<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
QUINTILES TRANSNATIONAL CORP.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703
Dear Shareholder:
You are cordially invited to attend a Special Meeting of shareholders of
Quintiles Transnational Corp. ("Quintiles") on November 26, 1996, at 9:00 a.m.,
local time, at the [Radisson Governors' Inn, Research Triangle Park, North
Carolina 27709] (together with any adjournment or postponement thereof, the
"Special Meeting").
As described in the enclosed Proxy Statement, at the Special Meeting, the
holders of the common stock, par value $.01 per share, of Quintiles ("Quintiles
Common Stock"), will be asked to approve (i) the issuance by Quintiles of up to
10 million shares (the "Exchange Shares") of Quintiles Common Stock to the
shareholders of Innovex Limited, a company organized under the laws of England
and Wales with limited liability ("Innovex"), in connection with a Share
Exchange Agreement, dated as of October 4, 1996 (the "Exchange Agreement"), by
and among Quintiles, Innovex and the shareholders of Innovex (the "Innovex
Shareholders"), pursuant to which, among other things, the Innovex Shareholders
will exchange all of their ordinary shares and cumulative participating
preferred ordinary shares of Innovex for the Exchange Shares (the "Exchange")
and (ii) an amendment to the Company's Amended and Restated Articles of
Incorporation to increase the number of authorized shares of Quintiles Common
Stock from 50,000,000 to 200,000,000. If the shareholders of Quintiles approve
the issuance of the Exchange Shares and if the Exchange is consummated, Innovex
will become a wholly-owned subsidiary of Quintiles. A copy of the Exchange
Agreement is attached as Appendix A to the Proxy Statement.
The Board of Directors of Quintiles has unanimously determined that the
proposed issuance of the Exchange Shares and the consummation of the Exchange is
in the best interests of Quintiles and the shareholders of Quintiles.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ISSUANCE OF
THE EXCHANGE SHARES AND THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION.
A Notice of Special Meeting of Shareholders, Proxy Statement and proxy card
are enclosed for your review. The Proxy Statement contains a detailed
description of the terms of the Exchange Agreement and additional information
regarding the proposed Exchange.
PLEASE READ THE PROXY STATEMENT CAREFULLY. IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND PRE-PAID ENVELOPE SO THAT IT WILL BE
RECEIVED NO LATER THAN NOVEMBER 21, 1996. IF YOU ATTEND THE SPECIAL MEETING, YOU
MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU MAY HAVE PREVIOUSLY RETURNED
YOUR PROXY.
Sincerely,
Dennis Gillings, Ph.D.
Chairman and Chief Executive Officer
October 28, 1996
<PAGE> 3
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 26, 1996
You are cordially invited to attend a Special Meeting of shareholders of
Quintiles Transnational Corp. ("Quintiles") which will be held on Tuesday,
November 26, 1996, at 9:00 a.m., local time, at the [Radisson Governors' Inn,
Research Triangle Park, North Carolina 27709] for the following purposes:
1. To approve the issuance by Quintiles of up to 10 million shares
(the "Exchange Shares") of the common stock, par value $.01 per share, of
Quintiles ("Quintiles Common Stock") to the shareholders of Innovex
Limited, a company organized under the laws of England and Wales with
limited liability ("Innovex"), in connection with a Share Exchange
Agreement, dated as of October 4, 1996 (the "Exchange Agreement"), by and
among Quintiles, Innovex and the shareholders of Innovex (the "Innovex
Shareholders"), pursuant to which, among other things, the Innovex
Shareholders will exchange all of their ordinary shares and cumulative
participating preferred ordinary shares of Innovex for the Exchange Shares.
Shareholder approval of the issuance of the Exchange Shares is required to
comply with the rules of the Nasdaq Stock Market, on which the Quintiles
Common Stock is quoted. If the shareholders of Quintiles approve the
issuance of the Exchange Shares and if the Exchange is consummated, Innovex
will become a wholly-owned subsidiary of Quintiles. A copy of the Exchange
Agreement is attached as Appendix A to the accompanying Proxy Statement;
2. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of
Quintiles Common Stock from 50,000,000 to 200,000,000 (the "Amendment");
and
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The close of business on October 24, 1996, has been fixed by the Quintiles
Board of Directors as the record date (the "Quintiles Record Date") for the
determination of shareholders entitled to vote at the Special Meeting. Assuming
the presence of a quorum, approval of the issuance of the Exchange Shares
requires the affirmative vote, either in person or by proxy, of at least a
majority of all shares of Quintiles Common Stock voted at the Special Meeting.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval of both the issuance of the
Exchange Shares and the Amendment.
The accompanying Proxy Statement contains a detailed description of the
terms of the Exchange Agreement and the transactions contemplated thereunder and
additional information regarding the proposed Exchange.
YOU ARE URGED TO READ THE PROXY STATEMENT CAREFULLY. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND PRE-PAID
ENVELOPE SO THAT IT WILL BE RECEIVED NO LATER THAN NOVEMBER 21, 1996. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY.
By Order of the Board of Directors,
Gregory D. Porter
Vice President, General Counsel and
Corporate Secretary
Durham, North Carolina
October 28, 1996
<PAGE> 4
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 300
DURHAM, NORTH CAROLINA 27703
PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") is being furnished to the
shareholders of Quintiles Transnational Corp., a North Carolina corporation
(unless the context otherwise requires, together with its subsidiaries,
"Quintiles" or the "Company"), in connection with the solicitation of proxies by
the Board of Directors of Quintiles for use at a special meeting of shareholders
to be held on November 26, 1996 (together with any adjournment or postponement
thereof, the "Special Meeting"). The purpose of the Special Meeting is to
approve (i) the issuance by Quintiles of up to 10 million shares (the "Exchange
Shares") of the common stock, par value $.01 per share, of Quintiles (the
"Quintiles Common Stock") to the shareholders of Innovex Limited, a company
organized under the laws of England and Wales with limited liability
("Innovex"), in connection with a Share Exchange Agreement, dated as of October
4, 1996 (the "Exchange Agreement"), by and among Quintiles, Innovex and the
shareholders of Innovex (the "Innovex Shareholders"), pursuant to which, among
other things, the Innovex Shareholders will exchange all of their ordinary
shares, nominal value 0.1p each ("Innovex Ordinary Shares"), and cumulative
participating preferred ordinary shares, nominal value 0.1p each ("Innovex
Preferred Ordinary Shares"), of Innovex for the Exchange Shares (the "Exchange")
and (ii) an amendment to the Company's Amended and Restated Articles of
Incorporation to increase the number of authorized shares of Quintiles Common
Stock from 50,000,000 to 200,000,000 (the "Amendment"). The approval of
shareholders of the issuance of the Exchange Shares is required to comply with
the rules of the Nasdaq Stock Market, on which the Quintiles Common Stock is
quoted. Such rules require companies listed on the Nasdaq National Market to
obtain shareholder approval before they issue shares constituting 20% or more of
the shares of listed stock outstanding prior to the issuance.
The Board of Directors of Quintiles has unanimously determined that the
issuance of the Exchange Shares and the consummation of the Exchange is in the
best interests of Quintiles and the shareholders of Quintiles and recommends
that shareholders vote FOR both the issuance of the Exchange Shares and the
Amendment.
This Proxy Statement is first being mailed to shareholders of Quintiles on
or about October 28, 1996.
AVAILABLE INFORMATION
Quintiles is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the United
States Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by Quintiles may be inspected and
copied at the Public Reference Facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the Commission's following regional offices: New York Regional Office, 7 World
Trade Center, New York, New York 10048; and Chicago Regional Office, Citicorp
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including Quintiles. Quotations relating to the Company's Common
Stock appear on the Nasdaq National Market and such reports and other
information concerning the Company can also be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. (i)
SUMMARY............................................................................... 1
SELECTED CONSOLIDATED FINANCIAL INFORMATION........................................... 6
SELECTED PRO FORMA COMBINED FINANCIAL DATA (UNAUDITED)................................ 8
COMPARATIVE PER SHARE DATA............................................................ 10
SPECIAL MEETING OF QUINTILES SHAREHOLDERS............................................. 11
Voting Information for Quintiles Shareholders....................................... 11
Authorization to Vote an Adjournment and Other Matters.............................. 11
Solicitation of Proxies............................................................. 11
PROPOSAL ONE -- ISSUANCE OF THE EXCHANGE SHARES....................................... 12
Summary of the Exchange............................................................. 12
Background of the Exchange.......................................................... 12
Reasons for the Exchange and Recommendation of the Board of Directors............... 13
Opinions of Quintiles' Financial Advisors........................................... 13
The Exchange Agreement.............................................................. 19
The Escrow Agreement................................................................ 23
Employment Agreements............................................................... 24
The Registration Rights Agreement................................................... 24
Accounting Treatment................................................................ 24
Certain Federal Income Tax Considerations........................................... 24
Restrictions on Resales of Quintiles Common Stock; Pooling Considerations........... 25
Regulatory Approvals................................................................ 26
CERTAIN INFORMATION CONCERNING QUINTILES.............................................. 27
CERTAIN INFORMATION CONCERNING INNOVEX................................................ 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF INNOVEX.......................................................................... 43
PROPOSAL TWO -- AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK........... 53
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 54
FORWARD LOOKING STATEMENTS............................................................ 54
AVAILABILITY OF AUDITORS AT SPECIAL MEETING........................................... 55
APPENDICES
Appendix A -- Share Exchange Agreement................................................ A-1
Appendix B -- Opinion of Goldman, Sachs & Co. ........................................ B-1
Appendix C -- Opinion of Smith Barney Inc. ........................................... C-1
</TABLE>
ii
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SUMMARY
The following is a brief summary of certain information contained elsewhere
or incorporated by reference in this Proxy Statement. Certain capitalized terms
used in this Summary are defined elsewhere in this Proxy Statement. This summary
is not intended to be a complete statement of all material features of the
Exchange and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement and in the Appendices
hereto, which the shareholders are urged to read in their entirety. Such
information may constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
Information contained or incorporated by reference in this Proxy Statement
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon or
comparable terminology. See "FORWARD LOOKING STATEMENTS."
THE COMPANIES
Quintiles -- Business
Quintiles provides drug development and health information management
services to a range of public and private sector clients around the world.
Quintiles believes that it is one of only three contract research organizations
("CROs") with fiscal 1995 revenue exceeding $100 million and one of a few
capable of providing global services. Quintiles complements the research and
development departments of pharmaceutical and biotechnology companies by
offering services designed to assure a high quality product for the sponsor
company and reduce drug development time and cost. In addition, Quintiles'
integrated services and extensive information technology capabilities furnish
clients with broad experience and expertise in global drug development and
provide clients with an outsourced variable-cost alternative to the fixed costs
associated with internal drug development. Quintiles' core competencies include
clinical research and data management, and consulting on healthcare policy,
disease management and regulatory issues. In 1995, Quintiles generated
approximately 79% of its net revenue from its clinical services and
approximately 21% from its pre-clinical, laboratory services and formulation and
packaging services. Quintiles has 41 operating units in 19 countries. The
Company maintains its principal executive office at 4709 Creekstone Drive,
Riverbirch Building, Suite 300, Durham, North Carolina, 27703-8411 and its
telephone number is (919) 941-2000. See "CERTAIN INFORMATION CONCERNING
QUINTILES -- Business of Quintiles."
Quintiles -- Recent Development
Pursuant to a Merger Agreement and Plan of Merger (the "BRI Merger
Agreement"), dated as of September 16, 1996, BRI International, Inc., a Virginia
corporation ("BRI"), will merge with and into BRI Acquisition Corp.
("Acquisition"), a wholly-owned subsidiary of Quintiles, with Acquisition
surviving the merger (the "BRI Merger"). In connection with the BRI Merger, (i)
on the effective date of the BRI Merger, each share of BRI Common Stock will be
converted into the right to receive 4.3013 shares of Quintiles Common Stock and
(ii) any option to acquire shares of BRI Common Stock would become an option to
acquire shares of Quintiles Common Stock, subject to the terms and conditions
contained in the BRI Merger Agreement. On September 24, 1996, Quintiles filed
with the Securities and Exchange Commission a Registration Statement on Form S-4
(as amended on October 15, 1996) to register under the Securities Act an
aggregate of 1,951,027 shares of Quintiles Common Stock to be issued to BRI
stockholders under the BRI Merger Agreement. It is currently anticipated that
the transactions contemplated under the BRI Merger Agreement will be consummated
in November 1996. See "CERTAIN INFORMATION CONCERNING QUINTILES -- The BRI
Merger", "UNAUDITED SUMMARY PRO FORMA FINANCIAL INFORMATION" and "INDEX TO
FINANCIAL STATEMENTS -- Pro Forma Combined Financial Statements".
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<PAGE> 7
Innovex -- Business
Innovex is an international contract pharmaceutical organization
("C.P.O."), which provides contract research and sales and marketing services to
the pharmaceutical industry. Innovex focuses primarily on the period extending
from two years before to two years after the receipt of marketing approval for a
drug (the "peri-launch" period). This period of drug development attracts the
highest level of expenditure and the most intense boardroom focus by drug
sponsors. Innovex typically provides contract research services in the early
peri-launch period and sales and marketing services thereafter. Contract
research and sales and marketing services accounted for approximately 37.4% and
62.6% of Innovex's net sales in the 1996 fiscal year, respectively. Innovex
provides project teams with specialist knowledge and expertise to enable its
clients to accelerate the speed to market, the commercial acceptance and the
market penetration of their pharmaceutical products, with the aim of maximizing
their return on investment.
