALANCE SHEETS
AS AT MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
NOTE 1995 1996 1996
---- ------ ------ ------------
<S> <C> <C> <C> <C>
L'000 L'000 US$'000
(UNAUDITED
--
NOTE 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. 3,565 3,041 4,722
Accounts receivable.................................... 10 15,055 25,546 39,670
Finished goods and goods for resale.................... 255 302 469
Property held for sale................................. 1,320 -- --
Deferred income taxes.................................. 17 1,000 1,542 2,395
------ ------ ------------
TOTAL CURRENT ASSETS................................... 21,195 30,431 47,256
FIXED ASSETS
Intangible assets...................................... 11 9,442 10,240 15,902
Property, plant and equipment.......................... 12 12,108 18,104 28,114
------ ------ ------------
TOTAL ASSETS........................................... 42,745 58,775 91,272
====== ====== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings and current portion of long term
obligations.......................................... 13 3,520 7,001 10,872
Accounts payable and accrued expenses.................. 14 11,526 20,267 31,473
Advance payments received.............................. 4,504 15,406 23,924
Income taxes........................................... 485 1,517 2,356
Current portion of deferred consideration payable...... 3,528 2,165 3,362
------ ------ ------------
TOTAL CURRENT LIABILITIES.............................. 23,563 46,356 71,987
LONG TERM OBLIGATIONS.................................. 15 7,439 6,717 10,431
PROVISIONS FOR LIABILITIES AND CHARGES................. 16 2,309 2,780 4,317
DEFERRED CONSIDERATION PAYABLE......................... 5,159 2,929 4,548
------ ------ ------------
38,470 58,782 91,283
------ ------ ------------
SHAREHOLDERS' EQUITY
Ordinary shares (par value 0.1 pence per share;
authorized 250,000,000 ordinary shares; issued and
fully paid 115,452,370 at March 31, 1996 and
114,985,720 at March 31, 1995)....................... 18 115 115 179
Premiums in excess of par value........................ 69 140 217
Retained surplus/(accumulated deficit)................. 4,091 (262) (407)
------ ------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES................. 12 4,275 (7) (11)
------ ------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. 42,745 58,775 91,272
====== ====== ==========
</TABLE>
The accompanying notes form an integral part of these Combined Financial
Statements.
12
<PAGE> 19
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
NOTES 1994 1995 1996 1996
----- ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 US$'000
(UNAUDITED
-- NOTE 1)
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 19 6,264 5,335 16,611 25,795
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received............................. 67 120 165 256
Interest paid................................. (409) (718) (717) (1,113)
Interest element of capital lease
repayments.................................. (133) (112) (411) (638)
Dividend paid................................. -- -- (5,900) (9,162)
------ ------ ------ ------------
NET CASH USED IN RETURN ON INVESTMENTS AND
SERVICING OF FINANCE........................ (475) (710) (6,863) (10,657)
------ ------ ------ ------------
TOTAL TAX PAID
U.K. income tax paid.......................... (523) (466) (400) (621)
Foreign income tax paid....................... (55) (56) (98) (152)
------ ------ ------ ------------
(578) (522) (498) (773)
------ ------ ------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of deferred consideration............. -- (262) (3,497) (5,431)
Purchase of property, plant and equipment..... (2,061) (2,923) (3,694) (5,736)
Purchase of licences.......................... (600) (655) -- --
Sale of property held for sale................ -- -- 1,320 2,050
Sales of property, plant and equipment........ 925 1,722 1,317 2,045
Purchase of subsidiaries...................... 22 (4,714) -- -- --
Set up of subsidiaries........................ (84) -- -- --
------ ------ ------ ------------
NET CASH USED IN INVESTING.................... (6,534) (2,118) (4,554) (7,072)
------ ------ ------ ------------
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING.... (1,323) 1,985 4,696 7,293
------ ------ ------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of share issue....................... 14 70 71 110
Capital element of capital lease repayments... (1,852) (1,845) (4,176) (6,485)
Bank loan repayments.......................... (198) (125) (1,099) (1,707)
Proceeds from issuance of loan stock.......... 5,472 -- -- --
Exceptional costs relating to
reorganization.............................. -- -- (152) (236)
------ ------ ------ ------------
NET CASH PROVIDED BY/(USED IN) FINANCING...... 20 3,436 (1,900) (5,356) (8,318)
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 20 2,113 85 (660) (1,025)
====== ====== ====== ==========
</TABLE>
The accompanying notes form an integral part of these Combined Financial
Statements.
13
<PAGE> 20
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
COMBINED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996 1996
----- ----- ----- ------------
<S> <C> <C> <C> <C>
L'000 L'000 L'000 US$'000
(UNAUDITED
--
NOTE 1)
Net income.............................................. 213 1,329 1,057 1,641
Exchange adjustments on foreign currency net
investments........................................... 184 (309) 490 761
----- ----- ----- ------
Total recognized gains and losses for the financial
year.................................................. 397 1,020 1,547 2,402
===== ===== ===== ==========
</TABLE>
14
<PAGE> 21
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
RETAINED
NUMBER OF PREMIUMS IN SURPLUS/
ORDINARY ORDINARY EXCESS OF (ACCUMULATED
SHARES SHARES PAR VALUE DEFICIT) TOTAL
---------- -------- ----------- ------------ ------
<S> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
Balance as at April 1, 1993.......... 114,285,720 114 -- 2,674 2,788
Net income........................... -- -- -- 213 213
Foreign exchange adjustments......... -- -- -- 184 184
---------- --- --- ------------ ------
Balance as at March 31, 1994......... 114,285,720 114 -- 3,071 3,185
Net income........................... -- -- -- 1,329 1,329
Foreign exchange adjustments......... -- -- -- (309) (309)
Issue of ordinary shares............. 700,000 1 69 -- 70
---------- --- --- ------------ ------
Balance as at March 31, 1995......... 114,985,720 115 69 4,091 4,275
Net income........................... -- -- -- 1,057 1,057
Dividends paid....................... -- -- -- (5,900) (5,900)
Foreign exchange adjustments......... -- -- -- 490 490
Issue of ordinary shares............. 466,650 -- 71 -- 71
---------- --- --- ------------ ------
Balance as at March 31, 1996......... 115,452,370 115 140 (262) (7)
========== ====== ========= ========== ======
</TABLE>
The number of ordinary shares has been adjusted to reflect the 10 for 1
stock split which occurred in June 1995.
At March 31, 1996, L370,000 (1995: L(120,000); 1994: L189,000) had been
credited to retained surplus/debited to (accumulated deficit) in respect of
cumulative exchange adjustments.
15
<PAGE> 22
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The accompanying Combined Financial Statements present the financial
position and results of operations of Innovex PLC (the "Registrant") and Innovex
Holdings Limited and its subsidiaries, the predecessor entities to Innovex PLC
(see Note 23). Innovex PLC and Innovex Holdings Limited and its subsidiaries are
herein referred to as the "Group" or the "Company". The Combined Financial
Statements have been prepared in accordance with United Kingdom generally
accepted accounting principles ("U.K. GAAP"). These accounting principles vary
in certain significant respects from accounting principles generally accepted in
the United States ("U.S. GAAP"). See Note 27 for a discussion of the principal
differences between U.K. GAAP and U.S. GAAP that affect the Group's combined net
income and shareholders' equity.
Solely for the convenience of the reader, the Combined Financial Statements
as at and for the year ended March 31, 1996 have been translated from pound
sterling amounts into U.S. dollars using the June 28, 1996 Noon Buying Rate in
New York City for cable transfers in pound sterling, as certified for customs
purposes by the Federal Reserve Bank of New York of, L1.00 = U.S.$1.5529.
NATURE OF OPERATIONS
The Group is an international contract pharmaceutical organization based in
the United Kingdom, which provides a wide range of contract research and sales
and marketing services to the pharmaceutical industry. The principal places of
business are the United Kingdom, the United States and Germany.
Due to the international nature of the Group's operations, exchange rate
movements give rise to foreign currency translation risk when revenues, costs
and net assets of foreign subsidiaries are converted to sterling. The Group does
not hedge the translation risk arising from the net assets of foreign
subsidiaries.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities reported and of
contingent assets and liabilities disclosed at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.
BASIS OF COMBINATION AND CONSOLIDATION
The Group financial statements reflect the combination of the financial
statements of Innovex PLC and the consolidated financial statements of Innovex
Holdings Limited and all of its subsidiaries. All intercompany transactions have
been eliminated in the consolidation process. These commonly controlled
companies became a consolidated group as a result of a reorganization on April
3, 1996. See Note 23.
Unless otherwise stated, the acquisition method of accounting has been
adopted for businesses acquired. Under this method, the results of subsidiaries
acquired or disposed of in the year are included in the combined income
statement from the date of acquisition or up to the date of disposal. Goodwill,
representing the excess of the fair value of the consideration paid over the
fair value of the separable net assets acquired, is amortized over a period of
20 years to reflect its useful economic life.
16
<PAGE> 23
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
SALES
Net sales represent the amounts (excluding value added tax) derived from
providing goods and services to customers during the year. Net sales exclude
pass through costs which are costs incurred on behalf of and recharged directly
to customers.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided to write off the cost less the estimated residual
value of property, plant and equipment in equal instalments over their estimated
useful economic lives as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... 5 years
Motor vehicles.............................................. 4 years
Furniture, fittings and equipment........................... 3 to 10 years
Computer equipment.......................................... 3 years
Freehold buildings.......................................... 40 years
</TABLE>
No depreciation is provided on freehold land.
INTANGIBLE ASSETS
Intangible assets, other than goodwill, comprise acquired licences to sell
certain pharmaceutical products and trademarks, and are valued at historic cost.
These assets are recorded in the balance sheet as intangible assets and are
amortized over the shorter of their estimated useful lives or licence terms on a
straight-line basis, usually over 3 to 5 years. The directors regularly review
the value of the assets and provision is made for any permanent diminution in
value.
In certain instances Novex Pharma acquires a product licence in exchange
for Innovex services. Novex Pharma acquires the licence from a third party for
an agreed amount. The consideration is settled by Innovex supplying the services
to the third party. Settlement of the purchase price passes between Innovex and
Novex Pharma through the intercompany account.
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost
or net realizable value, calculated on a first in, first out basis.
REVENUE RECOGNITION
The majority of the Company's revenues are based on the number of days
worked multiplied by a daily rate as established by the contract. Revenues are
recognized as the work is performed. Invoices are raised in accordance with an
agreed billing schedule and, therefore, a short-term timing difference may arise
between the amount invoiced at the period end and the work done. This difference
will either be included in current assets as unbilled accounts receivable, where
the value of work done exceeds the billings, or in the case of contracts where
invoicing exceeds the value of work done, any excess is included in current
liabilities as advance payments received.
The clinical research services include a number of fixed price contracts.
These contracts provide for the payment of additional fees in the event of
changes in the scope, nature, duration or conditions of the project. Profits are
taken only when the outcome of the contract can be foreseen with reasonable
certainty and are calculated on a percentage completion basis normally on the
achievement of agreed milestones. If the
17
<PAGE> 24
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
outcome of a contract cannot be foreseen with reasonable certainty, no profit
will be recognized. All losses are provided in full when foreseen.
Each contract includes a billing schedule, and invoices are raised
accordingly. The billing schedules vary between contracts, and billings will
normally continue over the life of the contract. Any difference arising between
the amount billed and the revenue recognized on a particular contract is
included in the balance sheet as unbilled accounts receivable or advance
payments received. Amounts included in unbilled accounts receivable are expected
to be collected within one year and are included within current assets.
FOREIGN CURRENCIES
Transactions denominated in foreign currencies are translated at the rate
of exchange prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the rate of
exchange prevailing at the balance sheet date and the gains or losses arising on
translation are included in the income statement.
On consolidation, the assets and liabilities of overseas subsidiaries are
translated at the closing exchange rates and the statements of income at the
average rates of exchange prevailing during the year. Exchange differences
arising from these translations are taken to retained earnings.
LEASES
Where the company enters into a lease which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is treated as a
capital lease. The asset is recorded in the balance sheet as property, plant and
equipment and is depreciated over its estimated useful life or the term of the
lease, whichever is shorter. Future instalments under such leases, net of
finance charges, are included within creditors. Payments are apportioned between
the finance element, which is charged to the income statement and the capital
element, which reduces the outstanding obligation for future instalments.
All other leases are accounted for as operating leases and the rental
charged to the income statement on a straight line basis over the term of the
lease.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments that are
readily convertible to known amounts of cash and generally have original
maturities of three months or less, offset by bank overdrafts.
POST-EMPLOYMENT BENEFITS
The Group operates a defined contribution pension plan for employees and
executive directors in the United Kingdom. The assets of the plan are held
separately from those of the Group in an independently administered fund. The
amounts charged against income represent the contributions payable to the plan
in respect of the year.
The Group operates an unfunded defined benefit plan for employees in
Germany. Full provision is made in the balance sheet for the pension commitments
and the charge in the income statement reflects the obligations. As is customary
in Germany, the assets of the plan are not held separately from the assets of
the Company, cash contributions are not paid to an external fund and the
benefits are paid directly by the Companies. Appropriate insurance policies have
been arranged for accident and death benefits and to meet the pension
obligations in the event that the Company is unable to do so.
18
<PAGE> 25
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
LOAN STOCK
The finance cost of the loan stock is allocated over their term of the debt
using the effective interest rate method and is calculated as the difference
between the issue proceeds, net of direct issue costs, and the total amount
payable at maturity on the loan stock and cash interest payable.
TAXATION
The charge for taxation is based on the income for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for
deferred taxation only to the extent that there is reasonable evidence that such
deferred taxation will be payable or recoverable in the foreseeable future.
Advance corporation tax ("ACT") recoverable by deduction from future
corporation tax is carried forward within deferred taxation or as ACT
recoverable within current assets.
DEFERRED CONSIDERATION PAYABLE
Deferred consideration payable comprises payments in respect of businesses
acquired that are contingent on the future results of the companies acquired.
The amounts included within liabilities represent the maximum expected amount
payable, subject to foreign exchange movements based on forecast results for the
period to March 31, 1997. Adjustments for actual amounts paid are accounted for
in the year of settlement.
FOREIGN CURRENCY OPTIONS
Gains and losses on foreign exchange options that are designated and
effective as hedges of firm foreign currency commitments are deferred and
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs.
NOTE 2 SEGMENTAL INFORMATION
The Group operates in a single business segment, providing contract
research and sales and marketing services to the pharmaceutical industry.
Geographical analysis of the group's results:
Net sales by location of customer:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
L'000 L'000 L'000
U.K............................................................... 26,960 31,265 44,304
Germany........................................................... 5,140 7,350 11,341
Rest of Europe.................................................... 2,386 5,983 11,175
United States..................................................... 6,258 7,160 16,286
------ ------ ------
40,744 51,758 83,106
====== ====== ======
</TABLE>
19
<PAGE> 26
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Net sales by location of operations:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
L'000 L'000 L'000
U.K............................................................... 28,406 32,023 51,178
Germany........................................................... 7,256 10,540 14,176
Rest of Europe.................................................... 88 2,040 2,454
United States..................................................... 4,994 7,155 15,298
------ ------ ------
40,744 51,758 83,106
====== ====== ======
</TABLE>
Income/(loss) before income taxes by location of operations:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
L'000 L'000 L'000
U.K............................................................... 1,090 1,677 (149)
Germany........................................................... 202 678 2,041
Rest of Europe.................................................... 17 (309) (578)
United States..................................................... (299) (180) 486
------ ------ ------
1,010 1,866 1,800
====== ====== ======
</TABLE>
Total assets:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
L'000 L'000 L'000
U.K............................................................... 25,525 24,924 36,763
Germany........................................................... 5,655 13,106 10,435
Rest of Europe.................................................... -- 620 1,823
United States..................................................... 3,957 4,095 9,754
------ ------ ------
35,137 42,745 58,775
====== ====== ======
</TABLE>
Net assets/(liabilities):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
L'000 L'000 L'000
U.K............................................................... 5,953 3,019 (1,039)
Germany........................................................... (5,048) 109 538
Rest of Europe.................................................... -- (421) 284
United States..................................................... 2,280 1,568 210
------ ------ ------
3,185 4,275 (7)
====== ====== ======
</TABLE>
NOTE 3 SIGNIFICANT ACQUISITIONS
On April 1, 1993, the Group acquired the entire issued share capital of
Innovex GmbH (Freiburg), the holding company for the Clinical Research
Foundation group. The Clinical Research Foundation group operated in the United
Kingdom, Germany and the United States. The acquisition added phase I clinical
research facilities to the group, as well as strengthening phases II to IV
clinical research services in Germany and the United States.
20
<PAGE> 27
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
The total cash consideration is an amount up to 30,214,000 DM
(L12,470,000), of which 9,733,000 DM (L4,017,000) was paid as initial
consideration, 2,001,000 DM (L826,000) was paid on March 31, 1994 and 7,000,000
DM (L3,155,000) was paid on April 3, 1995. As of March 31, 1996, the balance of
11,480,000 DM (L5,094,000) is to be paid as deferred consideration contingent
upon the results of the Clinical Research Foundation group in the period to
March 31, 1997. The pounds sterling equivalents are as at the date of payment
or, when unpaid, the balance sheet date.
On February 1, 1994 the Group acquired the entire issued share capital of
Innovex (Nordic) AB. The acquisition provided clinical research operations in
Sweden. The total cash consideration was up to L1,153,000 of which L550,000 was
paid as initial consideration and the balance of L603,000 was contingent on the
results of Innovex (Nordic) AB in the period to March 31, 1995. The deferred
consideration was paid in instalments up to December 1995.
Goodwill arising on consolidation (representing the excess of the fair
value of the consideration paid over the fair value of the separable net assets
acquired) is amortized over a period of 20 years. At the time of acquisition the
Company evaluated the economic benefit that would be derived from the business
and has amortized the goodwill accordingly.
The directors reassess the estimated useful life of the group's investments
each year.
NOTE 4 START UP COSTS
During the years ended March 31, 1994, 1995 and 1996, the Group made
investments in the introduction of its sales and marketing services in the U.S.
(through Innovex (North America) Inc), and its contract research services in
Italy and France (through Innovex Srl and Innovex (France) Sarl respectively).
The cost of these investments, totalling L240,000, L1,268,000 and L336,000 for
the years ended March 31, 1994, 1995 and 1996 respectively, were expensed as
incurred.
NOTE 5 GAIN ON SALE OF FIXED ASSETS
In the year ended March 31, 1995, the Group disposed of the trademark in
Mintec, a pharmaceutical product, for a cash consideration of L1,200,000, which
generated a gain on sale of L341,000.
During the year ended March 31, 1995, the Group vacated its headquarter
offices and incurred associated empty property costs of L239,000. At March 31,
1995 the Group revised its estimate of the write down in fair value, made during
the previous year, from L500,000 to L350,000 to value the property to its
estimated recoverable amount of L1,320,000. The property was sold during the
year ended March 31, 1996 for a net cash consideration of L1,320,000.
21
<PAGE> 28
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 FINANCIAL INCOME AND EXPENSES
Financial income and expenses consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
L'000 L'000 L'000
OTHER INTEREST RECEIVABLE AND SIMILAR INCOME
Bank interest received............................................... 67 120 165
----- ----- -----
INTEREST PAYABLE AND SIMILAR CHARGES
On bank loans, overdrafts and other loans (except loan stock) wholly
repayable within five years........................................ 7 33 109
Finance charge on loan stock (see below)............................. 772 837 1,200
On capital leases.................................................... 133 112 411
On all other loans................................................... 101 85 --
Foreign exchange losses on loans to subsidiaries..................... 100 380 308
Exceptional costs relating to the issue of loan stock................ 119 -- --
----- ----- -----
1,232 1,447 2,028
----- ----- -----
Net financial expense................................................ 1,165 1,327 1,863
===== ===== =====
</TABLE>
The term of the loan stock is the period from issue to the earliest date on
which the loan stock could be commercially redeemed, which was April 1, 1995.
For the period from April 1, 1995 the finance cost of the loan stock accrues on
an actual basis, resulting in an annual finance cost of L1,200,000.
Included within other operating expenses are foreign exchange gains arising
on normal operating transactions of L3,000, L70,000 and L265,000 for the years
ended March 31, 1994, 1995 and 1996 respectively.
NOTE 7 DIVIDENDS
As a prelude to the reorganization discussed in Note 23, a dividend of
L5,900,000 was paid to the principal shareholder. All other shareholders, with
the exception of the principal shareholder waived their right to this dividend,
the cost of which was L5,900,000.
NOTE 8 INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
L'000 L'000 L'000
U.K. CORPORATION TAX:
Current.............................................................. 437 414 1,000
Deferred............................................................. 349 25 (632)
FOREIGN TAXATION:
Current.............................................................. 11 98 45
Deferred............................................................. -- -- 330
----- ----- -----
797 537 743
===== ===== =====
</TABLE>
22
<PAGE> 29
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
The table below reconciles the notional charge at the U.K. corporation tax
rate for the year to the actual charges for taxation:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ------
<S> <C> <C> <C>
L'000 L'000 L'000
INCOME BEFORE TAXES ON INCOME:
United Kingdom...................................................... 1,090 1,677 (149)
Foreign............................................................. (80) 189 1,949
----- ----- ------
1,010 1,866 1,800
===== ===== ======
"Expected" income tax expense at standard U.K. rate
(1994, 1995 and 1996: 33%)........................................ 333 616 594
Differences in foreign tax rates.................................... 33 258 539
Entertaining, professional fees and other expenditures permanently
disallowable for taxation purposes................................ 20 161 155
Losses not recognized as a deferred tax asset....................... 120 242 251
Depreciation and amortization of assets ineligible for tax relief... 331 189 324
Utilization of tax loss carry forwards.............................. -- (683) (1,175)
Tax relief on sale of intangible assets............................. -- (180) --
Other items......................................................... (40) (66) 55
----- ----- ------
Actual tax charge................................................... 797 537 743
===== ===== ======
</TABLE>
An analysis of the deferred tax balance at March 31, 1995 and 1996 is
provided in Note 17.
NOTE 9 POST-EMPLOYMENT BENEFITS
The costs charged for the years ended March 31, 1994, 1995 and 1996 in
respect of the U.K. defined contribution plan represent contributions payable by
the Group to the trust fund and amounted to L560,000, L568,000 and L738,000,
respectively. There were no outstanding or prepaid contributions either at the
beginning or at the end of the year. The pension costs charged for the years
ended March 31, 1994, 1995 and 1996 in respect of other overseas companies
schemes were L151,000, L321,000 and L456,000, respectively.
As explained in the accounting policies set out in Note 1, the Group
operates an unfunded defined benefit plan for employees in Germany. The plan
provides benefits based on final pensionable pay. As is customary in Germany,
assets of the plan are not held separately from the assets of the Company, cash
contributions are not paid to an external trust and the benefits are paid
directly by the Company. The amount of the provision is determined by a
qualified actuary on the basis of annual valuations using the individual entry
age method. The most recent valuation was at an effective date of April 1, 1996,
and the provision has been increased in line with actuarial advice. The
assumptions which have the most significant effect on the results of the
valuation are those relating to the following factors:
a) investment return of 7% per annum compound;
b) increase in pensionable salary at a rate of 5% per annum compound;
c) mortality in accordance with standard tables; and
d) pension increases at a rate of 3% per annum compound.
23
<PAGE> 30
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
The pension charge for the years ended March 31, 1994, 1995 and 1996 was
L107,000, L182,000 and L311,000 respectively. Amounts provided in respect of
German pensions are included in provisions for liabilities and charges in Note
16. See Note 28 for pension information under U.S. GAAP.
NOTE 10 ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
Trade accounts receivable.................................................. 8,203 12,993
Less: allowance for doubtful accounts...................................... (140) (174)
------ ------
8,063 12,819
Unbilled accounts receivable............................................... 3,663 8,791
Accrued income and prepaid expenses........................................ 2,262 1,561
Corporation tax and ACT recoverable........................................ 46 480
Other receivables.......................................................... 1,021 1,895
------ ------
15,055 25,546
====== ======
</TABLE>
Other receivables include an amount of L10,000 (1995: Nil) due from
officers in respect of unpaid share capital and L345,000 (1995: L177,000) in
respect of expense advances to personnel.
The following table summarizes sales to major customers as a percentage of
total sales (sales in excess of 10% for the period):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A.............................................................. -- 11% 12%
Customer B.............................................................. -- -- 11%
</TABLE>
24
<PAGE> 31
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
GOODWILL LICENCES TOTAL
-------- -------- ------
<S> <C> <C> <C>
L'000 L'000 L'000
COST
At April 1, 1995................................................. 9,908 655 10,563
Additions........................................................ 22 1,690 1,712
Foreign exchange adjustments..................................... 120 -- 120
-------- -------- ------
At March 31, 1996................................................ 10,050 2,345 12,395
-------- -------- ------
AMORTIZATION
At April 1, 1995................................................. 1,078 43 1,121
Provided during the year......................................... 580 440 1,020
Foreign exchange adjustments..................................... 14 -- 14
-------- -------- ------
At March 31, 1996................................................ 1,672 483 2,155
-------- -------- ------
NET BOOK VALUE
At March 31, 1996................................................ 8,378 1,862 10,240
-------- -------- ------
At March 31, 1995................................................ 8,830 612 9,442
-------- -------- ------
</TABLE>
NOTE 12 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
IMPROVEMENTS FURNITURE,
TO LEASEHOLD MOTOR FITTINGS AND COMPUTER
PROPERTY VEHICLES EQUIPMENT EQUIPMENT PROPERTY TOTAL
------------ -------- ------------ --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
L'000 L'000 L'000 L'000 L'000 L'000
COST
At April 1, 1995...................... 303 7,810 3,638 3,660 3,500 18,911
Additions............................. 148 7,237 836 2,880 27 11,128
Disposals............................. -- (2,792) (5) (64) -- (2,861)
Foreign exchange adjustments.......... (3) 2 27 49 158 233
--- -------- ------ --------- -------- ------
At March 31, 1996..................... 448 12,257 4,496 6,525 3,685 27,411
--- -------- ------ --------- -------- ------
DEPRECIATION
At April 1, 1995...................... 182 2,344 1,753 1,854 670 6,803
Charged in the year................... 34 2,493 416 1,132 91 4,166
On disposals.......................... -- (1,668) (13) (20) -- (1,701)
Foreign exchange adjustments.......... (2) -- 5 29 7 39
--- -------- ------ --------- -------- ------
At March 31, 1996..................... 214 3,169 2,161 2,995 768 9,307
--- -------- ------ --------- -------- ------
NET BOOK VALUE
At March 31, 1996..................... 234 9,088 2,335 3,530 2,917 18,104
--- -------- ------ --------- -------- ------
At March 31, 1995..................... 121 5,466 1,885 1,806 2,830 12,108
--- -------- ------ --------- -------- ------
</TABLE>
Property represents freehold land and buildings.
25
<PAGE> 32
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
In the year ended March 31, 1994, a provision of L500,000 was made to
reflect a write down in the fair value of property. In the year ended March 31,
1995 a partial reversal of this provision of L150,000 was made to reflect the
then current value.
Included in property, plant and equipment are the following amounts in
respect of assets, primarily motor vehicles, held under capital leases:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
Cost....................................................................... 7,670 11,928
Accumulated depreciation................................................... (2,338) (3,055)
Net book value............................................................. 5,332 8,873
------ ------
Depreciation charged in the year........................................... 1,510 2,288
====== ======
</TABLE>
Capital expenditure authorized and contracted for but not provided for in
these Combined Financial Statements, as they have not yet been incurred, are
estimated as of March 31, 1996 at L690,000.
NOTE 13 SHORT-TERM BORROWINGS AND CURRENT PORTION OF LONG-TERM OBLIGATIONS
Short-term borrowings and current portion of long-term obligations consist
of the following:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
L'000 L'000
Notes payable to banks....................................................... 1,099 --
Current portion of capital lease obligations................................. 2,421 4,701
Current portion of loan stock................................................ -- 2,300
----- -----
3,520 7,001
===== =====
</TABLE>
Notes payable to banks represented a mortgage loan which was repaid
following the sale of a property in June 1995.
In addition to that reflected above, the Group had bank overdrafts as at
March 31, 1995 and 1996 of L74,000 and L3,775,000, respectively which have been
offset against cash deposits as a legal right of offset exists. The overdrafts
are repayable on demand. The weighted average interest rate on bank overdrafts
in the three years ended March 31, 1994, 1995 and 1996 was 7.6%, 8.1% and 8.5%,
respectively.
NOTE 14 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
Accounts payable........................................................... 3,684 4,375
Taxes, other than income taxes............................................. 2,113 3,098
Accrued expenses........................................................... 4,587 9,411
Other current liabilities.................................................. 1,142 3,383
------ ------
11,526 20,267
====== ======
</TABLE>
26
<PAGE> 33
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 LONG-TERM OBLIGATIONS
Long-term obligations less current portion consists of the following:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
L'000 L'000
Loan stock................................................................... 6,300 4,600
Capital lease obligations.................................................... 1,139 2,117
----- -----
7,439 6,717
===== =====
</TABLE>
LOAN STOCK
The loan stock was issued on April 1, 1993 at a price of L6,000,000, with a
nominal value of L7,950,000. The loan stock matures at various dates from
September 30, 1996 to March 31, 1999. The loan stock has a stated coupon rate of
5% for the period April 1, 1993 to March 31, 1994 and 10% thereafter, with
interest payable on March 31 and September 30 each year. The effective interest
rate of the loan stock is 15.1%.
On April 3, 1996, as part of a Group reorganization (see Note 23), a new
holding company, Innovex PLC, received proceeds totalling L6,900,000 from the
issuance of new loan stock which were used to repay the loan stock described
above. The allocation of loan stock between current and long term in these
financial statements reflects the maturity of the loan stock as if no redemption
had taken place.
CAPITAL LEASES
The maturity of capital leases obligations is as follows:
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
Year ended March 31, 1997........................................ 5,106
Year ended March 31, 1998........................................ 2,230
-----
7,336
Less: amount representing future interest........................ (518)
-----
6,818
=====
</TABLE>
NOTE 16 PROVISIONS FOR LIABILITIES AND CHARGES
Provisions for liabilities and charges consist of the following:
<TABLE>
<CAPTION>
POST DEFERRED
EMPLOYMENT TAXATION OTHER
PROVISIONS (NOTE 17) PROVISIONS TOTAL
---------- --------- ---------- -----
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
At March 31, 1995.................................... 1,558 434 317 2,309
Charge for the year.................................. 334 240 -- 574
Amounts utilized during the year..................... -- -- (87) (87)
Foreign exchange movements........................... (16) -- -- (16)
---------- --- --- -----
At March 31, 1996.................................... 1,876 674 230 2,780
========= ======= ======= =====
</TABLE>
27
<PAGE> 34
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Post-employment provisions comprise accrued liabilities to pay retirement
benefits in respect of the unfunded German pension scheme. Other provisions
comprise provisions for future lease costs in respect of empty property.
Included within the total for provisions for liabilities and charges is
L390,000 (1995: L184,000) which is considered likely to be utilized within one
year.
NOTE 17 DEFERRED INCOME TAXES
The principal components of deferred tax liabilities and assets and the
full potential amount of deferred tax liabilities and assets were as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
DEFERRED TAX LIABILITIES:
Property, plant and equipment.............................................. 337 478
Interest costs............................................................. 176 92
Other timing differences................................................... 50 228
------ ------
563 798
------ ------
DEFERRED TAX ASSETS:
Operating losses carried forward........................................... 4,176 3,044
Post employment provisions................................................. 917 1,594
Other timing differences................................................... 244 364
------ ------
5,337 5,002
Less: valuation allowance................................................ (4,208) (3,336)
------ ------
1,129 1,666
------ ------
NET DEFERRED TAX ASSETS.................................................... (566) (868)
====== ======
</TABLE>
The amounts are disclosed in the financial statements as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
Deferred tax liabilities................................................... 434 674
Deferred tax assets........................................................ (1,000) (1,542)
------ ------
(566) (868)
====== ======
</TABLE>
Net deferred tax assets can be analysed as:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
CURRENT:
U.K........................................................................ 97 (379)
Foreign.................................................................... (1,000) (670)
NON-CURRENT:
U.K........................................................................ 337 181
Foreign.................................................................... -- --
------ ------
(566) (868)
====== ======
</TABLE>
28
<PAGE> 35
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
At March 31, 1996 the German group of companies had tax loss carry forwards
available for offset against future taxable income of those companies. These tax
loss carry forwards have not yet been agreed by the German tax authorities.
Based on the forecast profitability of the German group, a deferred tax asset of
L849,000 has been recognized in the financial statements, and is included in
current assets.
NOTE 18 ORDINARY SHARES
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
L'000 L'000
AUTHORIZED
250,000,000 ordinary shares of 0.1p each
(1995: 25,000,000 ordinary shares of 1p each)............................... 250 250
----- -----
ALLOTTED, CALLED UP AND FULLY PAID
101,166,650 A ordinary shares of 0.1p each
(1995: 10,070,000 A ordinary shares of 1p each)............................. 101 101
14,285,720 B ordinary shares of 0.1p each
(1995: 1,428,572 B ordinary shares of 1p each).............................. 14 14
----- -----
115 115
==== ====
</TABLE>
On June 12, 1995 the Company sub-divided its authorized share capital into
250,000,000 ordinary shares of 0.1p each, by means of a 10-for-1 stock split.
During the year to March 31, 1996, 216,650 A ordinary shares of 0.1p each were
issued at 10p each and 250,000 A ordinary shares of 0.1p were issued at 20p
each. Prior to the stock split, 70,000 A ordinary shares of 1p each were issued
at L1.00 during the year to March 31, 1995. A and B ordinary shares rank equally
for dividends and voting rights. Shareholders who wish to transfer their shares
must first offer them to other A shareholders. There are no such restrictions on
B shareholders.