Innovex was founded in 1979 as a provider of consulting services to the
pharmaceutical industry in the United Kingdom. During the 1980s, Innovex
expanded its service range to comprise contract sales services, marketing
services, disease management services and a full range of clinical research
services. Since 1992, Innovex has expanded into new geographic markets by
launching contract sales services in Germany, the United States, The Netherlands
and the Nordic region, by the acquisition of Eminent, a Spanish contract sales
organization, by expanding its contract research capability in Germany and the
United States through the acquisition of the Clinical Research Foundation group
and in Sweden by the acquisition of Galenus, and by extending its contract
research services to Italy, France, Spain and the Benelux countries. Innovex
maintains its principal executive office at Innovex House, Marlow Park, Marlow,
Buckinghamshire SL7 1TB, England, and its telephone number is 44-1628-491-500.
See "CERTAIN INFORMATION CONCERNING INNOVEX", "UNAUDITED SUMMARY PRO FORMA
FINANCIAL INFORMATION", "INDEX TO FINANCIAL STATEMENTS -- Pro Forma Combined
Financial Statements."
THE EXCHANGE
If the Exchange is effected, the Innovex Shareholders will on the Closing
Date exchange all of the Innovex Ordinary Shares and Innovex Preferred Ordinary
Shares for a total of up to 10 million shares (the "Exchange Shares") of
Quintiles Common Stock. Each such Innovex Ordinary Share and Innovex Preferred
Ordinary Share will be exchanged for .07981 shares (the "Exchange Ratio") of
Quintiles Common Stock. Any option to acquire Innovex shares will become an
option to acquire shares of Quintiles Common Stock. The total number of shares
of Quintiles Common Stock issuable in the Exchange and upon the exercise of the
substituted options is 10,000,000. After the Exchange, Innovex will become a
wholly-owned subsidiary of Quintiles and will continue to own and operate its
assets and business. The rules of the Nasdaq Stock Market, on which the
Quintiles Common Stock is quoted, require a listed company, as a condition to
continued listing, to obtain the approval of its shareholders prior to the
issuance of shares of listed stock that equal or exceed 20% of such shares
outstanding prior to the issuance. Accordingly, since the Exchange Shares exceed
the 20% threshold, Quintiles is seeking shareholder approval of the issuance of
the Exchange Shares under the Exchange Agreement. Based upon the number of
shares of Quintiles Common Stock issued and outstanding as of the Quintiles
Record Date and assuming consummation of the BRI Merger, the Innovex
Shareholders will hold approximately % of the total issued and outstanding
shares of Quintiles immediately after the Exchange. See "THE EXCHANGE -- Summary
of the Transaction."
It is the intention of the parties to consummate the Exchange and the other
transactions contemplated by the Exchange Agreement as soon as possible
following the Special Meeting and the satisfaction of all other covenants and
conditions to the parties' respective obligations to consummate the Exchange
(or, to the extent permitted, waiver thereof) or at such other time as
designated in writing by Quintiles and Innovex.
Consummation of the Exchange is subject to the satisfaction of certain
conditions. See "THE EXCHANGE -- The Exchange Agreement -- Conditions to
Consummation". The parties have also agreed to certain covenants in connection
with the Exchange Agreement. See "THE EXCHANGE -- The Exchange
Agreement -- Certain Covenants." In addition, Quintiles has agreed to provide
the Innovex
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Shareholders with certain registration rights to facilitate resale of the
Exchange Shares after the Closing Date. See "THE EXCHANGE -- The Registration
Rights Agreement."
MARKET PRICES AND DIVIDEND POLICIES
Quintiles
Quintiles Common Stock has traded publicly on the Nasdaq National Market
under the symbol "QTRN" since April 20, 1994, the date on which the Quintiles
Common Stock was first offered to the public. The market price of Quintiles
Common Stock has been and may continue to be subject to wide fluctuations. The
following table sets forth the high and low per share sales prices of Quintiles
Common Stock for the periods indicated as reported by the Nasdaq Stock Market:
<TABLE>
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HIGH LOW
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<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994(1)
Second Quarter (from April 20, 1994)............................... 10.250 8.125
Third Quarter...................................................... 15.125 8.750
Fourth Quarter..................................................... 15.375 12.000
YEAR ENDED DECEMBER 31, 1995
First Quarter(1)................................................... 19.438 14.500
Second Quarter(1).................................................. 24.125 17.250
Third Quarter(1)................................................... 32.125 22.000
Fourth Quarter..................................................... 46.000 26.250
YEAR ENDED DECEMBER 31, 1996
First Quarter...................................................... 69.250 37.000
Second Quarter..................................................... 82.000 56.500
Third Quarter...................................................... 83.250 52.500
Fourth Quarter (through October , 1996).......................... [Add] [Add]
</TABLE>
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(1) Adjusted to reflect two-for-one stock split effected as a 100% stock
dividend on November 27, 1995.
On October 4, 1996, the last full trading day prior to public announcement
of the Exchange Agreement, the reported closing sales price per share of
Quintiles Common Stock on the Nasdaq Stock Market was $73.25. On ,
1996, the last full trading day prior to the date of this Proxy Statement, the
reported closing sales price per share of Quintiles Common Stock on the Nasdaq
Stock Market was $ .
Quintiles has never paid any cash dividends on Quintiles Common Stock, and
does not anticipate paying any cash dividends in the foreseeable future and
intends to retain future earnings for the development and expansion of its
business.
Innovex
The share capital of Innovex is not traded on any exchange and there is no
established trading market for the Innovex share capital. Innovex has not
declared or paid a cash dividend in the past five fiscal years with the
exception of a cash dividend paid in the 1996 fiscal year to Barrie S. Haigh
(Innovex's Chairman), Stella D. Freeman (the Chairman's spouse) and related
trusts (together, the "Principal Shareholder") of L5.9 million and a cash
dividend of L0.4 million paid in the 1992 fiscal year in respect of the prior
fiscal year. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF INNOVEX -- Liquidity and Capital Resources."
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<PAGE> 9
RESTRICTIONS APPLICABLE TO INNOVEX SHAREHOLDERS
The Innovex Shareholders will be subject to certain restrictions on resale
of the Exchange Shares after the Exchange. See "THE EXCHANGE -- Restrictions on
Resales of Quintiles Common Stock; Pooling Considerations" and "THE
EXCHANGE -- The Registration Rights Agreement."
OPINIONS OF QUINTILES' FINANCIAL ADVISORS
Goldman Sachs & Co. ("Goldman Sachs") and Smith Barney Inc. ("Smith
Barney") have separately delivered to the Board of Directors of Quintiles
written opinions, each dated October 6, 1996. The opinion of Goldman Sachs is to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Exchange Ratio was fair to Quintiles. The
opinion of Smith Barney is to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated therein, the Exchange Ratio
was fair, from a financial point of view, to Quintiles. The full text of the
written opinions of Goldman Sachs and Smith Barney, which set forth the
assumptions made, matters considered and limitations on the review undertaken in
connection with such opinions, are attached as Appendix B and Appendix C,
respectively, to this Proxy Statement and should be read carefully in their
entirety. The opinions of Goldman Sachs and Smith Barney are directed only to
the Exchange Ratio, do not address any other aspect of the Exchange or related
transactions and do not constitute a recommendation to any shareholder as to how
such shareholder should vote at the Special Meeting. Both Innovex and Quintiles
also engaged Goldman Sachs to facilitate a transaction between the parties. See
"THE EXCHANGE -- Opinions of Quintiles' Financial Advisors."
SHAREHOLDER APPROVAL
The Board of Directors of Quintiles has unanimously approved the
transactions contemplated by the Exchange Agreement, including the issuance of
the Exchange Shares and the Amendment. At the Special Meeting, the Company's
shareholders will consider and vote on the proposal to issue the Exchange Shares
in connection with the Exchange Agreement and the Amendment.
THE SPECIAL MEETING
The close of business on October 24, 1996 has been fixed by the Quintiles
Board of Directors as the record date (the "Quintiles Record Date") for the
determination of shareholders of Quintiles who shall be entitled to vote at the
Special Meeting. As of the Quintiles Record Date, there were issued and
outstanding shares of Quintiles Common Stock, held of record by approximately
persons. Assuming the presence of a quorum, approval of the issuance of the
Exchange Shares, the Amendment and any other matter properly considered and
acted upon at the Special Meeting (except for such matters which by law the
Articles of Incorporation of Quintiles, as amended, or the Bylaws of Quintiles,
as amended, require otherwise), requires the affirmative vote, either in person
or by proxy, of at least a majority of all shares of Quintiles Common Stock
voted at the Special Meeting.
Each holder of Quintiles Common Stock is entitled to one vote for each
share on all matters submitted to a vote of shareholders. The presence at the
Special Meeting, either in person or by proxy, of the holders of a majority of
the votes entitled to be cast at such meeting will constitute a quorum for the
transaction of business. Abstentions will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
However, under North Carolina corporate law, abstentions are treated as
non-votes in determining whether shareholders have approved a proposal.
DISSENTERS' RIGHTS
Shareholders of Quintiles do not have dissenters' rights of appraisal with
respect to the issuance of the Exchange Shares.
4
<PAGE> 10
RIGHTS OF QUINTILES' SHAREHOLDERS
The rights of holders of shares of Quintiles Common Stock will not change
in any respect as a result of the Exchange.
REGULATORY APPROVALS
Quintiles and Innovex each [have submitted] filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the rules and regulations promulgated thereunder, and [have
requested] early termination of the requisite waiting period under the HSR Act
with respect to the Exchange. In addition, prior to consummation of the
Exchange, Quintiles and Innovex shall have received any other required antitrust
clearances in foreign countries, as well as any other necessary governmental
approvals. See "THE EXCHANGE -- The Exchange Agreement -- Conditions to
Consummation of the Exchange."
ACCOUNTING
Quintiles will account for the Exchange as a pooling of interests for
financial reporting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Exchange Agreement provides that Quintiles' obligation to consummate
the transactions contemplated by the Exchange Agreement is subject to the
satisfaction or waiver of a number of conditions including the delivery of an
opinion by Quintiles' independent accountants that such transactions should be
treated as a taxable acquisition of the Innovex Ordinary Shares and Preferred
Ordinary Shares for purposes of United States federal income tax law. Assuming
such transactions are so treated: (i) Quintiles' shareholders will not recognize
any gain or loss as a result of the transactions; (ii) Quintiles will not
recognize gain or loss on the issuance of the Exchange Shares to the Innovex
Shareholders; (iii) Quintiles will acquire an aggregate tax basis in the Innovex
Shares equal to the fair market value of the Exchange Shares issued therefor;
(iv) Quintiles will acquire an aggregate tax basis in the Innovex cumulative
redeemable preference shares (the "Preference Shares") equal to the amount of
money paid for such shares; and (v) Quintiles' holding period for the Innovex
Shares and the Preference Shares will commence on the day after the Closing
Date.
If it is determined that the transactions contemplated by the Exchange
Agreement constitute a tax-free "reorganization" within the meaning of section
368 of the Internal Revenue Code of 1986, as amended, rather than a taxable
transaction, some of the tax consequences of the transactions will differ from
the consequences set forth above. See "THE EXCHANGE -- Federal Income Tax
Consequences."
5
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION
SELECTED FINANCIAL DATA OF QUINTILES
The Consolidated Statement of Operations data set forth below for each of
the years in the five-year period ended December 31, 1995 and the Consolidated
Balance Sheet Data set forth below as of December 31, 1991, 1992, 1993, 1994,
and 1995 are derived from the consolidated financial statements of Quintiles and
notes thereto which have been audited by Ernst & Young LLP. The selected
consolidated financial data provided as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 are derived from unaudited consolidated financial
statements incorporated by reference in this Proxy Statement, but in the opinion
of management contain all adjustments, consisting only of normal recurring
accruals, which are necessary for a fair statement of the results of such
periods. The selected consolidated financial data presented below is a summary
and is qualified in its entirety by and should be read in conjunction with
Quintiles' audited and unaudited consolidated financial statements and notes
thereto incorporated by reference herein. The results for the first half of
fiscal 1996 are not necessarily indicative of results to be expected for the
full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue................... $29,515 $44,296 $61,704 $90,067 $156,437 $68,260 $117,772
Income from operations........ 3,104 4,764 6,010 9,499 15,394 6,605 12,334
Income before income taxes.... 2,394 4,272 5,822 10,178 17,162 7,283 13,552
Net income.................... $ 1,445 $ 2,650 $ 3,842 $ 6,672 $ 11,259 $ 4,637 $ 9,261
Net income per share(1)....... $ .14 $ .23 $ .28 $ .38 $ .56 $ .24 $ .42
Weighted average shares
outstanding(1).............. 10,405 11,622 13,535 17,557 20,028 19,293 22,288
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 4,203 $ 1,911 $ 9,184 $ 39,353 $ 69,146 $130,213
Working capital....................... 5,706 4,373 16,446 50,961 94,246 203,479
Total assets.......................... 26,074 46,496 66,815 110,631 221,290 391,798
Long term debt including current
portion............................. 4,075 6,270 5,005 1,385 671 140,593
Shareholders' equity.................. $12,149 $19,659 $35,120 $ 78,846 $158,539 $168,431
</TABLE>
- ---------------
(1) Restated to reflect 1995 two-for-one stock split.
6
<PAGE> 12
SELECTED FINANCIAL DATA OF INNOVEX
The table below sets forth selected financial data for Innovex (or its
predecessor entities) for each of the years in the five-year period ended March
31, 1996 and for each of the three-month periods ended June 30, 1995 and 1996,
which are included elsewhere in this Proxy Statement. Innovex was reorganized on
April 3, 1996, when Innovex Limited acquired the entire issued share capital of
Innovex Holdings Limited (the "April Reorganization"). See Note 23 of Notes to
the combined financial statements of Innovex Limited and Innovex Holdings
Limited (the "Innovex Combined Financial Statements") included elsewhere in this
Proxy Statement. The selected financial data set forth below for each of the
years in the three-year period ended March 31, 1996 and as at March 31, 1995 and
1996 have been extracted or derived from, and are qualified by reference to, the
Innovex Combined Financial Statements, which have been audited by KPMG,
independent public accountants. The selected financial data set forth below for
the years ended March 31, 1992 and 1993 and as at March 31, 1992, 1993 and 1994
have been derived from the accounts of Innovex Holdings Limited and the notes
thereto, which were also audited by KPMG. The selected financial data for the
three-month periods ended June 30, 1995 and 1996 have been derived from the
unaudited financial statements of Innovex Holdings Limited and Innovex Limited,
respectively, for those periods (the "Innovex Interim Financial Statements"),
which are included elsewhere in this Proxy Statement. In the opinion of Innovex
management, the Innovex Interim Financial Statements have been prepared on a
basis consistent with the audited Innovex Combined Financial Statements and
reflect all adjustments (which are of a normal recurring nature) necessary to
present fairly in all material respects the results of operations for such
periods and the financial position at the end of each such period. The selected
financial data for interim periods are not necessarily indicative of full-year
results.
The Innovex Combined Financial Statements and the Innovex Interim Financial
Statements have been prepared in accordance with U.K. GAAP, which differ in
certain significant respects from U.S. GAAP. The principal differences between
U.K. GAAP and U.S. GAAP as they relate to Innovex are summarized in Note 27 of
Notes to the Innovex Combined Financial Statements. The following information
should be read in conjunction with "Innovex Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Innovex Combined
Financial Statements and the Innovex Interim Financial Statements included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED AND AS AT MARCH 31, AND AS AT JUNE 30,
---------------------------------------------------- --------------------------
1993 1994 1995 1996 1996(1) 1995 1996 1996(1)
------ ------ ------ ------ ------- ------ ------- -------
1992 L L L L $ L L $
------
L (L IN THOUSANDS, EXCEPT PER ORDINARY SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
U.K. GAAP
Net sales(2).............................. 20,978 23,133 40,744 51,758 83,106 129,055 15,842 33,505 52,030
Operating Income.......................... 1,995 1,966 2,675 2,941 3,663 5,688 503 2,440 3,789
Income before income taxes................ 1,614 666 1,010 1,866 1,800 2,795 (37) 1,684 2,615
Net income................................ 1,064 136 213 1,329 1,057 1,641 (68) 1,066 1,655
Net income after minority interest and
non-equity dividends.................... 1,035 136 213 1,329 1,057 1,641 (68) 860 1,336
Earnings per Ordinary Share(3).......... L0.01 $ 0.01 L0.01 $ 0.05
U.S. GAAP
Net income (loss)......................... -- -- -- 1,206 531 825 (100) 704 1,093
BALANCE SHEET DATA
U.K. GAAP
Cash and cash equivalents................. -- 1,305 3,417 3,565 3,041 4,722 1,402 3,686 5,724
Long-term assets.......................... 6,165 5,484 20,538 21,550 28,344 44,016 23,111 29,788 46,258
Total assets.............................. 12,240 12,502 35,065 42,745 58,775 91,272 41,625 63,746 98,992
Short-term borrowings and current portion
of long-term obligations................ 2,199 1,570 2,000 3,520 7,001 10,872 3,450 9,196 14,281
Long-term obligations, less current
portion................................. 2,102 1,610 7,757 7,439 6,717 10,431 7,745 22,793 35,395
Provisions for liabilities and
charges(4).............................. 76 22 2,030 2,309 2,780 4,317 2,132 2,845 4,418
Total shareholders' equity (deficit)(5)... 2,683 2,788 3,185 4,275 (7) (11) 4,369 (6,846) (10,630)
U.S. GAAP
Total shareholders' equity (deficit)(5)... -- -- -- 4,706 (171) (266) 4,757 (18,129) (28,153)
</TABLE>
- ---------------
(1) Solely for the convenience of the reader, pound sterling amounts have been
translated into U.S. dollars at the Noon Buying Rate on June 28, 1996 of
$1.5529 = L1.00.
(2) Net sales exclude pass through costs, which are costs, such as
investigators' fees, incurred on behalf of, and recharged directly to,
clients.
(3) Based on a weighted average of 115,255,334 Ordinary Shares and 115,452,370
Ordinary Shares outstanding for the year ended March 31, 1996 and the three
months ended June 30, 1996, respectively.
(4) Provisions for liabilities and charges consist primarily of post-employment
provisions comprising accrued liabilities to pay retirement benefits in
respect of Innovex's unfunded German pension scheme. See Note 16 of Notes to
the Innovex Combined Financial Statements.
(5) A cash dividend of L5.9 million was paid from the retained surplus in the
1996 fiscal year to the Principal Shareholder in association with the April
Reorganization. See "CERTAIN INFORMATION CONCERNING INNOVEX -- The
Reorganizations".
7
<PAGE> 13
SELECTED PRO FORMA COMBINED FINANCIAL DATA (UNAUDITED)
Set forth below are selected unaudited pro forma combined financial data of
Quintiles and Innovex combined, and selected unaudited pro forma financial data
of Quintiles, BRI and Innovex combined. The proposed transactions with BRI and
Innovex are reflected under the pooling of interests method of accounting. See
"CERTAIN INFORMATION CONCERNING QUINTILES -- The BRI Merger" for a further
discussion of the BRI Merger. This information is not necessarily indicative of
the results that actually would have occurred and should be read in conjunction
with the unaudited pro forma combined financial statements included elsewhere in
this Proxy Statement. The selected unaudited pro forma combined financial data
presented below is a summary and is qualified in its entirety by and should be
read in conjunction with the unaudited pro forma combined condensed financial
statements and notes thereto included elsewhere in this Proxy Statement. All
amounts have been derived based upon BRI's fiscal year which ends on November
30, Quintiles' fiscal year which ends on December 31 and Innovex's fiscal year
which ends on March 31; conforming BRI's and Innovex's year ends to that of
Quintiles would not materially impact the amounts set forth below. The amounts
derived for the six month periods ended June 30, 1995 and 1996 are based upon
Quintiles' and Innovex's historical operating results for such periods combined
with BRI's historical operating results for the six month periods ended May 31,
1995 and 1996, respectively.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue
Quintiles and Innovex pro forma......... $124,099 $171,130 $285,492 $118,143 $213,435
Quintiles, BRI and Innovex pro forma.... 141,923 195,901 323,692 136,178 237,402
Income from operations
Quintiles and Innovex pro forma......... 10,106 14,105 21,082 10,269 16,462
Quintiles, BRI and Innovex pro forma.... 10,507 14,824 23,526 11,280 18,205
Income before income taxes
Quintiles and Innovex pro forma......... 7,369 13,100 19,957 9,749 15,848
Quintiles, BRI and Innovex pro forma.... 7,618 13,630 22,082 10,566 17,401
Net income
Quintiles and Innovex pro forma......... $ 4,168 $ 8,753 $ 12,900 $ 6,327 $ 10,226
Quintiles, BRI and Innovex pro forma.... 4,188 9,045 13,901 6,712 11,197
Net income per common share
Quintiles and Innovex pro forma......... $ 0.18 $ 0.33 $ 0.44(3) $ 0.22 $ 0.32(5)
Quintiles, BRI and Innovex pro forma.... $ 0.17 $ 0.32 $ 0.45(4) $ 0.22 $ 0.34(6)
Weighted average common shares outstanding
Quintiles and Innovex pro forma(1)...... 22,656 26,707 29,226 28,471 31,502
Quintiles, BRI and Innovex pro
forma(2)............................. 23,972 28,043 30,705 29,944 33,228
</TABLE>
8
<PAGE> 14
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents
Quintiles and Innovex pro forma.............................................. $ 86,090
Quintiles, BRI and Innovex pro forma......................................... 86,357
Working capital
Quintiles and Innovex pro forma.............................................. 138,838
Quintiles, BRI and Innovex pro forma......................................... 138,928
Total assets
Quintiles and Innovex pro forma.............................................. 440,943
Quintiles, BRI and Innovex pro forma......................................... 462,613
Long-term debt including current portion
Quintiles and Innovex pro forma.............................................. 140,593
Quintiles, BRI and Innovex pro forma......................................... 143,749
Shareholders' equity
Quintiles and Innovex pro forma.............................................. $145,630
Quintiles, BRI and Innovex pro forma......................................... 148,751
</TABLE>
- ---------------
(1) The pro forma weighted average common shares outstanding are calculated by
combining the weighted average shares outstanding of Quintiles with the
weighted average shares outstanding of Innovex adjusted by the agreed upon
exchange ratio.
(2) The pro forma weighted average common shares outstanding are calculated by
combining the weighted average shares outstanding of Quintiles with the
weighted average shares outstanding of BRI and Innovex adjusted by the
respective agreed upon exchange ratios.
(3) Pro forma net income per share would have been $0.57 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.
(4) 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.
(5) 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.
(6) 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.
9
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited historical per share data
of Quintiles and Innovex and combined per share data on an unaudited pro forma
basis after giving effect to the Exchange. In addition, this table presents
certain unaudited per share data for Quintiles, BRI and Innovex on a pro forma
combined basis. The proposed transactions will be accounted for on a pooling of
interests basis, and the pro forma data is derived in accordance with such
method. See "CERTAIN INFORMATION CONCERNING QUINTILES -- The BRI Merger" for a
further discussion of the BRI Merger. The unaudited pro forma combined financial
data are not necessarily indicative of the operating results that would have
been achieved had the transaction been in effect as of the beginning of each of
the periods presented and should not be construed as representative of future
operations. The Innovex and the BRI and Innovex equivalent pro forma amounts are
presented with respect to each set of pro forma information. The Innovex
equivalent pro forma per share amounts are computed by multiplying the Quintiles
and Innovex pro forma per share amounts by the Exchange Ratio of 0.07981. The
BRI and Innovex equivalent pro forma amounts are computed by multiplying the
Quintiles, BRI and Innovex pro forma amounts by the same ratio. The periods
presented for Innovex are the fiscal years ended March 31, 1996, 1995 and 1994
and the six months ended June 30, 1996.
<TABLE>
<CAPTION>
QUINTILES, BRI AND
QUINTILES INNOVEX BRI AND INNOVEX
QUINTILES INNOVEX AND INNOVEX EQUIVALENT INNOVEX EQUIVALENT
HISTORICAL PER HISTORICAL PER PRO FORMA PER PRO FORMA PRO FORMA PER PRO FORMA PER
SHARE DATA SHARE DATA SHARE DATA PER SHARE DATA SHARE DATA SHARE DATA
-------------- -------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Net income(1)............ $ 0.56 $ 0.01 $0.44 $ 0.04 $0.45 $0.04
Book value............... $ 7.41 0.00 $4.67 $ 0.37 $4.48 $0.36
YEAR ENDED DECEMBER 31,
1994
Net income............... $ 0.38 $0.33 $ 0.03 $0.32 $0.03
YEAR ENDED DECEMBER 31,
1993
Net income............... $ 0.28 $0.18 $ 0.01 $0.17 $0.01
SIX MONTHS ENDED JUNE 30,
1996
Net income(2)............ $ 0.42 $ 0.01 $0.32 $ 0.03 $0.34 $0.03
Book value............... $ 7.73 $(0.01) $4.58 $ 0.37 $4.45 $0.36
</TABLE>
- ---------------
(1) 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
in the year ended December 31, 1995 (Innovex's fiscal year ended March 31,
1996) the Innovex historical net income per share would have been $0.05 per
share, the Quintiles and Innovex pro forma net income per share would have
been $0.57 per share, the Innovex equivalent pro forma net income per share
would have been $0.05 per share, the Quintiles, BRI and Innovex pro forma
net income per share would have been $0.58 per share and the BRI and
Innovex equivalent pro forma net income per share would have been $0.05 per
share.
(2) 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
in the six months ended June 30, 1996 the Innovex historical net income per
share would have been $0.04 per share, the Quintiles and Innovex pro forma
net income per share would have been $0.45 per share, the Innovex
equivalent pro forma net income per share would have been $0.04 per share,
the Quintiles, BRI and Innovex pro forma net income per share would have
been $0.45 per share and the BRI and Innovex equivalent pro forma net
income per share would have been $0.04 per share.
10
<PAGE> 16
SPECIAL MEETING OF QUINTILES SHAREHOLDERS
This Proxy Statement is being furnished by the Company to its shareholders
in connection with the solicitation of proxies by the Board of Directors of
Quintiles for use at the Special Meeting. At the Special Meeting, the holders of
Quintiles Common Stock will be asked to approve (i) the issuance of the Exchange
Shares to the Innovex Shareholders in connection with the Exchange Agreement and
(ii) the Amendment.
VOTING INFORMATION FOR QUINTILES SHAREHOLDERS
The close of business on October 24, 1996, has been fixed by the Quintiles
Board of Directors as the Quintiles Record Date. As of the Quintiles Record
Date, there were issued and outstanding shares of Quintiles Common Stock,
held of record by approximately persons. Assuming the presence of a quorum,
approval of the issuance of the Exchange Shares, the Amendment and any other
matter properly considered and acted upon at the Special Meeting (except for
such matters which by law, the Quintiles Articles of Incorporation, as amended,
or the Quintiles Bylaws, as amended, require otherwise), requires the
affirmative vote, either in person or by proxy, of at least a majority of all
shares of Quintiles Common Stock voted at the Special Meeting.
Each holder of Quintiles Common Stock is entitled to one vote for each
share on all matters submitted to a vote of shareholders. The presence at the
Special Meeting, either in person or by proxy, of the holders of a majority of
the votes entitled to be cast at such meeting will constitute a quorum for the
transaction of business. Abstentions will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
However, under North Carolina corporate law, abstentions are treated as
non-votes in determining whether shareholders have approved a proposal.