The Company operates an executive share option scheme which was approved by
the board in 1993. Options granted under the plan give the holder the right to
purchase A ordinary shares at prices not below estimated fair market value at
the date of grant and are exercisable in normal circumstances between December
1996 and September 2004. No compensation expense is recorded in respect of these
options.
Transactions during the three years ended March 31, 1996 are given below.
The numbers of shares and exercise price have been adjusted to reflect the stock
split in June 1995.
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF SHARES (PENCE PER SHARE)
---------------- -----------------
<S> <C> <C>
Balance outstanding at March 31, 1993........................ --
Granted...................................................... 4,170,000 7-10
----------------
Balance outstanding at March 31,1994......................... 4,170,000 7-10
Granted...................................................... 655,000 10
Cancelled.................................................... (40,000) 10
----------------
Balance outstanding at March 31, 1995........................ 4,785,000 7-10
Granted...................................................... 1,700,000 10-11
----------------
Balance outstanding at March 31, 1996........................ 6,485,000 7-11
=============
</TABLE>
29
<PAGE> 36
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
There were no options exercisable as at March 31, 1995 and 1996 under the
plan. The options are no longer exercisable following the reorganization
detailed in Note 23, which should be read in conjunction with this note.
NOTE 19 RECONCILIATION OF OPERATING INCOME TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
L'000 L'000 L'000
Operating income.................................................. 2,675 2,941 3,663
Depreciation and amortization of fixed assets other than
goodwill........................................................ 2,093 2,714 4,606
Amortization of goodwill.......................................... 503 528 580
Gain on sale of property, plant and equipment..................... (102) (74) (157)
Decrease/(increase) in inventories................................ 14 (33) (47)
Increase in receivables........................................... (2,307) (4,500) (9,891)
Increase in payables.............................................. 2,878 4,302 17,613
Increase/(decrease) in provisions................................. 510 (304) 244
Empty property costs.............................................. -- (239) --
------ ------ ------
Net cash inflow from operating activities......................... 6,264 5,335 16,611
====== ====== ======
</TABLE>
NOTE 20 ANALYSIS OF CHANGES IN FINANCING AND CASH AND CASH EQUIVALENTS DURING
THE YEAR
(i) Changes in financing:
<TABLE>
<CAPTION>
SHARE
PAID UP PREMIUMS IN LOANS AND
ORDINARY EXCESS OF LOAN CAPITAL LEASE
SHARES PAR VALUE STOCK OBLIGATIONS
-------- ------------ --------- -------------
<S> <C> <C> <C> <C>
L'000 L'000 L'000 L'000
At April 1, 1993................................ 100 -- -- 3,180
Cash inflow/(outflow) from financing............ 14 -- 6,000 (1,852)
Inception of capital leases..................... -- -- -- 2,564
Amortization of discount on loan stock.......... -- -- 591 --
Repayment of bank loan.......................... -- -- -- (198)
Expenses of issue of loan stock................. -- -- (528) --
--- --- --------- -------------
At March 31, 1994............................... 114 -- 6,063 3,694
Cash outflow from financing..................... -- -- -- (1,845)
Inception of capital leases..................... -- -- -- 2,935
Amortization of discount on loan stock.......... -- -- 237 --
Repayment of bank loan.......................... (125)
Proceeds of share issue......................... 1 69 -- --
--- --- --------- -------------
At March 31, 1995............................... 115 69 6,300 4,659
Cash outflow from financing..................... -- -- -- (4,176)
Inception of capital leases..................... -- -- -- 7,434
Amortization of discount on loan stock.......... -- -- 600 --
Repayment of bank loan.......................... -- -- -- (1,099)
Proceeds of share issue......................... -- 71 -- --
--- --- --------- -------------
At March 31, 1996 115 140 6,900 6,818
====== ======== ========= =========
</TABLE>
30
<PAGE> 37
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(ii) Changes in cash and cash equivalents:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
L'000 L'000 L'000
At beginning of the year............................................. 1,305 3,417 3,565
Net cash inflow/(outflow)............................................ 2,113 85 (660)
Effect of foreign exchange rate changes.............................. (1) 63 136
----- ----- -----
At end of the year................................................... 3,417 3,565 3,041
===== ===== =====
</TABLE>
NOTE 21 CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
L'000 L'000
Cash at bank and in hand.................................................... 3,639 6,816
Bank overdrafts............................................................. (74) (3,775)
----- ------
3,565 3,041
===== ======
</TABLE>
NOTE 22 ANALYSIS OF NET CASH OUTFLOW OF CASH AND CASH EQUIVALENTS IN RESPECT OF
THE
PURCHASES OF SUBSIDIARIES
An analysis of cash flows arising on acquisitions is as follows:
<TABLE>
<CAPTION>
1994
-----
<S> <C>
L'000
Cash consideration............................................... 5,393
Cash at bank and in hand acquired................................ (702)
Bank overdrafts.................................................. 23
-----
4,714
=====
</TABLE>
NOTE 23 SUBSEQUENT EVENTS: REORGANIZATION
On April 3, 1996, Innovex PLC and the former holding company of the Innovex
group, Innovex Holdings Limited completed a series of transactions designed to
establish Innovex PLC as the holding company of the Innovex Group. The Company
and Innovex Holdings Limited entered into an Exchange Agreement, dated April 3,
1996, pursuant to which Innovex PLC, the entire outstanding share capital of
which consisted of two thousand ordinary shares owned by Mr. Haigh and Dr.
Knott, agreed to acquire the entire issued share capital of Innovex Holdings
Limited in exchange for 72,631,305 newly issued ordinary shares of 0.1p each,
14,285,720 cumulative participating preferred ordinary shares of 0.1p each (the
"preferred shares"), L16,980,000 of 6.03125% vendor guaranteed loan notes, due
on or about October 3, 1996, of Innovex PLC, and L1,620,000 of cash. Innovex
PLC's performance of its obligations under the loan notes was guaranteed by
Lloyds Bank pursuant to a Facilities Agreement, dated April 3, 1996, which
provides for a L15,000,000 secured guarantee and term-loan facility and a
L2,000,000 cash-backed guarantee facility. In connection with these
transactions, Innovex PLC also entered into a L3,000,000 overdraft facility,
dated April 3, 1996, with Lloyds Bank.
31
<PAGE> 38
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Prior to the April Reorganization, the outstanding share capital of Innovex
PLC consisted of 2,000 Ordinary Shares owned by Mr. Haigh and Dr. Knott. Prior
to the April Reorganization, Innovex PLC conducted no business activities, had
no material assets or liabilities, and had no relationship with Innovex Holdings
Limited beyond the common ownership by shareholders of Innovex Holdings Limited.
Prior to the April Reorganization, the share capital of Innovex Holdings
Limited consisted of A Ordinary Shares and B Ordinary Shares. As an intermediate
step to the insertion of the Company as the new holding company, the share
capital of Innovex Holdings Limited was modified by redesignating the B Ordinary
Shares as A Ordinary Shares and issuing new Ordinary Shares, par value $.0001
per share (the "Dollar Shares") to holders of A Ordinary Shares in proportion to
their existing ownership interests. Immediately prior to the performance of the
Exchange Agreement described below, the outstanding share capital of Innovex
Holdings Limited, which consisted entirely of A Ordinary Shares and Dollar
Shares, was owned by the Principal Shareholder (approximately 85%), HSBC,
Lloyds, MSS Nominees Limited, General Accident Executor and Trustee Company
Limited and The Venture Catalysts Limited (collectively, the "Investors")
(approximately 10%) and by various members of management (the "Management
Investors") (approximately 5%).
To enable the Principal Shareholder to realize a portion of its investment
in the Company, the Company entered into an Investment Agreement, dated April 3,
1996 (the "Investment Agreement") between itself, Innovex Holdings Limited, the
Principal Investor and certain of the Management Investors. Pursuant to the
Investment Agreement, Innovex PLC issued 28,533,345 additional preferred shares
and created and issued 11,000,000 7.5% cumulative redeemable preference shares
of 1.0p each ("the preference shares"), ranking senior to the preferred shares,
and L6,900,000 aggregate principal amount of 8.70% loan stock. The loan stock
issued had a nominal value of L10,200,000 and an effective interest rate of
14.85%.
Upon the completion of these transactions, HSBC owned approximately 58% of
the Preferred Shares, 43% of the Preference Shares and 11% of the Loan Stock.
Lloyds owned 12% of the Preferred Shares, 11% of the Preference Shares and 11%
of the Loan Stock. The remaining Preferred Shares, Preference Shares and Loan
Stock were distributed among MSS Nominees Limited, General Accident Executor and
Trustee Company Limited and The Venture Catalysts Limited. The Ordinary Shares
of the Company continued to be owned entirely by the Principal Shareholder
(approximately 94%) and the Management Investors (approximately 6%).
The preferred shares rank for a cumulative participating net dividend in
respect of the year ending March 31, 2000 and subsequent years. The amount of
the dividend will be equal to a percentage of profit after tax, where the
percentage equals one third of the number of preferred shares outstanding during
the relevant year as a percent of the total number of ordinary shares and
preferred shares outstanding during such years. The preference shares are
redeemable by March 31, 2004.
32
<PAGE> 39
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
The share capital of Innovex PLC following the reorganization is as
follows:
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
AUTHORIZED
250,000,000 ordinary shares of 0.1p each.......................... 250
11,000,000 cumulative redeemable preference shares of 1.0p each... 110
-----
360
====
ALLOTTED, CALLED UP AND FULLY PAID
72,633,305 ordinary shares of 0.1p each........................... 72
42,819,065 cumulative participating preferred ordinary shares of
0.1p each....................................................... 43
-----
115
11,000,000 cumulative redeemable preference shares of 1.0p each... 110
-----
225
====
</TABLE>
The options granted under the rules of the executive share option scheme
were not exercisable as a result of the group reorganization.
Amounts drawn under the L15,000,000 bank guarantee and loan facility will
bear interest at a variable rate of Libor plus 1.625%. The loan facility will be
drawn down on or about October 3, 1996.
The loan stock and loan facility will be payable as follows:
<TABLE>
<CAPTION>
BANK GUARANTEE/
LOAN STOCK LOAN FACILITY
---------- ---------------
<S> <C> <C>
L'000 L'000
March 31, 1997............................................ -- 1,500
March 31, 1998............................................ -- 2,000
March 31, 1999............................................ -- 2,000
March 31, 2000............................................ 2,325 2,000
March 31, 2001............................................ 2,475 2,500
March 31, 2002 and thereafter............................. 5,400 5,000
---------- -------
10,200 15,000
======== ============
</TABLE>
The Company has effectively converted a proportion of the loan facility
debt from a variable interest rate to a fixed interest rate through the use of
interest rate swaps. The following table summarizes the interest rate swaps
entered into by the Company in April 1996:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT RECEIVE RATE PAY RATE LENGTH OF CONTRACT
- ------------------------------ ---------------- -------- ---------------------------------
<S> <C> <C> <C>
L15,000,000................... LIBOR plus 1.63% 9.23% October 7, 1996 to March 26, 1997
L10,000,000................... LIBOR plus 1.63% 9.23% March 27, 1997 to March 30, 1998
L5,000,000.................... LIBOR plus 1.63% 9.23% March 31, 1998 to March 31, 2000
</TABLE>
Interest rate swap agreements that are designated as a hedge of a debt
obligation are accounted for on an accruals basis. That is, the interest payable
and interest receivable under the agreements are accrued and recorded as an
adjustment to the interest expense of the designated liability.
Amounts due from or payable to the counterparties of interest rate swaps
are recorded on an accruals basis at each reporting date based on amounts
computed by reference to the respective agreements.
33
<PAGE> 40
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
The special pension obligation arose in conjunction with the April
Reorganization and was on account of services already rendered at March 31,
1996. Its disbursement was probable and accruable under U.K. and U.S. GAAP at
that date.
The composition of non-recurring costs related to the April Reorganization
is as follows:
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
Fees in respect of issue of preference shares and vendor loan notes........ 400
Legal, professional and consultancy fees................................... 1,128
-----
1,528
=====
</TABLE>
In August, the Company's share capital was consolidated at the ratio of 50
then existing ordinary shares, nominal value 0.1 pence per ordinary share, for
each new ordinary share, nominal value 5 pence per ordinary share. To the extent
the number of ordinary shares held by any shareholder was not divisible by 50,
new ordinary shares were issued to such shareholder to make the number of
ordinary shares sold by such shareholder divisible by 50. Immediately following
this consolidation of its ordinary share capital, the Company made a bonus issue
of 49 new ordinary shares for each existing ordinary share.
34
<PAGE> 41
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
The unaudited proforma consolidated balance sheet of Innovex PLC following
the acquisition on April 3, 1996, based on the audited balance sheet of Innovex
Holdings Limited at March 31, 1996, is as follows:
INNOVEX PLC
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET AT APRIL 3, 1996
<TABLE>
<CAPTION>
L'000
-------
<S> <C>
ASSETS
CURRENT ASSETS
Cash at bank and in hand.......................................................... 12,049
Receivables....................................................................... 27,088
Inventories....................................................................... 302
-------
TOTAL CURRENT ASSETS.............................................................. 39,439
FIXED ASSETS
Intangible assets................................................................. 10,240
Property, plant and equipment..................................................... 18,104
-------
TOTAL ASSETS...................................................................... 67,783
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Total current liabilities......................................................... 43,666
Long term obligations............................................................. 28,926
Provisions for liabilities and charges............................................ 2,780
-------
75,372
SHAREHOLDERS' EQUITY
Ordinary shares................................................................... 115
Preference shares 110
Premiums in excess of par value................................................... 10,880
Accumulated (deficit)............................................................. (18,694)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................ 67,783
=======
</TABLE>
NOTE 24 LEASES
Details of commitments under capital leases are given in Note 15. Operating
lease rentals for property, plant and equipment were L1,654,000, L1,421,000 and
L1,795,000 for the years ended March 31, 1994, 1995, and 1996, respectively.
35
<PAGE> 42
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Minimum future rental commitments under non-cancellable operating leases of
property, plant and equipment at March 31, 1996 were as follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
1997............................................................. 2,284
1998............................................................. 1,161
1999............................................................. 585
2000............................................................. 369
2001............................................................. 278
Thereafter....................................................... 44
-----
4,721
=====
</TABLE>
NOTE 25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A substantial portion of the Group's sales are derived from customers
located outside the United Kingdom. In addition, a portion of the Group's
shareholders' equity is represented by the net assets of foreign subsidiaries.
The Group's operations are conducted in several countries outside of the United
Kingdom. Because of the high proportion of international activity, the Group's
income is exposed to exchange rate fluctuations. Risks of two kinds arise as a
result: a transaction risk (the risk that currency fluctuations will have a
negative effect on the value of the Group's commercial cash flows in various
currencies), and a translation risk (the risk of adverse currency fluctuations
in the translation of foreign operations and foreign assets and liabilities into
pound sterling for the Group's combined financial statements).
NOTIONAL AMOUNTS AND CREDIT EXPOSURE
The notional amounts of off-balance sheet financial instruments presented
in this Note and Note 23 represent face or contractual amounts and thus are not
a measure of the exposure of the Group through its use of such financial
instruments. The actual amounts exchanged are calculated on the basis of the
notional amounts and the other terms of the financial instruments which relate
to interest rates or exchange rates.
The Group is exposed to credit-related losses in the event that
counterparties to the off-balance sheet financial instruments do not perform
according to the terms of the contract. In the opinion of management, the
counterparties to the financial instruments are creditworthy parties and the
Group does not expect any significant loss to result from non-performance.
FOREIGN CURRENCY RISK MANAGEMENT
At March 31, 1995 and 1996, net assets of foreign subsidiaries denominated
in currencies other than pounds sterling amounted to L1,256,000 and L1,032,000,
respectively. The Group does not use financial instruments to hedge the
translation risk arising from the net assets of foreign subsidiaries.
In order to reduce the foreign currency transaction risk of adverse effects
on the net payment flow in foreign currencies, firmly anticipated future cash
flows are hedged with forward exchange contracts or currency options.
The Group generally hedges its net cash flows of firm sales contracts over
a period not exceeding the anticipated duration of such contracts. Gains and
losses on forward exchange contracts designed to protect such future
transactions are deferred and are reported as adjustments to net sales and
purchases in the Combined Income Statements in the period intended to be covered
by the hedged transactions.
36
<PAGE> 43
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
During fiscal 1996, the Group entered into an agreement, at a cost of
L41,000, with a financial institution whereby the Group has the right to
exchange up to a maximum of 3,300,000 Deutsche-marks (DM) into pounds sterling
at an exchange rate of DM 2.22 = L1.00. The contracts expire in June 1996. At
March 31, 1996, the Group had exchanged approximately DM 2,000,000 under this
contract with DM 1,300,000 available for exchange under the contract.
CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at each
reporting date if counterparties to contracts failed to perform as agreed. The
Group has a limited credit risk exposure on its off-balance sheet financial
instruments. The Group does not have a significant exposure to any individual
customer or counterparty.
NOTE 26 FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires the disclosure of estimated fair values for all financial instruments,
both on-and off-balance sheet, for which it is practicable to estimate fair
value. The Group has used a variety of methods and assumptions which were based
on market conditions and risks existing at the time to estimate the fair value
of the Group's financial instruments at March 31, 1995 and 1996. For certain
instruments, including cash and cash equivalents, accounts payable and accruals
and short-term debt, it was assumed that the carrying amount approximated fair
value due to the short maturity of those instruments. Techniques, such as
estimated discounted cash flows or replacement cost have been used to determine
fair value for the remaining financial instruments. The estimated fair value of
the Group's off-balance sheet financial instruments is primarily based on
settlement values. These values represent the estimated amount that would be
received or paid to replace the contract taking into consideration the current
credit worthiness of the counterparties and current foreign currency exchange
rates.
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996
----------------- ------------------
L000 L000 L000 L000
-------- ----- -------- ------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- ------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................. 3,565 3,565 3,041 3,041
Trade accounts receivable................................. 8,063 8,063 12,819 12,819
Unbilled accounts receivable.............................. 3,663 3,663 8,791 8,791
LIABILITIES:
Short term notes payable to banks......................... 1,099 1,099 -- --
Current portion of loan stock............................. -- -- 2,300 2,300
Accounts payable.......................................... 3,684 3,684 4,375 4,375
Advance payments received................................. 4,504 4,504 15,406 15,406
Long term portion of loan stock........................... 6,300 6,501 4,600 4,600
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Currency option........................................... -- -- -- 9
</TABLE>
37
<PAGE> 44
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 27 SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP
The Group's combined financial statements are prepared in accordance with
U.K. GAAP which differ in certain significant respects from U.S. GAAP. The
following is a summary of the adjustments to combined net income and
shareholders' equity that would have been required if U.S. GAAP had been applied
instead of U.K. GAAP in the preparation of the combined financial statements.
<TABLE>
<CAPTION>
NOTES 1994 1995 1996
----- ------ ------ ------
<S> <C> <C> <C> <C>
L'000 L'000 L'000
NET INCOME PER U.K. GAAP 213 1,329 1,057
Adjustments to reconcile to U.S. GAAP
Amortization of goodwill.............................. (a) 468 399 298
Pensions.............................................. (b) (15) (17) 73
Deferred taxation..................................... (c) 53 (396) (815)
Vacation pay accrual.................................. (d) (190) (142) (423)
Finance costs of loan stock........................... (e) (72) (89) 224
Other items........................................... (11) 11 --
Income tax effect of U.S. GAAP adjustments............ (f) 122 111 117
------ ------ ------
Net income per U.S. GAAP................................ 568 1,206 531
====== ====== ======
SHAREHOLDERS' EQUITY PER U.K. GAAP 3,185 4,275 (7)
Adjustments to reconcile to U.S. GAAP
Deferred consideration................................ (a) 4,613 2,961 --
Goodwill.............................................. (a) (6,581) (4,310) (1,143)
Pensions.............................................. (b) 218 218 292
Deferred taxation..................................... (c) 2,149 1,980 1,181
Vacation pay accrual.................................. (d) (381) (551) (968)
Loan stock............................................ (e) (72) (161) 63
Income tax effects of U.S. GAAP adjustments........... (f) 183 294 411
------ ------ ------
SHAREHOLDERS' EQUITY PER U.S. GAAP...................... 3,314 4,706 (171)
====== ====== ======
</TABLE>
Under U.S. GAAP, cumulative exchange adjustments charged against, or
credited to, the retained surplus/(accumulated deficit) are separately
identified. This does not result in any difference between total shareholders'
equity under U.K. GAAP and U.S. GAAP.
Those differences which have a material effect on combined net income and
shareholders' equity are as follows:
(A) DEFERRED CONSIDERATION PAYABLE ON ACQUISITIONS:
Under U.K. GAAP, purchase consideration which is contingent on future
events is recognized at the time of the acquisition on a best estimate basis.
Revised estimates would be made in subsequent years, with the cost of
acquisition and goodwill being adjusted, until the ultimate outcome is known.
Under U.S. GAAP, contingent consideration is recorded when the contingency
is resolved and the consideration becomes payable or the outcome of the
contingency is determinable beyond a reasonable doubt. This may result in later
recognition than under U.K. GAAP, both of the contingent consideration and the
associated goodwill.
38
<PAGE> 45
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Where goodwill and deferred consideration are denominated in a foreign
currency, later recognition of these items under U.S. GAAP may result in changes
to cumulative foreign exchange adjustments.
(B) PENSIONS:
The Group operates a defined contribution pension plan for employees and
executive directors in the U.K. The assets of the plan are held separately from
those of the group in an independently administered fund. The amounts charged
against income represent the contributions payable to the plan in respect of the
year.
The Group operates an unfunded defined benefit plan for employees in
Germany. Full provision is made in the balance sheet for the pension commitments
and the charge in the income statement reflects the obligations. As is customary
in Germany, the assets of the plan are not held separately from the companies'
assets: cash contributions are not paid to an external fund and the benefits are
paid directly by the companies. Appropriate insurance policies have been
arranged for accident and death benefits and to meet the pension obligations in
the event that the companies are unable to do so.
Under U.S. GAAP, determination of pension expense for defined benefit
schemes is made in accordance with SFAS No. 87 "Employers' Accounting for
Pensions". SFAS No. 87 is more prescriptive than U.K. GAAP in that it requires
the use of a specific actuarial method (the projected unit credit method).
(C) DEFERRED TAXATION:
Under U.K. GAAP the charge for taxation is based on the income for the year
and takes into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes. Provision
is made for deferred taxation only to the extent that there is reasonable
evidence that such deferred taxation will be payable or recoverable in the
foreseeable future.
Under U.S. GAAP, deferred taxes are required to be recorded on differences
between the book basis and the tax basis for all assets and liabilities.
Deferred tax liabilities are recognized regardless of the timing of reversal of
such amounts and deferred tax assets are reduced by a valuation allowance to the
amount that is "more likely than not" to be realised.
(D) VACATION PAY ACCRUAL:
Under U.K. GAAP, there is no requirement to accrue a liability for
employees' compensation for future paid absences.
Under U.S. GAAP, an employer shall accrue a liability for employees'
compensation for future absences if certain conditions are met.
(E) LOAN STOCK PAYABLE:
Under U.K. GAAP, the finance and direct issue costs in respect of loan
stock payable are allocated using a constant interest rate over the term of the
loan stock. Under U.K. GAAP, the term of the loan stock is determined to be the
period up to the earliest, commercially practical redemption date.
Under U.S. GAAP, the term of the loan stock is determined in accordance
with the borrowers plans, intent and ability to service the debt. Therefore, the
annual finance costs reallocated to the loan stock may be different.
39
<PAGE> 46
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(F) CLASSIFICATION DIFFERENCES:
Current assets:
Current assets under U.K. GAAP include a deferred tax asset of L1,000,000
and L1,542,000 in the years ended March 31, 1995 and 1996, respectively which
under U.S. GAAP would be reclassified as a non-current asset.
Loan stock:
Under U.K. GAAP, unamortized issue costs are deducted from the carrying
value of the loan stock whereas under U.S. GAAP, unamortized issue costs are
shown separately as deferred charges in the balance sheet.
Borrowings:
Borrowings under U.K. GAAP are classified according to the maturity of the
financial instrument, while under U.S. GAAP, certain borrowings would be
classified according to the maturity of the available back-up facility. Included
within current liabilities is an amount of L2,300,000 in respect of loan stock
which under U.S. GAAP would be reclassified as non-current to reflect the
replacement borrowing.
The Company had the ability and the intent at the balance sheet date to
redeem the loan stock and replace it with long-term loan stock, the terms of
which are outlined in Note 23.
Provisions for liabilities and charges:
Provisions for liabilities and charges under U.K. GAAP include amounts due
within one year of L390,000 (1995: L184,000) which would be reclassified to
current liabilities under U.S. GAAP.
Property, plant and equipment:
Property, plant and equipment under U.K. GAAP include an amount of L521,000
(1995: L303,000) in respect of the net book value of capitalized software which
under U.S. GAAP would be reclassified as an intangible asset.
Income tax
Income tax has been provided on the U.S. GAAP adjustments made in respect
of vacation pay and loan stock at a rate of 33% in respect of the U.K. companies
and 53% in respect of the German companies.
NOTE 28 ADDITIONAL U.S. GAAP DISCLOSURES
(A) CASH FLOWS
Under U.K. GAAP, the Group complies with Financial Reporting Standard 1 --
"Cash Flow Statements" (FRS 1). Its objective and principles are similar to
those set out in SFAS No. 95 "Statement of Cash Flows". The principal difference
between the standards is in respect of classification. Under FRS 1, the Group
presents its cash flows for (a) operating activities; (b) returns on investments
and servicing of finance; (c) taxation; (d) investing activities; and (e)
financing activities. SFAS No. 95 requires only three categories of cash flow
activity (a) operating; (b) investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS 1 would, with the exception of dividends paid, be included
as operating activities under SFAS No. 95; dividend
40
<PAGE> 47
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
payments would be included as a financing activity under SFAS No. 95. In
addition, under FRS 1, cash and cash equivalents include short term borrowings
with original maturities of less than 90 days. SFAS No. 95 requires movements on
such short term borrowings to be included in financing activities.
A summarized combined cash flow under U.S. GAAP is as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
Cash inflow from operating activities...................................... 4,103 15,150
Cash (outflow) from investing activities................................... (2,118) (4,554)
Cash (outflow) from financing activities................................... (1,898) (7,555)
------ ------
Increase in cash and cash equivalents...................................... 87 3,041
Exchange adjustments....................................................... 63 136
Cash and cash equivalents at beginning of the year......................... 3,489 3,639
------ ------
Cash and cash equivalents at end of the year............................... 3,639 6,816
====== ======
</TABLE>
(B) POST-EMPLOYMENT BENEFITS
The total of the Group's defined benefit pension costs calculated in
accordance with SFAS No. 87 was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
L'000 L'000 L'000
Service cost -- benefits earned during the year......................... 60 121 199
Interest costs on projected benefit obligations......................... 62 78 73
Net amortization........................................................ -- -- (11)
----- ----- -----
122 199 261
==== ==== ====
</TABLE>
The following table sets forth the status of the Group's unfunded defined
benefit plan in accordance with SFAS No. 87:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
L'000 L'000
Actuarial present value of vested benefits................................... 746 998
Actuarial present value of non-vested benefits............................... 142 247
----- -----
Accumulated benefit obligation............................................... 888 1,245
Effect of projected future compensation increases............................ 120 181
----- -----
Projected benefit obligation................................................. 1,008 1,426
Unrecognized net gain........................................................ 332 158
----- -----
Accrued pension cost......................................................... 1,340 1,584
===== =====
</TABLE>
The principal assumptions used in accounting for pensions under SFAS No. 87
were:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Discount rate.............................................................. 7% 7.5%
Salary increases........................................................... 5% 5%
</TABLE>
The measurement date used to calculate the status of the plan at the year
end was March 31.
41
<PAGE> 48
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
(C) INCOME TAXES
The amounts included for deferred taxation on a U.S. GAAP basis are as
follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
L'000 L'000
DEFERRED TAX LIABILITIES:
Property, plant and equipment.............................................. 337 478
Interest costs............................................................. 123 113
Other timing differences................................................... 230 408
------ ------
Total...................................................................... 690 999
------ ------
DEFERRED TAX ASSETS:
Operating losses carried forward........................................... 4,176 3,044
Post-employment provisions................................................. 801 1,439
Other timing differences................................................... 485 796
------ ------
5,462 5,279
Less: valuation allowance.................................................. (1,932) (1,820)
------ ------
Total...................................................................... 3,530 3,459
------ ------
Net deferred tax assets.................................................... 2,840 2,460
====== ======
</TABLE>
The deferred tax asset is higher under U.S. GAAP than under U.K. GAAP due
to:
(1) U.K. GAAP being more restrictive of the recognition of tax loss carry
forwards as a deferred tax asset
(2) the deferred tax effect of the U.S. GAAP adjustments in respect of
vacation pay
(3) the recognition of a deferred tax asset, for U.S. GAAP purposes, on
the pension provision. No deferred tax asset is recorded under U.K. GAAP
because it is not expected that an asset will be realised in the
foreseeable future.
(D) ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In March 1995, the FASB issued Statement of Financial Accounting Standard
No. 121, "Accounting for the Impairment of Long-Lived Assets and for LongLived
Assets to be disposed of" ("SFAS No. 121"). This statement establishes
accounting standards for the impairment of long-lived assets, and for long-lived
assets and certain intangibles to be disposed of. The Group is required to first
comply with the requirements of SFAS No. 121 in its 1997 financial statements.
The provisions of SFAS 121 are consistent in all material respects with the
Company's current practice.
Also during 1995, the FASB issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" which is a standard
that provides an election with respect to accounting for employee share options
and also requires certain additional pro forma disclosures. The Company's
intention is to continue to account for stock based compensation arrangements in
accordance with APB Opinion No. 25 as Statement of Financial Accounting Standard
No. 123, is not expected to have a significant impact on the Company.
42
<PAGE> 49
COMBINED INNOVEX COMPANIES
(PREDECESSOR ENTITIES TO INNOVEX PLC)
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 29 COMPANIES ACT 1985
The Combined Financial Statements do not constitute 'statutory accounts'
within the meaning of the Companies Act 1985 of Great Britain for any of the
three years ended March 31, 1996. Statutory accounts for 1994 and 1995 have been
filed with the United Kingdom's Registrar of Companies; the statutory accounts
for 1996 will be filed following the Company's Annual General Meeting. The
auditors have reported on these accounts. Their reports were unqualified and did
not contain statements under Section 237 (2) or (3) of that Act.
The statutory accounts include certain information related to employee
costs and auditors' remuneration which are not deemed material disclosures in
these financial statements.
43
<PAGE> 50
Item 7(b)
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, 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 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 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.
1
<PAGE> 51
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.
2
<PAGE> 52
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.
3
<PAGE> 53
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.
4
<PAGE> 54
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.
5
<PAGE> 55
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.
6
<PAGE> 56
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.
7
<PAGE> 57
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.
8
<PAGE> 58
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 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.
9
<PAGE> 59
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 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.
10
<PAGE> 60
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.
11
<PAGE> 61
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.
12
<PAGE> 62
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.
13
<PAGE> 63
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.
14
<PAGE> 64
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.
15
<PAGE> 65
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.
16
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUINTILES TRANSNATIONAL CORP.