Shareholders of Quintiles do not have dissenters' rights of appraisal with
respect to the issuance of the Exchange Shares.
AUTHORIZATION TO VOTE ON ADJOURNMENT AND OTHER MATTERS
By signing the proxy, a shareholder will be authorizing the proxy holder to
vote in his discretion regarding any procedural motions which may come before
the Special Meeting. For example, this authority could be used to adjourn the
meeting if Quintiles believes it is desirable to do so. Adjournment or other
procedural matters could be used to obtain more time before a vote is taken in
order to solicit additional proxies or to provide additional information to
shareholders. Quintiles has no plans to adjourn the meeting at this time, but it
intends to attempt to do so if it believes doing so would promote shareholder
interests.
SOLICITATION OF PROXIES
The accompanying proxy sent to Quintiles Shareholders is being solicited by
the Quintiles Board of Directors. All proxies in the enclosed form of proxy that
are properly executed and returned to Quintiles prior to commencement of voting
at the Special Meeting will be voted at the Special Meeting in accordance with
the instructions thereon. All executed but unmarked Quintiles proxies will be
voted FOR approval of both (i) the issuance of the Exchange Shares to the
Innovex Shareholders pursuant to the Exchange Agreement and (ii) the Amendment.
A shareholder may revoke a proxy at any time before it is voted by filing with
the Secretary of Quintiles either an instrument revoking the proxy or a duly
executed proxy bearing a later date, or by attending the Special Meeting and
voting in person. Such filing should be sent to the Corporate Secretary of
Quintiles, at Quintiles Transnational Corp., P.O. Box 13979, Research Triangle
Park, North Carolina 27709. Attendance at the Special Meeting will not by itself
revoke the proxy. At the Special Meeting, shareholder votes will be tabulated by
persons appointed by the Quintiles Board of Directors to act as inspectors of
election.
The management of Quintiles does not know of any other matters other than
those set forth herein which may come before the Special Meeting. If any other
matters are properly presented to the Special Meeting for action, it is intended
that the persons named in the applicable form of proxy will vote on such matters
as determined by the majority of the Quintiles Board of Directors.
11
<PAGE> 17
The expense of printing this Proxy Statement and the proxies solicited
hereby will be borne by Quintiles. In addition to the use of the mails, proxies
may be solicited by officers and directors and regular employees of Quintiles,
without additional remuneration, by personal interviews, telephone, telegraph or
otherwise.
IN UNANIMOUSLY APPROVING THE EXCHANGE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREUNDER, THE QUINTILES BOARD OF DIRECTORS HAS DETERMINED THAT
BOTH THE ISSUANCE OF THE EXCHANGE SHARES AND THE AMENDMENT ARE IN THE BEST
INTERESTS OF QUINTILES AND ALL OF QUINTILES' SHAREHOLDERS AND RECOMMENDS THAT
THE SHAREHOLDERS OF QUINTILES VOTE IN FAVOR OF BOTH THE ISSUANCE OF THE EXCHANGE
SHARES AND THE AMENDMENT.
PROPOSAL ONE
ISSUANCE OF THE EXCHANGE SHARES
The following information describes the Exchange, insofar as it relates to
matters contained in the Exchange Agreement, and is qualified in its entirety by
reference to the Exchange Agreement, a copy of which is attached hereto as
Appendix A, and is incorporated herein by reference.
SUMMARY OF 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 Ordinary Shares and
Preferred Ordinary 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.
BACKGROUND OF THE EXCHANGE
On May 30, 1996 Quintiles' management first contacted Innovex's management
concerning the possibility of a combination of the two companies. Beginning in
June 1996, Quintiles' representatives held several discussions with
representatives of Innovex to evaluate the desirability and feasibility of a
combination in general. Innovex's management informed Quintiles' management that
Innovex was proceeding to prepare for an initial public offering but that
Innovex would also entertain ongoing discussions regarding the desirability and
feasibility of a business combination. Periodic discussions between
representatives of Quintiles and Innovex continued in July and August 1996. At a
meeting on September 6, 1996, Innovex indicated that it was willing to proceed
to see if satisfactory terms for a business combination with Quintiles could be
negotiated. Quintiles' management brought this matter before the Board of
Directors of Quintiles on September 12, 1996 and the Board authorized management
to continue negotiations. Negotiations continued throughout September. On
September 30, 1996, the Quintiles' Board considered the proposed terms of the
transaction and received a preliminary oral fairness opinion from Goldman Sachs.
The Quintiles' Board met again on October 3, 1996 and received fairness opinions
from Goldman Sachs and Smith Barney. The Board approved the terms of the
proposed business combination and empowered a Committee of the Board to take
final action with respect to any developments over the next few days. On October
6, 1996, the Committee of the Board of Directors of Quintiles gave final
approval to the business combination and the Exchange Agreement was signed by
the parties.
12
<PAGE> 18
REASONS FOR THE EXCHANGE AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The Quintiles Board of Directors believes that the Exchange (including the
issuance of the Exchange Shares) is in the best interests of Quintiles and its
shareholders. In reaching such determination, the Quintiles Board of Directors
considered a number of factors including, but not limited to, (i) information
pertaining to Quintiles' and Innovex's respective businesses, prospects,
historical and projected financial performances, financial condition and
operations; (ii) analyses of the respective projected contributions to net
revenue, operating profit and net income of each company; (iii) analysis of the
business and capabilities of the combined companies; (iv) reports from
management on Quintiles' due diligence investigation of Innovex; (v) the
business reputation and capabilities of the management of Innovex, as well as
the comparability of the management and corporate cultures of Quintiles and
Innovex and (vi) the fairness opinions of Goldman Sachs and Smith Barney. In its
deliberations concerning the Exchange, the Board of Directors of Quintiles also
considered various additional considerations and risk factors, including, but
not limited to (i) the historical financial performance of Innovex; (ii) the
percentage of ownership reduction to Quintiles shareholders resulting from the
issuance of Quintiles Common Stock to the Innovex Shareholders; (iii) the risk
that the public market price of Quintiles Common Stock might be adversely
affected by the announcement of the Exchange; (iv) the risk that the combined
company might not achieve revenue equal to the sum of the separate companies'
anticipated revenue; (v) the risk that other benefits sought to be obtained by
the Exchange will not be obtained; and (vi) the cost of integration of the
operations of Quintiles and Innovex and its impact on the combined results of
the combined company after the Exchange.
OPINIONS OF QUINTILES' FINANCIAL ADVISORS
Goldman Sachs. On October 6, 1996, Goldman Sachs delivered its written
opinion to the Board of Directors of Quintiles to the effect that, as of such
date, and based upon and subject to the factors and assumptions set forth
therein, the Exchange Ratio was fair to Quintiles.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, WHICH SETS FORTH
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS ANNEX B TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY DOES
NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE ANALYSES PERFORMED BY GOLDMAN
SACHS AND IS QUALIFIED BY REFERENCE TO THE WRITTEN OPINION OF GOLDMAN SACHS SET
FORTH AS ANNEX B HERETO. STOCKHOLDERS OF QUINTILES ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY. GOLDMAN SACHS' OPINION IS DIRECTED ONLY TO
THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
OF QUINTILES AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
In connection with the opinion attached as Annex B, Goldman Sachs has
reviewed, among other things, (i) the Exchange Agreement; the Escrow Agreement;
and the Registration Rights Agreement; (ii) Annual Reports to Stockholders,
Annual Reports on Form 10-K, and audited financial statements of the Company for
the two years ended December 31, 1995; (iii) audited financial statements of the
Company for the three years ended December 31, 1993; (iv) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company; (v)
the Prospectus for the Secondary Common Stock Offering for the Company dated
September 28, 1995; (vi) the Prospectus for the offering of the 4 1/4%
Convertible Subordinated Debentures due 2000 of the Company dated May 17, 1996;
(vii) certain other communications from the Company to its stockholders; (viii)
certain internal financial analyses and forecasts of the Company prepared by its
management; and (ix) certain financial forecasts including, without limitation,
cost savings and operating synergies projected by the Company to result from the
combination of the two companies.
In connection with its opinion, and in the course of providing investment
banking services to Innovex in connection with a proposed public offering of
Innovex shares and financial advice and assistance to Innovex in connection with
the Exchange Agreement, Goldman Sachs also has reviewed information relating to
Innovex, including, among other information, audited financial statements of
Innovex for the five fiscal years ended March 31, 1996; the draft registration
statement on Form F-1 confidentially filed with the Securities and Exchange
Commission on August 2, 1996; certain internal business and financial reports,
analyses, and
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<PAGE> 19
forecasts of Innovex and its subsidiaries prepared by Innovex management; and
certain other communications from Innovex to its stockholders.
Goldman Sachs also has reviewed certain financial analyses and forecasts
for the combined operations of the Company and Innovex prepared by the Company
and identified by the Company to Goldman Sachs as the ones upon which Goldman
Sachs should rely for purposes of its opinion, those projections being more
conservative than projections provided by the management of Innovex. Goldman
Sachs also held discussions with members of the senior management of the Company
and Innovex regarding the past and current business operations, financial
condition, and future prospects of their respective companies and as combined
pursuant to the consummation of the Agreement. In addition, Goldman Sachs
reviewed the reported price and trading activity for the Quintiles Common Stock,
compared certain financial information for the Company and Innovex and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the contract research
organization industry specifically and in the healthcare industry generally and
performed such other studies and analyses as Goldman Sachs considered
appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with the consent
of the Company, that the financial forecasts projected by the Company to result
from the combination of the two companies have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of the
Company (including as to timing and amount). In addition, Goldman Sachs has not
made an independent evaluation or appraisal of the assets and liabilities of the
Company or Innovex or any of their subsidiaries and has not been furnished with
any such evaluation or appraisal. Goldman Sachs assumed that the transaction
will be accounted for as a pooling of interests under generally accepted
accounting principles.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to the Quintiles Board of
Directors attached hereto as Annex B.
(i) Contribution Analysis. Goldman Sachs analyzed the projected
relative sales; earnings before income taxes, depreciation and amortization
("EBITDA"); earnings before income taxes ("EBIT") and net income
contributions of Quintiles and Innovex to the combined company following
the Exchange and, in the case of Quintiles, including the effect of its
acquisition of BRI. Projected sales, EBITDA, EBIT and net income for
Quintiles were provided by Quintiles management and projected sales,
EBITDA, EBIT and net income for Innovex were reviewed and deemed reasonable
by Quintiles management and converted to U.S. dollars using a spot rate of
1.55. The contribution analysis indicated that Innovex is projected to
provide 40.1% and 39.3% of the combined company's sales in 1996 and 1997,
respectively; 42.0% and 41.4% of the combined company's EBITDA in 1996 and
1997, respectively; 37.6% and 37.0% of the combined company's EBIT in 1996
and 1997, respectively and 25.2%, 26.7% and 31.0% of the combined company's
net income in 1996, 1997 and 1997 as adjusted for capital structure,
respectively. Based on the Exchange Ratio and number of outstanding shares
of Quintiles Common Stock and Innovex Common Stock as of September 30, 1996
the Share Exchange will result in stockholders of Innovex owning
approximately 29% of the Quintiles Common Stock following the Share
Exchange.
(ii) Pro Forma Earnings Per Share and Accretion Analysis. Goldman
Sachs analyzed the pro forma earnings per share ("EPS") and the pro forma
EPS accretion of the combined company following the Share Exchange.
Projections of EPS for Quintiles were provided by Quintiles management and
projections of EPS for Innovex were reviewed and deemed reasonable by
Quintiles management. The analysis indicated that the Share Exchange is
projected to be dilutive to Quintiles' standalone EPS for 1996 and
accretive to Quintiles' standalone EPS for 1997.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a
discounted cash flow analysis for Innovex based upon estimates of projected
financial performance for 1997 prepared by Quintiles management and
projected financial performance for 1998 through 2000 reviewed and deemed
reasonable by Quintiles management. Using these projections, Goldman Sachs
calculated ranges of total equity
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<PAGE> 20
value and, in so doing, utilized (i) terminal multiples of year 2000 EBITDA
ranging from 15.0x to 23.0x and (ii) discount rates, reflecting the
weighted average cost of capital, ranging from 12.0% to 20.0%. The analysis
yielded a total equity range of $820.8 million to $1,749.0 million. Goldman
Sachs also performed a discounted cash flow sensitivity analysis with
respect to the projections for Innovex. Goldman Sachs calculated various
terminal multiples implied by discount rates ranging from 12% to 20% and
based up Quintiles' current market value after taking into account Shares
issued in the BRI transaction. The terminal multiples implied were
calculated to range from 12.3x to 16.4x. Goldman Sachs applied these
terminal multiples to the projections for Innovex. This analysis yielded
values for Innovex ranging from $905.0 million to $912.6 million.
(iv) Comparison of Selected Publicly Traded Comparable
Companies. Goldman Sachs compared the total market capitalization as a
multiple of last twelve month ("LTM") sales, EBITDA and EBIT, and
calculated the estimated price earnings ratio ("P/E") for 1996 and 1997,
using IBES earnings estimates, of the Company and 6 selected companies that
Goldman Sachs considered reasonably comparable to the Company. The selected
companies were Applied Bioscience International, Inc., ClinTrials Research,
Inc., Parexel International Corp., Pharmaceutical Product Development,
Inc., IBAH, Inc. and Applied Analytical Industries, Inc. The mean and
median multiple of LTM (i) sales were 5.4x for both, (ii) EBITDA were 48.0x
and 51.3x, respectively and (iii) EBIT were 66.7x and 68.7x, respectively.