By: /s/ Rachel R. Selisker
---------------------------
Rachel R. Selisker
Chief Financial Officer
Dated: October 11, 1996
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Sequentially Numbered Page
- ----------- ---------------------- --------------------------
<S> <C> <C>
2 Share Exchange Agreement dated as of
October 4, 1996 among Innovex Limited,
Quintiles Transnational Corp. and the
shareholders of Innovex Limited
23 Consent of KPMG
</TABLE>
<PAGE> 1
EXHIBIT 2.0
================================================================================
SHARE EXCHANGE AGREEMENT
by and among
QUINTILES TRANSNATIONAL CORP.,
INNOVEX LIMITED
and
THE SHAREHOLDERS OF INNOVEX LIMITED
Dated as of October 4, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Exchange of Shares and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3. Issuance Into Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5. Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6. Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND INNOVEX . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1. Ownership of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4. Power and Authority of Innovex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5. Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6. Financial Statements; No Material Changes; Budget and Projections . . . . . . . . . . . . . . . . . 7
2.7. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.8. Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.9. Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.10. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.13. No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.16. Liabilities; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.17. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.18. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.19. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.20. Compliance with Laws, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.21. Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.22. Pension Schemes and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.23. Environmental Matters and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.24. Interests in Clients, Suppliers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.25. No Changes Since Innovex Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.26. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.27. Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.28. Absence of Certain Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.29. FDA Debarment and Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF QUINTILES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1. Existence of Quintiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.3. Power and Authority of Quintiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4. SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.5. Financial Statements; No Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.6. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.7. Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.8. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.9. No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.13. Compliance with Laws, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.14. U.S. ERISA Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.15. No Changes Since June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.16. Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.17. Opinions of Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.18. Absence of Certain Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IV
CERTAIN PRE-CLOSING AND RELATED COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.1. Conduct of Business of Innovex and Innovex Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 32
4.2. Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4. Conduct of Business of Quintiles and Quintiles Subsidiaries . . . . . . . . . . . . . . . . . . . . 34
4.5. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.6. Pooling Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.7. Redemption of Loan Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.8. Directors' and Officers' Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . 36
4.9. Tax Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.10. Innovex Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.11. Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.12. Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE V
CONDITIONS TO QUINTILES' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.1. Opinion of the Shareholders' and Innovex's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.2. Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3. Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.4. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.5. Opinions of Accountants (Pooling of Interests) . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6. Opinions of Accountants (Tax Opinion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.7. Governmental and Other Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.8. Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.9. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.10. Termination of Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.11. Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.12. Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.13. Conversion to Private Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.14. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1. Opinion of Quintiles' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2. Truth of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3. Governmental and Other Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5. Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.6. Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.7. Tax Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9. Opinions of Accountants (Pooling of Interests) . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.10. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VII
CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.1. Non-Interference; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.2. Placement and Stock Transfer Restrictions and Related Matters . . . . . . . . . . . . . . . . . . . 44
7.3. Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.4. Management Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.5. No Acquisition of Quintiles Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.6. Cooperation with Securities Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.7. Nasdaq National Market Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.1. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.2. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.1. Definitions of Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.2. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.3. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.4. Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.5. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.6. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.7. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.9. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.12. Construction of Certain Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.13. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.15. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.16. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
EXHIBITS
A Shareholder and Exchange Information
B Form of Escrow Agreement
C Form of Registration Rights Agreement
SCHEDULES
2.1 Ownership of Stock
2.3 Outstanding Stock Acquisition Rights
2.5 Subsidiaries and Investments (Innovex)
2.6 Material Intercompany Transactions
2.7 Books and Records (Innovex)
2.8 Title to Properties; Encumbrances (Innovex)
2.10 Real Property (Innovex)
2.11 Leases
2.12 Contracts
2.13 No Conflicts (Shareholders and Innovex)
2.14 Litigation (Shareholders and Innovex)
2.15 Taxes (Innovex)
2.16 Liabilities; Indebtedness
2.17 Insurance (Innovex)
2.18 Intellectual Property
2.19 Licenses
2.20 Compliance with Laws, etc. (Innovex)
2.21 Employee Relations
2.22 Pension Schemes and Benefit Plans
2.23 Environmental Matters and Regulations
2.24 Interests in Clients, Suppliers, etc.
2.25 Changes Since Innovex Balance Sheet Date
2.26 Disclosure
2.27 Broker's or Finder's Fees (Shareholders and Innovex)
3.2 Capitalization
3.7 Title to Properties; Encumbrances (Quintiles)
3.8 Real Property (Quintiles)
3.9 No Conflicts (Quintiles)
3.10 Litigation (Quintiles)
3.11 Taxes (Quintiles)
3.12 Insurance (Quintiles)
3.14 Benefit Plans (Quintiles)
3.15 Changes Since June 30, 1996 (Quintiles)
3.16 Broker's or Finder's Fees (Quintiles)
5.10 Contracts to be Terminated
7.2(a) Certain Other Agreements
</TABLE>
iv
<PAGE> 6
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is made and dated as
of October 4, 1996 by and among QUINTILES TRANSNATIONAL CORP., a North Carolina
corporation ("Quintiles"), INNOVEX LIMITED, a company organized under the laws
of England and Wales with limited liability and having the registered number
3127220 ("Innovex"), and the shareholders of Innovex listed in Exhibit A
attached hereto (each a "Shareholder," and collectively the "Shareholders").
Capitalized terms used in this Agreement and not otherwise defined are defined
in Section 9.1 below.
WITNESSETH:
WHEREAS, the parties hereto desire for Quintiles and Innovex to engage
in, and the Boards of Directors of Quintiles and Innovex have approved, the
exchange of all of Innovex's issued and outstanding ordinary and preferred
ordinary share capital for shares of Common Stock of Quintiles (the "Exchange")
upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Shareholders are the owners of all of the issued and
outstanding share capital of Innovex;
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, Quintiles, Innovex and
the Shareholders hereby agree as follows:
ARTICLE I
THE EXCHANGE
1.1. Exchange of Shares and Related Transactions. Subject to the
terms and conditions set forth in this Agreement, at the Closing (as defined in
Section 1.4 below):
(a) Exchange of Innovex Shares. Each Shareholder shall
sell, assign, transfer and deliver to Quintiles (or to an Affiliate of
Quintiles if so directed by Quintiles) the number of Ordinary Shares (if any)
and Preferred Ordinary Shares (if any) (each as defined in Section 2.3 below)
owned by such Shareholder, as set forth opposite such Shareholder's name on
Exhibit A attached hereto (all such Ordinary Shares and Preferred Ordinary
Shares of Innovex, collectively, the "Innovex Shares"), free and clear of all
Encumbrances. In exchange for the Innovex Shares, Quintiles shall issue and
deliver to each Shareholder the number of shares (less any fractional share,
which shall be eliminated) of Common Stock of Quintiles determined by
multiplying (x) the number of Innovex Shares set forth opposite such
Shareholder's name on Exhibit A hereto as such
<PAGE> 7
Shareholder's total Innovex Shares times (y) the Exchange Ratio determined
according to Section 1.2 below (all such shares of Common Stock of Quintiles so
issued, collectively, the "Quintiles Shares"). Each certificate representing
Innovex Shares shall be accompanied by a stock transfer duly executed by the
Shareholder transferring the same in favor of Quintiles or its designee.
Notwithstanding the foregoing, certificates representing Quintiles Shares to be
issued to Regulation S Participants (as defined in Section 7.2(d) below and
reflected in Exhibit A) shall be delivered on the schedule and in the manner
specified in Section 7.2 below.
(b) Substitution of Quintiles Options for Innovex
Options. In respect of each outstanding option to purchase Ordinary Shares of
Innovex (as set forth in Schedule 2.3 as "Outstanding Stock Acquisition
Rights"; each an "Innovex Option"), Quintiles shall cause to be granted to the
holder thereof a substitute corresponding option to purchase shares of Common
Stock of Quintiles (each a "Quintiles Option") which shall: (A) be granted
pursuant to a Quintiles stock option plan with equivalent option terms to the
terms of the Innovex Limited 1996 Unapproved Executive Share Option Scheme; (B)
have term and vesting provisions equivalent to those in such holder's Innovex
Option; (C) be exercisable to purchase the number of shares of Quintiles'
Common Stock (less any fractional share, which shall be eliminated) determined
by multiplying the number of Ordinary Shares of Innovex then purchasable under
such holder's Innovex Option by the Exchange Ratio (as determined in accordance
with Section 1.2 below); and (D) be exercisable at an exercise price per share
of Quintiles' Common Stock determined by dividing the exercise price per
Ordinary Share of Innovex under such holder's Innovex Option by the Exchange
Ratio. Innovex acknowledges and agrees that the schemes or plans under which
the Innovex Options have been issued provide for the substitution of all
Innovex Options for Quintiles Options as contemplated by this Section 1.1(b)
and that no agreement or any other action of the holders of the Innovex Options
is necessary to effectuate such substitution, and Innovex agrees to take all
actions necessary to cause such substitution. Upon such substitution of
Innovex Options for Quintiles Options, the Innovex Options shall be deemed
cancelled.
(c) Purchase of Preference Shares. Each Shareholder
shall sell, assign, transfer and deliver to Quintiles the number of Preference
Shares (if any) (as defined in Section 2.3 below) owned by such Shareholder, as
set forth opposite such Shareholder's name on Exhibit A attached hereto, free
and clear of all Encumbrances. In exchange for the Preference Shares,
Quintiles shall pay each Shareholder an amount determined by multiplying (x)
the number of Preference Shares set forth opposite such Shareholder's name on
Exhibit A hereto times (y) L.1.00, plus accrued and unpaid dividends to the
Closing Date. Each certificate representing Preference Shares shall be
accompanied by a stock transfer duly executed by the Shareholder transferring
the same in favor of Quintiles or its designee.
(d) Payment of Certain Liabilities. Quintiles shall, or
shall cause one of its wholly-owned Subsidiaries to, advance to Innovex, and
Innovex shall accept from Quintiles or such
2
<PAGE> 8
Subsidiary, a sum (the "Cash Payment") sufficient to meet the payments
described in clauses (i) and (ii) of this Section 1.1(d), but in any event not
to exceed L.30 million assuming a Closing Date on or before December 31, 1996.
Contemporaneously with the advance of the Cash Payment, and through application
thereof, Innovex shall:
(i) satisfy in full and retire all of Innovex's
issued and outstanding loan stock at the redemption price thereof plus interest
to the date of redemption less any applicable discount, in accordance with the
terms thereof, such that none shall remain issued or outstanding thereafter;
and
(ii) satisfy in full and retire all of Innovex's
and the Innovex Subsidiaries' outstanding liability under, and terminate,
Innovex's credit facilities with Lloyds Bank, PLC (including payment of all
accrued and unpaid interest and costs associated with the termination of the
related interest rate swap).
(e) Waiver. On the Closing Date (as defined below), each
of the Shareholders shall be deemed to have waived, without further action, all
of such Shareholders' pre-emptive or similar rights, if any, with respect to
any shares or other securities of Innovex or any Subsidiary.
1.2. Exchange Ratio.
(a) Determination. The Exchange Ratio shall be the
number (rounded to five decimal places) determined by dividing the Total Number
of Quintiles Shares by the Innovex Base Capitalization (each as defined below).
In the event that between the date of this Agreement and the Closing Quintiles
shall change the number of shares of Common Stock of Quintiles that are issued
and outstanding as a result of any stock split, stock dividend or similar
recapitalization, the Exchange Ratio shall be proportionately adjusted
correspondingly.
(b) Definitions. For purposes of calculating the
Exchange Ratio, the following capitalized terms shall have the respective
meanings set forth below:
(i) "Innovex Base Capitalization" shall mean the
sum of the number of ordinary shares and preferred ordinary shares of Innovex
issued and outstanding as of the Closing Date and the number of ordinary shares
and preferred ordinary shares issuable pursuant to Innovex Options or any other
Stock Acquisition Rights outstanding as of the Closing Date.
(ii) "Total Number of Quintiles Shares" shall mean
ten million (10,000,000).
3
<PAGE> 9
1.3. Issuance Into Escrow. Notwithstanding any provision in this
Agreement to the contrary, upon delivery of the Quintiles Shares to the
Shareholders pursuant to Section 1.1(a), two and one-half (2 1/2%) percent of
the Total Number of Quintiles Shares (the "Escrow Fund") shall be delivered
immediately to the Escrow Agent (as defined in the Escrow Agreement referred to
below), which shall be delivered on a pro rata basis by the Shareholders, to be
held and distributed by the Escrow Agent pursuant to the terms of this
Agreement and the Escrow Agreement substantially in the form attached as
Exhibit B hereto (the "Escrow Agreement"). All such Quintiles Shares shall be
issued in the name of the Escrow Agent, as escrow agent under the Escrow
Agreement.
1.4. Closing. Consummation of the Exchange and the other
transactions contemplated by this Agreement and the other Transaction Documents
(as defined in Section 1.6 below) (the "Closing") shall take place at a
location or locations in London mutually agreed by Quintiles and Innovex (a) as
soon as practicable after the last of the conditions set forth in Articles V
and VI hereof shall be fulfilled or waived in accordance with this Agreement,
but in no event later than the fifth (5th) business day thereafter, or (b) at
such other time and date as Quintiles and Innovex shall designate by written
instrument (the "Closing Date").
1.5. Accounting and Tax Treatment. Quintiles, Innovex and the
Shareholders intend and desire for the transactions contemplated by this
Agreement to qualify for "pooling of interests" treatment for accounting
purposes, as a tax-free rollover pursuant to United Kingdom tax law and as a
taxable acquisition of the Innovex Shares by Quintiles for purposes of United
States Federal income tax law.
1.6. Transaction Documents. As used in this Agreement, the term
"Transaction Documents" shall mean, collectively, this Agreement, the Escrow
Agreement, the Employment Agreements (as defined in Section 5.9 below), the
Registration Rights Agreement (as defined in Section 5.12 below) and all
agreements, instruments, certificates and other documents executed or delivered
in accordance with the terms of this Agreement or any other Transaction
Document.
4
<PAGE> 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND INNOVEX
Each of the Shareholders designated on Exhibit A as "Management
Shareholders" and Innovex represent and warrant to Quintiles, jointly and
severally (except as to Section 2.1(a), as to which the Shareholders'
(including the Management Shareholders) represent and warrant severally and not
jointly), and agree as follows:
2.1. Ownership of Stock.
(a) Each Shareholder is the legal and registered owner of
all right, title and interest in and to the number of Innovex Shares and
Preference Shares listed opposite such Shareholder's name in Exhibit A hereto
(and no more), free and clear of all Encumbrances except as described in
Schedule 2.1. Each Shareholder has the full legal right, power and authority
to enter into and deliver this Agreement and the other Transaction Documents to
which such Shareholder is a party, perform such Shareholder's obligations
hereunder and thereunder and consummate the transactions contemplated hereby
and thereby. This Agreement and the other Transaction Documents to which each
Shareholder is a party constitute the valid and legally binding obligations of
such Shareholder, enforceable against such Shareholder in accordance with their
respective terms. Each Shareholder is a resident of the jurisdiction set forth
adjacent to such Shareholder's name in Exhibit A.
(b) The Innovex Shares and Preference Shares transferred
to Quintiles pursuant to the provisions of this Agreement will constitute all
of the issued and outstanding share capital of Innovex, free and clear of all
Encumbrances, and upon completion of the Exchange and payment of the amount
referred to in Section 1.1(c) the Shareholders shall have no remaining rights
whatsoever therein or pursuant thereto.
2.2. Existence. Innovex is a company duly organized and validly
existing under the Laws of England and Wales. Innovex has the corporate power
and authority to own, lease and operate its property and conduct its business
as now being conducted. Innovex is duly qualified to do business in each
jurisdiction in which the character or location of the properties owned or
leased by Innovex or the nature of the business conducted by Innovex makes such
qualification necessary under applicable Laws, except for such failures to be
so qualified or licensed that individually or in the aggregate would not have a
Material Adverse Effect on Innovex and its Subsidiaries taken as a whole.
2.3. Share Capital. The authorized share capital of Innovex is
L.244,015.29, divided into 11,000,000 cumulative redeemable preference shares
of 1.0p each ("Preference Shares"), all of which have been issued and are
outstanding, 42,819,065 cumulative participating preferred
5
<PAGE> 11
ordinary shares of 0.1p each ("Preferred Ordinary Shares"), all of which have
been issued and are outstanding, and 91,196,225 ordinary shares of 0.1p each
("Ordinary Shares"), of which 72,633,305 have been issued and are outstanding.
Innovex's share capital is held and owned by the Shareholders in the amounts
set forth in Exhibit A attached hereto. Except as set forth in Exhibit A, no
shares of Innovex's share capital are issued or outstanding or owned (as to
any interest) by any Person. All such outstanding share capital has been duly
authorized and validly issued and is fully paid and nonassessable, and none was
issued in violation of any Stock Acquisition Right for securities of Innovex.
Except as shown on Schedule 2.3, there are no outstanding Stock Acquisition
Rights for securities of Innovex, other than as contemplated by this Agreement.
2.4. Power and Authority of Innovex. Innovex has all requisite
power and authority to enter into and deliver this Agreement and the other
Transaction Documents to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. Innovex's execution, delivery and performance of this Agreement
and the other Transaction Documents and Innovex's consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all corporate, director, shareholder and other action required of
Innovex by applicable Law and Innovex's Organizational Documents. This
Agreement and the other Transaction Documents to which Innovex is a party
constitute the valid and legally binding obligations of Innovex, enforceable
against Innovex in accordance with their respective terms.
2.5. Subsidiaries and Investments.
(a) Innovex does not have any Subsidiaries or any equity
or similar interest in any Person except as set forth in Schedule 2.5 attached
hereto.
(b) Each Innovex Subsidiary has been duly organized and
is validly existing under the Laws of the jurisdiction of its organization.
Each Innovex Subsidiary has the corporate power and authority to own, lease and
operate its property and conduct its business as now being conducted. Each
Innovex Subsidiary is duly qualified to do business in each jurisdiction in
which the character or location of the properties owned or leased by such
Innovex Subsidiary or the nature of the business conducted by such Innovex
Subsidiary makes such qualification necessary under applicable Laws, except for
such failures to be so qualified or licensed that would not have individually
or in the aggregate a Material Adverse Effect on Innovex and its Subsidiaries
taken as a whole. All issued and outstanding share capital of the Innovex
Subsidiaries has been duly authorized and validly issued and is fully paid and
non-assessable, and none was issued in violation of any Stock Acquisition Right
for securities of any Innovex Subsidiary. There are no outstanding Stock
Acquisition Rights for any securities of any Innovex Subsidiary. Except as set
forth on
6
<PAGE> 12
Schedule 2.5, no share capital of any Innovex Subsidiary is held by any Person
other than Innovex or is subject to any Encumbrance.
2.6. Financial Statements; No Material Changes; Budget and
Projections.
(a) Innovex Financial Statements.
(i) Innovex has furnished Quintiles with the
combined balance sheets of Innovex and its Subsidiaries as of March
31, 1996 (the "Innovex Balance Sheet", March 31, 1996 being referred
to herein as the "Innovex Balance Sheet Date") and March 31, 1995, and
the related combined income statements, statements of cash flows, and
statements of changes in shareholders' equity for the years then
ended, all audited by KPMG (collectively, the "Innovex Audited
Financial Statements") and designated as delivered pursuant to this
Section. Innovex also has furnished Quintiles with the unaudited
combined balance sheets of Innovex and its Subsidiaries as of June 30,
1996 and the related unaudited combined income statements, statements
of cash flows, and statements of changes in shareholders' equity for
the three months then ended (collectively, the "Innovex Interim
Financial Statements", all designated as delivered pursuant to this
Section). Further, Innovex will provide to Quintiles, within 25 days
after the end of each calendar month prior to the Closing Date (but in
no event later than two (2) business days prior to the Closing Date,
if the Closing Date falls on the 25th or any later day of a month),
unaudited management accounts for Innovex and its Subsidiaries for
such calendar month (collectively, the "Innovex Management Accounts,"
and together with the Innovex Audited Financial Statements and the
Interim Innovex Financial Statements, the "Innovex Financial
Statements"). All of the Innovex Financial Statements, including the
notes thereto, have been and will be prepared in accordance with all
applicable accounting standards and legal requirements in the United
Kingdom, including without limitation United Kingdom Generally
Accepted Accounting Principles, consistently followed throughout the
periods indicated, except that the Innovex Interim Financial
Statements and the Innovex Management Accounts are or will be subject
to normal, recurring adjustments (which will not be material
individually or in the aggregate), lack footnotes and other
presentation items and are presented in a summary format. The Innovex
Balance Sheet, all such other balance sheets, and all comparable
information included in the Innovex Management Accounts fairly
present, or will fairly present, the financial condition of Innovex
and its Subsidiaries on a combined basis at the respective dates
thereof; and the related income statements, statements of cash flows
and statements of changes in shareholders' equity (if applicable), and
comparable information included in the Innovex Management Accounts
fairly present, or will fairly present, the results of the operations
of Innovex and its Subsidiaries on a combined basis and the changes in
their financial position for the periods indicated. Except as set
forth on Schedule 2.6 attached hereto,
7
<PAGE> 13
there are no material intercompany transactions between or among
Innovex and any Innovex Subsidiaries and no transactions between
Innovex or any Innovex Subsidiary and any Affiliate thereof not
reflected in the Innovex Financial Statements.
(ii) Innovex also has furnished Quintiles with the
combined balance sheets of the "Innovex Companies" (as defined
therein) as at March 31, 1996 and March 31, 1995, and the related
combined income statements, statements of cash flows, statements of
total recognized gains and losses, and statements of changes in
shareholders' equity for the years then ended and the year ended March
31, 1994, (collectively, the "Innovex Annual F-1 Financial
Statements") and designated as delivered pursuant to this Section.
Innovex also has furnished Quintiles with the unaudited condensed
consolidated balance sheets of the Innovex Companies as of June 30,
1996 and the related unaudited condensed consolidated income
statements, statements of cash flows, and statements of total
recognized gains and losses for the three months ended June 30, 1995
and June 30, 1996 and designated as delivered pursuant to this Section
(the "Innovex Interim F-1 Financial Statements," and together with the
Innovex Annual F-1 Financial Statements, the "Innovex F-1 Financial
Statements"). All of the Innovex F-1 Financial Statements, including
the notes thereto (except as otherwise expressly stated therein as to
preparation in accordance with United States Generally Accepted
Accounting Principles), have been prepared in accordance with United
Kingdom General Accepted Accounting Principles, consistently followed
throughout the periods indicated, and the portions thereof which
purport to reflect application of United States Generally Accepted
Accounting Principles have been prepared in accordance therewith,
consistently followed throughout the periods indicated, except that
the Innovex Interim F-1 Financial Statements are subject to normal,
recurring adjustments (which will not be material individually or in
the aggregate), lack footnotes and other presentation items and are
presented in a summary format and except as set forth in Schedule 2.6.
(b) Since March 31, 1996, there has been no event, fact,
condition, circumstance or other development which has had or could be
reasonably expected to have individually or in the aggregate a Material Adverse
Effect on Innovex and its Subsidiaries, taken as a whole, whether as a result
of any legislative or regulatory change, revocation of any license or right to
do business, Casualty, termination or impairment of any material Contract or
business relationship or otherwise; provided, however, Innovex's April 1996
reorganization described in the Innovex F-1 referred to below shall be excluded
from this Section 2.6(b).
(c) Innovex has furnished Quintiles with true and
complete copies of Innovex's financial budget for its fiscal year ending March
31, 1997 and financial projections for the year ended December 31, 1997,
together with a description of the assumptions reflected in such budget and
projections, all designated as delivered pursuant to this Section. Such
financial
8
<PAGE> 14
budget and financial projections have been prepared on the basis of accounting
policies that are consistent with the Innovex Audited Financial Statements, and
such financial budget and financial projections (and the underlying
assumptions), taken as a whole, are reasonable.
(d) Innovex's backlog (calculated based on fee payments
anticipated to be received under letters of intent and legally binding written
agreements for the provision of contract research and sales and marketing
services to third parties) ("Backlog") as of September 30, 1996 was at least
L.140,000,000, of which at least L.70,000,000 is attributable to the
twelve-month period ended December 31, 1997. Innovex has delivered to
Quintiles a true and correct report describing such Backlog, certified as such
by Innovex's principal financial officer and designated as delivered pursuant
to this Section.
2.7. Books and Records.
(a) The Memorandum and Articles of Association or
equivalent Organizational Documents of Innovex and the Innovex Subsidiaries,
and the statutory and other corporate books and records, as previously made
available to Quintiles and its representatives, contain accurate records of all
meetings of and properly record all material corporate action taken by the
shareholders and Boards of Directors (including committees thereof) of Innovex
and each Innovex Subsidiary and show all share capital transactions concerning
Innovex or such Subsidiary, as the case may be.
(b) The register of members and other statutory books or
equivalent corporate records of Innovex and each Innovex Subsidiary have been
properly kept and contain an accurate and complete record of the matters
required to be recorded thereon. Except as set forth in Schedule 2.7 attached
hereto, since September 1, 1996, no alteration has been made to the Memorandum
and Articles of Association or equivalent Organizational Documents of Innovex
or any Innovex Subsidiary, and no resolution of any kind of the shareholders of
Innovex or any Innovex Subsidiary has been passed (other than resolutions
related to routine business).
(c) Except as set forth in Schedule 2.7 attached hereto,
all returns, particulars, resolutions and documents required by the Companies
Acts or any other applicable Law to be filed with the Registrar of Companies,
or any other authority, in respect of Innovex and each Innovex Subsidiary have
been duly filed and were complete and correct; and due compliance has been made
with all the provisions of such Laws in connection with the formation of
Innovex and each Innovex Subsidiary, the allotment or issue of shares,
debentures and other securities, the payment of dividends and the conduct of
its business. All charges in favor of Innovex and each Innovex Subsidiary have
(if appropriate) been registered in accordance with the provisions of
applicable Law.
9
<PAGE> 15
2.8. Title to Properties; Encumbrances. Except as set forth in
Schedule 2.8 attached hereto and except for (i) properties and assets reflected
in the Innovex Balance Sheet and (ii) properties and assets acquired since the
Innovex Balance Sheet Date which have been sold or otherwise disposed of in the
ordinary course of business, Innovex and each Innovex Subsidiary has good,
valid and marketable title to (a) all of its respective properties and assets
(real and personal, tangible and intangible), including without limitation all
of the properties and assets reflected in the Innovex Balance Sheet, except as
indicated in the notes thereto, and (b) all of the properties and assets
purchased or otherwise acquired by Innovex or such Innovex Subsidiary since the
Innovex Balance Sheet Date; in each case subject to no Encumbrances except for
(i) liens reflected in the Innovex Financial Statements, (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
Innovex or such Innovex 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), (iii) and (iv) above are
hereinafter sometimes referred to as "Permitted Liens").
2.9. Tangible Assets. Innovex's and its Subsidiaries' tangible
assets, taken as a whole, are in a state of good maintenance and repair and are
adequate and suitable for the purposes for which they are currently being used.
2.10. Real Property. Innovex has provided to Quintiles an accurate
and complete list (designated as delivered pursuant to this Section) of all
real property owned by Innovex and each Innovex Subsidiary (as so indicated)
(the "Innovex Owned Real Property"). Except as set forth in Schedule 2.10 or
as would otherwise not, individually or in the aggregate, have a Material
Adverse Effect on Innovex and its Subsidiaries taken as a whole, Innovex or an
Innovex Subsidiary (as the case may be) has good and marketable title to each
parcel of Innovex Owned Real Property, free and clear of any Encumbrances.
2.11. Leases. Innovex has provided to Quintiles an accurate and
complete list (designated as delivered pursuant to this Section) of each
material lease pursuant to which Innovex or any Innovex Subsidiary leases (as
lessee or lessor) any material property. 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 is not in default thereunder, and no written 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,
except in each case as would not individually or in the aggregate have a
Material Adverse Effect on Innovex and its Subsidiaries taken as a whole.
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<PAGE> 16
Neither Innovex nor any Innovex Subsidiary has violated any of the material
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. The property leased by
Innovex and the Innovex 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 Innovex nor any Innovex Subsidiary is a party to or is bound by
(a) any Contract relating to the performance by Innovex or such Innovex
Subsidiary of services for or on behalf of any Person under which the revenues
to Innovex are anticipated to exceed L.2,000,000 in any fiscal year, (b) any
Contract relating to the engagement as an independent contractor or employment
of any Person by Innovex or any Innovex Subsidiary under which expenditures by
Innovex are reasonably anticipated to exceed L.100,000 in any fiscal year, or
any bonus, deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit scheme or plan,
(c) any material Contract which contains restrictions with respect to the
payment of dividends or any other distribution in respect of Innovex's or any
Innovex Subsidiary's share capital, (d) any Contract relating to capital
expenditures under which expenditures by Innovex are reasonably anticipated to
exceed L.500,000 in any fiscal year, (e) any loan or advance to, or investment
in, any Person (other than Innovex or any of its Subsidiaries) in a principal
amount that exceeds L.100,000 or any material Contract 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 Innovex or any of its Subsidiaries) in a principal amount that exceeds
L.100,000 (other than the endorsement of negotiable instruments for collection
in the ordinary course of business), (g) any management service, consulting or
any other similar Contract with a Person other than Innovex or any of its
Subsidiaries under which expenditures by Innovex are reasonably anticipated to
exceed L.100,000 in any fiscal year, (h) any Contract limiting the freedom of
Innovex or any Innovex Subsidiary to engage in any line of business in which
Innovex or any of its Subsidiaries or (to Innovex's knowledge) Quintiles or BRI
International, Inc. or any of their respective Subsidiaries currently engages
or reasonably anticipates engaging in any geographic area, or to compete with
any Person, (i) any agency Contract or Contract for the distribution or
marketing of Innovex services under which expenditures by Innovex are
reasonably anticipated to exceed L.100,000 in any fiscal year, (j) any Contract
that contravenes any anti-trust, anti-monopoly or anti-cartel Laws, or (k) any
Contract between Innovex or any Innovex Subsidiary and any Person entered into
other than in the ordinary course of business pursuant to which Innovex or such
Innovex Subsidiary agrees to hold harmless or indemnify such Person against or
contribute to such Person in respect of any liability, cost or expense of or
relating to Innovex or such Innovex Subsidiary or relating to the transactions
contemplated by this Agreement or any other Transaction Document. Each
Contract 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 any
Shareholder, Innovex nor any Innovex Subsidiary has received any notice or
other communication asserting the
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<PAGE> 17
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 material
default or material event of default thereunder. Neither any Shareholder,
Innovex nor any Innovex Subsidiary has violated any of the terms or conditions
of any material Contract 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 two years
have been required to be set forth in a schedule listing the types of Contracts
required to be set forth in Schedule 2.12) in any material respect. To the
knowledge of Innovex, neither Innovex nor any Innovex Subsidiary has
experienced, nor do they anticipate any dispute with any supplier, vendor,
contractor, customer or client with which Innovex or such Innovex Subsidiary
has conducted business during the one year period ending on the date of this
Agreement, nor has any such party notified Innovex or any Innovex Subsidiary of
any desire or intention to reduce the volume under, terminate or otherwise
alter materially any material Contract with Innovex or any Innovex Subsidiary,
in each case except as set forth in Schedule 2.12 or as would not individually
or in the aggregate have a Material Adverse Effect on Innovex and its
Subsidiaries taken as a whole.
2.13. No Conflicts. The execution and delivery of this Agreement
and each other applicable Transaction Document by Innovex and the Shareholders
do not, and the performance of this Agreement and each other applicable
Transaction Document by Innovex and the Shareholders will not, (i) conflict
with or violate any provision of the Organizational Documents of Innovex or any
Innovex Subsidiary, (ii) assuming that all consents, approvals, authorizations
and other actions described in Schedule 2.13 attached hereto have been obtained
and all filings and obligations described in Schedule 2.13 attached hereto have
been made, conflict with or violate any Law applicable to Innovex or any
Innovex Subsidiary or by which any property or asset of Innovex or any Innovex
Subsidiary is bound or affected, or (iii), except as set forth in Schedule
2.13, result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of Innovex or any Innovex Subsidiary pursuant to, any Contract except, with
respect to clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults, or other occurrences which would not, individually or in
the aggregate, have a Material Adverse Effect on Innovex and its Subsidiaries
taken as a whole.
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 or, to Innovex's
knowledge, threatened against or affecting Innovex or any Innovex Subsidiary
or any of their respective properties or rights which is reasonably likely to
have a Material Adverse Effect on Innovex and its Subsidiaries taken as a
whole; and neither Innovex nor any Shareholder knows
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<PAGE> 18
of any basis for any such action, proceeding or investigation. Neither Innovex
nor any Innovex Subsidiary is subject to any judgment, order or decree entered
in any lawsuit or proceeding which may have a Material Adverse Effect on
Innovex and its Subsidiaries taken as a whole or impair materially the ability
of Innovex or any Innovex Subsidiary to acquire any property or conduct
business in any area in which it currently conducts or anticipates conducting
business.
2.15. Taxes. Except as set forth on Schedule 2.15 or as otherwise
would not have a Material Adverse Effect on Innovex and its Subsidiaries taken
as a whole:
(a) Innovex and each Innovex Subsidiary has filed or
caused to be filed, within the times and manners prescribed by Law, all
domestic and foreign tax returns, tax reports and tax computations which are
required by applicable Law to be filed by, or with respect to, Innovex or such
Innovex Subsidiary (collectively, "Tax Returns"). True copies of all such Tax
Returns, which have been requested have been made available to Quintiles. Such
Tax Returns reflect accurately all liability (either specifically or by way of
general provisions) for Taxes (as defined below) of Innovex and its
Subsidiaries for the periods covered thereby that are required to be reflected
thereon. All domestic and foreign income, profits, gain, value added,
franchise, sales, use, occupancy, excise and other taxes, duties and
assessments (including interest and penalties) (collectively, "Taxes") which
are or may become payable by or due from Innovex or any Innovex Subsidiary have
been fully paid or adequately disclosed and fully provided for in the books and
financial statements of Innovex or such Innovex Subsidiary, as applicable
(except in the case of deferred taxes). The United Kingdom corporation tax
liability of Innovex has been finally determined for all fiscal years to and
including the fiscal year ended March 31, 1993, or the period for assessment of
the Taxes in respect of such periods has expired. No examination or audit of
any tax return of Innovex or any Innovex Subsidiary is currently in progress,
and no basis for any assessment is known to exist. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable
to any tax return of Innovex or any Innovex Subsidiary. For purposes of this
Section 2.15, "Taxation" shall mean all forms of taxation, duties, imposts and
levies whatsoever and whenever imposed and whether of the United Kingdom or
elsewhere, including without limitation: (i) income tax, corporation tax,
capital gains tax, inheritance tax, transfer tax, stamp duty, stamp duty
reserve tax, value added tax, customs and other import duties and national
insurance contributions, general rates, water rates or other local rates or
property taxes, and any payment whatsoever which Innovex or any Innovex
Subsidiary may be or become bound to make to any Person as a result of any
enactment relating to Taxation and any other taxes, duties or levies
supplementing or replacing any of the above; and (ii) all costs, charges,
interest, fines, penalties, and expenses incidental, or relating, to any
Taxation.
(b) All returns, computations, and payments which are
required to have been made by Innovex and each Innovex Subsidiary for any
Taxation purpose have been made within the requisite periods and are up to
date, correct and on a proper basis, and none of them is the
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<PAGE> 19
subject of any dispute with the Inland Revenue or other Taxation authorities.
All particulars furnished to the Inland Revenue or other Taxation authorities
in connection with the application for any consent or clearance on behalf of,
or otherwise affecting Innovex or any Innovex Subsidiary, fully and accurately
disclosed all facts and circumstances material for the decision of those
authorities; any consent or clearance is valid and effective; and any
transaction for which the consent or clearance has previously been obtained has
been carried into effect (if at all) only in accordance with the terms of the
relative application and consent or clearance. Neither Innovex nor any Innovex
Subsidiary has taken any action which has had, or will have, the result of
altering, prejudicing or in any way disturbing any arrangement or agreement
which it has previously negotiated with any Taxation or customs authority.