The mean and median estimated P/E multiples were 68.4x and 67.3x,
respectively for 1996 and 46.7x and 49x, respectively for 1997.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
Goldman Sachs' analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all of its analyses and
did not assign relative weights to any of the analyses.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Quintiles Board of Directors as to the fairness of the
Exchange Ratio to Quintiles and do not purport to be appraisals or to
necessarily reflect the prices at which businesses or securities actually may be
sold or may trade in the future. Analyses based upon forecasts of future results
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, neither Quintiles nor Goldman Sachs assumes responsibility if future
results are different from those projected. Goldman Sachs' opinion necessarily
was based on the economic, market and the other conditions as in effect on, and
the information made available to it as of, the date of its opinion.
As described above under the caption "The Exchange -- Reasons for the
Exchange; Recommendations of the Board of Directors", Goldman Sachs' opinion to
the Quintiles Board of Directors was one of many factors taken into
consideration by the Quintiles Board of Directors in making its determination to
approve the Share Exchange Agreement. In addition, the terms of the Exchange
were determined through negotiations between Quintiles and Innovex and were
approved by the respective Boards of Directors of Quintiles and Innovex.
Although Goldman Sachs provided advice to both Quintiles and Innovex during the
course of these negotiations, the decision to enter into the Exchange Agreement
and to accept the Exchange Ratio was solely that of the Quintiles and Innovex
Boards of Directors and the Innovex Shareholders.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Quintiles selected
Goldman Sachs as its financial advisor because Goldman Sachs is an
internationally recognized investment banking firm having substantial experience
in transactions similar to the Exchange.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities has accumulated a
long position of 21 shares of Quintiles Common Stock against
15
<PAGE> 21
which it is short 15,850 shares. Goldman Sachs has also accumulated a long
position of $3,870,000 face value of Quintiles' 4 1/4% Convertible Subordinated
Debentures due 2000. Goldman Sachs has also accumulated a long position of
$300,000 face value and a short position of $550,000 face value of Quintiles'
4 1/4% Convertible Subordinated Debentures due 2000 issued under Regulation S.
Pursuant to letter agreements each dated September 30, 1996 (the
"Engagement Letters"), Quintiles and Innovex each engaged Goldman Sachs to
facilitate a potential business combination between the Company and Innovex.
Pursuant to the terms of the Engagement Letters, upon consummation of the
Exchange, Quintiles, Innovex or one of their respective subsidiaries will pay to
Goldman Sachs a fee of $6.5 million as compensation for services relating to the
Exchange and advisory services in connection with a potential initial public
offering of Innovex. Quintiles and Innovex also agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorney's fees, plus
any sales, use or similar taxes arising in connection with the Share Exchange,
and to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
Smith Barney. Smith Barney was retained by Quintiles to evaluate the
fairness, from a financial point of view, to Quintiles of the consideration to
be paid by Quintiles in the Exchange. On October 3, 1996, at a meeting of the
Board of Directors of Quintiles held to evaluate the proposed Exchange, Smith
Barney delivered an oral opinion (subsequently confirmed by delivery of a
written opinion dated October 6, 1996) to the Board of Directors of Quintiles to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Exchange Ratio was fair, from a financial
point of view, to Quintiles.
In arriving at its opinion, Smith Barney reviewed the Exchange Agreement
and held discussions with certain senior officers, directors and other
representatives and advisors of Quintiles and certain senior officers of Innovex
concerning the businesses, operations and prospects of Quintiles and Innovex.
Smith Barney examined certain publicly available business and financial
information relating to Quintiles and certain business and financial information
relating to Innovex as well as certain financial forecasts and other information
and data for Quintiles and Innovex which were provided to or otherwise discussed
with Smith Barney by the respective managements of Quintiles and Innovex. Smith
Barney reviewed the financial terms of the Exchange as set forth in the Exchange
Agreement in relation to, among other things: current and historical market
prices and trading volumes of Quintiles Common Stock; the historical and
projected earnings and operating data of Quintiles and Innovex; and the
capitalization and financial condition of Quintiles and Innovex. Smith Barney
also considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which Smith Barney
considered relevant in evaluating the Exchange and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations Smith Barney considered relevant in
evaluating those of Quintiles and Innovex. Smith Barney also evaluated the
potential pro forma financial impact of the Exchange on Quintiles (after giving
effect to the proposed acquisition by Quintiles of BRI). In addition to the
foregoing, Smith Barney conducted such other analyses and examinations and
considered such other financial, economic and market criteria as Smith Barney
deemed appropriate in arriving at its opinion. Smith Barney noted that its
opinion was necessarily based upon information available, and financial, stock
market and other conditions and circumstances existing and disclosed, to Smith
Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial forecasts
and other information and data furnished to or otherwise reviewed by or
discussed with Smith Barney, the management of Quintiles advised Smith Barney
that such forecasts and other information and data were prepared on bases
reflecting reasonable estimates and judgments as to the future financial
performance of Quintiles and Innovex. Smith Barney assumed, with the consent of
the Board of Directors of Quintiles, that the Exchange will be treated as a
pooling of interests in accordance with generally accepted accounting
principles. Smith Barney's opinion, as set forth therein, relates to the
relative values of Quintiles and Innovex. Smith Barney did not express any
opinion as to what the value of the Quintiles Common Stock actually will be when
issued pursuant to the Exchange or the price at which the Quintiles Common Stock
will trade subsequent to the Exchange. Smith Barney did not make and was not
provided with an independent evaluation or appraisal of the assets or
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<PAGE> 22
liabilities (contingent or otherwise) of Quintiles or Innovex nor did Smith
Barney make any physical inspection of the properties or assets of Quintiles or
Innovex. Smith Barney was not requested to, and did not, participate in the
negotiation or structuring of the Exchange, nor was Smith Barney requested to
consider, and Smith Barney's opinion does not address, the relative merits of
the Exchange as compared to any alternative business strategies that might exist
for Quintiles or the effect of any other transaction in which Quintiles might
engage. Although Smith Barney evaluated the Exchange Ratio from a financial
point of view, Smith Barney was not asked to and did not recommend the specific
consideration payable in the Exchange, which was determined through negotiation
between Quintiles and Innovex. No other limitations were imposed by Quintiles on
Smith Barney with respect to the investigations made or procedures followed by
Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED OCTOBER 6, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF QUINTILES COMMON STOCK ARE URGED TO READ THIS OPINION
CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO QUINTILES, DOES
NOT ADDRESS ANY OTHER ASPECT OF THE EXCHANGE OR RELATED TRANSACTIONS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY
SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Quintiles, Smith
Barney performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying Smith Barney's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Smith Barney believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its analyses,
Smith Barney made numerous assumptions with respect to Quintiles, Innovex,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Quintiles
and Innovex. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Smith Barney's opinion and financial analyses were only
one of many factors considered by the Quintiles Board in its evaluation of the
Exchange and should not be viewed as determinative of the views of the Quintiles
Board or management with respect to the Exchange Ratio or the proposed Exchange.
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
Quintiles and eight selected publicly traded companies in the contract research
organization industry, consisting of: Applied Analytical Industries, Inc.,
ClinTrials Research Inc., Collaborative Clinical Research, Inc., Corning Inc.,
IBAH, Inc., Pharmaceutical Product Development Inc., Phoenix International Life
Sciences, Inc. and PAREXEL International Corp. ("PAREXEL") (collectively, the
"Selected Companies"), with particular focus on Quintiles and PAREXEL. Smith
Barney compared market values as multiples of, among other things, estimated
calendar 1996 and estimated calendar 1997 net income, and adjusted market values
(equity market value, plus total debt and the book value of preferred stock,
less cash and cash equivalents) as a multiple of, among other things, latest 12
months net revenues. Smith Barney also compared the debt to capitalization
ratios, profit margins, historical revenue growth and projected earnings per
share ("EPS") growth of Quintiles and the Selected Companies. Net income
projections for Quintiles and the Selected Companies were based on estimates of
selected investment banking firms. All multiples were based on closing stock
prices as of October 1, 1996. Applying a range of multiples of estimated
calendar 1996 and estimated calendar 1997 net
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<PAGE> 23
income and latest 12 months net revenues of PAREXEL and Quintiles of 76.1x to
82.0x, 55.5x to 59.1x and 4.6x to 7.0x, respectively, to corresponding financial
data for Innovex resulted in an equity reference range for Innovex of
approximately $644.5 million to $800.1 million, as compared to the equity value
implied by the Exchange Ratio of approximately $720.0 million based on a closing
stock price Quintiles Common Stock on October 1, 1996.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase price and implied
transaction multiples paid or proposed to be paid in three selected transactions
in the contract research organization industry, consisting of (acquiror/target):
Quintiles/BRI (the "Quintiles/BRI Transaction"), Applied Bioscience
International, Inc./Pharmaceutical Product Development Inc. (the "Applied
Bioscience/Pharmaceutical Product Transaction") and ClinTrials Research
Inc./Bio-Research Laboratories Ltd. (collectively, the "Selected Transactions"),
with particular focus on the Quintiles/BRI Transaction and the Applied
Bioscience/Pharmaceutical Product Transaction. Smith Barney compared the
purchase prices in such transactions as multiples of, among other things,
estimated calendar 1996 and estimated calendar 1997 net income and transaction
values as a multiple of, among other things, latest 12 months net revenues. All
multiples for the Selected Transactions were based on information available at
the time of announcement of the transaction. Applying a range of multiples of
estimated calendar 1996 and estimated calendar 1997 net income and latest 12
months net revenues of the Quintiles/BRI Transaction and the Applied
Bio-Science/Pharmaceutical Product Transaction of 52.1x to 52.7x, 27.8x to 39.7x
and 2.1x to 2.9x, respectively, to corresponding financial data for Innovex
resulted in an equity reference range for Innovex of approximately $336.1
million to $429.0 million, as compared to the equity value implied by the
Exchange Ratio of approximately $720.0 million based on a closing stock price of
Quintiles Common Stock on October 1, 1996.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to Quintiles, Innovex or the Exchange. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected Companies, Selected Transactions
or the business segment, company or transaction to which they are being
compared.
Contribution Analysis. Smith Barney analyzed the respective contributions
of Quintiles and Innovex to the estimated revenue, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), earnings before interest and
taxes ("EBIT") and net income of the combined company for fiscal years 1996,
1997 and 1998, based on estimates of selected investment banking firms. This
analysis indicated that (i) in fiscal year 1996, Quintiles would contribute
approximately 59.1% of revenue, 56.8% of EBITDA, 62.1% of EBIT and 74.2% of net
income, and Innovex would contribute approximately 40.9% of revenue, 43.2% of
EBITDA, 37.9% of EBIT and 25.8% of net income, of the combined company, (ii) in
fiscal year 1997, Quintiles would contribute approximately 55.8% of revenues,
55.3% of EBITDA, 61.8% of EBIT and 71.3% of net income, and Innovex would
contribute approximately 44.2% of revenues, 44.7% of EBITDA, 38.2% of EBIT and
28.7% of net income, of the combined company and (iii) in fiscal year 1998,
Quintiles would contribute approximately 54.7% of revenue, 54.7% of EBITDA,
60.9% of EBIT and 68.1% of net income, and Innovex would contribute
approximately 45.3% of revenue, 45.3% of EBITDA, 39.1% of EBIT and 31.9% of net
income, of the combined company. Smith Barney also analyzed the net interest
effect, net of tax, on the net income of the combined company of refinancing
Innovex indebtedness. Estimated cost savings from refinancing such indebtedness
were not allocated to either Quintiles or Innovex and represented approximately
2.7% and 2.5% of net income of the combined company in fiscal years 1997 and
1998, respectively, resulting in relative contributions of Quintiles and Innovex
to the estimated net income of the combined company of approximately 69.4% and
27.9%, respectively, in fiscal 1997 and approximately 66.4% and 31.2%,
respectively, in fiscal 1998. Immediately following consummation of the
Exchange, shareholders of Quintiles and Innovex would own approximately 70.8%
and 29.2%, respectively, of the combined company.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected free cash flow of Innovex for fiscal years 1997
through 2001, based on internal estimates of the management of Quintiles. The
stand-alone discounted cash flow analysis of Innovex was determined by
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<PAGE> 24
(i) adding (x) the present value of projected free cash flows over the five-year
period from 1997 to 2001 and (y) the present value of Innovex's terminal value
in year 2001 and (ii) subtracting the current net debt of Innovex. The range of
terminal values for Innovex at the end of the five-year period was calculated by
applying terminal multiples ranging from 20.0x to 25.0x to Innovex's projected
2002 unlevered net income, representing Innovex's estimated value beyond the
year 2001. The cash flows and terminal values of Innovex were discounted to
present value using discount rates ranging from 14.0% to 18.0% (with particular
focus on a discount rate of 16.0%). Based on such terminal value multiples and a
discount rate of 16.0%, this analysis resulted in an equity reference range for
Innovex of approximately $730.5 million to $919.1 million.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Exchange, including, among other things, the impact of the
Exchange on the projected EPS of Quintiles for the fiscal years ending 1996
through 2000, based on estimates of selected investment banking firms and taking
into account in fiscal years 1997 through 2000 the net interest effect (net of
tax) of refinancing Innovex indebtedness (assuming for such purposes a closing
date for the Exchange of January 1, 1997). The results of the pro forma merger
analysis suggested that the Exchange could be dilutive to Quintiles' EPS in
fiscal year 1996 and accretive to Quintiles' EPS in fiscal years 1997 through
2000. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of (i) the historical and
projected financial results of Quintiles and Innovex; (ii) the history of
trading prices and volume for Quintiles Common Stock and the relationship
between movements of such Common Stock, movements of the common stock of the
Selected Companies and movements in the S&P 500 Index; (iii) selected published
analysts' reports on Quintiles, including analysts estimates as to the earnings
growth potential of Quintiles; and (iv) the pro forma ownership of the combined
company.