Innovex has not, since the Innovex Balance Sheet Date, paid or become liable to
pay any penalty or interest charged by virtue of any Taxation Law. Innovex and
each Innovex Subsidiary has properly operated the PAYE system, and any
equivalent system in any other jurisdiction, by deducting tax, as required by
Law, from all payments made or treated as made to its employees, or former
employees or others, and has accounted to the Inland Revenue or other Taxation
authority for all tax deducted by it and for all tax chargeable on benefits
provided for its employees or former employees or others.
(c) Except as set forth on Schedule 2.15, all expenditure
which Innovex has incurred on the provision of machinery or plant has qualified
(if not deductible as a trading expense of trade carried on by Innovex) for
writing down allowances under Capital Allowance Act 1990 ("CAA") Section 24
(writing down allowances and balancing adjustments) or is dealt with under
Section 137 CAA as scientific research allowances.
2.16. Liabilities; Indebtedness.
(a) There are no liabilities, obligations or indebtedness
of or claims against Innovex or any Innovex Subsidiary, whether known or
unknown, due or not yet due, asserted or unasserted (whether or not contingent
or probable of assertion), arising from, or in connection with, or based upon
acts, omissions, 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, and Quintiles 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 Innovex Balance Sheet or referred to
in the notes thereto, and (ii) other liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect on Innovex and its
Subsidiaries taken as a whole.
(b) Schedule 2.16 is an accurate and complete listing of
all material Indebtedness of Innovex and each Innovex Subsidiary (excluding
intercompany Indebtedness). Innovex and each Innovex Subsidiary has performed
and is in compliance in all material respects with all applicable terms of all
such Indebtedness and all instruments and agreements relating
14
<PAGE> 20
thereto, and no default or event of default, or event or condition which with
the giving of notice, the lapse of time, 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 for borrowed money (excluding for the avoidance of doubt
capital lease obligations) of Innovex and the Innovex Subsidiaries, on a
combined basis, does not exceed L.25,000,000. Set forth on Schedule 2.16 are
the amounts necessary on the date of this Agreement to make all of the payments
in respect of each of the loan stock and credit facilities, and the purchase of
the Preference Shares, all referred to in Section 1.1.
2.17. Insurance. Innovex carries insurance policies with
independent third party insurers which, with respect to their amounts and types
of coverage, are adequate to insure against risks to which Innovex and the
Innovex Subsidiaries and their respective property and assets are normally
exposed in the operation of their respective businesses, including without
limitation professional liability. All such policies which are material to the
business of Innovex and its Subsidiaries are in full force and effect and,
except as set forth in Schedule 2.17, are free from any right of termination on
the part of the applicable insurance carriers. There are no outstanding unpaid
premiums except in the ordinary course of business, and neither Innovex nor any
Innovex Subsidiary has received any notice of cancellation or non-renewal of
any such policy. Except as set forth in Schedule 2.17, neither Innovex nor any
Innovex Subsidiary is aware of any risks, situations, occurrences or other
matters which have been disclosed, or should have been disclosed, to insurance
carriers or brokers in connection with any application for insurance as a
result of which an insurance carrier would have a right to cancel the
corresponding insurance policy or deny coverage with respect to any such right.
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 material premium increase under
any such policy or give rise to, and Innovex has no anticipation of, any
termination or cancellation thereof or material premium increase therefor.
2.18. Intellectual Property. The lawful operation of the businesses
of Innovex and the Innovex Subsidiaries as currently conducted and as currently
planned to be conducted requires no material rights under Intellectual Property
(as hereinafter defined) other than rights under Intellectual Property listed
in Schedule 2.18 attached hereto and rights granted to Innovex or any Innovex
Subsidiary pursuant to agreements listed in Schedule 2.18. Except as otherwise
set forth in Schedule 2.18, Innovex or its Subsidiaries own all right, title
and interest in the Intellectual Property listed in Schedule 2.18, including
without limitation exclusive rights to use and license the same. Each item of
Intellectual Property listed in Schedule 2.18 has been duly registered with,
filed in, or issued by a domestic or foreign governmental agency to the extent
specified in Schedule 2.18, and each such registration, filing and issuance
remains in full force and effect. No claim adverse to the interests of Innovex
or any Innovex Subsidiary in the Intellectual Property or
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<PAGE> 21
agreements listed in Schedule 2.18 has been made in litigation. To Innovex's
knowledge, no such claim has been threatened or asserted, and Innovex knows of
no basis or alleged basis for any such claim, and, to the knowledge of Innovex,
no Person has infringed or otherwise violated Innovex's or any Innovex
Subsidiary's right in any of the Intellectual Property or agreements listed in
Schedule 2.18. To the knowledge of Innovex, neither the Intellectual Property
listed in Schedule 2.18 nor Innovex's or any Innovex 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 Innovex or any Innovex
Subsidiary is accused of infringing or otherwise violating the Intellectual
Property right of another, or of breaching a contract conveying rights under
Intellectual Property. To Innovex's knowledge, no such claim has been asserted
or threatened against Innovex or any Innovex Subsidiary. For purposes of this
Section 2.18, "Intellectual Property" means domestic and foreign patents,
patent applications, registered and unregistered trademarks and service marks,
trademark and service mark applications, trade names and trade dress,
registered and unregistered copyrights, computer programs and databases, trade
secrets, know how and proprietary information.
2.19. Licenses.
(a) Schedule 2.19 attached hereto contains an accurate
and complete list of all licenses, franchises, permits, rights and other
approvals and authorizations (collectively, "Licenses") held by Innovex or any
Innovex Subsidiary that are material to the operation of the business of
Innovex and its Subsidiaries taken as a whole. Except as set forth in Schedule
2.19, Innovex and its Subsidiaries own or otherwise lawfully use each License
necessary or required by applicable Law to conduct their respective businesses
as presently conducted, free and clear of all Encumbrances, and all such
Licenses are in full force and effect, not subject to any current default or
right of cancellation, termination or revocation except in each case as would
not individually or in the aggregate have a Material Adverse Effect on Innovex
or any Innovex Subsidiary.
(b) Each of Innovex's or any Innovex Subsidiary's
employees who is practicing as a physician, nurse or pharmacist is identified
on Schedule 2.19, and each such employee is duly Licensed and in good standing
to practice as a physician, nurse or pharmacist, as the case may be, in each
jurisdiction in which such employee renders services for or on behalf of
Innovex or any Innovex Subsidiary, except as set forth on Schedule 2.19 or as
would not otherwise result in a Material Adverse Effect on Innovex and its
Subsidiaries taken as a whole. To Innovex's knowledge, none of the employees
listed on Schedule 2.19 is or has been subject to any claim in connection with
his or her practice as a physician, nurse or pharmacist, as the case may be,
and no fact or occurrence is known to exist which is likely to give rise to the
revocation of any such License.
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<PAGE> 22
2.20. Compliance with Laws, etc. Innovex and each Innovex
Subsidiary is and at all times has been in compliance with all applicable Laws
in all material respects. Except as set forth in Schedule 2.20, 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 material violation of any applicable Law by Innovex or any Innovex
Subsidiary. None of Innovex, any Innovex 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.
All studies and services performed by Innovex and each of its Subsidiaries
comply in all material respects with all applicable Good Clinical Practices and
comparable guidelines in other countries where Innovex and the Innovex
Subsidiaries carry on business.
2.21. Employee Relations. There is no labor strike, dispute,
slowdown or stoppage actually pending or threatened against or involving
Innovex or any Innovex Subsidiary. Except as set forth in Schedule 2.21,
neither Innovex nor any Innovex Subsidiary has entered into any recognition
agreement or other agreement or arrangement with any trade union or other body
representing employees. No recognition agreement is currently being negotiated
by Innovex or any Innovex Subsidiary, nor is Innovex or any Innovex Subsidiary
aware of any current efforts to organize any trade union or other body
representing Innovex's or any Innovex Subsidiary's employees. Neither Innovex
nor any Innovex Subsidiary is currently, or during the last three years has
been, involved in any material industrial dispute.
2.22. Pension Schemes and Benefit Plans.
(a) Non U.S. Except with respect to the schemes described in
Schedule 2.22 attached hereto (the "Schemes"), neither Innovex nor any Innovex
Subsidiary has any obligation to pay any pension or make any other payment
after retirement, death or disability (whether of a temporary or permanent
nature) or otherwise to provide other material benefits of any variety
whatsoever to, or in respect of, any person who is now or has been an officer
or employee of Innovex or any Innovex Subsidiary or a spouse or dependent of
such officer or employee, and no change in the benefits currently being
provided under any Scheme has been announced by Innovex or any Innovex
Subsidiary or is being considered. Innovex has provided Quintiles true and
complete copies of all documents governing or relating to each Scheme which
have been requested. Innovex and each of its Subsidiaries, as the case may be,
has adopted, administered and conducted each Scheme in accordance with all
applicable Laws in all material respects.
(b) Non U.S. Benefits, Discretions and Funding
With respect to each Scheme, except as set forth on
Schedule 2.22: (i) within the three years ending on the date of this Agreement
no power to augment benefits in respect of members has been exercised and no
oral promises as to any additional or new benefits
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<PAGE> 23
have been made to any employees or members; (ii) within the three years ending
on the date of this Agreement no discretion has been exercised to admit an
employee as a member of any Scheme who would not otherwise be eligible; (iii)
within the three years ending on the date of this Agreement no discretion has
been exercised to provide a benefit to or in respect of a member which would
not otherwise be provided; (iv) all benefits (other than a refund of
contributions with interest where appropriate) payable under the Schemes on the
death of a member while in an employment to which the Scheme relates or during
a period of sickness or disability of a member are fully insured; the insurance
is effected by a policy with an insurance company of good repute; (v) there are
no contributions or premium payments to any Scheme in respect of members which
are due but unpaid and have remained unpaid for more than one month and none of
the participating companies or members is enjoying a contribution holiday; (vi)
each Scheme is sufficiently funded on the basis of the assumptions used in the
last actuarial valuation or where part or all of the benefits are provided on a
book reserve basis those benefits including early retirement obligations (and
not limited to backservice obligations) have been fully and adequately provided
for in the accounts of the relevant Innovex company; and (vii) except as
required by applicable law no welfare scheme provides any material benefits to
retired or otherwise terminated employees.
(c) Non U.S. Administration
Except as set forth on Schedule 2.22, each Scheme is
approved by the relevant tax authorities and other regulatory authorities.
Each Scheme complies with and has been administered in all material respects in
accordance with all applicable laws, regulations and requirements of any
competent governmental body or regulatory authority and the founding documents
and rules of the Scheme and is one in respect of which all actuarial,
consultancy, legal and other fees, charges or expenses in any material amount
have been paid.
(d) Claims
To the knowledge of Innovex, no claim has been
threatened or made or litigation commenced against the trustees or
administrator of any Scheme or against Innovex, any Innovex Subsidiaries or
their Affiliates or any other person whom Innovex, any Innovex Subsidiaries or
their Affiliates are or may be liable to indemnify or compensate in respect of
any matter arising out of or in connection with any Scheme or member.
(e) ERISA
(i) All benefit plans, contracts or arrangements
covering current or former employees of Innovex and its Subsidiaries in the
United States (the "Innovex Employees"), including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of the
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<PAGE> 24
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
plans of deferred compensation (the "Innovex Benefit Plans"), are listed in
Schedule 2.22 attached hereto. True and complete copies of all Innovex Benefit
Plans, including, but not limited to, any trust instruments and insurance
contracts forming a part of any Innovex Benefit Plans, and all amendments
thereto have been made available to Quintiles.
(ii) All Innovex Benefit Plans, other than
"multiemployer plans" within the meaning of Section 3(37) or 4001(a)(3) of
ERISA, covering the Innovex Employees in the United States (the "Innovex
Plans"), to the extent subject to ERISA, are in substantial compliance with
ERISA and the Code. There is no material pending or threatened litigation
relating to the Innovex Plans.
(iii) Neither any Innovex Benefit Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA,
nor any single-employer plan of a Person which is considered one employer with
Innovex under Section 4001 of ERISA or Section 414 of the Code (each, an "ERISA
Affiliate"), has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA, and
neither Innovex nor any ERISA Affiliate has an outstanding funding waiver.
(iv) Neither Innovex nor any of its Subsidiaries has
any material obligations for retiree health and life benefits under any Innovex
Benefit Plan, except as set forth on Schedule 2.22.
2.23. Environmental Matters and Regulations.
(a) For purposes of this Section 2.23, the following
terms shall have the following meanings: (i) "Facilities" shall mean any and
all buildings, structures and properties of any sort owned, leased, operated or
occupied by Innovex or any Innovex Subsidiary at any time; (ii) "Hazardous
Materials" shall mean any substance, waste, or material characterized, defined
or listed as "hazardous" or "toxic" under Environmental Laws (as defined
below), including, without limitation, solid or liquid raw materials, wastes,
petroleum and petroleum products, and nuclear material; (iii) "Claim" shall
mean any and all claims, demands, causes of actions, suits, proceedings,
administrative proceedings, losses, judgments, decrees, debts, damages,
liabilities, fines, penalties, court costs, attorneys' and consultants' fees
and any other expenses incurred, assessed or sustained by or against Innovex or
any Innovex Subsidiary; and (iv) "Environmental Laws" shall mean any and all
Laws relating to the environment or hazardous or toxic materials or substances,
the protection of human health and the environment, pollution control, 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.
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(b) Compliance with Environmental Laws. Except as
disclosed in Schedule 2.23 attached hereto, neither Innovex nor any Innovex
Subsidiary has violated or been alleged to have violated any Environmental Law,
nor has Innovex or any Innovex Subsidiary been subject to any administrative or
judicial proceeding pursuant to any Environmental Law at any time in the past
five years. Except as disclosed in Schedule 2.23, there are no facts or
circumstances which are reasonably likely to lead to a successful Claim against
Innovex or any Innovex Subsidiary relating to environmental matters, including
without limitation any Claim arising from past or present environmental
practices asserted under any Environmental Laws, which might have a Material
Adverse Effect on Innovex and its Subsidiaries, taken as a whole.
(c) Asbestos, Urea Formaldehyde, and Underground Storage
Tanks. To the knowledge of Innovex and the Shareholders, (i) there is not and
has never been constructed, placed, deposited, 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 (ii) 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 2.23.
2.24. Interests in Clients, Suppliers, etc. Except as described in
Schedule 2.24 attached hereto, neither Innovex, nor any Innovex Subsidiary, nor
any officer or director of Innovex or any Innovex Subsidiary owns, operates or
controls any corporation, firm, association or business organization which is a
client, supplier, customer, lessor, lessee, or competitor or potential
competitor of Innovex or any Innovex Subsidiary.
2.25. No Changes Since Innovex Balance Sheet Date. Except as set
forth on Schedule 2.25 or as would not otherwise have a Material Adverse Effect
on Innovex and its Subsidiaries taken as a whole, since the Innovex Balance
Sheet Date, neither Innovex nor any Innovex Subsidiary has (a) incurred any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) except in the ordinary course of business, (b) permitted any of its
assets to be subjected to any Encumbrance (other than Permitted Liens), (c)
sold, transferred or otherwise disposed of any assets except in the ordinary
course of business, (d) made any capital expenditure or commitment therefor
except in the ordinary course of business in an amount less than L.500,000, (e)
declared or paid any dividend or made any distribution on any of its share
capital, or redeemed, purchased or otherwise acquired any of its share capital
or any Stock Acquisition Right for any such shares, (f) made any bonus or
profit sharing distribution or payment except those that which have already
accrued or are required by Law or by any existing plan or agreement, and
payments or arrangements made in the ordinary course of business consistent
with past practices, (g) increased its Indebtedness for borrowed money, except
current borrowings from banks in the ordinary course of business in an amount
less than L.500,000, or made any loan to any Person (other than to Innovex or
one of its Subsidiaries), (h) written off as uncollectible any notes or
accounts receivable except write-offs in the ordinary course of business
charged to
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applicable reserves, none of which individually or in the aggregate exceeds
L.250,000, (i) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of any executive employee, except to the extent required by
Law or by any existing plan or agreement and other than general increases in
compensation of employees consistent with past practices, (j) made any change
in any accounting policies or (k) agreed or committed, whether or not in
writing, to do any of the foregoing.
2.26. Disclosure. Except as set forth on Schedule 2.26 attached
hereto, none of this Agreement, the other Transaction Documents, the Innovex
Financial Statements, any schedule, exhibit or certificate attached hereto or
thereto or delivered in accordance with the terms hereof or thereof, contains
any untrue statement of a material fact and Innovex's Registration Statement on
Form F-1 furnished to the staff of the SEC on August 1, 1996, as amended,
including the exhibits thereto, (the "Innovex F-1") (as if the F-1 were dated
the date hereof and the Closing Date (except for changes occurring in the
ordinary course of business)), does not contain any untrue statement of a
material fact or omit any statement of a material fact necessary in order to
make the statements contained therein not misleading (subject to the letter
dated August 29, 1996 from the staff of the SEC which has been delivered to
Quintiles). There is no fact known to any Management Shareholder which has had
or could be reasonably expected to have a Material Adverse Effect on Innovex or
any Subsidiary which has not been set forth in this Agreement, the other
Transaction Documents, the Innovex Financial Statements, any schedule, exhibit
or certificate attached hereto or thereto or delivered in accordance with the
terms hereof or thereof or the Innovex F-1.
2.27. Broker's or Finder's Fees. Except as set forth in Schedule
2.27 attached hereto, no agent, broker, person or firm acting on behalf of any
Shareholder or Innovex is, or will be, entitled to any commission or broker's
or finder's fees from any Shareholder or Innovex or from any Affiliate of any
Shareholder or Innovex in connection with any of the transactions contemplated
by this Agreement.
2.28. Absence of Certain Conditions. To the knowledge of Innovex
and the Management Shareholders, there exists no event, occurrence, condition
or act which, with the giving of notice or the lapse of time, would constitute
a breach of or cause any of the representations and warranties in this Article
II to become untrue.
2.29. FDA Debarment and Disqualification. Neither Innovex nor any
Innovex Subsidiary, nor any of their respective employees, or to Innovex's
knowledge, subcontractors, is under investigation by any regulatory authority
in any jurisdiction for debarment or similar action or has been debarred
pursuant to any applicable Law which individually or in the aggregate would
result in a Material Adverse Effect on Innovex and its Subsidiaries taken as a
whole.
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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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF QUINTILES
Quintiles represents and warrants to the Shareholders and agrees as
follows:
3.1. Existence of Quintiles. Quintiles is a corporation duly
organized and validly existing under the Laws of the State of North Carolina.
Quintiles has the corporate power and authority to own, lease and operate its
property and conduct its business as now being conducted. Quintiles is duly
qualified to do business in each jurisdiction in which the character or
location of the properties owned or leased by Quintiles or the nature of the
business conducted by Quintiles makes such qualification necessary under
applicable Laws, except for such failures to be so qualified or licensed that
would not have, individually or in the aggregate, a Material Adverse Effect on
Quintiles and its Subsidiaries taken as a whole.
3.2. Capitalization. The authorized capital stock of Quintiles
consists of 50,000,000 shares of common stock, par value $0.01 per share
("Common Stock"), and 25,000,000 shares of preferred stock, par value $0.01 per
share ("Preferred Stock"). At the close of business on September 30, 1996,
21,828,299 shares of Common Stock and no shares of Preferred Stock were issued
and outstanding. All such outstanding capital stock has been, and the
Quintiles Shares will be, when issued as provided in this Agreement, duly
authorized and validly issued and fully paid and nonassessable, and none was
(or in the case of the Quintiles Shares will be) issued in violation of any
Stock Acquisition Right for securities of Quintiles. Except as set forth on
Schedule 3.2, there are no outstanding Stock Acquisition Rights for securities
of Quintiles as of the date of this Agreement, other than as contemplated by
this Agreement. As of the Closing and after giving effect to the issuance of
the Quintiles Shares, and except as set forth in Schedule 3.2, Quintiles shall
have issued and outstanding capital stock consisting of not in excess of
33,000,000 shares of Common Stock (subject to additional issuances in respect
of the matters listed in Schedule 3.2) and no shares of Preferred Stock; no
other capital stock shall be issued or outstanding; and no Stock Acquisition
Rights for securities of Quintiles shall be outstanding.
3.3. Power and Authority of Quintiles. Quintiles has all requisite
power and authority to enter into and deliver this Agreement and the other
Transaction Documents to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions
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<PAGE> 28
contemplated hereby and thereby. Quintiles' execution, delivery and
performance of this Agreement and the other Transaction Documents and
Quintiles' consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by all corporate, director, shareholder
and other action required of Quintiles by applicable Law and Quintiles'
Organizational Documents (other than the approval of the issuance of the
Quintiles Shares by the holders of not less than a majority of Quintiles'
Common Stock voted in accordance with Nasdaq Stock Market rules). This
Agreement and the other Transaction Documents to which Quintiles is a party
constitute the valid and legally binding obligations of Quintiles, enforceable
against Quintiles in accordance with their respective terms.
3.4. SEC Documents. Quintiles has filed all required reports,
schedules, forms, statements and other documents with the SEC since January 1,
1993 (the "Quintiles SEC Documents"). As of their respective dates, each of
the Quintiles SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Quintiles SEC Document, and none of the Quintiles SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any Quintiles
SEC Document has been revised or superseded by a later filed Quintiles SEC
Document, none of the Quintiles SEC Documents contains any untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.5. Financial Statements; No Material Changes.
(a) Quintiles has furnished Innovex with the consolidated
balance sheets of Quintiles and its Subsidiaries as of December 31, 1995 (the
"Quintiles Balance Sheet") and December 31, 1994, and the related statements of
income, statements of cash flows, and statements of shareholders' equity for
the years then ended, all audited by Ernst & Young LLP (collectively, the
"Quintiles Audited Financial Statements") and designated as delivered pursuant
to this Section. Quintiles also has furnished Innovex with the unaudited
consolidated balance sheets of Quintiles and its Subsidiaries as of June 30,
1996 and the related unaudited consolidated statements of income, statements of
cash flows, and statements of shareholders' equity for the six months then
ended, and will furnish Innovex with the unaudited consolidated balance sheets
of Quintiles and its Subsidiaries as of September 30, 1996 and the related
unaudited consolidated statements of income, statements of cash flows, and
statements of shareholders' equity for the nine months then ended
(collectively, the "Quintiles Interim Financial Statements"). Further,
Quintiles will provide to Innovex, within 25 days after the end of each
calendar month prior to the Closing Date (but in no event later than two (2)
business days prior to the Closing Date, if the
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Closing Date falls on the 25th or any later day of a month), unaudited
management accounts for Quintiles and its Subsidiaries for such calendar month
(collectively, the "Quintiles Management Accounts," and together with the
Quintiles Audited Financial Statements and the Quintiles Interim Financial
Statements, the "Quintiles Financial Statements"). All of the Quintiles
Financial Statements, including the notes thereto, have been and will be
prepared in accordance with United States Generally Accepted Accounting
Principles, consistently followed throughout the periods indicated, except that
the Quintiles Interim Financial Statements and the Quintiles Management
Accounts are subject to normal, recurring adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items and are presented in a summary format. The Quintiles
Balance Sheet, all such other balance sheets, and all comparable information
included in the Quintiles Management Accounts fairly present, or will fairly
present, the financial condition of Quintiles and its Subsidiaries on a
combined basis at the respective dates thereof; and the related statements of
income, statements of cash flows and statements of shareholders' equity (if
applicable), and comparable information included in the Quintiles Management
Accounts fairly present, or will fairly present, the results of the operations
of Quintiles and its Subsidiaries on a consolidated basis and the changes in
their financial position for the periods indicated. There are no material
intercompany transactions between or among Quintiles and any Quintiles
Subsidiaries not reflected in the Quintiles Financial Statements.
(b) Since June 30, 1996, there has been no event, fact,
condition, circumstance or other development which has had or could be
reasonably expected to have a Material Adverse Effect on Quintiles and its
Subsidiaries, taken as a whole, whether as a result of any legislative or
regulatory change, revocation of any license or right to do business, Casualty,
termination or impairment of any material Contract or business relationship or
otherwise.
(c) Except as set forth in Quintiles SEC Documents filed
and publicly available prior to the date of this Agreement, neither Quintiles
nor any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which, individually or in
the aggregate, would have a Material Adverse Effect on Quintiles and its
Subsidiaries taken as a whole.
3.6. Books and Records. The Organizational Documents of Quintiles
and its Subsidiaries and their statutory and other corporate books and records,
as previously made available to Innovex and its representatives, contain
accurate records of and properly record all material corporate action taken by
the shareholders and Boards of Directors (including committees thereof) of
Quintiles and each of its Subsidiaries.
3.7. Title to Properties; Encumbrances. Except as set forth in
Schedule 3.7 attached hereto and except for (i) properties and assets reflected
in the Quintiles Balance Sheet and (ii) properties and assets acquired since
December 31, 1995 which have been sold or otherwise
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disposed of in the ordinary course of business, Quintiles and each Quintiles
Subsidiary has good, valid and marketable title to (a) all of its respective
properties and assets (real and personal, tangible and intangible), including
without limitation all of the properties and assets reflected in the Quintiles
Balance Sheet, except as indicated in the notes thereto, and (b) all of the
properties and assets purchased or otherwise acquired by Quintiles or such
Quintiles Subsidiary since such date; in each case subject to no Encumbrance
except for (i) liens reflected in the Quintiles SEC Documents, (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 Quintiles or such Quintiles 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 3.7.
3.8. Real Property. Quintiles has provided to Innovex a true and
complete list (designated as delivered pursuant to this Section of this
Agreement) of all real property owned by Quintiles and each Quintiles
Subsidiary (as so indicated) (the "Quintiles Owned Real Property"). Except as
set forth in Schedule 3.8 or as would otherwise not, individually or in the
aggregate, have a Material Adverse Effect on Quintiles and its Subsidiaries
taken as a whole, Quintiles or a Quintiles Subsidiary (as the case may be) has
good and marketable title to each parcel of Quintiles Owned Real Property, free
and clear of any Encumbrances.
3.9. No Conflicts. The execution and delivery of this Agreement
and each other applicable Transaction Document by Quintiles does not, and the
performance of this Agreement and the other applicable Transaction Documents by
Quintiles will not, (i) conflict with or violate any provision of the
Organizational Documents of Quintiles or any Quintiles Subsidiary, (ii)
assuming that all consents, approvals, authorizations and other actions
described in Schedule 3.9 attached hereto have been obtained and all filings
and obligations described in Schedule 3.9 have been made, conflict with or
violate any Law applicable to Quintiles or any Quintiles Subsidiary or by which
any property or asset of Quintiles or any Quintiles Subsidiary is bound or
affected or (iii) except as set forth in Schedule 3.9, result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Quintiles or any Quintiles
Subsidiary pursuant to, any Contract, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults, or other
occurrences which would not, individually or in the aggregate, have a Material
Adverse Effect on Quintiles and its Subsidiaries taken as a whole.
3.10. Litigation. Except as set forth in Schedule 3.10 attached
hereto or as disclosed in any Quintiles SEC Document filed with the SEC after
January 1, 1996, there is no action, suit, proceeding at law or in equity,
arbitration or administrative or other proceeding or investigation by
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<PAGE> 31
or before any governmental or other instrumentality or agency pending or, to
Quintiles' knowledge, threatened against or affecting Quintiles or any
Quintiles Subsidiary or any of their respective properties or rights which is
reasonably likely to have a Material Adverse Effect on Quintiles and its
Subsidiaries, taken as a whole; and Quintiles does not know of any basis for
any such action, proceeding or investigation. Quintiles is not subject to any
judgment, order or decree entered in any lawsuit or proceeding which may have a
Material Adverse Effect on Quintiles and its Subsidiaries taken as a whole, or
impair materially the ability of Quintiles or any Quintiles Subsidiary to
acquire any property or conduct business in any area in which it currently
conducts or anticipates conducting business.
3.11. Taxes.
(a) Except as set forth in Schedule 3.11 or as otherwise
would not have a Material Adverse Effect on Quintiles and its Subsidiaries
taken as a whole, (i) all Tax Returns that are required to be filed by or with
respect to Quintiles and/or its Subsidiaries have been filed, (ii) all Taxes
shown as due on the Tax Returns referred to in clause (i) have been paid in
full or adequate provision has been made therefor, (iii) Quintiles has made
available to Innovex correct and complete copies of all Tax Returns and any
examination reports or statements of deficiency assessed against Quintiles or
any Subsidiary since January 1, 1993 which have been requested, (iv) all
deficiencies asserted or assessments made as a result of any such examinations
have been paid in full or adequate provision has been made therefor, (v) no
issues that have been raised by the relevant taxing authority in connection
with the examination of any of the Tax Returns referred to in clause (i) are
currently pending, and (vi) no waivers of statutes of limitation have been
given by or requested with respect to any Taxes of Quintiles.
(b) For the purposes of this Section 3.11, the following
terms shall have the meanings ascribed thereto:
"Tax Returns" shall mean all reports and returns required to
be filed on or before the Closing Date with respect to the Taxes of Quintiles
or any of its Subsidiaries including, without limitation, any consolidated
income tax returns of any consolidated group in which Quintiles is included.
"Taxes" shall mean all Federal, state, local or foreign
income, gross receipts, windfall profits, severance, property (real or
personal), production, sales, use, value added, license, excise, franchise,
employment, occupation, pension plan, withholding or similar taxes imposed on
the income, properties or operations of Quintiles or any of its Subsidiaries,
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties.
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3.12. Insurance. Quintiles carries insurance policies with
independent third party insurers which, with respect to their amounts and types
of coverage, are adequate to insure against risks to which Quintiles and the
Quintiles Subsidiaries and their respective property and assets are normally
exposed in the operation of their respective businesses, including without
limitation professional liability. All such policies which are material to the
business of Quintiles and its Subsidiaries are in full force and effect and are
free from any right of termination on the part of the applicable insurance
carriers. There are no outstanding unpaid premiums except in the ordinary
course of business, and neither Quintiles nor any Quintiles Subsidiary has
received any notice of cancellation or non-renewal of any such policy. Except
as set forth in Schedule 3.12, neither Quintiles nor any of its Subsidiaries is
aware of any risks, situations, occurrences or other matters which have been
disclosed, or should have been disclosed, to insurance carriers or brokers in
connection with any applications for insurance as a result of which an
insurance carrier would have a right to cancel the corresponding insurance
policy. 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 material premium increase under
any such policy or give rise to, and Quintiles has no anticipation of, any
termination or cancellation thereof or material premium increase therefor.
3.13. Compliance with Laws, etc. Quintiles and each Quintiles
Subsidiary is and at all times has been in compliance with all applicable Laws
in all material respects. 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 material violation of any
applicable Law by Quintiles or any Quintiles Subsidiary. None of Quintiles,
any Quintiles 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. All studies and services performed by
Quintiles and its Subsidiaries comply in all material respects with all
applicable Good Clinical Practices and comparable guidelines in other countries
where Quintiles and the Quintiles Subsidiaries carry on business.
3.14. U.S. ERISA Representations.
(a) All benefit plans, contracts or arrangements covering
current or former employees of Quintiles and its Subsidiaries (the "Quintiles
Employees"), including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of ERISA, and plans of deferred compensation (the
"Quintiles Benefit Plans"), are listed in Schedule 3.14 attached hereto. True
and complete copies of all Benefit Plans, including, but not limited to, any
trust instruments and insurance contracts forming a part of any Quintiles
Benefit Plans, and all amendments thereto have been made available to Innovex.
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(b) All Quintiles Benefit Plans, other than "multiemployer
plans" within the meaning of Section 3(37) or 4001(a)(3) of ERISA, covering the
Quintiles Employees (the "Quintiles Plans"), to the extent subject to ERISA,
are in substantial compliance with ERISA and the Code. There is no material
pending or threatened litigation relating to the Quintiles Plans.
(c) Neither any Quintiles Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA, nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA, and neither Quintiles nor any ERISA Affiliate has
an outstanding funding waiver.
(d) Neither Quintiles nor any of its Subsidiaries has any
material obligations for retiree health and life benefits under any Quintiles
Benefit Plan, except as set forth on Schedule 3.14.
3.15. No Changes Since June 30, 1996. Except as set forth on
Schedule 3.15, as disclosed in any Quintiles SEC Document (as defined in
Section 3.4 above), or as would not otherwise have a Material Adverse Effect on
Quintiles and its Subsidiaries taken as a whole, since June 30, 1996, neither
Quintiles nor any Quintiles Subsidiary has (a) incurred any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise)
except in the ordinary course of business, (b) permitted any of its assets to
be subjected to any Encumbrance (other than (i) liens reflected in the
Quintiles Financial Statements, (ii) liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent and (iii)
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 Quintiles or its Subsidiaries in the operation of their
respective businesses), (c) sold, transferred or otherwise disposed of any
assets except in the ordinary course of business, (d) made any capital
expenditure or commitment therefor except in the ordinary course of business in
an amount less than $2,000,000, (e) declared or paid any dividend or made any
distribution on any of its share capital, or redeemed, purchased or otherwise
acquired any of its capital stock or any Stock Acquisition Right for any such
shares, (f) made any bonus or profit sharing distribution or payment except
those that which have already accrued or are required by Law or by any existing
plan or agreement, and payments or arrangements made in the ordinary course of
business consistent with past practices, (g) increased its Indebtedness for
borrowed money, except current borrowings from banks in the ordinary course of
business in an amount less than $2,000,000, or made any loan to any Person
(other than to one of its Subsidiaries), (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 $2,000,000, (i) granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any executive employee, except to
the extent required by Law
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or by any existing plan or agreement and other than general increases in
compensation of employees consistent with past practices, (j) made any change
in any accounting policies or (k) agreed or committed, whether or not in
writing, to do any of the foregoing.
3.16. Broker's or Finder's Fees. Except as set forth on Schedule
3.16 attached hereto, no agent, broker, person or firm acting on behalf of
Quintiles is, or will be, entitled to any commission or broker's or finder's
fees from Quintiles or from any Affiliate of Quintiles in connection with any
of the transactions contemplated by this Agreement.
3.17. Opinions of Financial Advisors. Each of Goldman Sachs & Co.
and Smith Barney Inc. has delivered to the Board of Directors of Quintiles its
opinion to the effect that, as of the date of this Agreement and on the terms
and subject to the conditions and qualifications specified therein, the
Exchange Ratio is fair, from a financial point of view, to Quintiles.
3.18. Absence of Certain Conditions. To the knowledge of Quintiles,
there exists no event, occurrence, condition or act which, with the giving of
notice or the lapse of time, would constitute a breach of or cause any of the
representations and warranties in this Article III to become untrue.
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
CERTAIN PRE-CLOSING AND RELATED COVENANTS
4.1. Conduct of Business of Innovex and Innovex Subsidiaries.
During the period from the date of this Agreement to the Closing (or the
earlier termination of this Agreement pursuant to Section 9.16 below), Innovex
shall, and shall cause each Innovex Subsidiary to conduct its operations only
according to its ordinary and usual course of business and to the extent
consistent therewith, use all reasonable efforts to preserve intact its
corporate organization, keep available the services of its officers and key
employees, maintain its existing relationships with suppliers, vendors,
contractors, customers and others having business relationships with Innovex or
any Innovex Subsidiary, and perform in all material respects all of Innovex's
and the Innovex Subsidiaries' obligations under all Contracts to which Innovex
or any Innovex Subsidiary is a party or by which it or any of its assets or
properties are bound, except in each case to the extent that failure to do so
would not have a Material Adverse Effect on Innovex and its Subsidiaries, taken
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as a whole. Notwithstanding the immediately preceding sentence, prior to the
Closing (or the earlier termination of this Agreement pursuant to Section 9.16
below), except as may be first approved in writing by Quintiles or as is
otherwise permitted or required by this Agreement, the Management Shareholders,
Innovex and each Innovex Subsidiary shall cause (a) Innovex's and each Innovex
Subsidiary's Organizational Documents to be maintained in their forms on the
date of this Agreement, (b) the compensation payable or to become payable by
Innovex and each Innovex Subsidiary to each officer, employee or agent of
Innovex or such Innovex Subsidiary to be maintained at their levels on the date
of this Agreement except to the extent required by Law or by any existing plan
or agreement and other than general increases in the compensation of employees
in the ordinary course of business consistent with past practices, (c) Innovex
and each Innovex 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 or may be required by law or by
any existing plan or agreement, other than payments or arrangements made in the
ordinary course of business consistent with past practices, (d) Innovex and
each Innovex Subsidiary to refrain from entering into any Contract except
Contracts in the ordinary course of business having a value of less than
L.500,000 (including any Contract for the provision of services to customers)
and Contracts for capital expenditures in an individual or aggregate amount not
to exceed L.500,000 and consult with Quintiles before entering into a Contract
involving expenditure by Innovex of more than L.500,000, (e) Innovex and each
Innovex Subsidiary to refrain from issuing or selling, or issuing any rights to
purchase or subscribe for, or subdividing or otherwise changing in any respect
shares of Innovex's or any Innovex Subsidiary's share capital or any Share
Acquisition Rights and (f) Innovex and each Innovex Subsidiary to refrain from
taking any of the actions referred to in Section 2.25 hereof. The Shareholders
and Innovex agree 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 Management Shareholders shall confer, and shall cause Innovex
and the Innovex Subsidiaries to confer, on a regular and frequent basis, with
one or more designated representatives of Quintiles to report operational
matters and to report the general status of ongoing operations.
4.2. Exclusive Dealing. During the period from the date of this
Agreement to the Closing (or the earlier termination of this Agreement pursuant
to Section 9.16 below) and except as otherwise authorized by Quintiles in
writing, the Shareholders shall, and the Management Shareholders shall cause
Innovex and the Innovex Subsidiaries to, and Innovex and the Innovex
Subsidiaries shall, refrain from taking any action directly or indirectly to
(a) encourage, initiate or engage in discussions or negotiations with, or
provide any information to, any Person other than Quintiles concerning any
proposal for the sale or purchase of any portion of the share capital
(including in a public offering) or twenty percent (20%) or more of the assets
of, or merger or other business combination, or similar transaction involving
Innovex or any Innovex Subsidiary and refrain from otherwise pursuing or
endorsing any such transaction, or (b) undertake or cause to
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occur any offering or sale of Innovex's or any of Innovex's Affiliates'
securities to the public (any such offering or sale being referred to herein as
a "Public Offering"); provided that this Section 4.2 shall not restrict Innovex
from consulting with its legal and financial advisors and its independent
accountants regarding the feasibility of a Public Offering in the event that
this Agreement is terminated. The Shareholders and Innovex shall notify
Quintiles promptly if any proposals concerning any merger, consolidation, sale
of assets, tender offer, sale of shares or similar transaction involving
Innovex, any Innovex Subsidiary or any significant assets of Innovex or any
Innovex Subsidiary (any such proposal being referred to herein as an
"Acquisition Proposal"), or if any request for confidential information
regarding Innovex or any Innovex Subsidiary is received, and shall provide to
Quintiles such information regarding any such Acquisition Proposal or request
as Quintiles shall reasonably request.
4.3. Access to Information. Except as required pursuant to any
confidentiality agreement or similar agreement or arrangement to which Innovex
or Quintiles or any of their respective Subsidiaries is a party or pursuant to
applicable law or the regulations or requirements of any stock exchange or
other regulatory organization with whose rules Innovex or Quintiles are
required to comply, from the date of this Agreement to the Closing, Innovex and
Quintiles shall (and shall cause their respective Subsidiaries to): (i)
provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives, collectively,
"Representatives") access at reasonable times upon prior notice to the
officers, employees, agents, properties, offices and other facilities of the
other and its Subsidiaries and to the books and records thereof and (ii)
furnish promptly such information concerning the business, properties,
contracts, assets, liabilities, personnel and other aspects of the other party
and its Subsidiaries as the other party or its Representatives may reasonably
request. No investigation conducted pursuant to this Section 4.3 shall affect
or be deemed to modify any representation or warranty made in this Agreement.
Subject to compliance with applicable law, from the date hereof until the
Closing, each of Innovex and Quintiles shall confer on a regular and frequent
basis with one or more representatives of the other to report on the general
status of ongoing operations and shall, upon reasonable notice, provide the
other with such financial and operating data and other information with respect
to its business and properties as the other party shall from time to time
reasonably request. In the event of termination of this Agreement without
consummation of the transactions contemplated hereby, each party shall keep
confidential any material information obtained from the others concerning their
respective 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, upon request, shall return all
copies of any schedules, statements, documents or other written information
obtained in connection therewith.
4.4. Conduct of Business of Quintiles and Quintiles Subsidiaries.
During the period from the date of this Agreement to the Closing Date,
Quintiles shall conduct its operations only according to its ordinary and usual
course of business. Notwithstanding the immediately preceding
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sentence, prior to the Closing (or the earlier termination of this Agreement
pursuant to Section 9.16 below), (a) except as may be first approved in writing
by Innovex or as is otherwise permitted or required by this Agreement, and
except in connection with the acquisition by Quintiles of BRI International
Inc. and related transactions, Quintiles shall not (i) merge, consolidate with
or consummate any other business combination with any person other than as
permitted by the following clause (ii), (ii) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest
in or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business entity,
in a transaction or series of related transactions for a purchase price in
excess of $100 million in the aggregate, or (iii) issue or sell, or issue any
rights to purchase or subscribe for, or subdivide or otherwise change in any
respect shares of Quintiles' share capital, except to the extent required by
law or by any existing plan or agreement, other than general increases in the
compensation of employees in the ordinary course of business consistent with
past practices and except for the issuance to directors, officers or employees
of Quintiles of options to purchase shares of Common Stock of Quintiles in a
manner and quantity consistent with past practices, and (b) unless Quintiles
has consulted beforehand with Innovex (except as is otherwise permitted or
required by this Agreement), Quintiles shall cause (i) the Quintiles
Organizational Documents to be maintained in their forms on the date of this
Agreement and (ii) Quintiles and each Quintiles Subsidiary to refrain from
entering into any Contracts for capital expenditures in an individual or
aggregate amount not to exceed L.1,000,000. Quintiles agrees not to take or
omit to take any action which would cause the representations and warranties
contained in Article III hereof to be or become untrue or incorrect.
4.5. Proxy Statement.
(a) As soon as practicable after the date of this Agreement,
Quintiles shall prepare for filing with the SEC and thereafter for circulation
to Quintiles' shareholders a proxy statement relating to the transactions
contemplated by this Agreement and the other Transaction Documents, and in
particular to the approval by such shareholders of the issuance of the
Quintiles Shares, as required by The Nasdaq Stock Market as a condition for
continued listing thereon. Quintiles shall cause such proxy statement to
comply (except as to information supplied by Innovex or any Shareholder, to
which information this covenant does not apply) with the applicable
requirements of (i) the Exchange Act, including without limitation, Sections
14(a) and 14(d) thereof and the respective regulations promulgated thereunder
and (ii) The Nasdaq Stock Market.
(b) The information supplied by Innovex, any Innovex
Subsidiary or any Shareholder for inclusion in any Filing (as defined in
Section 7.6 below) will not, at the time the filing is made, 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. Innovex shall
ensure that each Filing meets and complies in all material respects with all
applicable Laws, including all applicable rules
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under the Securities Act or the Exchange Act, as such Filing relates to
Innovex, any Innovex Subsidiary or any Shareholder.
(c) Quintiles shall call and hold a stockholders' meeting as
promptly as practicable for the purpose of voting upon the issuance of the
Quintiles Shares hereunder, and Quintiles shall use its best efforts (through
its agents or otherwise) to solicit from its stockholders proxies in favor of
the approval of such issuance, and shall take all other action necessary or
advisable to secure the affirmative vote of its stockholders required by
applicable law to secure such approval. The Proxy Statement shall include the
unanimous and unconditional recommendation of the Board of Directors of
Quintiles to the stockholders of Quintiles that they approve the issuance of
the Quintiles Shares contemplated by this Agreement. In addition, the Proxy
Statement will include the opinions of Goldman Sachs & Co. and Smith Barney
Inc. referred to in Section 3.17.
4.6. Pooling Letter. On or prior to the Closing Date, Innovex
shall cause to be executed and delivered to Quintiles' accountants a letter or
letters, dated the Closing Date, in form and substance reasonably satisfactory
to Quintiles and its accountants relating to "pooling of interests" accounting.
4.7. Redemption of Loan Notes. On or prior to the Closing Date,
Innovex shall satisfy in full and retire all of Innovex's issued and
outstanding loan notes (as described in Schedule 2.16) in accordance with the
terms thereof, such that none shall remain issued or outstanding thereafter.
4.8. Directors' and Officers' Indemnification and Insurance.
(a) For a period of six years after the Closing, Quintiles
shall cause to be maintained in effect the current directors' and officers'
liability insurance policies maintained by Innovex (provided that Quintiles
may, and in the event of the cancellation or termination of such policies,
shall substitute therefor policies reasonably satisfactory to the indemnified
parties of at least the same coverage containing terms and conditions which are
no less advantageous) with respect to claims arising from facts or events that
occurred prior to the Closing; provided, however, that Quintiles shall not be
required to maintain such insurance if it becomes unavailable on ordinary
commercial terms or if its cost of such insurance would exceed 115% of its
current cost (in which case the beneficiaries shall be given the opportunity to
pay the difference).
(b) This Section 4.8 is intended to be for the benefit of,
and shall be enforceable by, the indemnified parties, their heirs and personal
representatives, and shall be binding on Quintiles and its successors and
assigns.
4.9. Tax Covenant. As described in Section 1.5, it is the intent
of the parties that the Exchange be treated as a taxable transaction for United
States Federal income tax purposes. If,
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prior to the Closing, Quintiles determines that the Exchange may not be so
treated, then Innovex and Quintiles shall work together in good faith to modify
the transactions contemplated hereby, if feasible, to effectuate such intent.
Notwithstanding the foregoing, no such modification shall be made pursuant to
this Section 4.9 if such modification would change the material economic terms
of the transactions contemplated by this Agreement, result in the Exchange
being taxable to a holder of Innovex Shares who is resident in the United
Kingdom for United Kingdom tax purposes, or result in the transactions
contemplated hereby being treated other than as a "pooling transaction" under
United States Generally Accepted Accounting Principles.
4.10. Innovex Obligations. The Management Shareholders shall cause
Innovex to perform fully its obligations under this Agreement.
4.11. Reorganization. Notwithstanding the provisions of Section
4.1, as soon as practicable after the date of this Agreement, Innovex agrees,
and the Management Shareholders agree to cause Innovex, to implement a capital
reorganization pursuant to which Innovex shall issue to the Shareholders on a
pro rata basis shares of a new class or classes of foreign currency denominated
stock (collectively, the "New Shares") which shall carry substantially all of
the rights attaching to the Innovex Shares on the date of this Agreement and
shall be represented by share warrants to bearer, and the Innovex Shares shall
be converted into a single class or classes of deferred shares, each such share
carrying a right to an annual dividend equal to 0.001% of the nominal value of
the shares and be subject to the right of Innovex to buy the share at its
market value, provided that Innovex and the Shareholders shall have received
the tax clearance letters referred to in Section 6.7, taking into account the
proposed reorganization and provided that, prior to such reorganization,
Quintiles shall have agreed to indemnify the Shareholders and Innovex to their
reasonable satisfaction against: (i) any tax liabilities they may incur which
would not have arisen in the absence of such reorganization; (ii) the costs of
effecting a further reorganization to reverse the effects of the first
reorganization should Closing not occur; and (iii) any tax liabilities which
would not have arisen in the absence of such further reorganization. Upon such
reorganization, this Agreement shall be deemed amended to provide for the
exchange of all the New Shares, in lieu of the Innovex Shares, on the same
terms and conditions as set forth in Article I hereof, and as promptly as
practicable thereafter the parties shall enter into a written amendment to this
Agreement and take such other actions as may be necessary and appropriate to
effectuate the matters contemplated by this Section, to the reasonable
satisfaction of Quintiles.
4.12. Best Efforts. Each of the Shareholders, Innovex and Quintiles
shall use their respective best efforts in good faith to satisfy the various
conditions to Closing and to consummate the Exchange by November 30, 1996.
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ARTICLE V
CONDITIONS TO QUINTILES' OBLIGATIONS
Quintiles' 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 Shareholders' and Innovex's Counsel. Innovex
shall have furnished Quintiles with opinions, dated the Closing Date, of
Sullivan & Cromwell and Clifford Chance, counsel to Innovex and the
Shareholders, each in form and substance reasonably satisfactory to Quintiles.
5.2. Truth of Representations and Warranties. The representations
and warranties of the Shareholders and Innovex contained in this Agreement or
in any schedule attached hereto that are qualified as to materiality shall be
true and correct, and those not so qualified shall be true and correct in all
material respects, in each case 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, except for changes expressly contemplated by this Agreement or to
the extent that any representation or warranty is expressly made only as of a
specified date, in which case such representation or warranty shall be true as
of such date, and the Shareholders and Innovex shall have delivered to
Quintiles a certificate, dated the Closing Date, to such effect.
5.3. Performance of Agreements. All of the agreements of the
Shareholders and Innovex 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 Shareholders and Innovex shall have delivered to Quintiles a
certificate, dated the Closing Date, to such effect.
5.4. No Litigation. No action or proceedings shall have been
instituted before a court or other government body or by any public authority,
and no claim (other than any frivolous claim brought by a Person other than a
governmental entity) shall have been asserted, to restrain or prohibit any of
the transactions contemplated hereby.
5.5. Opinions of Accountants (Pooling of Interests). Quintiles
shall have received letters, dated the Closing Date, from KPMG, accountants for
Innovex, and Ernst & Young LLP, accountants to Quintiles, each in form and
substance satisfactory to Quintiles, regarding the appropriateness of pooling
of interests accounting treatment for the transactions contemplated by this
Agreement.
5.6. Opinions of Accountants (Tax Opinion). Quintiles shall have
received letters, dated the Closing Date, from KPMG, accountants for Innovex,
and Ernst & Young LLP, accountants to Quintiles, each in form and substance
satisfactory to Quintiles, regarding the treatment of the
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transactions contemplated by this Agreement as a taxable acquisition of the
Innovex Shares by Quintiles for purposes of United States Federal income tax
law.
5.7. Governmental and Other Approvals and Consents. All
governmental and other consents and approvals, if any, necessary to permit the
consummation by Innovex and the Shareholders of the transactions contemplated
by this Agreement and the other Transaction Documents, including without
limitation any necessary pursuant to or in connection with any License (as
defined in Section 2.19 above) or any material Contract described in Schedule
2.12, 2.13 or 3.9 or to which Innovex, any Innovex Subsidiary or Quintiles
otherwise is a party or by which Innovex, any Innovex Subsidiary or Quintiles
otherwise is bound, shall have been received, except where the failure to
obtain any such consents and approvals would not result in a Material Adverse
Effect on Innovex and its Subsidiaries taken as a whole or Quintiles and its
Subsidiaries taken as a whole; all anti-trust clearances shall have been
obtained as waiting periods expire or otherwise have been obtained or
terminated satisfactorily to Quintiles; and the shareholders of Quintiles shall
have approved the issuance of the Quintiles Shares hereunder (pursuant to the
applicable rules of the Nasdaq Stock Market).
5.8. Escrow Agreement. The Shareholders and the Escrow Agent (as
defined therein) shall have executed and delivered to Quintiles the Escrow
Agreement (as defined in Section 1.3 above).
5.9. Employment Agreements. Each of Barrie S. Haigh and other
Innovex employees in senior management positions, as reasonably determined by
Quintiles and Innovex (each a "Key Employee"), shall have executed and
delivered to Quintiles an employment agreement (i) as to Barrie S. Haigh, in a
form substantially equivalent to the existing Service Agreement (which shall be
terminated) between Innovex and Mr. Haigh dated March 31, 1993, provided that
Mr. Haigh's employment agreement shall provide that Mr. Haigh shall serve as
Vice Chairman of Quintiles at compensation and benefits comparable to that
afforded by Quintiles to its Level 2 employee and shall contain a
non-competition provision restricting Mr. Haigh for a period ending on the
later of the date Mr. Haigh reaches age 65 or two years after the end of his
employment with Quintiles, and (ii) as to the other Key Employees, in a form
(to replace existing agreements) containing provisions mutually satisfactory to
Quintiles, Innovex and such Key Employee, including, without limitation, a
non-competition provision to the fullest extent allowed by applicable law
(such employment agreements, collectively, the "Employment Agreements").
5.10. Termination of Certain Contracts. Innovex shall have
terminated (or arranged for termination contingent solely upon consummation of
the Closing), on terms and conditions satisfactory to Quintiles, each Contract
listed on a Schedule 5.10.
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5.11. Comfort Letter. Quintiles shall have received a comfort
letter, dated the date of the Proxy Statement and brought down on the date of
the Quintiles stockholders' meeting referred to in Section 4.5(c) above and the
Closing Date, from KPMG, accountants for Innovex, in each case in form and
substance satisfactory to Quintiles, regarding the combined financial
statements of Innovex and the Innovex Subsidiaries.
5.12. Registration Rights Agreement. The Shareholders shall have
executed and delivered to Quintiles a Registration Rights Agreement in the form
of Exhibit C attached hereto (the "Registration Rights Agreement").
5.13. Conversion to Private Company. A certificate of
registration of Innovex as a private company shall have been issued by the
Register of Companies under Section 55 of the Companies Act of 1985, and a true
and complete copy thereof shall have been delivered to Quintiles.
5.14. No Material Adverse Change. Since the date of this Agreement,
no event, fact, change, condition, circumstance or other development shall have
occurred that has had, or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Innovex and its Subsidiaries
taken as a whole, and Innovex shall have delivered to Quintiles a certificate,
dated the Closing Date, to such effect.
ARTICLE VI
CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS
The Shareholders' obligations pursuant to Section 1.1 of this
Agreement are conditioned upon satisfaction, on or prior to the Closing Date,
of each of the following conditions, provided, however, that only Innovex or
one or more Shareholders holding in excess of thirty (30%) percent of the
Innovex share capital shall be entitled to assert any failure of any such
condition as a basis not to perform any Shareholder's respective obligations
thereunder:
6.1. Opinion of Quintiles' Counsel. Quintiles shall have furnished
the Shareholders with the opinion, dated the Closing Date, of Smith, Anderson,
Blount, Dorsett, Mitchell & Jernigan, LLP, counsel to Quintiles (which may rely
as to matters of New York law on the opinion of Cravath, Swaine & Moore), in
form and substance reasonably satisfactory to Innovex and the Shareholders.
6.2. Truth of Representations and Warranties. The representations
and warranties of Quintiles contained in this Agreement or in any schedule
attached hereto that are qualified as to materiality shall be true and correct,
and those not so qualified shall be true and correct in all material respects,
in each case 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, except for
changes
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expressly contemplated by this Agreement or to the extent that any
representation or warranty is expressly made only as of a specified date, in
which case such representation or warranty shall be true as of such date, and
Quintiles shall have delivered to the Shareholders a certificate, dated the
Closing Date, to such effect.
6.3. Governmental and Other Approvals and Consents. All
governmental and other consents and approvals, if any, necessary to permit the
consummation by Quintiles of the transactions contemplated by this Agreement
and the other Transaction Documents, including without limitation any necessary
pursuant to or in connection with any License (as defined in Section 2.19
above) or any material Contract described in Schedule 3.9 or to which Quintiles
or any Quintiles Subsidiary otherwise is a party or by which Quintiles or any
Quintiles Subsidiary otherwise is bound, shall have been received, except where
the failure to obtain any such consents and approvals would not result in a
Material Adverse Effect on Quintiles and its Subsidiaries taken as a whole; all
anti-trust clearances shall have been obtained as waiting periods expire or
otherwise have been obtained or terminated satisfactorily to Innovex and the
Shareholders and the shareholders of Quintiles shall have approved the issuance
of the Quintiles Shares hereunder (pursuant to the applicable rules of the
Nasdaq Stock Market).
6.4. Employment Agreements. Quintiles shall have executed and
delivered to the other party thereto each of the Employment Agreements.
6.5. Registration Rights Agreement. Quintiles shall have executed
and delivered to the Shareholders the Registration Rights Agreement in the form
attached hereto as Exhibit C.
6.6. Performance of Agreements. All of the agreements of Quintiles
to be performed on or before the Closing Date pursuant to the terms hereof
shall have been duly performed in all material respects and Quintiles shall
have delivered to the Shareholders a certificate, dated the Closing Date, to
such effect.
6.7. Tax Letter. The Shareholders shall have received a letter,
dated prior to the Closing Date, from HM Inland Revenue, in form and substance
satisfactory to the Shareholders, giving clearance for the transactions
contemplated by this Agreement and the other Transaction Documents pursuant to
Section 138, Taxation of Chargeable Gains Act of 1992 and Section 707 of the
Income and Corporation Taxes Act, 1988.
6.8. No Litigation. No action or proceedings shall have been
instituted before a court or other government body or by any public authority,
and no claim (other than any frivolous claim brought by a Person other than a
governmental entity) shall have been asserted, to restrain or prohibit any of
the transactions contemplated hereby.
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6.9. Opinions of Accountants (Pooling of Interests). Innovex shall
have received letters, dated the Closing Date, from KPMG, accountants for
Innovex, and Ernst & Young LLP, accountants to Quintiles, each in form and
substance satisfactory to Innovex, regarding the appropriateness of pooling of
interests accounting treatment for the transactions contemplated by this
Agreement.
6.10. No Material Adverse Change. Since the date of this Agreement,
no event, fact, change, condition, circumstance or development shall have
occurred that has had, or could reasonably be expected to have individually or
in the aggregate a Material Adverse Effect on Quintiles and its Subsidiaries
taken as a whole, and Quintiles shall have delivered to Innovex a certificate,
dated the Closing Date, to such effect.
ARTICLE VII
CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES
7.1. Non-Interference; Confidentiality. Each Shareholder agrees
that from the Closing until the third anniversary thereof, such Shareholder
shall not:
(a) directly or indirectly, solicit, interfere with
Innovex's or Quintiles' relationships with, or entice away from Innovex or
Quintiles any customer, supplier, or other Person who or which has at any time
during the three (3) years immediately preceding the date of this Agreement or
at any time during which such Shareholder was an employee of or consultant to
Innovex done business with Innovex or Quintiles; provided that nothing herein
shall prevent HSBC Private Equity and Lloyds Development Capital or their
respective Affiliates from making investments in companies in the ordinary
course of its business; or
(b) use for any purpose or knowingly divulge, directly or
indirectly, to any Person, any material information concerning Innovex's or
Quintiles' proprietary records, formulae, computer programming techniques,
documentation, software source codes, object codes, documentation, "know-how",
processes, methods, research, development or marketing techniques, programs,
standard operating procedures and practices, materials or plans, client list or
any other of Innovex's or Quintiles' trade secrets, confidential information,
price lists or pricing policies, except information which is (i) in the public
domain or (ii) becomes public knowledge through no fault of such Shareholder or
(iii) is required to be disclosed by court order or other government process or
the disclosure of which is necessary to enable such Shareholder to comply with
applicable Law or defend against claims. In the event that such Shareholder
shall be required to make disclosure pursuant to the provisions of clause (iii)
of the preceding sentence, such Shareholder shall promptly notify Innovex and
Quintiles and take, at the expense of Innovex or Quintiles, all reasonably
necessary steps requested by Innovex or Quintiles to defend against the
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enforcement of such court order or other government process, and permit Innovex
and Quintiles to participate with counsel of its choice in any proceeding
relating to the enforcement thereof.
It is the desire and intent of the parties to this Agreement that the
provisions of this Section 7.1 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provisions or portion of this
Section 7.1 shall be adjudicated to be invalid or unenforceable, this Section
shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable, such amendment to apply only with
respect to the operation of such Section in the particular jurisdiction in
which such adjudication is made.
The parties recognize that the performance of the obligations under
this Section 7.1 by each of the Shareholders is special, unique and
extraordinary in character, and that in the event of the breach by any such
Shareholder of the terms and conditions of this Section 7.1 to be performed,
Quintiles shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either in law or in equity,
to obtain damages for any breach of this Section 7.1, to enforce the specific
performance thereof by such Shareholder or to enjoin such Shareholder from
performing services for any such other Person.
For purposes of this Section 7.1 only, the term "Quintiles" shall
include Quintiles and all Affiliates of Quintiles, and the term "Innovex" shall
include Innovex and all Affiliates of Innovex.
7.2. Placement and Stock Transfer Restrictions and Related Matters.
(a) Pooling of Interests Accounting.
(i) Each party to this Agreement agrees that from
and after the date of this Agreement, such party shall not take any action, or
knowingly fail to take any action, which action or failure is reasonably likely
to disqualify the transactions contemplated by this Agreement from pooling of
interests accounting treatment by Quintiles, and that such party shall take all
reasonable actions necessary to cause the transactions contemplated by this
Agreement to qualify as a pooling of interests if such characterization shall
be jeopardized by action taken by such party. Without limiting with the
foregoing, each Shareholder agrees that such Shareholder shall not sell,
transfer, pledge, or otherwise dispose of such Shareholder's interests in or
reduce such Shareholder's risk relative to any of the Quintiles Shares until
Quintiles shall have published financial results covering at least thirty (30)
days of combined operations of Quintiles and Innovex after consummation of the
transactions contemplated by this Agreement. Each of the Shareholders and
Innovex acknowledge and agree with Quintiles that none of the Shareholders or
Innovex is a party to any agreement or arrangement among themselves or with
third parties
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regarding the transactions contemplated by this Agreement and the other
Transaction Documents or the subject matter hereof and thereof, except as set
forth on Schedule 7.2(a).
(ii) Prior to the Closing, Quintiles shall deliver
to Innovex a list of names and addresses of those persons who are or may be, in
Quintiles' reasonable judgment, affiliates of Quintiles within the meaning of
Rule 145 of the rules and regulations promulgated under the Securities Act or
applicable SEC accounting releases with respect to pooling of interests
accounting treatment (each such persons, a "Pooling Affiliate"). Quintiles
also shall provide Innovex with such information and documents as Innovex shall
reasonably request for purposes of reviewing such list. Prior to the Closing,
Quintiles shall deliver to Innovex an affiliate letter, in form and substance
reasonably satisfactory to Innovex, executed by each of the Pooling Affiliates
identified in the foregoing list.
(iii) Prior to the Closing, Innovex shall deliver
to Quintiles a list of names and addresses of those persons who are or may be,
in Innovex's reasonable judgment, Pooling Affiliates of Innovex. Innovex also
shall provide Quintiles with such information and documents as Quintiles shall
reasonably request for purposes of reviewing such list. Prior to the Closing,
Innovex shall deliver to Quintiles an affiliate letter, in form and substance
reasonably satisfactory to Quintiles, executed by each of the Pooling
Affiliates of Innovex identified in the foregoing list.
(b) Tax Treatment. From and after the date of this
Agreement, each party to this Agreement shall take all reasonable actions
necessary to cause the transactions contemplated by this Agreement to qualify
as a tax-free rollover pursuant to United Kingdom tax law and as a taxable
acquisition of the Innovex Shares by Quintiles for purposes of United States
Federal income tax law.
(c) Private Placement Participants
(i) Each certificate representing Quintiles Shares
delivered to any Shareholder identified as a private placement participant on
Exhibit A (each such Shareholder, together with any permitted transferee, a
"Private Placement Participant") shall include the following legend:
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE UNITED STATES OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION EXCEPT PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, SUCH REGISTRATION
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REQUIREMENTS. IN THE CASE OF ANY TRANSFER OR OTHER DISPOSITION MADE OTHERWISE
THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
THE HOLDER HEREOF SHALL BE REQUIRED TO PROVIDE TO THE ISSUER HEREOF AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH
ALL APPLICABLE STATE SECURITIES LAWS, AND AN AGREEMENT BY THE TRANSFEREE TO BE
BOUND BY THE TRANSFER RESTRICTIONS SET FORTH IN THE AGREEMENT PURSUANT TO WHICH
THIS SECURITY WAS FIRST SOLD BY THE ISSUER.
(ii) Each Private Placement Participant
individually represents, warrants and covenants as follows:
(A) Such Private Placement Participant
understands that the Quintiles Shares are being issued to such Private
Placement Participant in reliance on an exemption from the registration
requirements of the Securities Act for an offer and sale of securities that
does not involve a public offering and have not been registered under the
Securities Act or with any securities regulatory authority of any state of the
United States or other jurisdiction and, therefore, that such Quintiles Shares
(and all securities issued in exchange therefor or in substitution thereof)
cannot be resold in the absence of such registration except pursuant to an
exemption from, or in a transaction not subject to, such registration
requirements. Such Private Placement Participant agrees that it shall not
transfer any Quintiles Shares except in a transaction registered under the
Securities Act or unless such Private Placement Participant shall have
delivered to Quintiles an opinion of United States counsel, which counsel and
opinion shall be reasonably satisfactory to Quintiles, that such transfer is
being effected in accordance with an available exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and a written instrument, in form and substance reasonably satisfactory to
Quintiles, from the transferee agreeing to be bound hereby. Such Private
Placement Participant is aware that Quintiles is under no obligation to effect
any such registration under the Securities Act or otherwise with respect to
such Quintiles Shares (or any securities issued in exchange thereof or in
substitution thereof) or to file for or comply with any exemption from such
registration except as set forth in the Registration Rights Agreement.
(B) Such Private Placement Participant
is an "accredited investor" (as defined in Regulation D under the Securities
Act), with such knowledge and experience in financial and business matters as
are necessary in order to evaluate the merits and risks of any investment in
the Quintiles Shares.
(C) Such Private Placement Participant
will acquire the Quintiles Shares for its own account and not with a view to
any distribution (within the meaning of the Securities Act) thereof or with any
present intention of offering or selling any of the Quintiles
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Shares in a transaction that would violate the Securities Act or the securities
Laws of any state of the United States or any other applicable jurisdiction.
(D) Such Private Placement Participant
acknowledges that any resale or other transfer, or attempted resale or other
transfer, made other than in compliance with the restrictions stated herein
shall not be recognized by Quintiles in respect of the Quintiles Shares, and
that Quintiles may deliver a corresponding stop-transfer order to its transfer
agent (the "Transfer Agent") to that effect.
(E) Such Private Placement Participant
has not engaged, and during the Restricted Period (as defined below) will not
engage, in any "directed selling efforts" (as defined below) with respect to
the Quintiles Shares.
(iii) Quintiles shall, upon the written request of
a Private Placement Participant to remove the legend set forth in subsection
(c)(i), together with delivery to Quintiles of an opinion of counsel to such
Private Placement Participant, which counsel and opinion shall be reasonably
satisfactory to counsel to Quintiles, stating that such Quintiles Shares are no
longer "restricted securities" within the meaning of Rule 144 under the
Securities Act and that such legend is no longer required on the certificate or
certificates evidencing such Quintiles Shares under the applicable requirements
of the Securities Act or applicable state securities or "blue sky" Laws, direct
its transfer agent to issue a certificate representing such Quintiles Shares
without such legend upon surrender to the Transfer Agent of the certificate
with such legend.