Pursuant to the terms of Smith Barney's engagement, Quintiles has agreed to
pay Smith Barney for its services in connection with the Exchange an aggregate
financial advisory fee of $800,000. Quintiles has also agreed to reimburse Smith
Barney for travel and other out-of-pocket expenses incurred by Smith Barney in
performing its services, including the reasonable fees and expenses of its legal
counsel, and to indemnify Smith Barney and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement.
Smith Barney has advised Quintiles that, in the ordinary course of
business, Smith Barney and its affiliates may actively trade or hold the
securities of Quintiles for their own account or for the account of clients and,
accordingly, may at any time hold a long or short position in such securities.
Smith Barney has in the past provided certain investment banking services to
Quintiles unrelated to the proposed Exchange, for which services Smith Barney
has received compensation. In addition, Smith Barney and its affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with Quintiles and Innovex.
Smith Barney is a nationally recognized investment banking firm and was
selected by Quintiles based on Smith Barney's experience, expertise and
familiarity with Quintiles and its business. Smith Barney regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
THE EXCHANGE AGREEMENT
The statements and descriptions contained in this Proxy Statement with
respect to the terms and conditions of the Exchange Agreement are intended only
as a general discussion of the Exchange Agreement and are qualified in their
entirety by reference to the detailed provisions set forth in the Exchange
Agreement attached to this Proxy Statement as Appendix A. Each stockholder of
Quintiles is advised to read the Exchange Agreement carefully.
General. The Exchange Agreement provides that, following the performance
and fulfillment (or waiver) of all covenants, conditions and obligations to the
Exchange, Quintiles will acquire all of the
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<PAGE> 25
outstanding share capital of Innovex from the Innovex Shareholders and Innovex
will become a wholly-owned subsidiary of Quintiles. On the Closing Date, for an
aggregate amount of approximately $60 million, 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 an amount up to L30 million in cash to Innovex to satisfy certain
indebtedness. The Exchange Agreement also permits Quintiles to transfer or
assign the Exchange Agreement or any of its rights or obligations under the
Exchange Agreement to any of its affiliates, except that no such transfer or
assignment will relieve Quintiles of its obligations under the Exchange
Agreement. 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 shares in Innovex, together with their certificates representing such
shares. The Exchange will become effective at the date and time specified in the
Exchange Agreement (the "Closing Date").
Closing of the Exchange. 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 practicable following approval of the issuance of the
Exchange Shares by the shareholders of Quintiles and satisfaction of all
conditions to the parties' respective obligations to consummate the Exchange at
such other time as designated in writing by Quintiles and Innovex.
Treatment of Outstanding Options to Acquire Innovex Shares. Pursuant to
the Exchange Agreement, Quintiles has agreed to substitute options to acquire
Innovex Ordinary Shares ("Innovex Options") with options to acquire shares of
Quintiles Common Stock ("Quintiles Options"). On the Closing Date, each Innovex
Option will be canceled 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. 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.
Escrow of Exchange Shares. At the Closing, two and one-half percent of the
Exchange Shares will be delivered to an escrow agent by the Innovex Shareholders
(on a pro rata basis) to hold for the post-Closing period during which Quintiles
and its related parties may assert claims pursuant to the indemnification
provisions of the Exchange Agreement. Quintiles' and its related parties' sole
monetary recourse for such claims will be from the Exchange Shares placed in
escrow. At the Closing, Quintiles, the Innovex Shareholders and the escrow agent
will enter into an escrow agreement defining the escrow arrangement and
establishing procedures by which Quintiles may assert and the Innovex
Shareholders may dispute claims against the Exchange Shares held in escrow. Any
Exchange Shares held in escrow and not properly claimed by and delivered to
Quintiles pursuant to the escrow agreement will be returned to the Innovex
Shareholders following expiration of the indemnification period. See
"-- Indemnification" and "The Escrow Agreement."
Representations and Warranties of Innovex. Under the Exchange Agreement,
Innovex and certain of the Innovex Shareholders have made certain
representations and warranties with respect to the business of Innovex and other
matters. Such representations and warranties of Innovex and the Innovex
Shareholders cover, among other things, the following matters: (i) power and
authority to enter into the Exchange Agreement and the other transactions
contemplated thereby; (ii) the Innovex financial statements; (iii) title to
properties and assets and the absence of any undisclosed encumbrances or liens
on such properties; (iv) compliance with all leases to which Innovex or any
subsidiary is a party; (v) compliance with the terms of existing contracts and
the absence of any default or circumstances which would lead to a default
thereunder; (vi) the absence of any conflict with the articles of incorporation
or bylaws of Innovex or any laws applicable to Innovex arising from Innovex's
execution and performance of the Exchange Agreement; (vii) the absence of
undisclosed pending or threatened material litigation or other proceedings
against Innovex or its subsidiaries or affiliates or any basis therefor; (viii)
taxes; (ix) the absence of material undisclosed liabilities, obligations or
indebtedness of or claims against Innovex or any subsidiary; (x) the performance
and compliance of Innovex and its subsidiaries with the terms of existing
indebtedness and all instruments and agreements relating thereto; (xi) insurance
coverage; (xii) intellectual property rights and licenses necessary or required
to conduct business; (xiii) compliance with employment related and environmental
laws; (xiv) compliance with
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<PAGE> 26
other applicable laws; (xv) the accuracy and completeness of statements made in
Innovex's disclosures to Quintiles pursuant to the Exchange Agreement; (xvi) the
absence of any event, occurrence, condition or act, which with the giving of
notice, the lapse of time or other happening of any further event or condition
which would constitute a breach of or cause any of Innovex's representations and
warranties to become untrue; and (xvii) the absence of any debarment
investigations or actions by the U.S. Food and Drug Administration (the "FDA")
against Innovex, any subsidiary or any of their employees, subcontractors or
investigators.
Representations and Warranties of Quintiles. Under the Exchange Agreement,
Quintiles also has made representations and warranties to Innovex and the
Innovex Shareholders, although (except in the case of fraud) Quintiles is not
obligated to indemnify the Innovex Shareholders after the Closing Date in the
event of a breach or failure of any Quintiles representation or warranty. The
Company's representations and warranties cover, among other things, the
following matters: (i) power and authority to enter into the Exchange Agreement;
(ii) the capitalization of the Company; (iii) the Company's filings with the
Securities and Exchange Commission; (iv) financial statements; (v) title to
properties and assets; (vi) the absence of any conflict with the Company's
charter documents and agreements to which it is a party as a result of its
execution of the Exchange Agreement; (vii) the absence of material litigation
and other proceedings; (viii) tax returns; (ix) compliance with applicable laws;
(x) the absence of material changes in the Company since June 30, 1996; and (xi)
the absence of any event, occurrence, condition or act, which with the giving of
notice, the lapse of time or other happening of any further event or condition
which would constitute a breach of or cause any of Quintiles' representations
and warranties to become untrue.
Conditions to Consummation of the Exchange. The obligations of Quintiles
to consummate the Exchange are subject to the satisfaction or waiver of a number
of conditions, including the following: (i) receipt of legal opinions from
counsel to Innovex; (ii) the absence of any material adverse change in the
business, financial condition, results of operations or prospects of Innovex and
its subsidiaries taken as a whole; (iii) the accuracy in all material respects
of the representations and warranties made by Innovex in the Exchange Agreement;
(iv) the performance in all material respects of all agreements of Innovex
pursuant to the Exchange Agreement prior to the Closing Date; (v) the absence of
any action, proceeding or claim that seeks to restrain or prohibit any of the
transactions contemplated by the Exchange Agreement; (vi) delivery by the
independent accountants to the parties of certain opinions related to the
appropriateness of pooling of interests accounting for the Exchange and the
treatment of the Exchange under United States federal income tax law; (vii)
receipt of all governmental and other material consents and approvals necessary
for consummation of the transactions contemplated by the Exchange Agreement and
expiration or termination of all applicable antitrust waiting periods; and
(viii) the execution and delivery of an employment agreement for Innovex's
Chairman and other Innovex senior managers.
The obligations of Innovex pursuant to the Exchange Agreement are dependent
on a number of conditions, including the following: (i) the delivery of an
opinion of counsel to Quintiles; (ii) the accuracy in all material respects of
the representations and warranties made by Quintiles; (iii) the receipt of all
governmental and other approvals necessary to consummate the transactions
contemplated by the Exchange Agreement and the expiration or other termination
of all applicable antitrust waiting periods; (iv) the approval of the issuance
of the Exchange Shares under the Exchange Agreement by the Quintiles
Shareholders; (v) the execution of the Employment Agreements; (vi) the
compliance in all material respects by Quintiles with all agreements required to
be performed by them prior to the closing date specified in the Exchange
Agreement; (vii) the absence of any action, proceeding or claim that seeks to
restrain or prohibit the transactions contemplated by the Exchange Agreement;
(viii) the receipt of satisfactory letters from the independent accountants of
the parties regarding the appropriateness of pooling of interest accounting; and
(ix) a letter from the U.K. Inland Revenue clearing the Exchange under
applicable U.K. law.
No assurances can be provided as to when or if all of the conditions to the
Exchange can or will be satisfied (or waived by the party permitted to do so).
In the event the Exchange is not consummated on or before December 31, 1996, the
Exchange Agreement may be terminated by Quintiles or Innovex. See "-- Amendment,
Waiver and Termination."
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<PAGE> 27
Covenants of Innovex. Under the Exchange Agreement, Innovex and certain of
the Innovex Shareholders have agreed to take, or cause to be taken, certain
actions prior to the Closing Date. These covenants cover, among other things,
the following matters: (i) conduct of business in the ordinary and usual course
of business; (ii) prohibition against sales of securities or assets and mergers
or other business combinations; (iii) providing access to certain
representatives and other information; (iv) delivery of letters relating to
"pooling of interests" accounting; (v) satisfaction of certain loan notes; (vi)
maintaining treatment of the Exchange as a taxable transaction for United States
federal income tax purposes; and (vii) implementation of a capital
reorganization.
Covenants of Quintiles. Under the Exchange Agreement, Quintiles has agreed
to take, or cause to be taken, certain actions prior to the Closing Date. These
covenants cover, among other things, the following matters: (i) conduct of
business in the ordinary and usual course of business; (ii) prohibitions against
fundamental transactions, such as certain mergers, consolidations and sales of
capital stock, except with Innovex's prior written approval or with respect to
the BRI Merger and related transactions; (iii) maintenance of organizational
documents, such as Articles of Incorporation and Bylaws, unless Innovex has been
consulted beforehand; (iv) refraining from entering into contracts for capital
expenditures individually or in the aggregate exceeding L1,000,000, unless
Innovex has been consulted beforehand; (v) filing this Proxy Statement with the
Securities and Exchange Commission; and (vi) maintaining for six years the
directors' and officers' liability policy of Innovex.
Certain Other Covenants. The parties have made the following additional
covenants, among others, in the Exchange Agreement: (i) the Innovex Shareholders
have agreed to certain nonsolicitation covenants with respect to Quintiles'
customers, suppliers and certain employees and consultants; (ii) Quintiles will
preserve certain Innovex employee benefits for a period of at least one year;
(iii) the parties will cooperate with respect to the preparation and filing of
all documents and materials under applicable laws; and (iv) Quintiles will use
best efforts to cause the Exchange Shares to be approved for listing on the
Nasdaq National Market.
Amendment, Waiver and Termination. The Exchange Agreement may be waived,
amended, supplemented or modified only by a written agreement executed by each
of the parties thereto.
The Exchange Agreement may be terminated by the parties at any time by
mutual written consent. Any party may terminate the Exchange Agreement by
written notice prior to the Closing Date if any court or other government
instrumentality of competent jurisdiction takes any action to restrain, enjoin
or otherwise prohibit the transactions contemplated by the Exchange Agreement.
Quintiles may terminate the Exchange Agreement by written notice to Innovex
at any time prior to the Closing Date if any Innovex Shareholder breaches in any
material respect any representation, covenant or warranty provided under the
Exchange Agreement by Innovex or if the consummation of the transactions
contemplated thereby have not occurred on or before December 31, 1996.
Innovex, or one or more Innovex Shareholders holding in excess of 30% of
the Innovex share capital, may terminate the Exchange Agreement upon written
notice to Quintiles if the consummation of the transactions contemplated thereby
have not occurred on or before December 31, 1996.
Indemnification. From and after Closing, Quintiles and its affiliates
(including Innovex and its subsidiaries) and all of their respective officers,
directors, employees (other than certain key employees), agents and stockholders
(other than the Innovex Shareholders) (each, an "Indemnitee") will be defended,
indemnified and held harmless pursuant to the Exchange Agreement from and
against any and all losses, claims, actions, damages, liabilities, costs and
expenses (collectively "Losses") in connection with (i) any misrepresentation or
any non-fulfillment of any representation, warranty, covenant, obligation or
agreement made by Innovex or any Innovex Shareholder in or pursuant to the
Exchange Agreement or any of the documents related to the Exchange Agreement or
otherwise required to consummate the Exchange and (ii) Quintiles' enforcement of
its indemnification rights under Section 8.2 of the Exchange Agreement, or any
litigation, proceeding or investigation relating to any of the foregoing. The
sole monetary recourse of the
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<PAGE> 28
Indemnitees for the above matters is limited, subject to certain exceptions, to
the value of shares of Quintiles Common Stock held in escrow pursuant to the
escrow agreement. In addition, the Indemnitees will not be entitled to
indemnification for any amount unless and until the aggregate of all amounts for
which Quintiles and its affiliates would be entitled to be indemnified exceeds
$750,000.