(d) Regulation S Participants
(i) Each certificate representing Quintiles
Shares delivered to any Shareholder identified as a Regulation S participant on
Exhibit A (each such Shareholder, together with any permitted transferee, a
"Regulation S Participant") shall include the following legend:
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE UNITED STATES OR
OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF PRIOR TO THE EXPIRATION OF A RESTRICTED PERIOD (DEFINED
AS 40 DAYS AFTER THE CLOSING DATE OF THE SHARE EXCHANGE AGREEMENT AMONG THE
ISSUER, INNOVEX LIMITED AND OTHERS ("THE SHARE EXCHANGE AGREEMENT")) EXCEPT IN
AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT
AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES AND OF ANY OTHER JURISDICTION. IN ADDITION, NO SUCH DISPOSITION
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MAY BE MADE UNLESS PRIOR TO SUCH TRANSFER THE HOLDER AND PROPOSED TRANSFEREE
DELIVER TO THE ISSUER CERTAIN CERTIFICATIONS AND OPINIONS OF COUNSEL AND THE
PROPOSED TRANSFEREE MAKES CERTAIN REPRESENTATIONS AND WARRANTIES AND AGREES TO
CERTAIN COVENANTS, ALL AS SET FORTH IN THE SHARE EXCHANGE AGREEMENT.
UPON THE EXPIRATION OF THE RESTRICTED PERIOD (AS DEFINED
ABOVE), THIS SECURITY SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED
IN THIS LEGEND, IF AT THE TIME OF SUCH EXPIRATION THIS SECURITY WOULD NOT BE
RESTRICTED UNDER THE SECURITIES LAWS OF THE UNITED STATES OR ANY STATE OF THE
UNITED STATES.
(ii) Each Regulation S Participant and each
purchaser of Quintiles Shares in subsequent resales prior to the end of the
Restricted Period referred to below, individually represents, warrants and
covenants (or shall be deemed to have represented, warranted and covenanted, if
not a party to this Agreement) as follows:
(A) Such Regulation S Participant
understands that the Quintiles Shares are being issued to such Regulation S
Participant in reliance on Regulation S promulgated pursuant to the Securities
Act ("Regulation S") and have not been registered under the Securities Act or
with any securities regulatory authority of any state of the United States or
other jurisdiction and, therefore, that such Quintiles Shares (and all
securities issued in exchange therefor or in substitution thereof) cannot be
resold in the absence of such registration except pursuant to an exemption
from, or in a transaction not subject to, such registration requirements. Such
Regulation S Participant is aware that Quintiles is under no obligation to
effect any such registration under the Securities Act or otherwise with respect
to such Quintiles Shares (or any securities issued in exchange therefor or in
substitution thereof), or to file for or comply with any exemption from such
registration except as set forth in the Registration Rights Agreement.
(B) Such Regulation S Participant is,
and any person for whose account it is acquiring the Quintiles Shares is,
outside the United States (as defined under Regulation S), and with respect to
the initial Regulation S Participants, this Agreement was executed, and the
investment decision to enter into this Agreement was made, outside the United
States.
(C) Such Regulation S Participant is not
in the business of buying and selling securities or, if it is in such business,
it did not acquire the Quintiles Shares from Quintiles or an affiliate thereof
in the initial distribution of Quintiles Shares.
(D) Such Regulation S Participant will
not offer, sell or deliver any of the Quintiles Shares until 40 Days after the
Closing Date (the "Restricted Period") except in an
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"offshore transaction" (as defined in Regulation S) in accordance with Rule 904
of Regulation S and in accordance with this Agreement.
(E) Such Regulation S Participant has
not and will not, until the expiration of the Restricted Period, directly or
indirectly, execute or effect any short sale, option or equity swap
transactions in or relating to the Quintiles Shares or any other derivative
securities transactions the purpose or effect of which is to transfer to a
third party all or any part of the risk of loss associated with the Quintiles
Shares to be acquired by the Regulation S Participant.
(F) Such Regulation S Participant
acknowledges that any resale or other transfer, or attempted resale or other
transfer, which Quintiles determines in good faith was made other than in
compliance with the restrictions stated herein shall not be recognized by
Quintiles in respect of such Quintiles Shares, and that Quintiles may deliver a
corresponding stop-transfer order to the Transfer Agent to that effect.
(G) The certificates representing the
Quintiles Shares to be delivered to the Regulation S Participants will be
delivered to Goldman Sachs International, as each Regulation S Participant's
representative, to be held in custody for delivery to each Regulation S
Participant within 5 business days after the "Delivery Date", which will be the
first business day after the expiration of the Restricted Period. If a
Regulation S Participant intends to transfer any of the Quintiles Shares or an
interest or participation therein prior to the Delivery Date, the Regulation S
Participant shall deliver to Quintiles (i) a written certificate that neither
record nor beneficial ownership of the shares evidenced thereby has been
offered or sold in the United States, or to or for the account or benefit of a
"U.S. person" (as defined in Regulation S), (ii) a written certification of the
proposed transferee in form and substance reasonably satisfactory to Quintiles
that such transferee is not a "U.S. person" or acquiring such Quintiles Shares
for the account or benefit of a "U.S. person", and that such transferee is
knowledgeable of and agrees to be bound by the restrictions on transfer and
derivative activities set forth herein during the Restricted Period and (iii) a
written opinion of counsel to the transferee, which counsel and opinion shall
be reasonably satisfactory to Quintiles, to the effect that the offer, sale and
transfer of the Quintiles Shares are not subject to registration under the
Securities Act, upon delivery of which Quintiles shall instruct Goldman Sachs
International to deliver such Regulation S Participant's certificate(s)
thereto. Any Regulation S Participant may obtain a certificate for the
Quintiles Shares without the legend set forth in subsection (d)(i) hereof from
the Transfer Agent after the Delivery Date upon surrender to the Transfer Agent
of the certificate representing the relevant Quintiles Shares.
(H) Such Regulation S Participant has
not engaged in, and during the Restricted Period will not engage in, any
"directed selling efforts" (as defined in Regulation S) with respect to the
Quintiles Shares.
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(e) Innovex Representations, Warranties and Covenants with
Respect to Placement of Quintiles Shares.
(i) Neither Innovex nor any of its Affiliates,
nor any Person acting on its or their behalf has made or will make, directly or
indirectly, offers or sales of any security, or has solicited or will solicit
offers to buy any security, under circumstances that would require the
registration under the Securities Act of the issuance of the Quintiles Shares
hereunder.
(ii) Neither Innovex, nor any of its Affiliates,
nor any Person acting on its or their behalf has engaged in or will engage in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the issuance of the
Quintiles Shares hereunder.
(iii) Innovex has not engaged, and during the
Restricted Period will not engage, in any "directed selling efforts" (as
defined in Regulation S under the Securities Act) with respect to the Quintiles
Shares.
7.3. Non-Solicitation. Each of Quintiles (for itself and its
Subsidiaries) and Innovex (for itself and its Subsidiaries) agrees that between
the date of this Agreement and the earlier to occur of the Closing and the date
on which this Agreement is terminated pursuant to its terms, it shall not
solicit, induce or recruit any of the other's employees to leave their
respective employment.
7.4. Management Issues.
(a) Board of Directors. As soon as practicable after the
Closing, Quintiles shall cause Barrie S. Haigh and Paul Knott to be designated
as directors of Quintiles and cause Barrie S. Haigh to be designated as
Vice-Chairman of Quintiles' board of directors, such designations to be
effective as of the first meeting of Quintiles' board of directors subsequent
to the Closing. Innovex may also nominate up to one additional person for
election as a non-executive member of Quintiles' board of directors, such
nomination to be presented to the first meeting of Quintiles' shareholders
subsequent to the Closing. Paul Knott also shall become an employee of
Quintiles and report to the Chief Financial Officer of Quintiles.
(b) Executive Management Committee. As soon as
practicable after the Closing, Quintiles shall reconstitute the membership of
its Executive Management Committee to include executive officers at the
Quintiles Corporate level (including the Chairman, Vice-Chairman, COO, CFO and
EVP) and two executives from each of the three divisions described below in
Section 7.4(c)(i). David White and David Stack will be appointed to the
Executive Management Committee commencing the first meeting after the Closing
to represent the Innovex Division. Barrie S. Haigh will serve on the Executive
Management Committee in his capacity as Vice
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Chairman, representing Quintiles' overall business development interests.
Quintiles' Chief Operating Officer shall chair the Executive Management
Committee.
(c) Preservation of Innovex Identity.
(i) Divisional Status. Innovex (together with
its Subsidiaries) shall continue its separate corporate existence, operating
under the name "Innovex, a division of Quintiles Transnational Corp." (the
"Innovex Division"). It is understood and acknowledged by the parties that two
further divisions of Quintiles will also be formed subsequent to the Closing,
comprising the Quintiles division (focusing on clinical research) and the Lewin
division (concentrating on managed care).
(ii) Strategic Focus. The Innovex Division will
have the strategic focus of supplying outsourcing services to the
pharmaceutical industry during the product peri-launch period (the two years
before and the two years subsequent to the receipt of regulatory approval for
customers' pharmaceutical products). It is understood and acknowledged by the
parties hereto that the strategic focus of the Innovex Division encompasses,
among other things, (A) Phase IIIb and Phase IV clinical testing, as well as
large simple trials of pharmaceutical products, (B) disease management services
and related added-value marketing services, (C) sales services and (D)
marketing and distribution services. It is understood, however, that clinical
and disease management functions may be coordinated or combined with the other
divisions as appropriate.
(iii) Divisional Management. Each of the Innovex
Division, the Quintiles division and the Lewin division will create its own
executive management team. The CEO of the Innovex Division shall report to the
COO of Quintiles.
(iv) Announcements. Consistent with the aim of
preserving Innovex's separate identity, any press announcement by Quintiles or
Innovex regarding this Agreement, the other Transaction Documents or the
transactions contemplated hereby or thereby, will refer to such transactions as
a financial pooling and/or a business combination.
(d) Steering Committee. Upon the execution and delivery
of this Agreement, Quintiles and Innovex will establish a committee (the
"Steering Committee") for the purpose of, to the extent permitted by applicable
law, advising executive management and further facilitating the efficient
combination of the respective businesses of Quintiles and Innovex as promptly
as practicable following the Closing. The Steering Committee will initially
consist of a number of integration teams comprising, in aggregate, 34 members,
17 of whom will be designated by Quintiles and 17 of whom will be designated by
Innovex.
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(e) Business Development Function. Upon the execution
and delivery of this Agreement, Quintiles and Innovex will establish a business
development matrix organization (the "Business Development Function") for the
purpose of developing increased business subsequent to the Closing through the
coordination of all client relationships. The Business Development Function
will involve all business development personnel in each division of Quintiles
and will report to the Vice Chairman.
(f) Employees. Each person who is an officer or employee
of Innovex (or any of its Subsidiaries) shall, after the Closing, remain an
employee of the Innovex Division, until such person's employment is terminated.
Nothing herein shall be deemed or construed to give rise to a right of
employment. As of the Closing, Quintiles will offer employee benefit plans and
programs to employees who continue in the employ, or become employed by, the
Innovex Division that, taken as a whole, are comparable to the employee benefit
plans and programs provided to employees of Innovex as of the date hereof
(except as otherwise provided herein); provided, however, that the terms and
conditions of such employee benefit plans and programs may be varied or
eliminated at any time subsequent to the first anniversary of the Closing Date
in a manner determined by the Compensation Committee of Quintiles Board of
Directors, the members of which shall be comprised of a majority of external
directors.
(g) Duration and Effect. The provisions of this Section
7.4 represent the current intent of Quintiles, and Quintiles will exercise good
faith efforts to comply with the provisions of this Section 7.4 for a period of
18 months after the Closing (or any shorter period specified herein.)
Notwithstanding anything to the contrary herein, it is understood that
Quintiles retains ample discretion to manage its business in the best interests
of its shareholders, and that good faith modifications of or variances from
these provisions in the exercise of such discretion are appropriate and
permitted. Accordingly, except as to employee benefits as set forth in Section
7.4(f) above, the provisions of this Section 7.4 are unenforceable and only an
expression of current intent.
7.5. No Acquisition of Quintiles Shares. Except with Quintiles'
prior written consent, neither Innovex, any Shareholder, nor any of their
respective Affiliates shall purchase or otherwise acquire, directly or
indirectly, any securities of Quintiles during the period from the date of this
Agreement until the Closing; provided that, subject to Section 7.2(a)(i) this
provision will not prevent any Shareholder that is an institutional trustee or
any affiliate of any Shareholder (other than a Management Shareholder) from
purchasing and selling securities in the ordinary course of its business not
with a view towards controlling Quintiles.
7.6. Cooperation with Securities Filings. Innovex and the
Shareholders will cooperate, and will cause their respective financial,
accounting and legal advisors to cooperate, with Quintiles
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in the preparation and filing of all documents and materials (each a "Filing")
required or elected to be disclosed or reported by Quintiles pursuant to
applicable securities Laws in connection with the transactions contemplated by
this Agreement and the other Transaction Documents or to the extent otherwise
relating to or concerning Innovex or any Shareholder, including without
limitation Quintiles' definitive proxy statement relating to the Exchange and
Quintiles' registration statement on Form S-4 relating to Quintiles' pending
transaction with BRI International, Inc. To that end, Innovex and the
Shareholders shall furnish to Quintiles, as promptly as is practicable after
Quintiles' request therefor, such data and information relating to Innovex, the
Innovex Subsidiaries and the Shareholders and such financial statements of
Innovex and the Innovex Subsidiaries and opinions, comfort letters and consents
of independent certified public accountants relating thereto as, in the opinion
of counsel for Quintiles, shall be required by Law to be disclosed or reported
by Quintiles or as are otherwise determined by Quintiles to be reasonably
necessary or appropriate in connection therewith. Quintiles shall provide a
draft of each Filing to Innovex promptly following the preparation thereof.
Innovex shall approve all disclosures concerning Innovex, any Innovex
Subsidiary or any Shareholder in each Filing (or shall notify Quintiles of any
changes requested in such disclosures) promptly following receipt of the
corresponding draft from Quintiles. In the event that Innovex shall not have
responded as promptly as reasonably practical to the delivery of any draft
Filing by Quintiles, Innovex shall be deemed to have approved any disclosures
concerning Innovex, any Innovex Subsidiary or any Shareholder in such Filing.
If, at any time prior to the Closing, any event should occur relating to
Innovex, any Innovex Subsidiary or any Shareholder which should be set forth in
an amendment of, or a supplement to, any Filing, Innovex will promptly inform
Quintiles.
7.7. Nasdaq National Market Listing. Quintiles shall use its best
efforts to cause Quintiles Shares to be approved for listing on the Nasdaq
National Market, subject to official notice of issuance, prior to the Closing
Date.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNITY
8.1. Survival of Representations. The respective representations
and warranties of the Shareholders contained in this Agreement or in any
schedule attached hereto shall survive the consummation of the Exchange 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 Quintiles until the
earlier of the closing of the Initial Secondary Offering (as defined in the
Registration Rights Agreement) or March 31, 1997 (the period ending on such
earlier date being referred to herein as the "Representations Period"), except
that such representations and warranties shall survive indefinitely in the
event of fraud with respect thereto. No claim for indemnification pursuant to
Section 8.2(a) below may be
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brought after the expiration of the Representations Period, except for claims
made in good faith in writing and setting forth in reasonable detail the claim
prior to such expiration or actions (whether instituted before or after such
expiration) based on any claims made in good faith in writing and setting forth
in reasonable detail the claim prior to such expiration, regardless of whether
any action or demand has been commenced against Quintiles (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). The representations and warranties of Quintiles contained in this
Agreement or in any schedule attached hereto shall terminate upon and not
survive the consummation of the Exchange, except in the event of fraud by
Quintiles with respect thereto, in which case they shall survive indefinitely.
8.2. Indemnification.
(a) From and after the Closing, Quintiles and its
Affiliates (including Innovex and its Subsidiaries) and all of their
respective officers, directors, employees (other than the Key Employees),
agents and shareholders (other than the Shareholders) (each, an "Indemnitee")
shall be defended, indemnified and held harmless pursuant 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 Innovex or any Shareholder 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 Quintiles in connection
with this Agreement, and (ii) the enforcement by Quintiles of its rights
pursuant to this Section 8.2, or any litigation, proceeding or investigation
relating to any of the foregoing.
(b) Notwithstanding the foregoing provisions of this
Section 8.2, and except with respect to any misrepresentation or
non-fulfillment of the representations and warranties in Section 2.1 above and
in the last sentence of Section 2.26 above or any breach of any post-Closing
covenant contained in Article VII above, or any Losses resulting from or
arising out of fraud or other intentional or knowing misconduct or
misrepresentation, as to which (in each case) the party or parties breaching
such representation, warranty or covenant or responsible for such fraud,
misconduct or misrepresentation shall be jointly and severally liable to
Quintiles without limitation, (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
Escrow Fund (the "Indemnity Cap"), (ii) the Indemnitees shall not be entitled
to indemnification under subsection (a) above for any amount unless and until
the aggregate of all amounts for which the Indemnitees otherwise would be
entitled to be indemnified exceeds
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$750,000 (in the aggregate), after which the Indemnitees shall be indemnified
in full for the excess, up to the Indemnity Cap, and (iii) the sole monetary
recourse of any Indemnitee in respect or Losses described in subsection (a)
above (but not in respect of any other claim) shall be from, out of, and to the
extent of the Escrow Fund. For purposes of determining whether the aggregate
of all amounts for which the Indemnitees would otherwise be entitled to be
indemnified exceeds $750,000, the amount of each indemnifiable claim and the
aggregate amount of all indemnifiable claims shall not be limited by 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 $750,000.
(c) Notwithstanding any other provision of this
Agreement:
(i) as of and after the Closing, Innovex shall
have no liability under this Agreement, and no Shareholder shall threaten or
bring any claim or action whatsoever against Innovex for contribution to any
amounts payable under this Section 8.2 by such Shareholders.
(ii) in the event that the Agreement is terminated
by Quintiles following a breach of a representation by Innovex in this
Agreement, Innovex's liability shall be limited to the out-of-pocket expenses
incurred by Quintiles. Innovex shall have no liability at all to Quintiles for
breach of Section 2.1(a), the last sentence of Section 2.26, or Sections 2.27
or 2.28 (as Sections 2.27 and 2.28 relate to the Shareholders). Furthermore,
Innovex shall only have liability if the representations given by Innovex are
breached after the date hereof by reason of its own neglect or default.
(iii) the maximum liability of any Shareholder
that is a trustee of a trust the assets of which include Innovex Shares shall
be limited to the value of the trust assets held by them directly or indirectly
as trustees of the relevant trust; provided that this limitation on the
liability of the trustees shall not apply for the benefit of any trustee in the
event of a deliberate or reckless breach by that trustee of any of its
obligations under this Agreement.
(d) Except as expressly set forth elsewhere in this
Agreement or to the extent of the application of the nonbreaching Shareholder's
interest in the Escrow Fund, no nonbreaching Shareholder will suffer any
liability for a breach of this Agreement by any other party.
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ARTICLE IX
MISCELLANEOUS
9.1. Definitions of Certain Terms. As used in this Agreement, the
following capitalized terms shall have the respective meanings set forth below:
(a) "Affiliate" shall mean, with respect to any Person,
any Person which, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with such Person.
(b) "Casualty" shall mean any fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or act of
God or other public force.
(c) "Code" shall mean the United States Internal Revenue
Code and all rules and regulations promulgated thereunder from time to time, in
each case as amended.
(d) "Contract" shall mean any contract, agreement,
indenture, instrument or other binding commitment or arrangement of any kind.
(e) "Encumbrance" shall mean any lien, encumbrance,
security interest, mortgage, pledge, lease, option, easement, servitude,
covenant, condition, restriction under any Contract, or other charge,
restriction or claim of any kind.
(f) "Exchange Act" shall mean the United States
Securities Exchange Act of 1934 and all rules and regulations promulgated
thereunder from time to time, in each case as amended.
(g) "Indebtedness" shall mean any indebtedness for money
borrowed, guarantee, or letter of credit or other credit enhancement.
(h) "Law" shall mean any supranational, national,
federal, state, local or foreign law, rule, regulation, statute, ordinance,
order, judgment, decree, permit, franchise, license or other governmental
restriction or requirement of any kind.
(i) "Material Adverse Effect" shall mean any material
adverse effect on the business, financial condition, results of operations, or
prospects of the affected party, including without limitation any effect which
prevents or impairs materially such party's performance of its obligations
under, or the consummation of, this Agreement.
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(j) "Organizational Document" shall mean any memorandum
or articles of association, certificate or articles of incorporation, bylaw,
board of directors' or shareholders' resolution, or other corporate document or
action comparable to any of the foregoing currently in effect.
(k) "Person" shall mean any individual, partnership,
joint venture, corporation, trust, limited liability company, unincorporated
organization, government (or subdivision thereof) or other entity.
(l) "SEC" shall mean the United States Securities and
Exchange Commission.
(m) "Securities Act" shall mean the United States
Securities Act of 1933 and all rules and regulations promulgated thereunder
from time to time, in each case as amended.
(n) "Stock Acquisition Right" shall mean any option,
warrant, right (pre-emptive or otherwise), call, commitment, conversion right,
right of exchange, plan or other agreement of any character providing for the
purchase, issuance or sale of any securities.
(o) "Subsidiary" means any Person in which the affected
party owns, directly or indirectly, a majority of the voting share capital or
other voting equity interests.
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; provided that upon
Closing, Quintiles shall pay the expenses regarding this transaction which
otherwise would be paid by the Shareholders.
9.3. Remedies Not Exclusive. Except as specifically provided in
Section 8.2(b) above, nothing in this Agreement shall limit or restrict in any
manner any other rights or remedies any party hereto may have against any other
party hereto at law, in equity or otherwise, including without limitation any
such rights pursuant to any Employment Agreement.
9.4. Governing Law; Submission to Jurisdiction. The interpretation
and construction of this Agreement, and all matters relating hereto, shall be
governed by the Laws of the State of New York, without regard to the conflicts
of law provisions thereof. Each of the Shareholders, Innovex and Quintiles
irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of
the State of New York, New York County, and (b) the United States District
Court for the Southern District of New York, for the purposes of any suit,
action or other proceeding arising out of this Agreement or any transaction
contemplated hereby. Each of the Shareholders, Innovex and Quintiles further
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit
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or proceeding in New York with respect to any matters to which it has submitted
to jurisdiction in this Section 9.4. Each of the Shareholders, Innovex and
Quintiles irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the
Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
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 or
the applicable requirements of any securities exchange or market or regulatory
authority, 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 Quintiles' (in the
case of any proposed disclosure by Innovex or any of its Affiliates) or
Innovex's (in the case of any proposed disclosure by Quintiles or any of its
Affiliates) 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 confirmed telex or telecopy or by recognized overnight courier, postage
prepaid, addressed as follows:
If to Quintiles, to:
Quintiles Transnational Corp.
4709 Creekstone Drive, Riverbirch Building, Suite 300
Durham, North Carolina 27703
Attention: Gregory D. Porter, Esq.
54
<PAGE> 60
with a copy to its counsel,
Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, LLP
2500 First Union Capitol Center
Raleigh, North Carolina 27601
Attention: Gerald F. Roach, Esq.
If to any Shareholder, to:
Such Shareholder's address appearing on Exhibit A attached hereto.
If to Innovex, to:
Innovex Limited
Innovex House, Marlow Park
Marlow, Buckinghamshire SL7 1TB
England
Attention: Paul Knott
with a copy to its counsel
Sullivan & Cromwell
St. Olave's House
9a Ironmonger Lane
London EC2V 8EY
England
Attention: Scott D. Miller, Esq.
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 confirmed or deposited.
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, except that Quintiles may transfer or assign
this Agreement or any of Quintiles' rights or obligations hereunder to any
Affiliate of Quintiles, provided that no such transfer or assignment shall
relieve Quintiles of any of its obligations hereunder. 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.
55
<PAGE> 61
9.11. Entire Agreement. This Agreement, including the other
documents referred to herein which form a part hereof and together with the
confidentiality agreement referred to below, 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 except for that certain
Confidential Disclosure Agreement dated June 3, 1996 between Innovex and
Quintiles which shall remain in full force and affect and shall not be limited
or otherwise affected hereby. 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. Except as otherwise provided herein, 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. Except as otherwise provided by
Section 8.2, 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.
9.16. Termination of Agreement. The parties hereto shall be
entitled to terminate this Agreement as follows, provided that (i) no such
termination shall limit or terminate any liability of
56
<PAGE> 62
one party to another for any breach hereof, (ii) the provisions of Sections 7.1
(confidentiality), 8.2 (indemnification), 9.2 (expenses) and 9.7 (publicity)
shall survive any such termination, and (iii) in the case of a termination
below other than by Quintiles, only Innovex or one or more Shareholders holding
in excess of thirty (30%) percent of the Innovex share capital shall be
entitled to terminate this Agreement:
(a) the parties hereto may terminate this Agreement by
mutual written consent at any time;
(b) Quintiles may terminate this Agreement by written
notice to the Shareholders and Innovex on or prior to the Closing Date if any
Shareholder or Innovex shall have breached in any material respect any
representation, warranty or covenant contained in this Agreement;
(c) Quintiles may terminate this Agreement by written
notice to the Shareholders and Innovex on or prior to the Closing Date upon a
breach of Section 4.2 above;
(d) Quintiles or Innovex may terminate this Agreement by
written notice to the parties hereto if the consummation of the transactions
contemplated hereby shall not have occurred on or before December 31, 1996; and
(e) 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.
In the event this Agreement shall be terminated prior to the
Closing Date, no party shall be liable to any other party under this Agreement
or otherwise except for actual out-of-pocket expenses of a non-breaching party
arising in connection with this Agreement; provided, however, that the
foregoing limitation shall not apply to any intentional breach of this
Agreement or any breach of Section 4.2; provided further that in the event
Management Shareholders and Innovex are liable for Quintiles' actual
out-of-pocket expenses, each Management Shareholder shall be liable only for
such Management Shareholder's pro rata (among Management Shareholders'
interests as a group) percentage of such out-of-pocket expenses.
[Signatures follow on next page]
57
<PAGE> 63
IN WITNESS WHEREOF, Quintiles and Innovex have caused their respective
corporate names to be hereunto subscribed by their respective officers
thereunto duly authorized, and each of the Shareholders has executed this
Agreement, all as of the day and year first above written.
QUINTILES TRANSNATIONAL CORP.
By: /s/ DENNIS GILLINGS
---------------------------------------
Name: Dennis Gillings
Title: Chief Executive Officer and
Chairman
INNOVEX LIMITED
By: /s/ BARRIE S. HAIGH
---------------------------------------
Name: Barrie S. Haigh
Title: Executive Chairman
SHAREHOLDERS:
/s/ BARRIE S. HAIGH
-------------------------------------------
Barrie S. Haigh
/s/ STELLA D. FREEMAN
-------------------------------------------
Stella D. Freeman
TRUSTEES OF THE BARRIE S. HAIGH
CHILDREN'S SETTLEMENT NO. 1
By: /s/ BARRIE S. HAIGH
----------------------------------------
Name: Barrie S. Haigh
Title: Trustee
TRUSTEES OF THE BARRIE S. HAIGH
CHILDREN'S SETTLEMENT NO. 2
By: /s/ BARRIE S. HAIGH
--------------------
Name: Barrie S. Haigh
Title: Trustee
58
<PAGE> 64
HSBC PRIVATE EQUITY INVESTMENTS LIMITED
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
LLOYDS DEVELOPMENT CAPITAL LIMITED
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
MSS NOMINEES LIMITED
(ACCOUNT 758170)
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
MSS NOMINEES LIMITED
(ACCOUNT 758979)
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
MSS NOMINEES LIMITED
(ACCOUNT 757549)
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
59
<PAGE> 65
MSS NOMINEES LIMITED
(ACCOUNT 778392)
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
GENERAL ACCIDENT EXECUTOR AND
TRUSTEE COMPANY LIMITED (ACCOUNT H715)
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
GENERAL ACCIDENT EXECUTOR AND
TRUSTEE COMPANY LIMITED (ACCOUNT H716)
By: /s/ C. MASTERSON
--------------------------------------
Name: C. Masterson
Title: As Attorney
/s/ PAUL KNOTT
-----------------------------------------
Peter A. Forrester
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
Graham Wilson
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
David F. White
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
David M. Fleet
(by Paul Knott as attorney in fact)
60
<PAGE> 66
/s/ PAUL KNOTT
-----------------------------------------
David D. Lilley
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
Jonathan K. Bolter
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
John V. Burke
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
David M. Stack
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
Nicholas J. McCooke
(by Paul Knott as attorney in fact)
/s/ PAUL KNOTT
-----------------------------------------
William I. Glynn-Williams
(by Paul Knott as attorney in fact)
TRUSTEES OF THE No. 1 TRUST CREATED
BY PAUL KNOTT AND DATED
OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Trustee
61
<PAGE> 67
TRUSTEES OF THE No. 2 TRUST CREATED
BY PAUL KNOTT AND DATED
OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Trustee
TRUSTEES OF THE No. 1 TRUST CREATED
BY NICHOLAS JOHN MCCOOKE AND
DATED OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Attorney in Fact
TRUSTEES OF THE No. 2 TRUST CREATED
BY NICHOLAS JOHN MCCOOKE AND DATED
OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Attorney in Fact
TRUSTEES OF THE TRUST CREATED BY
JONATHAN KENNETH BOLTER AND
DATED OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Attorney in Fact
62
<PAGE> 68
TRUSTEES OF THE TRUST CREATED BY
GRAHAM WILSON AND DATED
OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Attorney in Fact
TRUSTEES OF THE TRUST CREATED BY
DAVID WHITE AND DATED
OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Attorney in Fact
TRUSTEES OF THE TRUST CREATED BY
CHRISTOPHER S. MORLEY AND DATED
OCTOBER 4, 1996
By: /s/ PAUL KNOTT
--------------------------------------
Name: Paul Knott
Title: Attorney in Fact
63
<PAGE> 69
EXHIBIT A TO SHARE EXCHANGE AGREEMENT
SHAREHOLDER AND EXCHANGE INFORMATION
[Omitted]
<PAGE> 70
EXHIBIT B TO SHARE EXCHANGE AGREEMENT
FORM OF ESCROW AGREEMENT
<PAGE> 71
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and dated as of
___________, 1996 by and among Quintiles Transnational Corp., a North Carolina
corporation ("Quintiles"), the shareholders of Innovex Limited, a company
organized under the laws of England and Wales with limited liability and having
the registered number 3127220 ("Innovex") (such shareholders, the
"Shareholders"), and ________________________________, a _______________
banking corporation (the "Escrow Agent").
WITNESSETH:
WHEREAS, Quintiles, Innovex and the Shareholders have entered into a
Share Exchange Agreement dated as of October 4, 1996 (the "Share Exchange
Agreement"; capitalized terms used and not defined herein have the meanings
assigned to such terms in the Share Exchange Agreement), providing for the
exchange of all of Innovex's issued and outstanding ordinary and preferred
ordinary share capital for shares of Common Stock of Quintiles (the "Quintiles
Shares"), to be allocated among the Shareholders as provided in the Share
Exchange Agreement;
WHEREAS, pursuant to the Share Exchange Agreement, Quintiles, Innovex
and the Shareholders have agreed that the rights of indemnification of the
Indemnitees (as defined in the Share Exchange Agreement) under Article VIII of
the Share Exchange Agreement shall survive the consummation of the transactions
contemplated by the Share Exchange Agreement and shall be secured, pursuant to
this Agreement, by the portion of Quintiles Shares to be deposited in escrow
with the Escrow Agent pursuant to Section 1.3 of the Share Exchange Agreement
(such Quintiles Shares, together with any accumulations thereto as provided
herein, the "Escrow Shares"); 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 Share Exchange Agreement, Quintiles, the
Shareholders and the Escrow Agent hereby agree as follows:
<PAGE> 72
ARTICLE I
DESIGNATION OF ESCROW AGENT AND CAPITAL SHARES
SUBJECT TO ESCROW
1.1. Designation of Escrow Agent. Quintiles and the Shareholders
hereby mutually designate and appoint ________________________________, a
______________ banking corporation having an office and place of business
located at _______, _________________, 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 Share Exchange Agreement, but only
upon the terms and conditions provided in this Agreement.
1.2. Capital Stock Subject to Escrow. In accordance with Section
1.3 of the Share Exchange Agreement, Quintiles shall issue and deliver (or
cause to be delivered) to the Escrow Agent at the Closing (as defined in the
Share Exchange Agreement) stock certificates (the "Escrow Certificates"), each
of which shall be in the name of the Escrow Agent as escrow agent hereunder,
representing two and one half percent (2 1/2%) of the Total Number of Quintiles
Shares (as defined in the Share Exchange Agreement). 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 deemed to be equal to the closing price per
share of Quintiles' Common Stock on the Nasdaq National Market on the Closing
Date.
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 or a combination thereof.
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 Shareholders in accordance with Article III hereof or (ii) by
delivery to Quintiles in accordance with Article IV hereof, or by a combination
of (i) and (ii), if any of the Shareholders shall become entitled to receive or
shall receive in connection with the Escrow Shares any (i) non-taxable
distribution of securities of Quintiles 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
2
<PAGE> 73
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 Shareholders in
accordance with their respective proportionate interests in the Escrow Shares.
Each of the Shareholders shall recognize as income on a current basis all of
the cash dividends which such Shareholder is entitled to receive and shall, for
any non-cash dividend and any other non-taxable distribution, execute stock
powers or other appropriate instruments of transfer for all shares, options,
warrants or rights as required for transfer hereunder.
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 shall hold the
Escrow Shares in accordance with each Shareholder's proportionate interest in
the Escrow Shares (as determined by the Share Exchange Agreement) and shall (to
the extent legally permissible) vote the corresponding Escrow Shares in
accordance with the written instructions of each Shareholder for whose account
such Escrow Shares are held.
ARTICLE III
DISTRIBUTION OF ESCROW SHARES UPON TERMINATION OF THE AGREEMENT
3.1. Deadline For Claims and Termination of Agreement. Quintiles
shall not be entitled to assert any claim against the Escrow Shares after the
expiration of the Representations Period (as defined in Section 8.1 of the
Share Exchange Agreement), the last day of which shall be referred to herein as
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 Shareholders 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 Quintiles. 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
3
<PAGE> 74
distributed to the Shareholders 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 Shareholders,
Quintiles 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 Quintiles' Common Stock on the Nasdaq National Market on
the Closing Date. In such event, the Escrow Agent shall distribute to the
Shareholders who otherwise would have been entitled to fractional interests in
shares of Quintiles 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, Quintiles (on its own behalf or on behalf of any other
Indemnitee) shall assert a claim for indemnification pursuant to Article VIII
of the Share Exchange Agreement, Quintiles shall submit to the Escrow Agent and
to the Shareholders a written claim in good faith signed by an executive
officer of Quintiles 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 Share Exchange
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 per share of Quintiles'
Common Stock on the Nasdaq National Market on the Closing Date. If the claim
is for Losses which the Indemnitee reasonably believes it may incur or is
otherwise unliquidated, the written claim of Quintiles 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 Quintiles 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 Quintiles submits written notice to the Escrow Agent and the
Shareholders, whether or not the Losses are incurred prior to the Claims
Deadline.
4.2. Resolution of Asserted Claims Against the Escrow Shares. If,
within fifteen (15) business days after Quintiles gives notice to the Escrow
Agent and the Shareholders of an asserted claim pursuant to Section 4.1 above
that an Indemnitee has incurred Losses, any Shareholder shall fail to notify
the Escrow Agent and Quintiles, in writing, that such Shareholder disputes in
good faith the right of the Indemnitee to indemnity in respect of the asserted
claim,
4
<PAGE> 75
then the Escrow Agent, at the expiration of such fifteen (15) business day
period, shall make immediate payment to Quintiles, out of the Escrow Shares, of
such Shareholder's pro rata amount of the asserted claim by distributing to
Quintiles such number of Escrow Shares as have an aggregate value equal to such
Shareholder's pro rata amount of the claim.
4.3. Resolution of Disputed Claims Against Escrow Shares. If,
within the fifteen (15) business day period after notice of an asserted claim
is given to the Escrow Agent and the Shareholders under Section 4.1 above, any
Shareholder shall notify the Escrow Agent and Quintiles, in writing, that such
Shareholder disputes or denies in good faith the asserted claim made by
Quintiles against the Escrow Shares, then such Shareholder and Quintiles 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 such Shareholder and Quintiles, and the
Escrow Agent shall pay to Quintiles out of the Escrow Shares the amount due and
owing to Quintiles by reason of such settlement and compromise, if any. If any
such settlement and compromise so certified to the Escrow Agent establishes
that no amount shall be due and owing to Quintiles 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 Quintiles and any
such Shareholder 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 Quintiles and such
Shareholder 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, binding and
nonappealable judgment of a court of competent jurisdiction determining the
amount of the asserted claim in dispute.
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.
5
<PAGE> 76
ARTICLE V
RESPONSIBILITIES AND DUTIES OF ESCROW AGENT
5.1. Rights, Duties, Liabilities and Immunities of Escrow Agent.
Quintiles and the Shareholders 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.
(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.
(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.
(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 Share Exchange Agreement, nor is it a party to or bound by or charged
with notice of any other agreement (other than this Agreement) to which the
Escrow Shares 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
6
<PAGE> 77
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) In the event the Escrow Agent becomes involved in
litigation in connection with its duties under this Agreement, the Shareholders
and Quintiles shall indemnify and save the Escrow Agent harmless from all
losses, costs, damages, expenses and attorneys' fees, other than those suffered
or incurred by the Escrow Agent as a result of its own gross negligence or
willful misconduct. [The Shareholders and Quintiles shall be jointly and
severally liable to the Escrow Agent for the obligations under this subsection
(h); provided however that as between Quintiles and the Shareholders, the
prevailing party in any such litigation shall be entitled to collect from the
non-prevailing party all amounts that the prevailing party has paid to the
Escrow Agent pursuant to this subsection (h) in connection therewith. In the
event Quintiles is the prevailing party in any such litigation, Quintiles may
treat any amount owed by the Shareholders hereunder as an immediate liquidated
claim against the Escrow Shares pursuant to Section 4.2 above.]
5.2. Copies of Certifications, Notices and Other Documentation.
Promptly after receipt by the Escrow Agent from any Shareholder or Quintiles 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
Shareholders or Quintiles, 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 Quintiles and the
Shareholders.
5.3. Compensation. The Escrow Agent shall receive a fee of $_____
per year (the "Fee") 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. Quintiles shall be responsible for payment of the Fee. The Escrow
Agent shall also be entitled to reimbursement for all reasonable expenses,
disbursements and advances 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
7
<PAGE> 78
such reimbursement of the Escrow Agent's expenses, disbursements and advances
under the provisions of this Section 5.3 shall be paid by the Shareholders, who
shall be jointly and severally liable therefor. Quintiles shall have the
option at any time to pay any compensation and reimbursement due to the Escrow
Agent in satisfaction of the Shareholders' obligations hereunder, and upon any
such payment, Quintiles may treat the amount of such payment as an immediate
liquidated claim against the Escrow Shares pursuant to Section 4.2 above.]
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 Shareholders and Quintiles, and the Escrow Agent shall be discharged from
its duties hereunder upon the appointment of a successor Escrow Agent as
hereinafter provided, or 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 a majority in interest of the
Shareholders and Quintiles. Any successor Escrow Agent shall deliver to the
Shareholders and Quintiles 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
ARBITRATION
6.1. 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 any Shareholders, subject to Section 7.8 hereof, or Quintiles to
one arbitrator agreed to by seventy-five percent (75%) in interest of the
Shareholders and Quintiles or, if such Shareholders and Quintiles cannot agree
on one arbitrator, by three arbitrators selected in accordance with said Rules,
and shall be heard in New York, New York. Each arbitrator must be experienced
in the subject matter in dispute. The costs and expenses of the arbitration
(including without limitation attorneys' fees) shall be paid by the
non-prevailing party in such arbitration.
8
<PAGE> 79
ARTICLE VII
MISCELLANEOUS
7.1. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Shareholders, Quintiles and the Escrow Agent
and their respective successors and assigns.
7.2 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 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.
7.3. 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.
7.4. 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 Quintiles to:
Quintiles Transnational Corp.
Post Office Box 13979
Research Triangle Park, North Carolina 27709-3979
Attention: Gregory D. Porter, Esq.
9
<PAGE> 80
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:
________________________________
________________________________
________________________________
________________________________
Attention: ____________________
If to the Shareholders or any Shareholder, at the address specified on
Annex A hereto, with a copy to:
Sullivan & Cromwell
St. Olave's House
9a Ironmonger Lane
London EC2V 8EY
England
Attention: Scott D. Miller, Esq.
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.
7.5. 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.
7.6. Governing Law. The interpretation and construction of this
Agreement, and all matters relating thereto, shall be governed by the laws of
the State of New York, without regard to the choice of law provisions thereof.
The non-prevailing party in any dispute arising hereunder 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.
7.7. 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
10
<PAGE> 81
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.
7.8. Action by Shareholders. The agreement or compromise of ninety
percent (90%) or more in interest of the Shareholders as to any matter
hereunder shall bind the remaining Shareholders to such agreement or compromise
to the same extent as if such non-agreeing or non-compromising Shareholders had
in fact agreed. Quintiles and the Escrow Agent are entitled to act, in
reliance on any action taken by ninety percent (90%) or more in interest of the
Shareholders as being the duly authorized action of all Shareholders.
7.9 Amendments. This Agreement may be amended only in writing
signed by Quintiles and a majority in interest of the Shareholders. Upon such
amendment, the amendment will be binding on all Shareholders and the other
parties hereto.
[7.10
Liability for Breach. Except as expressly set forth elsewhere
in this Agreement or the Share Exchange Agreement and to the extent of the
application of the nonbreaching Shareholder's interest in the Escrow Fund (as
defined in the Share Exchange Agreement), no nonbreaching Shareholder will
suffer any liability for breach of this Agreement by any other party.]
IN WITNESS WHEREOF, Quintiles and the Escrow Agent have caused their
corporate names to be hereunto subscribed by their respective officers
thereunto duly authorized, and the Shareholders have executed this Agreement,
all as of the day and year first above written.
QUINTILES TRANSNATIONAL CORP.
By:
-----------------------------------
Name:
Title:
ESCROW AGENT:
[____________________________________]
By:
-----------------------------------
Name:
Title:
11
<PAGE> 82
-------------------------------------
Barrie S. Haigh
-------------------------------------
Stella D. Freeman
TRUSTEES OF THE BARRIE S. HAIGH
CHILDREN'S SETTLEMENT NO. 1
By:
------------------------------------
Name:
Title:
TRUSTEES OF THE BARRIE S. HAIGH
CHILDREN'S SETTLEMENT NO. 2
By:
------------------------------------
Name:
Title:
HSBC PRIVATE EQUITY INVESTMENTS LIMITED
By:
-------------------------------------
Name:
Title:
LLOYDS DEVELOPMENT CAPITAL LIMITED
By:
-----------------------------------
Name:
Title:
12
<PAGE> 83
MSS NOMINEES LIMITED
(ACCOUNT 758170)
SHAREHOLDERS:
By:
-----------------------------------
Name:
Title:
MSS NOMINEES LIMITED
(ACCOUNT 758979)
By:
-----------------------------------
Name:
Title:
MSS NOMINEES LIMITED
(ACCOUNT 757549)
By:
-----------------------------------
Name:
Title:
MSS NOMINEES LIMITED
(ACCOUNT 778392)
By:
-----------------------------------
Name:
Title:
GENERAL ACCIDENT EXECUTOR AND TRUSTEE
COMPANY LIMITED (ACCOUNT H715)
By:
-----------------------------------
Name:
Title:
13
<PAGE> 84
GENERAL ACCIDENT EXECUTOR AND TRUSTEE
COMPANY LIMITED (ACCOUNT H716)
By:
-----------------------------------
Name:
Title:
---------------------------------------
Peter A. Forrester
---------------------------------------
Graham Wilson
---------------------------------------
David F. White
---------------------------------------
David M. Fleet
---------------------------------------
David D. Lilley
---------------------------------------
Jonathan K. Bolter
---------------------------------------
John V. Burke
---------------------------------------
David M. Stack
---------------------------------------
Nicholas J. McCooke
---------------------------------------
William I. Glynn-Williams
14
<PAGE> 85
TRUSTEES OF THE No. 1 TRUST CREATED BY
PAUL KNOTT AND DATED OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
TRUSTEES OF THE No. 2 TRUST CREATED BY
PAUL KNOTT AND DATED OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
TRUSTEES OF THE No. 1 TRUST CREATED BY
NICHOLAS JOHN MCCOOKE AND DATED
OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
TRUSTEES OF THE No. 2 TRUST CREATED BY
NICHOLAS JOHN MCCOOKE AND DATED
OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
TRUSTEES OF THE TRUST CREATED BY
JONATHAN KENNETH BOLTER AND DATED
OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
15
<PAGE> 86
TRUSTEES OF THE TRUST CREATED BY
GRAHAM WILSON AND DATED OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
TRUSTEES OF THE TRUST CREATED BY
DAVID WHITE AND DATED OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
TRUSTEES OF THE TRUST CREATED BY
CHRISTOPHER S. MORLEY AND DATED
OCTOBER 4, 1996
By:
----------------------------------
Name:
Title:
16
<PAGE> 87
EXHIBIT C TO SHARE EXCHANGE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 88
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
by and among
QUINTILES TRANSNATIONAL CORP.
and
THE SHAREHOLDERS LISTED IN ANNEX A HERETO
----------------------------------------
Dated as of , 1996*
-------------
----------------------------------------
- ----------------
* To be dated the Closing Date.
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Definitions................................................................... 1
Section 2. Registration Rights........................................................... 4
2.1 Initial Secondary Offering........................................... 4
2.2 Shelf Registration................................................... 5
2.3 Demand Rights........................................................ 6
2.4 "Piggy-Back" Rights.................................................. 8
2.5 Allocation of Securities Included in a Public Offering............... 9
2.6 Requirements with Respect to Registration............................ 10
Section 3. Hold-Back Agreement........................................................... 13
Section 4. Registration Expenses......................................................... 13
Section 5. Representations, Warranties and Agreements.................................... 15
(a) Company Representations, Warranties and
Agreements........................................................... 15
(b) Holder Representations, Warranties and Agreements.................... 16
Section 6. Survival of Representations and Agreements.................................... 17
Section 7. Indemnification............................................................... 17
(a) Indemnification by Quintiles......................................... 17
(b) Indemnification by Holder of Registrable Securities.................. 17
(c) Conduct of Indemnification Proceedings............................... 18
(d) Contribution......................................................... 19
(e) Remedies Cumulative.................................................. 20
(f) Underwriting Agreement Controls...................................... 20
Section 8. Underwritten Registration..................................................... 20
Section 9. Unregistered Offerings........................................................ 20
Section 10. Miscellaneous................................................................. 21
(a) Remedies............................................................. 21
(b) Amendments and Waivers............................................... 21
(c) Notices.............................................................. 22
(d) Interpretation....................................................... 22
(e) Counterparts......................................................... 23
(f) Entire Agreement; No Third Party Beneficiaries....................... 23
(g) Governing Law........................................................ 23
(h) Severability......................................................... 23
(i) Assignment........................................................... 23
(j) Attorney's Fees...................................................... 23
(k) Use of Terms......................................................... 23
</TABLE>
i
<PAGE> 90
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated
as of ________, 1996,* and is being entered by and among QUINTILES TRANSNATIONAL
CORP., a North Carolina corporation ("Quintiles"), and the persons listed in
Annex A hereto, each of which are sometimes referred to herein individually as a
"Holder" and collectively as the "Holders."
RECITALS
WHEREAS, the Boards of Directors of Quintiles and INNOVEX
LIMITED, a company organized under the laws of England and Wales with limited
liability and having the registered number 3127220 ("Innovex"), have determined
that it is in the best interests of their respective companies and shareholders
to enter into the Share Exchange Agreement (the "Share Exchange Agreement")
dated as of October 4, 1996, among Quintiles, Innovex and the Holders; and
WHEREAS, Quintiles, Innovex and the shareholders of Innovex
have entered into the Share Exchange Agreement pursuant to which the
shareholders of Innovex will exchange their Ordinary Shares, nominal value 0.1p
per share, and their Preferred Ordinary Shares, nominal value 0.1p per share,
for shares of Common Stock, par value $0.01 per share, of Quintiles (the
"Exchange"); and
WHEREAS, the parties wish to make certain covenants and
agreements concerning, among other things, the registration of the shares of
Common Stock of Quintiles under the Securities Act of 1933, as amended; and
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, representations, warranties and agreements contained herein,
the parties agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
- ---------------
* To be dated as of the Closing Date.
-1-
<PAGE> 91
"Affiliate" shall mean, with respect to any Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with such Person.
"Blackout Period" shall have the meaning set forth in Section
2.3(b).
"BRI" shall mean BRI International Inc.
"Closing" shall mean the closing of the Exchange under the
Share Exchange Agreement.
"Commission" shall mean the United States Securities and
Exchange Commission or any other United States federal agency at the time
administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the Common Stock, par value $0.01
per share, of Quintiles.
"Company" shall have the meaning set forth in the introductory
paragraph to this Agreement.
"Demand Period" shall have the meaning set forth in Section
2.5(a).
"Demand Request" shall have the meaning set forth in Section
2.3(a).
"Demanding Holder" shall have the meaning set forth in Section
2.3(a).
"Effectiveness Period" shall have the meaning set forth in
Section 2.2(a).
"Exchange" shall have the meaning set forth in the second
recital of this Agreement.
"Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended, or any United States federal statute then in
effect that has replaced such statute, and a reference to a particular section
thereof shall be deemed to include a reference to the comparable section, if
any, of any such replacement United States federal statute.
"Existing Holders" shall mean certain persons who (i) were
holders of Common Stock prior to the date of this Agreement or (ii) received or
will receive Common Stock in connection with the acquisition by Quintiles of
BRI.
"Holder" or "Holders" shall have the meaning set forth in the
introductory paragraph to this Agreement and shall also include any assignee or
transferee of a Registrable
-2-
<PAGE> 92
Security (i) (A) that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with the initial Holder or
(B) that is otherwise approved by Quintiles (such approval not to be
unreasonably withheld) and (ii) agrees in writing at the time of such assignment
or transfer to be bound by the restrictions set forth herein. Otherwise,
registration rights are non-transferable except as set forth in Section 11(i)
hereof.
"Initial Secondary Offering" shall have the meaning set forth
in Section 2.1(a).
"Initial Shelf Registration" shall have the meaning set forth
in Section 2.2(a).
"Joining Request" shall have the meaning set forth in Section
2.3(a).
"Maximum Number" shall have the meaning set forth in Section
2.3(b).
"Notice of Demand Request" shall have the meaning set forth in
Section 2.3(a).
"Other Securities" shall have the meaning set forth in the
definition of Registrable Securities.
"Person" shall mean an individual, trustee, corporation,
partnership, joint stock company, trust, unincorporated association, union,
business association, firm or other entity.
"Pooling Publication Date" shall mean the date on which
Quintiles shall have published financial results covering at least 30 days of
combined operations of Quintiles and Innovex following the Closing.
"Preliminary Prospectus" shall mean any preliminary prospectus
that may be included in any Registration Statement.
"Priority Period" shall have the meaning set forth in Section
5(a)(v).
"Prospectus" shall mean the prospectus included in any
Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective Registration Statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Public Offering" shall mean the offer of shares of Common
Stock on a broadlydistributed basis, not limited to sophisticated investors,
pursuant to a firm-commitment or best-efforts underwriting arrangement.
-3-
<PAGE> 93
"Registrable Securities" shall mean all shares of Common Stock
beneficially owned by a Holder on the date hereof (after giving effect to the
Closing) and set forth on Annex A attached hereto. As to any particular
Registrable Securities, such shares shall cease to be Registrable Securities (a)
when a Registration Statement with respect to the sale of such shares shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such Registration Statement, (b) when such shares
shall have been sold under Rule 144 (or any successor provision) under the
Securities Act, (c) when such shares shall have ceased to be outstanding, (d)
after the Demand Period, when such shares may be transferred without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 (only to the extent, and at times, during which the Holders
would be able to sell pursuant to such volume limitations a number of shares of
Common Stock in any 90-day period that is not less than the limits in Section
2.2(a)), or (e) when a Holder sells or otherwise transfers its Registrable
Securities to any person, including another Holder, unless the sale or transfer
is to a Holder in compliance with the definition of "Holder"; provided that in
the case of clause (d), Quintiles' in-house counsel or regular outside counsel
shall have delivered a written opinion addressed to the transfer agent for
Quintiles Common Stock to the effect that such shares may be sold without
registration pursuant to Rule 144. The Holders shall provide such Rule 144
representation letters in usual and customary form as may reasonably be
requested by Quintiles' counsel to provide such opinion. If as a result of any
reclassification, stock split, stock dividend, business combination, exchange
offer or other transaction or event, any capital stock, evidences of
indebtedness, warrants, options, rights or other securities (collectively "Other
Securities") are issued or transferred to a Holder in respect of Registrable
Securities held by such Holder, references herein to Registrable Securities
shall be deemed to include such Other Securities.
"Registration Statement" shall mean any registration statement
of Quintiles under the Securities Act that covers any of the Registrable
Securities, including the prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statements.
"Regulations" shall mean the General Rules and Regulation of
the Commission under the Securities Act.
"Required Holders" shall mean, as of any date of
determination, the Holders of 75% in interest of Registrable Securities
outstanding as of such date.
"Rule 144" shall mean Rule 144 of the Regulations, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the Commission providing for offers and
sales of securities made in compliance therewith resulting in offers and sales
by subsequent holders of such securities being free of the registration and
prospectus delivery requirements of the Securities Act.
-4-
<PAGE> 94
"Securities Act" shall mean the United States Securities Act
of 1933, as amended, or any United States federal statute then in effect which
has replaced such statute, and a reference to a particular section thereof shall
be deemed to include a reference to the comparable section, if any, of any such
replacement statute.
"Seller" shall have the meaning set forth in Section 2.3(a).
"Share Exchange Agreement" shall have the meaning set forth in
the first recital of this Agreement.
"Shelf Blackout Period" shall have the meaning set forth in
Section 2.2(d).
"Shelf Registration" shall have the meaning set forth in
Section 2.2(b).
"Subsequent Shelf Registration" shall have the meaning set
forth in Section 2.2(b).
"underwritten registration or underwritten offering" shall
mean a registration in which securities of Quintiles are sold to an underwriter
for reoffering to the public.
SECTION 2. REGISTRATION RIGHTS.
2.1 INITIAL SECONDARY OFFERING.
(a) Quintiles shall prepare and file with the Commission a
Registration Statement for an offering (the "Initial Secondary Offering") by the
Holders of an aggregate of at least 2.7 million shares of its Common Stock and
shall use its best efforts to cause such Registration Statement to be declared
effective as soon as practicable after the Pooling Publication Date. As part of
the Initial Secondary Offering, the Company may issue and sell up to 1 million
shares of its authorized but unissued Common Stock, and Existing Holders may
sell up to 300,000 shares of Common Stock. If, prior to the completion of the
Initial Secondary Offering, any Holder or Holders sell Registrable Securities,
the amount of Registrable Securities includible in the Initial Secondary
Offering shall be reduced by the amount of such sales and the requirements of
the Initial Secondary Offering shall be deemed satisfied if such lesser amount
is sold pursuant to the Initial Secondary Offering. The Managing Underwriter for
the Initial Secondary Offering will be selected jointly by Quintiles and the
Required Holders (the "Initial Managing Underwriter").
(b) The number of shares of Common Stock to be offered and
sold by the Holders in the Initial Secondary Offering shall be pro rata to their
respective shareholdings. In the event that any Holders elect not to include in
the Initial Secondary Offering shares of Common Stock which they would otherwise
be entitled to include pursuant to the preceding sentence, or Existing Holders
or Quintiles elect not to include in the Initial Secondary Offering
-5-
<PAGE> 95
shares of Common Stock which they would otherwise be entitled to include
pursuant to Section 2.1(a) hereof, the number of shares not offered and sold by
any such Holders or Existing Holders or Quintiles may be offered and sold by the
Holders who so elect pro rata to their respective shareholdings. If the Initial
Managing Underwriter for such offering shall advise Quintiles in writing that
the number of shares of Common Stock contemplated by Section 2.1(a) exceeds the
maximum number which such Initial Managing Underwriter believes in good faith to
be appropriate based on market conditions and other factors, including pricing,
the identity of Holders and Existing Holders selling shares of Common Stock and
the proportion of such shares being sold by Quintiles, Existing Holders and the
Holders, respectively, the number of shares of Common Stock shall be reduced
among Quintiles, the several Holders and the Existing Holders such that, of the
total number of shares of Common Stock offered and sold in the Initial Secondary
Offering (without giving effect to the exercise of any overallotment option),
67.5% shall be offered and sold by the Holders, 25.0% shall be offered and sold
by Quintiles and 7.5% shall be offered and sold by the Existing Holders.
(c) In the event that in connection with the Initial Secondary
Offering, an overallotment option is to be granted to the underwriters, shares
of Common Stock to be sold pursuant to such option will be sold only by the
Holders pro rata to their respective shareholdings. In the event that any
Holders elect not to include in the Initial Secondary Offering shares of Common
Stock which they would otherwise be entitled to include pursuant to the
preceding sentence, the number of shares not offered and sold by any such
Holders may be offered and sold by the Holders who so elect pro rata to their
respective shareholdings.
(d) Quintiles represents to the Holders that it has been
advised by the financial advisors advising it on the Exchange that an offering
of at least 4 million shares of Common Stock to be sold by Quintiles, Existing
Holders and the Holders in the proportions contemplated hereby is feasible based
on the assumption that the Exchange is completed and market conditions existing
on the date of the Share Exchange Agreement do not deteriorate significantly. If
the size of the Initial Secondary Offering may, in the view of the Initial
Managing Underwriter, Quintiles and the Holders, be increased to a level in
excess of 4 million shares of Common Stock, any shares of Common Stock to be
sold in excess of 4 million shall be sold only by the Holders pro rata to their
respective shareholdings.
(e) Notwithstanding the foregoing, in the event that the
Maximum Number (as defined below) of shares of Common Stock to be sold in the
Initial Secondary Offering is less than 4 million but in excess of 1.75 million
shares, the number of shares to be sold in such a reduced offering by each of
Quintiles, the Holders and the Existing Holders, respectively, shall be in such
ratio as indicated in Annex B attached hereto.
2.2 SHELF REGISTRATION. (a) INITIAL SHELF REGISTRATION.
Quintiles shall prepare and file with the Commission no later than 90 days
following the settlement of the Initial Secondary Offering, or, if such
settlement shall not have occurred on or prior to March 31, 1997, no later than
March 31, 1997, one or more Registration Statements under the Regulations
-6-
<PAGE> 96
covering at least 5 million Registrable Securities for offerings to be made by
Holders from time to time in the aggregate amount of no more than 500,000
Registrable Securities in any 90 day period (any or all such Registration
Statements being hereinafter referred to as the "Initial Shelf Registration");
provided, however, that the volume of Registrable Securities that may be sold
pursuant to the plan of distribution described in any Registration Statement for
the Initial Shelf Registration may be increased from time to time by Quintiles
after consultation with Goldman, Sachs & Co. upon reasonable prior notice to the
Holders. The Initial Shelf and any Subsequent Shelf Registrations shall be
non-underwritten. The Initial Shelf Registration shall be on Form S-3 or another
appropriate form permitting registration of such Registrable Securities for
resale by such Holders in the manner or manners designated by them subject to
the provisions hereof. Quintiles shall use its best efforts to cause the Initial
Shelf Registration to be declared effective under the Securities Act not later
than (i) the 121st calendar day subsequent to the settlement of the Initial
Secondary Offering or (ii) if such settlement shall not have occurred on or
prior to March 31, 1997, on or as soon as practicable after March 31, 1997 and
to keep the Initial Shelf Registration continuously effective under the
Securities Act until such time as the earlier of (i) 4 million of the
Registrable Securities covered by the Initial Shelf Registration have been sold
in the manner set forth and as contemplated in the Initial Shelf Registration,
(ii) a Subsequent Shelf Registration (as defined herein) covering all of the
Registrable Securities covered by the Initial Shelf Registration and not
previously sold has been declared effective under the Securities Act, (iii)
registration of the Registrable Securities is no longer required under the
Securities Act and the Holder may sell all remaining Registrable Securities in
the open market in amounts that equal or exceed the amount that can be sold
under this clause pursuant to the volume and other limitations of Rule 144 or
otherwise (giving effect to the 90-day period in both cases), (iv) the covered
securities cease to be Registrable Securities or (v) three years have elapsed
from the date on which the Initial Shelf Registration was first declared
effective (the "Shelf Effectiveness Period").
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf
Registration or any Subsequent Shelf Registration (as defined below) ceases to
be effective for any reason at any time during the Shelf Effectiveness Period
(other than because of the sale of all of the securities registered thereunder),
Quintiles shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof, and in any event shall within 30
days of such cessation of effectiveness (i) amend the Shelf Registration in a
manner reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or (ii) file an additional Registration Statement
covering all of the Registrable Securities covered by the Initial Shelf
Registration and not previously sold (a "Subsequent Shelf Registration") for an
offering to be made by the holders on a delayed or continuous basis under the
Regulations. If a Subsequent Shelf Registration is filed, Quintiles shall use
its best efforts to cause the Subsequent Shelf Registration to be declared
effective as soon as practicable after such filing and to keep such Registration
Statement continuously effective for the remaining portion of the Shelf
Effectiveness Period. As used herein, the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
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(c) SUPPLEMENTS AND AMENDMENTS. Quintiles shall supplement and
amend the Shelf Registration if required by the Regulations applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act or the Regulations, or if reasonably requested by the Holders of
a majority in interest of the Registrable Securities covered by such
Registration Statement.
(d) BLACKOUT PERIOD. Notwithstanding the other provisions of
this Section 2.2, Quintiles shall have the right to delay the filing of any
Shelf Registration otherwise required to be prepared and filed by Quintiles
pursuant to this Section 2.2, or to suspend the use of any Shelf Registration,
for a period not in excess of 90 days (a "Shelf Blackout Period") if Quintiles
determines that the registration and distribution of the Registrable Securities
to be covered by such Shelf Registration would materially interfere with any
pending financing, acquisition or other transaction involving Quintiles or would
require disclosure of information which is in its best interest not to publicly
disclose provided, that, the Blackout Period shall earlier terminate upon the
completion or abandonment of the relevant financing, acquisition or other
transaction or upon public disclosure by Quintiles or public admission by
Quintiles of such material nonpublic information or such time as such material
nonpublic information shall be publicly disclosed; and provided, further, that
Quintiles shall furnish to the Holders a certificate of an executive officer of
Quintiles to the effect that an event permitting a Blackout Period has occurred
(and no other reason need be given); provided, further, that for each Shelf
Blackout Period, the Holders' right to have a minimum number of Registrable
Securities sold pursuant to Section 2.2 shall be extended by an equal period
beyond the date such right would otherwise have terminated. Quintiles will
promptly give the Holders written notice of such determination and an
approximation of the period of the anticipated delay; provided, however, that
the aggregate number of days included in all Shelf Blackout Periods during any
consecutive 12 months shall not exceed 180 days. Each Holder agrees to cease all
disposition efforts under such Registration Statement with respect to
Registrable Securities held by such Holder immediately upon receipt of notice of
the beginning of any Shelf Blackout Period. Quintiles shall provide written
notice to the Holders of the end of each Shelf Blackout Period.
(e) MANNER OF SALE. The Holders agree that all sales of
Registrable Securities covered by a Shelf Registration shall be made through one
of the top three market-makers (in terms of NASDAQ-trading volume) in Quintiles
Common Stock subject to such market-makers offering best market terms.
2.3 DEMAND RIGHTS. (a) Subject to Section 2.3(b) below, at any
time, and from time to time, on or after the date on which Holders are first
permitted to sell shares following the Initial Secondary Offering any Holder or
group of Holders who hold and propose to sell Registrable Securities with an
aggregate value of at least $50 million (herein, individually or collectively,
as the case may be, a "Demanding Holder"), shall have the right to require
Quintiles to file a Registration Statement under the Securities Act for a Public
Offering of all or part of such Demanding Holder's Registrable Securities, up to
a maximum of 2.7 million shares in the aggregate, reduced by the number of
shares of Common Stock previously sold by
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Holders in the Initial Secondary Offering or pursuant to any prior Demand
Request, by delivering written notice thereof to Quintiles specifying the number
of Registrable Securities to be included in such registration and the intended
method of distribution thereof (the "Demand Request"). Quintiles shall, within
10 days after receipt, give written notice by facsimile transmission (the
"Notice of Demand Request") of such Demand Request to all Holders of any
Registrable Securities. Thereupon Quintiles shall prepare and file with the
Commission as promptly as practicable following the receipt of the Notice of
Demand Request, and in any event within 30 days thereafter, a Registration
Statement covering, and shall use its best efforts to effect the registration
under the Securities Act of, (i) the Registrable Securities included in the
Demand Request, for disposition in accordance with the intended method of
disposition stated in the Demand Request and (ii) all other Registrable
Securities as to which the Holders thereof that have received a Notice of Demand
Request and shall have made a written request (a "Joining Request") to Quintiles
for registration thereof within ten days after the transmittal of such Notice of
Demand Request, in each case subject to the 2.7 million (or lesser) share
maximum referred to in the preceding sentence, all to the extent necessary to
permit the sale or other disposition by such Holders (each, a "Seller" and,
collectively, the "Sellers") of such Registrable Securities.
(b) Quintiles's obligations pursuant to Section 2.3(a) above
are subject to the following limitations and conditions: (i) Quintiles shall not
be obligated to fulfill the requirements or file the Registration Statement
referred to therein (A) during any period of time (not to exceed sixty (60) days
in the aggregate with respect to each request) when Quintiles has determined to
proceed with a Public Offering (whether for its own account or that of any
Holder pursuant to any previously received Demand Request and related Joining
Request) and, in the judgment of the managing underwriter thereof, the
fulfillment of such requirements or such filing would have an adverse effect on
the material terms of such offering, (B) during any period of time (not to
exceed ninety (90) days with respect to each request) when Quintiles is in
possession of material information that Quintiles (x) has determined, after
advice of Quintiles's lead US securities counsel, would be required to be
disclosed in an offering registered under the Securities Act and (y) reasonably
deems is in Quintiles's best interests not to publicly disclose, or (C) during
the 90-day period following the effectiveness of any previous Registration
Statement (the periods of time referred to in subclauses (A), (B) and (C) hereof
being hereinafter referred to as "Blackout Periods"); provided, that the
aggregate period of time during which Quintiles shall be relieved from its
obligation to file such a Registration Statement pursuant to this clause (i)
shall in no event exceed ninety (90) consecutive days with respect to each
request; provided, further, that, in the case of a Blackout Period pursuant to
sub-clause (i)(A) above, the Blackout Period shall earlier terminate upon the
completion or abandonment of the relevant securities offering; provided,
further, that in the case of a Blackout Period pursuant to sub-clause (i)(B)
above, the Blackout Period shall earlier terminate upon public disclosure by
Quintiles or public admission by Quintiles of such material nonpublic
information or such time as such material nonpublic information shall be
publicly disclosed without breach of the last sentence of this subsection (b);
and provided, further, that in the case of a Blackout Period pursuant to
subclauses (i)(A), (B) or (C) above, Quintiles shall furnish to the Security
Holders a certificate of
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an executive officer of Quintiles to the effect that an event permitting a
Blackout Period has occurred and is continuing (and no other reason need be
given); provided, further, that Quintiles shall not be entitled to exercise its
rights under sub-clause (i)(B) more than three (3) times in any twenty-four (24)
month period, and under sub-clause (i)(C) more than one (1) time in any
nine-month period; and provided, further, that if prior to the expiration of any
Blackout Period the Demanding Holders withdraw their Demand Request, such
request shall not be considered a Demand Request for purposes of this Section
2.3(b) and such Demand Request and any Joining Request related thereto shall be
of no further effect; (ii) Quintiles shall not be required to maintain the
effectiveness of a Registration Statement filed pursuant to Section 2.3(a) for a
period in excess of thirty (30) days; (iii) the minimum aggregate offering price
of any such Public Offering, as estimated in good faith by the managing
underwriter thereof immediately prior to the time the Registration Statement
with respect to any such Public Offering becomes effective, shall be at least
$50 million; (iv) the number of shares of Common Stock to be sold in any such
Public Offering shall not exceed the maximum number which the managing
underwriter thereof considers in good faith to be appropriate based on market
conditions and other relevant factors, including pricing, the identity of the
Holders and Existing Holders selling shares of Common Stock and the proportion
of shares of Common Stock being sold by Quintiles, by the Holders and by the
Existing Holders (the "Maximum Number"); and (v) Quintiles shall not during the
Demand Period (as defined below) be obligated to effect more than one Demand
Registration in any six-month period.