Innovex shall be liable for any Losses arising from the events described in
the preceding paragraph from and after any termination of the Exchange
Agreement. If Quintiles terminates the Exchange Agreement following a breach by
Innovex of one of its representations under the Exchange Agreement by reason of
Innovex's own neglect or default, then Innovex's liability is limited to the
out-of-pocket expenses incurred by Quintiles, except that Innovex will have no
liability for breaches of certain representations, including those made only by
certain Innovex Shareholders. As of and following the Closing Date, Innovex
shall have no liability for indemnification and Quintiles will be prohibited
from seeking contribution from Innovex with respect to any amounts payable in
accordance with the indemnification provisions, although the Innovex
Shareholders will continue to have liability, as described below.
The representations and warranties in the Exchange Agreement of the Innovex
Shareholders will remain in full force and effect for a period up to March 31,
1997 (such period referred to as the "Representations Period"), except in the
case of fraud with respect thereto or as to claims pending at that time. The
Indemnitees may not make any claim for indemnification after the expiration of
the Representations Period, other than claims made in good faith in writing
prior to such expiration, whether or not any action or proceeding is instituted
with respect to such claims prior to the expiration of the Representations
Period. Any and all Losses arising after expiration of the Representations
Period will be recoverable upon notice properly given prior to the expiration of
the Representations Period. The representations and warranties of Quintiles
contained in the Exchange Agreement 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 will survive indefinitely. See "THE ESCROW
AGREEMENT."
Expenses. The Exchange Agreement provides that each party will pay all of
its own expenses relating to the transactions contemplated by the Exchange
Agreement, except that the Company will pay expenses that would otherwise be
paid by the Innovex Shareholders.
THE ESCROW AGREEMENT
At the Closing, two and one-half percent of the Exchange Shares will be
delivered to an escrow agent by the Innovex Shareholders (on a pro rata basis)
to hold for the Representations Period. Quintiles' and its related parties' sole
monetary recourse for claims under the indemnification provisions of the
Exchange Agreement will be from the Exchange Shares placed in escrow.
At the Closing, Quintiles, the Innovex Shareholders and the escrow agent
will enter into an escrow agreement in the form of Exhibit A to the Exchange
Agreement to define the escrow arrangement and establish procedures by which
Quintiles may assert and the Innovex Shareholders may dispute claims against the
Exchange Shares held in escrow. Under the escrow agreement, Quintiles must
notify the escrow agent and the Innovex Shareholders in writing of any claim
under the indemnification provisions of the Exchange Agreement. To the extent,
if any, the Innovex Shareholders do not dispute Quintiles' claim during a
specified period after Quintiles provides such notice, the escrow agent will
make payment to Quintiles under the escrow agreement by delivering to Quintiles
such number of the Exchange Shares held in escrow as have an aggregate value
(calculated as of the Closing Date) equal to the amount of Quintiles' claim, or
such fewer Exchange Shares as then remain in escrow. To the extent, if any, the
Innovex Shareholders dispute Quintiles' right to payment from the Exchange
Shares held in escrow, the Innovex Shareholders may notify Quintiles and the
escrow agent, and Quintiles and such Innovex Shareholders will resolve
Quintiles' claim through a dispute resolution method prescribed by the escrow
agreement, culminating in binding arbitration. If appropriate based on
resolution of Quintiles' claim, the escrow agent will make payment to Quintiles
thereafter from the Exchange Shares held in escrow. Under the escrow agreement,
any Exchange Shares held in escrow and not properly claimed by and delivered to
Quintiles pursuant to the escrow agreement will be returned to the
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<PAGE> 29
Innovex Shareholders following expiration of the Representations Period. See
"THE EXCHANGE AGREEMENT -- Indemnification."
EMPLOYMENT AGREEMENTS
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 will be subject to 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 sign 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 REGISTRATION RIGHTS AGREEMENT
The Exchange Shares 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 Regulation S
under, the Securities Act. As a result, the Exchange 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 to have the Exchange Shares registered
under the Securities Act pursuant to a Registration Rights Agreement, which will
be signed on the Closing Date. Under the Registration Rights Agreement, subject
to market conditions and other customary limitations, Quintiles has (i) agreed
to file as soon as practicable after the Closing Date a registration statement
for an underwritten offering, planned for early 1997, to include up to 2.7
million of the Exchange 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
Exchange 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.
ACCOUNTING TREATMENT
It is intended that the Exchange will be treated as a pooling of interests
for financial accounting purposes in accordance with generally accepted
accounting principles. Under the pooling of interests method of accounting, the
historical book values of Innovex's assets, liabilities and stockholders' equity
will be carried over on Quintiles' consolidated balance sheet, and Quintiles
will include in its Consolidated Statements of Operations Innovex's operating
results for the entire fiscal year of Innovex in which the Exchange is
consummated.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain of the material United States
federal income tax consequences of the transactions contemplated in the Exchange
Agreement relevant to Quintiles shareholders. It does not include a discussion
of any United Kingdom, other foreign tax, or state and local tax consequences
relevant to Quintiles. It does not include a discussion of any United Kingdom or
other foreign tax consequences of the transactions or a discussion of any
federal or state and local income tax considerations relevant to Innovex
Shareholders. The discussion below is based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable United States Treasury
regulations, judicial authority, and administrative rulings and practice, all as
of the date hereof. There can be no assurance that future legislative, judicial
or administrative changes or interpretations will not adversely affect the
accuracy of the statements and conclusions set forth below. Any such changes or
interpretations could be applied retroactively and could affect the tax
consequences of the Exchange to Quintiles and its shareholders.
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The Exchange Agreement provides that Quintiles' obligation to consummate
the transactions contemplated by the Exchange Agreement is subject to the
satisfaction or waiver of a number of conditions, including the delivery of an
opinion by Quintiles' independent accountants that such transactions should be
treated as a taxable acquisition of the Innovex Shares for purposes of United
States federal income tax law (the "Tax Opinion"). Assuming such transactions
are treated as a taxable acquisition of the Innovex Shares for purposes of
United States federal income tax law:
(a) Quintiles' shareholders will not recognize any gain or loss as a
result of the transactions;
(b) Quintiles will not recognize any gain or loss on the issuance of
the Exchange Shares to the Innovex Shareholders;
(c) Quintiles will acquire an aggregate tax basis in the Innovex
Shares equal to the fair market value of the Exchange Shares issued
therefor;
(d) Quintiles will acquire an aggregate tax basis in the Innovex
cumulative redeemable preference shares (the "Preference Shares") equal to
the amount of money paid for such shares; and
(e) Quintiles' holding period for the Innovex Shares and the
Preference Shares will commence on the day after the Closing Date.
Under the Exchange Agreement, Quintiles may, in its sole discretion, waive
the condition that it receive the Tax Opinion before consummating its
obligations under the Exchange Agreement. Thus, Quintiles may consummate the
Exchange even if it is determined that the transactions contemplated by the
Exchange Agreement constitute a tax-free "reorganization" within the meaning of
section 368 of the Code rather than a taxable transaction. If such transactions
are treated as a reorganization under section 368 of the Code:
(a) Quintiles' shareholders will not recognize any gain or loss as a
result of the transactions;
(b) Quintiles will not recognize any gain or loss on the issuance of
the Exchange Shares;
(c) Quintiles will acquire an aggregate tax basis in each Innovex
Share equal to the selling Innovex Shareholder's basis in such share;
(d) Quintiles will acquire an aggregate tax basis in the Preference
Shares equal to the amount of money paid therefor; and
(e) Quintiles' holding period for each Innovex Share will include the
period during which the selling Innovex Shareholder held such Innovex
Share, and Quintiles' holding period for each Preference Share will
commence on the day after the Closing Date.
RESTRICTIONS ON RESALES OF QUINTILES COMMON STOCK; POOLING CONSIDERATIONS
Approximately shares of Quintiles Common Stock will be issued to
Innovex Shareholders 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 such shares 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, 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. Each such Innovex
Shareholder may not transfer any such shares except in a transaction registered
under the Securities Act or unless he has 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. Quintiles is under no obligation to effect any such
registration under the Securities Act or otherwise with respect to such 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. See "THE EXCHANGE -- The Registration
Rights Agreement."
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<PAGE> 31
Approximately shares of Quintiles Common Stock will be issued to
Innovex Shareholders (a "Regulation S Participant") in reliance on Regulation S
promulgated pursuant to the Securities Act ("Regulation S") and such shares 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, 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. Each 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.
A Regulation S Participant may not offer, sell or deliver any of the
Exchange Shares until 40 days after the Closing Date (the "Restricted Period")
except in an "offshore transaction" (as defined in Regulation S) in accordance
with Rule 904 of Regulation S and in accordance with the Exchange Agreement.
The certificates representing the Exchange 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 five 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
such 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 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. See "THE EXCHANGE -- Registration Rights Agreement."
In addition, in any event, pooling of interests accounting treatment
requires that affiliates of Innovex who receive shares of Quintiles Common Stock
in the Exchange and affiliates of Quintiles must not sell or otherwise reduce
their risk relative to their shares of Quintiles Common Stock until Quintiles
has published consolidated financial statements including the combined
operations of Quintiles and Innovex for a period of at least 30 days following
the Closing Date. As a condition to the Exchange, Quintiles must receive an
agreement signed by all persons who were on the Closing Date affiliates of
Innovex evidencing their agreement not to sell their shares of Quintiles Common
Stock until such period has expired.
REGULATORY APPROVALS
Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the Exchange may not be consummated unless
certain information has been filed with the Federal Trade Commission (the "FTC")
and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period under the HSR Act has expired or
been terminated by the FTC and the Antitrust Division. Under the Exchange
Agreement, expiration or early termination of the waiting period is a condition
to consummation of the Exchange.
At any time before or after the Effective Time, and notwithstanding the
termination of the HSR Act waiting period, the Antitrust Division, the FTC or a
private person could seek to use the antitrust laws, among other things, to
enjoin the Exchange or to cause Quintiles to divest itself, in whole or in part,
of Innovex or of other business conducted by Quintiles. Based upon the
information available to them, Quintiles and Innovex believe that the Exchange
can be consummated in compliance with the antitrust laws. However, there can be
no assurance that a challenge to the Exchange will not be made or that, if such
a challenge is made, Quintiles and Innovex will prevail. The absence of any
claim or action to restrain or prohibit the Exchange is a condition to the
parties' obligations under the Exchange Agreement.
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CERTAIN INFORMATION CONCERNING QUINTILES
BUSINESS OF QUINTILES
Quintiles is a North Carolina corporation which provides drug development
and health information management services to a range of public and private
sector clients around the world. Quintiles believes that it is one of only three
contract research organizations ("CROs") with fiscal 1995 revenue exceeding $100
million and one of a few capable of providing global services. Quintiles
complements the research and development departments of pharmaceutical and
biotechnology companies by offering services designed to assure a high quality
product for the sponsor company and reduce drug development time and cost. In
addition, Quintiles' integrated services and extensive information technology
capabilities furnish clients with broad experience and expertise in global drug
development and provide clients with an outsourced variable-cost alternative to
the fixed costs associated with internal drug development. Quintiles' core
competencies include clinical research and data management, and consulting on
healthcare policy, disease management and regulatory issues. In 1995, Quintiles
generated approximately 79% of its net revenue from its clinical services and
approximately 21% from its pre-clinical, laboratory services and formulation and
packaging services. Quintiles has 41 operating units in 19 countries. Quintiles
maintains its principal executive office at 4709 Creekstone Drive, Riverbirch
Building, Suite 300, Durham, North Carolina, 27703-8411 and its telephone number
is (919) 941-2000.
Information about the business of Quintiles is incorporated by reference
from reports Quintiles files with the Commission. See "Incorporation of Certain
Documents by Reference."
THE BRI MERGER
General. The BRI Merger provides that, following the performance and
fulfillment of all covenants, conditions and obligations to the BRI Merger
(other than those waived in accordance with the terms of the BRI Merger
Agreement), BRI will merge with and into Acquisition, the separate corporate
existence of BRI shall cease, and Acquisition will be the surviving corporation
and a wholly-owned subsidiary of Quintiles and shall continue its existence as a
North Carolina corporation. The name of the surviving corporation will be BRI
Acquisition Corp.
Effective Time of the Merger. It is the intention of the parties to the
BRI Merger Agreement to consummate the BRI Merger and the other transactions
contemplated by the BRI Merger Agreement as soon as possible following adoption
and approval of the BRI Merger Agreement by the shareholders of BRI and
satisfaction of all covenants and conditions to the parties' respective
obligations to consummate the BRI Merger (or, to the extent permitted, waiver
thereof) or at such other time as designated in writing by Quintiles and BRI.
Conversion of BRI Common Stock. In the BRI Merger, each share of BRI
Common Stock issued and outstanding ("BRI Common Stock") immediately prior to
the effective time will cease to be outstanding and will be converted into
4.3013 shares of Quintiles Common Stock (subject to possible adjustments),
except for shares of BRI Common Stock held by a BRI Shareholder who exercises
dissenter's rights under the Virginia Stock Corporation Act and shares of BRI
Common Stock held in BRI's treasury. Each share of Acquisition Common Stock
issued and outstanding immediately prior to the Effective Time will be converted
into one share of common stock of the surviving corporation.
Registration Statement. Quintiles has filed with the Securities and
Exchange Commission a Registration Statement on Form S-4 for the purpose of
registering under the Securities Act the 1,951,027 shares of Quintiles Common
Stock to be issued to the BRI shareholders in the BRI Merger. The BRI
shareholders will be considering whether to approve the BRI Merger at a special
meeting of shareholders of BRI to be held on November 21, 1996. It is
anticipated that the BRI Merger will become effective shortly after such
meeting.