(c) Subject to Section 2.5, Quintiles may elect to include in
any Registration Statement filed pursuant to this Section 2.3 any authorized but
unissued shares of Common Stock; provided, that such inclusion shall be
permitted only to the extent that it is pursuant to and subject to the terms of
any underwriting agreement or arrangements entered into by the Demanding Holders
whose Registrable Securities are also included therein.
(d) A request by a Holder or Holders that Quintiles file a
Registration Statement shall not be considered a Demand Request if the
Registration Statement relating thereto does not become effective, through no
fault of the Holders.
2.4. "PIGGY-BACK" RIGHTS. If at any time within three years
from the settlement of the Initial Secondary Offering, Quintiles proposes to
register any authorized but unissued shares of Common Stock under the Securities
Act on a registration statement on Form S-1, Form S-2 or Form S-3 (or an
equivalent general registration form then in effect) for purposes of a Public
Offering by Quintiles of such shares, Quintiles shall give written notice of
such proposal at least twenty (20) days before the anticipated filing date,
which notice shall include the intended method of distribution of such shares,
to each of the Holders who hold Registrable Securities. Such notice shall
specify at a minimum the number of shares of Common Stock proposed to be
registered, the proposed filing date of such registration statement, any
proposed means of distribution of such shares and the proposed managing
underwriter, if any. Subject to Section 2.5, upon the written request of any
such Holder, given within ten (10) days after the receipt of any such written
notice by facsimile confirmed by mail (which request shall specify
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the Registrable Securities intended to be disposed of by such Holder), Quintiles
will use its best efforts to include in the registration statement with respect
to such Public Offering the number of the Registrable Securities referred to in
such Holder's request; provided, that, any participation in such Public Offering
by such Holders shall be on substantially the same terms as Quintiles's
participation therein; and provided, further, that the number of Registrable
Securities to be included in any such Public Offering shall not exceed the
Maximum Number. Any such Holder shall have the right to withdraw a request to
include Registrable Securities in any Public Offering pursuant to this Section
2.4 by giving written notice to Quintiles of its election to withdraw such
request at least five (5) days prior to the proposed effective date of such
registration statement.
2.5. ALLOCATION OF SECURITIES INCLUDED IN A PUBLIC OFFERING.
If the managing underwriter for any Public Offering to be effected pursuant to
Section 2.3 or Section 2.4 of this Agreement shall advise Quintiles and the
Sellers in writing that the number of shares of Common Stock sought to be
included in such Public Offering (including those sought to be offered by
Quintiles, those sought to be offered by Sellers and those sought to be offered
by Existing Holders) is more than the Maximum Number, the shares of Common Stock
to be included in such Public Offering shall be allocated pursuant to the
following procedures:
(a) until such time as the Holders have sold in the aggregate
at least 2.7 million shares of Common Stock (whether through the
Initial Secondary Offering or otherwise) (the "Demand Period"),
Registrable Securities to be sold pursuant to any Registration
Statement (whether as a result of a Demand Request or otherwise, but
not including any Shelf Registration Statement) shall be allocated
among the Holders and Quintiles and Existing Holders such that, of the
total number of shares sold pursuant to such Registration Statement,
67.5% shall be sold by the Holders, 25% shall be sold by the Company
and 7.5% shall be sold by Existing Holders; provided that (i) to the
extent that Existing Holders or Quintiles elect not to sell pursuant to
such Registration Statement shares of Common Stock which they would
otherwise be entitled to sell pursuant to the preceding clause, the
number of shares not sold by such Existing Holders or Quintiles may be
sold by the Holders who so elect pro rata to their respective
shareholdings, and (ii) in the event that in connection with any
underwritten offering pursuant to any such Registration Statement an
overallotment option is granted to the underwriters, shares of Common
Stock to be sold pursuant to such option shall be sold by the Holders
pro rata to their respective shareholdings;
(b) if, following the end of the Demand Period, such
registration or Public Offering is pursuant to Section 2.4 of this
Agreement, (x) first, securities sought to be included at the request
of Quintiles shall be included, and (y) second, if the number of
securities to be registered exceeds the Maximum Number, the amount of
Registrable Securities proposed to be offered by Holders shall be
reduced as agreed among such Holders, to the extent necessary to reduce
the total amount of securities to be included
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in such offering to the Maximum Number; provided that shares to be sold
by the Holders are not reduced to less than 20% of all shares to be
sold in such Public Offering.
2.6. REQUIREMENTS WITH RESPECT TO REGISTRATION. Subject to
Section 4 and to Quintiles's rights with respect to Blackout Periods and Shelf
Blackout Periods, if and whenever Quintiles is required by the provisions hereof
to use its best efforts to register any Registrable Securities under the
Securities Act, Quintiles shall:
(a) As promptly as practicable (and in the case of a Demand
Request, in no event more than 30 days following such Demand Request)
prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use its best efforts to
cause such Registration Statement to become and remain effective;
provided, however, that, before filing any Registration Statement or
prospectus or any amendments or supplements thereto, Quintiles shall
furnish to and afford the Holders of the Registrable Securities covered
by such Registration Statement, and the managing underwriters, if any,
a reasonable opportunity to review and comment on copies of all such
documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed.
(b) As promptly as practicable, prepare and file with the
Commission such amendments and supplements to such Registration
Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement current and effective and
to comply with the provisions of the Securities Act, and the
Regulations, with respect to the sale or disposition of such
Registrable Securities (the "Effectiveness Period"). In the event of an
underwritten offering, Quintiles shall select the managing
underwriter(s), except as provided in Section 2.1(a).
(c) Promptly notify each Seller of any Registrable Securities
covered by such Registration Statement (A) when the Registration
Statement or any related prospectus or any amendment or supplement has
been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (B) of
any request by the Commission for amendments or supplements to the
Registration Statement or the related prospectus or for additional
information, (C) of any order issued or threatened by the Commission
suspending the effectiveness of such Registration Statement, preventing
or suspending the use of a prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities
for sales in any jurisdiction Quintiles shall use its best efforts to
prevent the issuance of any such order and, if any such order is
issued, shall use its best efforts to obtain the withdrawal of any such
order at the earliest possible moment or (D) of the receipt by
Quintiles of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceedings for such purpose.
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(d) Immediately upon becoming aware thereof, notify each
Seller and underwriter of such Registrable Securities, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation
of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and promptly
make available to each Seller and underwriter any such supplement or
amendment, unless suspension of the use of such prospectus otherwise is
authorized herein or in the event of a Blackout Period or Shelf
Blackout Periods, in which case no supplement or amendment need be
furnished. The Holders may not make use of any Registration Statement
while its use is suspended.
(e) Use its best efforts to register or qualify the
Registrable Securities covered by such Registration Statement under
such securities or blue sky laws of such jurisdictions in the United
States as the Sellers participating in the Public Offering or the
managing underwriter thereof shall reasonably request, and do any and
all other acts and things that may be reasonably necessary to enable
each participating Seller or underwriter to consummate the disposition
of the Registrable Securities in such jurisdictions; provided, however,
that in no event shall Quintiles be required to qualify to do business
as a foreign corporation in any jurisdiction where it is not so
qualified; or to execute or file any general consent to service of
process under the laws of any jurisdiction.
(f) Make available upon reasonable advance notice for
inspection by any Seller of such Registrable Securities, any
underwriter participating in any disposition pursuant to such
Registration Statement and any attorney, accountant or other
professional retained by any such Seller or underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of Quintiles (collectively, the "Records") as
shall be reasonably necessary to enable them to conduct a "reasonable"
investigation for purposes of Section 11(a) of the Securities Act and
cause Quintiles's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with
such Registration Statement.
(g) Use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be (A) qualified for trading
on the National Association of Securities Dealers Automated
Quotation--National Market System ("NASDAQ") and (B) listed or
qualified for trading on any other stock exchange or quotation service
on which Quintiles's outstanding shares of Common Stock are listed or
qualified for trading.
(h) Furnish to each Seller and each underwriter of the
Registrable Securities covered by such Registration Statement such
number of copies of such Registration Statement, each amendment and
supplement thereto (in each case including all exhibits
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thereto and documents incorporated by reference therein), the
Prospectus included in such Registration Statement (including each
Preliminary Prospectus) and such other documents as such Holder or
underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Seller.
(i) In connection with an underwritten offering of Registrable
Securities, enter into an underwriting agreement in such form as is
customary in underwritten offerings made by selling security holders
and take all such other actions as are reasonably requested by the
managing underwriters for such underwritten offering in order to
expedite or facilitate the registration or the disposition of such
Registrable Securities, and in such connection, (A) make such
representations and warranties to the underwriters and the Sellers with
respect to the business of Quintiles and its subsidiaries, and the
Registration Statement, Prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings
made by selling security holders, and confirm the same on the
settlement date for the offering; (B) cause opinions of counsel to
Quintiles (which counsel and opinions shall be reasonably satisfactory
to the managing underwriters), to be delivered to the underwriters and
the Sellers covering the matters customarily covered in opinions
requested in underwritten offerings by selling security holders; (C)
cause "cold comfort" letters and updates thereof (which letters and
updates shall be reasonably satisfactory to the managing underwriters)
from the independent certified public accountants of Quintiles (and, if
necessary, any other independent certified public accountants of any
subsidiary of Quintiles or of any business acquired by Quintiles for
which financial statements and financial data are, or are required to
be, included in the Registration Statement), to be delivered to each of
the underwriters and the Sellers of such Registrable Securities
included in such underwritten offering (if such accountants are
permitted under applicable law and accounting literature to so address
"cold comfort" letters), such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings by selling security
holders; and (D) if an underwriting agreement is entered into, the same
shall contain customary indemnification provisions and procedures from
Quintiles in favor of both the Sellers of such Registrable Securities
and the underwriters or selling agents. The delivery of certificates,
opinions and letters referred to above shall be done at each closing
under such underwriting agreement, as and to the extent required
thereunder.
(j) Comply with all applicable rules and regulations of the
Commission and make generally available to security holders earning
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) not later than 45 days after the end of any 12- month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (A) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a Public
Offering and (B) if not sold to underwriters in such an
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offering, commencing on the first day of the fiscal quarter of
Quintiles after the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(k) Cooperate with each Seller and the managing underwriter,
if any, participating in the disposition of such Registrable Securities
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(l) Use its best efforts to take all other steps reasonably
necessary to effect the registration, offering and sale of the
Registrable Securities covered by a Registration Statement contemplated
hereby and enter into any other customary agreements and take such
other actions, including participation in "roadshows", as are
reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities.
(m) Until there are no Registrable Securities outstanding or,
if earlier, March 31, 1999, at the reasonable request of the Holders,
hold periodic meetings with representatives of the Holders to report on
the market for Quintiles's shares and opportunities for such Holders to
effect sales of Registrable Securities.
(n) With respect to any Registration Statement under Section 2
hereof, the Company may require each Holder disposing of Registrable
Securities covered by such Registration Statement to furnish such
information regarding the Holder and such Holder's intended disposition
of Registrable Securities as the Company may from time to time
reasonably request (with reasonable prior notice) in writing. If any
such information with respect to the Holder is not furnished within a
reasonable period of time after receipt of such request, the Company
may exclude such Holder's Registrable Securities from such Registration
Statement.
SECTION 3. HOLD-BACK AGREEMENT.
(a) Each Holder whose Registrable Securities are covered by a
Registration Statement filed pursuant hereto agrees, that it will upon the
reasonable request (pursuant to a timely written notice) of the managing
underwriter or underwriters in an underwritten offering, not to effect any
public sale or distribution of any of the securities of Quintiles being
registered, or any similar security of Quintiles, or any securities convertible
or exchangeable or exercisable for such securities, including sale pursuant to
Rule 144 (except in each case as part of such underwritten offering), during the
period beginning 30 days prior to, and ending 120 days after, the closing date
of each underwritten offering made pursuant to such Registration Statement, to
the extent timely notified in writing by Quintiles or by the managing
underwriter of such underwritten offering.
(b) Each Holder agrees with each other Holder that in
connection with any underwritten offering it will not vote shares of Common
Stock held by it for any capital increase
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the effect of which would be that Quintiles could effect any public sale or
distribution of any shares of Common Stock of Quintiles, or any similar security
of Quintiles, or any securities convertible or exchangeable or exercisable for
such securities (except as part of such offering), during the period beginning
30 days prior to and ending 120 days after the closing date of such underwritten
offering, to the extent timely notified and requested in writing by Quintiles or
by the managing underwriter of such underwritten offering.
SECTION 4. REGISTRATION EXPENSES.
(a) Except as provided in clause (b) below, all fees and
expenses incident to the registration and sale of the Registrable Securities
shall be borne by Quintiles whether or not a Registration Statement is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees (including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with an underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel for Quintiles
or the underwriters, or both, in connection with Blue Sky qualifications of the
Registrable Securities)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities in a form eligible
for deposit with The Depository Trust Company, printing Preliminary
Prospectuses, Prospectuses, and printing or preparing any underwriting
agreement, agreement among underwriters and related syndicate or selling group
agreements, pricing agreements and Blue Sky memoranda), (iii) fees and
disbursements of counsel for Quintiles, (iv) fees and disbursements of all
independent certified public accountants for Quintiles (including, without
limitation, the expenses of any "cold comfort" letters required by or incident
to such performance), (v) the fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Rule 2720 of the Conduct Rules of the NASD, (vi)
Securities Act liability insurance, if Quintiles so desires such insurance,
(vii) the expenses and costs of any roadshow (including travel, meals,
accommodation and other arrangements for any investor presentations or
meetings); (viii) the fees, expenses and costs of any public relations, investor
relations or other consultants retained by Quintiles in connection with any
roadshow (including travel and other arrangements for any investor presentations
or meetings); (ix) all out-of-pocket expenses of Quintiles (including, without
limitation, expenses incurred by officers and employees of Quintiles performing
legal or accounting duties or participating in "roadshow" presentations), and
(x) the fees and expenses incurred in connection with the quotation or listing
of shares of Common Stock on any securities exchange or automated securities
quotation system ((i) through (x) above collectively, "Registration Expenses").
(b) Each Seller shall pay all underwriting discounts and
commissions or broker's commissions incurred in connection with the sale or
other disposition of Registrable Securities for or on behalf of such Seller's
account and any fees and expenses of legal counsel and other advisors separately
engaged by them for such Seller.
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SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Quintiles Representations, Warranties and Agreements.
Quintiles represents and warrants to, and agrees with, each Holder that:
(i) Quintiles has all requisite corporate power and
authority to execute, deliver, and perform this Agreement. This
Agreement has been duly authorized, executed, and delivered by
Quintiles. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
United States federal, state, local, or other governmental authority or
any court or other tribunal is required by Quintiles for the execution,
delivery or performance of this Agreement by Quintiles (except filings
under the Securities Act which will be made and any consents under Blue
Sky or state securities laws which will be obtained).
(ii) Quintiles shall not enter into any transaction
involving the issuance or transfer by any other Person of Other
Securities to any Holder, or any merger or consolidation in which it is
not the surviving Person, or any sale, lease or other transfer of all
or substantially all the assets of Quintiles, unless effective
provision is made for the assumption by such other Person, jointly and
severally with Quintiles if Quintiles shall remain in existence, of all
of the obligations of Quintiles hereunder, and in the case of any such
issuance or transfer, the registration of such Other Securities on the
same basis as the registration of the other Registrable Securities
hereunder.
(iii) The execution and delivery of this Agreement by
Quintiles do not, and the consummation of the transactions contemplated
hereby will not, violate, conflict with, or result in a breach of any
provision of, or constitute a default (with or without notice or lapse
of time or both) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination,
cancellation, or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets
(any such violation, conflict, breach, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") of
Quintiles or any of its subsidiaries pursuant to any provisions of (i)
the articles of incorporation, by-laws or similar governing documents
of Quintiles or any of its subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any governmental authority applicable to Quintiles
or any of its subsidiaries or any of their respective properties or
assets or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Quintiles or
any of its subsidiaries is a party or by which it or any of its
properties or assets may be bound or affected.
(iv) Quintiles covenants that it will file any
reports required to be filed by it under the Securities Act and the
Exchange Act, will make available "adequate
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<PAGE> 107
current public information concerning Quintiles within the meaning of
paragraph (c) of Rule 144" and that it will take such further action as
any Holder may reasonably request, all to the extent required from time
to time to enable Holders to sell Registrable Securities without
registration under the Securities Act pursuant to the exemptions
provided by Rule 144. Upon the request of any Holder, Quintiles will
deliver to such Holder a written statement as to whether it has
complied with such requirements.
(v) Quintiles covenants that it will not conduct any
offering of equity (or equity-linked) securities, whether registered
under the Securities Act or otherwise, from and after the date of the
Closing until the earlier of (A) the closing of the Initial Secondary
Offering and (B) March 31, 1997 (the "Priority Period") (excluding, for
the avoidance of doubt, the Initial Secondary Offering itself), other
than securities issued (i) in connection with Quintiles's acquisition
of BRI, (ii) pursuant to any employee benefit plans, employee stock
option plans and stock purchase plans of Quintiles as in effect as of
the date of this Agreement, and (iii) shares of Common Stock issued
upon conversion of the convertible debentures of Quintiles outstanding
as of the date of this Agreement.
(b) Holder Representations, Warranties and Agreements.
Each Holder represents and warrants to, and agrees with, Quintiles,
that:
(i) Such Holder, if not a natural person, is duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of organization. Such Holder has all requisite power and
authority to execute, deliver, and perform this Agreement. This
Agreement has been duly authorized by such Holder, if not a natural
person, and has been duly executed and delivered by such Holder.
(ii) Neither such Holder nor any such Holder's
Affiliates will take, directly or indirectly, during the term of this
Agreement, any action designed to stabilize (except as may be permitted
by applicable law) or manipulate the price of any security of
Quintiles.
(iii) Such Holder shall promptly furnish to Quintiles
upon Quintiles's request any and all information as may be required by,
or as may be necessary or advisable to comply with the provisions of,
the Securities Act, the Regulations, the Exchange Act, and the rules
and regulations of the Commission thereunder in connections with the
preparation and filing of any Registration Statement pursuant hereto,
or any amendment or supplement thereto, or any Preliminary Prospectus
or Prospectus included therein.
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<PAGE> 108
SECTION 6. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements at the effective date of each Registration Statement
contemplated by this Agreement, and such representations, warranties, covenants
and agreements, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of Quintiles, any Holder, or any other
Person and shall survive termination of this Agreement.
SECTION 7. INDEMNIFICATION
(a) Indemnification by Quintiles. Quintiles shall, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each holder of Registrable Securities, and any underwriter
participating in the distribution, their respective officers, directors and
agents and employees of each of them, each Person who controls each such holder
or any such underwriter (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling person (individually, an "Indemnified
Person") from and against any and all losses, claims, damages, liabilities,
costs (including, without limitation, costs of investigating, preparing to
defend, defending and appearing as a third-party witness and attorney's fees and
disbursements) and expenses, including any amounts paid in respect of any
settlements (collectively, "Losses"), joint or several, without duplication, as
incurred, arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, Prospectus or form of
prospectus, or in any amendment or supplements thereto or in any Preliminary
Prospectus, or arising out of or based upon, in the case of the Registration
Statement or any amendments thereto, any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and, in the case of the Prospectus or form of
prospectus, or in any amendments or supplements thereto, or in any Preliminary
Prospectus, any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading except, in either case,
(i) to the extent, but only to the extent, that such untrue or alleged untrue
statement or omission or alleged omission has been made therein in reliance upon
and in conformity with information furnished in writing to Quintiles by such
Indemnified Person expressly for use therein and (ii) if the person asserting
any such Losses who purchased the Registrable Securities which are the subject
thereof did not receive a copy of an amended Preliminary Prospectus or the final
Prospectus (or the final Prospectus as amended or supplemented) at or prior to
the written confirmation of the sale of such Registrable Securities to such
person and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact made in such Preliminary Prospectus was
corrected in the amended Preliminary Prospectus or the final Prospectus (or the
final Prospectus as amended and supplemented).
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<PAGE> 109
(b) Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, such Holder of Registrable Securities shall furnish
to Quintiles in writing such information as Quintiles reasonably requests for
use in connection with any Registration Statement or Prospectus, and shall
severally, without limitation as to time, indemnify and hold harmless, to the
fullest extent permitted by law, Quintiles, any underwriter participating in the
distribution and their respective directors, officers, agents and employees,
each Person who controls Quintiles or any such underwriter (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling person, from and
against any and all Losses, as incurred, arising out of or based upon (i) any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus, or form of prospectus, or in any amendment
or supplement thereto or in any Preliminary Prospectus, or arising out of or
based upon, in the case of the Registration Statement or any amendments thereto,
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, and, in the
case of the Prospectus, or form of prospectus, or in any amendments or
supplements thereto, or in any Preliminary Prospectus, any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, in either case, to the extent, but only to the extent,
that such untrue or alleged untrue statement or omission or alleged omission has
been made therein in reliance upon and in conformity with information furnished
in writing to Quintiles by such Holder expressly for use therein or (ii) the
failure of such participating Holder or any underwriter acting for such
participating Holder at or prior to the written confirmation of the sale of the
Registrable Securities to send or deliver a copy of an amended Preliminary
Prospectus or the final Prospectus (or the final Prospectus as amended or
supplemented) to the person asserting any such Losses who purchased the
Registrable Securities which are the subject thereof and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact made
in such Preliminary Prospectus was corrected in the amended Preliminary
Prospectus or the final Prospectus (or the final Prospectus as amended and
supplemented). In no event shall the liability of any Seller of Registrable
Securities hereunder be, or be claimed by Quintiles to be, greater in amount
than the dollar amount of the proceeds actually received by such Seller upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Each Indemnified
Person shall give prompt notice to the party or parties from which such
indemnity is sought (the "indemnifying parties") of the commencement of any
action or proceeding (including any governmental investigation) (collectively
"Proceedings" and individually a "Proceeding") with respect to which such
Indemnified Person seeks indemnification or contribution pursuant hereto;
provided, however, that the failure so to notify the indemnifying parties shall
not relieve the indemnifying parties from any obligation or liability except to
the extent that the indemnifying party was otherwise unaware of such Proceeding
and the indemnifying parties shall have been materially prejudiced by such
failure. The indemnifying parties shall have the right, exercisable by giving
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<PAGE> 110
written notice to an indemnified party promptly after the receipt of written
notice from such indemnified party of such Proceeding, to assume, at the
indemnifying parties' expense, the defense of any such proceeding, with counsel
reasonably satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such Proceeding; provided,
however, that an indemnified party or parties (if more than one such indemnified
party is named in any Proceeding) shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless: (1) the indemnifying party or parties agree
to pay such fees and expenses; or (2) the indemnifying parties fail promptly to
assume the defense of such Proceeding or fail to employ counsel reasonably
satisfactory to such indemnified party or parties; or (3) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party or parties shall
have been advised by counsel that there may be a conflict between the positions
of the indemnifying party or an affiliate of the indemnifying party and such
indemnified party or parties in conducting the defense of such action or
proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or such affiliate, in which case, if such indemnified party
or parties notifies the indemnifying parties in writing that it elects to employ
separate counsel at the expense of the indemnifying parties, the indemnifying
parties shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the indemnifying parties, it being understood,
however, that the indemnifying parties shall not, in connection with any one
such Proceeding or separate but substantially similar or related Proceedings in
the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel) at any time
for such indemnified party or parties. Whether or not such defense is assumed by
the indemnifying parties, such indemnifying parties or indemnified party or
parties will not be subject to any liability for any settlement made without its
or their consent (but such consent will not be unreasonably withheld). No
indemnifying party shall be liable for any settlement of any such action or
proceeding effected without its written consent, but if settled with its written
consent each indemnifying party jointly and severally agrees, subject to the
exception and limitations set forth above, to indemnify and hold harmless each
indemnified party from and against any loss or liability by reason of such
settlement. No indemnification provided for in Section 7(a) or Section 7(b)
shall be available to any party who shall fail to give notice as provided in
this Section 7(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, but the failure to give such notice shall
not relieve the indemnifying party or parties from any liability which it or
they may have to the indemnified party otherwise than on account of the
provisions of Section 7(a) or Section 7(b).
(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect to which this Section 7
would otherwise apply by its terms, except by
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<PAGE> 111
reasons of Section 7(a)(i) or (ii) hereof or the failure of the indemnified
party to give notice as required in Section 7(c) hereof (provided that the
indemnifying party was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice), then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall have an obligation to contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. Where the indemnified party is an
underwriter participating in the distribution of Registrable Securities,
however, each indemnifying party, and, in addition, if the indemnifying party is
a Holder, Quintiles, shall have an obligation to contribute to the amount paid
or payable by such indemnified part as the result of such Losses in such
proportion as is appropriate to reflect not only (i) the relative fault of
Quintiles, the Holders and the underwriters in connection with the actions,
statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations, but also (ii) the relative benefits received
by the Holders on the one hand and the underwriters on the other hand from the
distribution of the Registrable Securities. The relative benefit derived by the
parties shall be determined by reference to, among other things, the fact that
Quintiles entered into this Agreement to induce the Holders to engage in the
transaction in which the Registrable Securities were acquired. The relative
benefits received by the Holders on the one hand and the underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from any such offering (before deducting expenses) received by the Holders bear
to the total underwriting discounts or commissions received by the underwriters.
The relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been taken by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent any such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding, to the extent such
party would have been indemnified for such expenses if the indemnification
provided for in Section 7(a) or 7(b) were available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 7(d), an indemnifying
party that is a selling Holder of Registrable Securities shall not be required
to contribute any amount in excess of the amount by which the total price at
which the Registrable Securities sold by such indemnifying party and distributed
to the public were offered to the public (net of any underwriting discounts and
commissions and expenses) exceeds the amount of any damages that such
indemnifying party has otherwise been required to pay or has paid by
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<PAGE> 112
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(e) Remedies Cumulative. The indemnity, contribution and expense
reimbursement obligations under this Section 7 shall be in addition to any
liability each indemnifying person may otherwise have and shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party.
(f) Underwriting Agreement Controls. In the event of any conflict
between the indemnification and contribution terms as herein set forth and as
set forth in any underwriting agreement entered pursuant hereto, the
underwriting agreement shall control.
SECTION 8. UNDERWRITTEN REGISTRATION
No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (i) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Holders of a majority of Registrable Securities
included in such offering, and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements, custodial or escrow
agreements and other documents required under the terms of such underwriting
arrangements.
SECTION 9. UNREGISTERED OFFERINGS
The parties hereto hereby agree that, in the event that Quintiles
or one or more Holders propose to make an underwritten Public Offering of
shares of Common Stock (i) that is exempt from, or not subject to, the
registration requirements of the Securities Act pursuant to Regulation S (or any
successor or similar regulation) thereunder and (ii) with respect to which the
Holder or Holders proposing such underwritten offering request the cooperation
and participation of Quintiles or the management of Quintiles in performing due
diligence and marketing such offering to potential investors, the relevant
notice provisions of Section 2.3 or 2.4 will state that the offering is proposed
to be made on an unregistered basis pursuant to Regulation S. In that event, the
parties agree to proceed with such an offering on an unregistered basis pursuant
to Regulation S in good faith as and to the extent provided herein with respect
to a registered offering and that the provisions of this Agreement will apply
mutatis mutandis to such unregistered offering, including, without limitation,
provisions relating to Joining Notices, Quintiles's ability to delay an
offering, allocations of securities included in an offering, Quintiles's
obligations with respect to an offering (including indemnification provisions
and procedures), selection of underwriters, hold-back agreements, expenses
associated with an offering and representations and warranties.
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<PAGE> 113
SECTION 10. PRIORITY OF HOLDERS
Until the end of the Demand Period, the following conditions shall
apply (subject to waiver by the Required Holders); Quintiles shall use
reasonable efforts to cause Dr. Dennis B. Gillings (i) not to sell or otherwise
transfer shares other than (A) to a private transferee which agrees to be bound
by these provisions or (B) to the public in an amount and manner specified in
Rules 144(e) and (f), respectively, of the Regulations, regardless of the
applicability of such rules to a proposed transfer and (ii) if requested by the
managing underwriter or underwriters in an underwritten offering, not to effect
any public sale or distribution of any securities of Quintiles being registered,
or any similar security of Quintiles, or any securities convertible or
exchangeable or exercisable for such securities including sales pursuant to Rule
144 (except in each case as part of such underwritten offering), during the
period beginning 30 days prior to, and ending 120 days after, the closing date
of each underwritten offering made pursuant to such Registration Statement, to
the extent timely notified in writing by Quintiles or by the managing
underwriter of such underwritten offering.
SECTION 11. MISCELLANEOUS
(a) Remedies. In the event of breach by any party of any of its
obligations under this Agreement, the other parties, in addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. Quintiles and each Holder agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by Quintiles or such Holder, as the case may be, of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, Quintiles or such Holder, as the
case may be, shall waive the defense that a remedy at law would be adequate. No
failure or delay on the part of Quintiles or any Holder in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless Quintiles has obtained the written consent of Holders
of at least 90% of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other Holders of Registrable Securities may be
given by Holders of at least a majority of the Registrable Securities being sold
by Holders pursuant to such Registration Statement; provided, however, that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
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<PAGE> 114
(c) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, by
telecopier (receipt of which is confirmed) or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
if to Quintiles, to:
Quintiles Transnational Corp.
4709 Creekstone Drive, Riverbirch Building, Suite 300
Durham, North Carolina 27703
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 Holders, at the addresses listed on Annex A hereto.
with a copy to:
Sullivan & Cromwell
9a Ironmonger Lane
London EC2V 8EY, England
Telecopy: 44-171-710-6565
Telephone: 44-171-710-6500
Attention: Scott D. Miller
(d) Interpretation. When a reference is made in this Agreement
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
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<PAGE> 115
(f) Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (ii) except as contemplated by the definition of
"Holders" in Section 1 hereof, is not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
(G) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, USA, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(h) Severability. Wherever possible, each provision hereof
shall be interpreted in such a manner as to be valid, legal and enforceable
under applicable law, but in case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
or rendering unenforceable the remainder of this Agreement, unless such a
construction would be unreasonable or materially impair the rights or any party
hereto.
(i) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without prior written consent
of the other parties, except as may otherwise occur by operation of the
definition of "Holders" in Section 1 hereof or to another Holder who, by such
assignment, agrees to be bound by the restrictions set forth herein. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
(j) Attorney's Fees. As between parties to this Agreement, in
any action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorney's fees in addition to its
costs and expenses and any other available remedy.
(k) Use of Terms. This Agreement contemplates the filing of
Registration Statements under the Securities Act on numerous occasions involving
various offers of securities. In connection with such Registration Statements,
there may be identified therein one or more underwriters through which
securities are to be offered on behalf of Quintiles or one or more of the
Holders, or both, pursuant to either a "firm-commitment" or "best-efforts"
arrangement, and, in the case where there is more than one underwriter, one or
more of the underwriters may be designated as the "manager" or "representative"
or the "co-managers" or "representatives" of the several underwriters.
Accordingly, all references herein to an "underwriter" or "underwriters" are
intended to refer to a "principal underwriter" (as defined in Rule 405 of the
Regulations) and to provide for those transactions in which securities may be
offered by or through one or more underwriters, and not to imply that any of the
transactions contemplated
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<PAGE> 116
hereby is conditioned in any manner whatsoever on the participation therein by
one or more underwriters on behalf of any party. Nothing contained herein
relating to Quintiles's obligation to enter into an underwriting agreement at
any time or from time to time in the future shall impair, alter, restrict or
otherwise affect in any manner whatsoever the duties of the Board of Directors
of Quintiles under applicable law in approving the form, terms and provisions
thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
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<PAGE> 117
ANNEX A
Identity of Holders
-------------------
<TABLE>
<CAPTION>
==========================================================================================================================
Name Address Registrable Securities
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
</TABLE>
<PAGE> 118
ANNEX B
Ratio for Initial Secondary Offering
(Maximum Number of Shares Less than 4,000,000)
----------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================================
Holders Quintiles Existing
Maximum No. of Shares to Holders
be sold in the Offering
-------------------------------------------------------------------------------
(%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,000,000-2,700,000 67.5 25.0 7.5
- ------------------------------------------------------------------------------------------------------------------------
2,700,000-2,250,000 71.0 22.5 6.5
- ------------------------------------------------------------------------------------------------------------------------
2,250,000-1,750,000 72.0 21.5 6.5
========================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 23
[KPMG LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Innovex Limited
We consent to incorporation by reference in the Registration Statement related
to the Quintiles Lewin Nonqualified Stock Option Plan on Form S-8 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.
/s/ KPMG
Reading, England
October 11, 1996