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CERTAIN INFORMATION CONCERNING INNOVEX
INTRODUCTION
Innovex is a leading international contract pharmaceutical organization
("C.P.O."), which provides a wide range of contract research and sales and
marketing services to the pharmaceutical industry. Innovex focuses primarily on
the period extending from two years before to two years after the receipt of
marketing approval for a drug (the "peri-launch" period). This period of drug
development attracts the highest level of expenditure and the most intense
boardroom focus by drug sponsors. Innovex typically provides contract research
services in the early peri-launch period and sales and marketing services
thereafter. Contract research services and sales and marketing services
accounted for approximately 37.4% and 62.6% of Innovex's net sales in the 1996
fiscal year, respectively. Innovex provides project teams with specialist
knowledge and expertise to enable its clients to accelerate the speed to market,
the commercial acceptance and the market penetration of their pharmaceutical
products, with the aim of maximizing their return on investment.
As a specialist third-party service provider to the pharmaceutical
industry, Innovex benefits from the trend toward increased contracting out
("outsourcing") by pharmaceutical and biotechnology companies as such companies
seek more flexible and cost-effective strategies for the development and
marketing of drugs. Innovex believes that its combination of clinical and
promotional expertise, marketing orientation and international experience
enables it to provide a unique range of services tailored to meet the needs of
its clients from clinical development through product registration to the
commercial success of their products following launch. Innovex provides its
services from its headquarters in the United Kingdom and its offices in the
United States, Germany, The Netherlands, Sweden, Italy, France and Spain.
Clients located in the United Kingdom, the United States and Germany accounted
for approximately 53.3%, 19.6% and 13.6% respectively, of Innovex's net sales in
the 1996 fiscal year.
HISTORY
Innovex was founded in 1979 as a provider of consulting services to the
pharmaceutical industry in the United Kingdom. During the 1980s, Innovex pursued
its objective to become an international C.P.O., expanding its service range to
include contract sales services, marketing services, disease management services
and a full range of clinical research services. In 1992, Innovex expanded into
Europe, launching sales services in Germany.
In 1993, Innovex expanded its clinical research capability into Europe and
the United States by acquiring the Clinical Research Foundation group from
Boehringer Ingelheim. This acquisition, which significantly increased the scale
of Innovex's operations, enabled Innovex to operate as a full service C.P.O. in
its main geographic markets. The Clinical Research Foundation group was built by
Boehringer Ingelheim through the 1978 purchase of Biodesign, a Phase I contract
research organization based in Freiburg (Germany), the 1987 purchase of Quincy
Research Center, a company offering mainly Phase I clinical research services
based in Lenexa (Kansas), and the 1992 launch of Clinical Research Foundation in
London (England). In 1992, Boehringer Ingelheim combined these operations under
the Clinical Research Foundation name.
In 1994, Innovex launched its sales services in the United States by
opening an office in Yardley (Pennsylvania). Innovex also acquired Galenus, a
contract research organization based in Uppsala (Sweden), and opened contract
research offices in Milan (Italy) and Paris (France), and a joint contract
research and sales services office in Rotterdam (The Netherlands).
In 1995, Innovex established its international headquarters in Marlow
(England), and relocated its German headquarters to Mannheim (Germany), with its
German Phase I contract research services remaining in Freiburg (Germany). In
March 1996, Innovex established its U.S. headquarters in Parsippany (New
Jersey). In August 1996, Innovex acquired Eminent, a Spanish contract sales
services organization based in Madrid and Barcelona (Spain).
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SERVICES
Innovex provides a wide range of contract research and sales and marketing
services to the pharmaceutical industry. Innovex typically provides contract
research services in the early peri-launch period and sales and marketing
services thereafter. Innovex provides project teams with specialist knowledge
and expertise to enable its clients to accelerate the speed to market, the
commercial acceptance and the market penetration of their pharmaceutical
products, with the aim of maximizing their return on investment. Innovex
provides its services pursuant to a wide variety of flexible arrangements
ranging from the provision of professionals to staff client projects, to the
complete outsourcing of a client's entire project. In each case, the continuity
between Innovex's contract research and sales and marketing activities enables
it to integrate marketing considerations with the design of clinical research
protocols. In addition, Innovex assists its clients in reducing their drug
development and launch timelines. Innovex further assists its clients in
optimizing their flexibility and innovation by allowing them to outsource
selected fixed costs, thus converting fixed costs to variable costs.
CONTRACT RESEARCH SERVICES
Innovex's range of contract research services principally comprises the
design, initiation, performance and management of national and international
clinical trial programs. Innovex has performed these services in connection with
trials in most major therapeutic areas, including cardiology, rheumatology,
oncology, gastroenterology, neurology, endocrinology and the study of pulmonary
and infectious diseases. Innovex's multidisciplinary and multinational clinical
staff of physicians, pharmaceutical advisers, clinical research associates,
statisticians, nurses and regulatory affairs specialists examines a product's
existing pre-clinical and clinical data and designs protocols for clinical
trials in order to provide evidence of the product's safety and efficacy, as
well as its cost-effectiveness and marketability. Innovex's contract research
services accounted for approximately L31.1 million (or 37.4%) of net sales for
the 1996 fiscal year.
Innovex manages every aspect of clinical trials from Phase I through Phase
IV, including clinical and regulatory strategies, regulatory affairs, protocol
development, case report form development, investigator identification and
recruitment, medical monitoring, project management, data management,
statistics, medical writing, medical surveillance, training, pharmacoeconomics
and health outcomes, clinical pharmacology and quality assurance. Innovex's
significant clinical trial management projects involve Phase II, III or IV
clinical trials. These trials are generally larger and more complex than Phase I
trials, which are often constrained by the number of beds available at a single
site. Late-phase clinical trials are also often conducted on an international
basis.
At June 30, 1996, Innovex was engaged in the initiation or monitoring of
239 Phase II, III or IV clinical trials involving more than 2,000
investigational sites. At the same date, Innovex was engaged in the initiation
or monitoring of 25 Phase I clinical trials involving a total of 288 patients at
its 42-bed Phase I facility in Lenexa (Kansas) (of which six are intensive care
beds), and its 36-bed Phase I facility in Freiburg (Germany) (of which eight are
intensive care beds). Innovex's Phase I clinical activities are focused on
studies involving specialized populations, such as persons suffering from a
specified disease, and first administrations of drugs to human beings, as
Innovex believes these are the most profitable areas of Phase I research.
Although Phase I clinical trials are not part of Innovex's strategic peri-launch
focus, Innovex believes that its current level of Phase I clinical trials
provides opportunities for further Phase II, III and IV clinical work.
Clinical trials are monitored for and with strict adherence to Good
Clinical Practice. The design of efficient case report forms, detailed
operations manuals and site visits by Innovex's clinical research associates are
aimed at ensuring that clinical investigators and their staff follow the
established protocols of the studies on a consistent basis. Innovex has adopted
standard operating procedures for controlling and enhancing the quality of its
contract research services. See "-- Recruitment and Training of Staff".
Clinical trials, particularly international trials, represent one of the
most expensive and time-consuming parts of the drug development process. The
information generated during these trials is critical for gaining marketing
approval from regulatory authorities. Innovex offers broad therapeutic
expertise, the ability to manage complex clinical trials simultaneously in
multiple countries, the expertise to prepare regulatory
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submissions in multiple countries and the advanced information technology
systems needed to integrate these capabilities.
Innovex's contract research staff assists clients with one or more of the
following steps:
- Study Protocol Design. The protocol defines the medical issues to be
examined and the statistical tests to be conducted. The protocol also
defines the number of patients required to produce a statistically valid
result, the period of time over which they must be tracked and the
frequency and dosage of drug administration.
- Case Report Form Design. Once the study protocol has been finalized,
forms for recording the desired data must be developed. Innovex's
information technology staff work closely with its clinical staff to
optimize the design of case report forms for use with the study's
protocol. See "-- Information Technology -- Clinical DBMS".
- Site and Investigator Recruitment. The drug is administered to patients
by investigators at hospitals, clinics and other locations, referred to as
sites. The clinical trial's success depends on the successful
identification and recruitment of investigators with appropriate expertise
and with an adequate base of patients who satisfy the requirements of the
study protocol. Innovex has access to several thousand investigators who
have conducted clinical trials for it in the past.
- Patient Enrollment. Investigators and nurses identify and enroll
patients suitable for the study. A contract research organization can have
a significant impact on patient recruitment rates by selecting
investigators and nurses appropriate for a particular clinical trial and
assisting in the recruitment process. The time in which clinical trials
can be completed depends in large part on the rate at which patients are
enrolled. Prospective patients are required to review information about
the drug and its possible side effects, and give informed consent
recording their awareness and acceptance of potential side effects.
Patients also undergo a medical examination to determine whether they meet
the requirements of the study protocol. Patients then receive the drug (or
a placebo) and are examined by the investigator as specified by the study
protocol. Innovex believes that its success in patient recruitment through
the effective selection of investigators and nurses and its proactive
assistance in the recruitment process differentiate it from its
competitors and enable it to manage large international clinical trials
that it believes would otherwise rarely be conducted by pharmaceutical
companies themselves. For example, in the 1996 fiscal year, Innovex
identified and recruited approximately 15,000 patients in seven countries
for two large, late-phase, pan-European clinical trials in only eight
months. A more typical study might involve 5,000 to 6,000 patients
recruited over a period of 12 to 18 months.
- Study Monitoring and Data Collection. As patients are examined and tests
are conducted in accordance with the study protocol, data are recorded on
case report forms and laboratory reports. The data are collected from
study sites by specially trained examiners who visit sites regularly to
supervise the data collection process and verify the accuracy and
completeness of data collection and recording. Innovex has recently
introduced the use of optical character recognition technology to improve
the efficiency and accuracy of these procedures. Innovex's study
monitoring and data collection services comply with applicable drug safety
reporting guidelines, and Innovex is currently implementing systems
software to streamline drug safety reporting throughout its international
network of offices. See "-- Information Technology -- Drug Safety
Reporting".
- Clinical Data Management. Innovex's data management professionals assist
in the design of case report forms and training manuals for investigators
in order to ensure that data are collected in an organized and consistent
format. Databases are designed according to the analytical specifications
of the project and the particular needs of the drug sponsor. Prior to data
entry, Innovex staff screen the data to detect errors and omissions in
completed case report forms. Innovex provides clients with data
abstraction, data review and coding, data entry, database verification and
editing and problem data resolution services. Innovex has extensive
experience in the United Kingdom, the United States and
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Europe in the creation of scientific databases for all phases of the drug
development process. These databases include: customized formats, such as
databases for Phase II and III respiratory studies structured according to
client-specific international project standards allowing for direct data
transfer; integrated databases to support new drug application
submissions, such as a series of Phase I and II cardiovascular studies in
which Innovex delivered consolidated databases in a format allowing for
direct incorporation into regulatory submissions; and databases complying
with U.K., U.S. and European specifications, such as Phase III multiple
sclerosis studies and Phase IV cardiovascular studies using international
data transfer formats.
- Medical Writing. The results of statistical analysis of data collected
during the clinical trial, together with other clinical data, are included
in a final report generated for inclusion in a regulatory document.
Innovex also prepares such data for presentation by clients at
conferences, seminars and other meetings.
- Medical Affairs. Throughout the course of a clinical trial, Innovex's
physicians provide a wide range of medical research and consulting
services, including medical monitoring of trials, interpretation of
clinical trial results and preparation of clinical study reports. These
services are tailored to the needs of each client at each stage of the
development process. Innovex typically focuses on the provision of medical
advice and the surveillance of drug safety.
- Biostatistical Services. Innovex's biostatistics professionals assist
clients with all phases of drug development, including biostatistical
consulting, database design, data analysis and statistical reporting.
These professionals develop and review protocols, design appropriate
analysis plans and report formats to address the objectives of the study
protocol as well as the client's individual objectives. Working with
Innovex's programming staff, biostatisticians perform appropriate analyses
and produce tables, graphs and listings of results according to the
analysis plan.
- Pharmacoeconomic and Health Outcomes Programs. Innovex generates and
collects statistical data regarding health outcomes. Pharmacoeconomic
consulting relating to the cost-effectiveness and quality-of-life features
of a drug are playing an increasingly important role in drug approval
processes, particularly in the peri-launch period. Regulatory authorities
attach increasing importance to independent pharmacoeconomic analysis in
support of applications for drug approvals, and pharmaceutical and
biotechnology companies may therefore increasingly outsource
pharmacoeconomic and health outcomes analysis to third-party service
providers. In the United States, Innovex provides pharmacoeconomics and
health outcomes services in conjunction with the New England Medical
Center (Tufts University).
- Regulatory Affairs Services. Innovex provides regulatory product
registration services for pharmaceutical products in the United Kingdom,
the United States and major jurisdictions in Europe, including regulatory
strategy formulation, document preparation and liaison with regulatory
authorities. Innovex works closely with clients to devise regulatory
strategies and product development programs. Innovex's regulatory affairs
experts review existing published literature, assess the scientific
background of a product, assess the competitive and regulatory
environment, identify deficiencies and define the steps necessary to
obtain registration in the most expeditious manner. Through this service,
Innovex helps its clients determine the feasibility of developing a
particular product or product line.
- Computer-Assisted Applications. The leading international pharmaceutical
companies have committed substantial resources to developing technologies
for computer-assisted new drug and product license applications
("CANDA/CAPLA"). These technologies encompass a variety of systems at
varying stages of development. Innovex provides flexible integrated
systems that can deliver the component parts of drug applications in a
format that is consistent with client CANDA/CAPLA standards. For clients
without such standards (typically biotechnology companies), Innovex
specifies and delivers corporate databases designed to facilitate the
development of specific CANDA/CAPLA solutions. Innovex provides its
CANDA/CAPLA-related services in collaboration with specialist third-party
service providers.
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SALES AND MARKETING SERVICES
Innovex's largest business activity is the provision of sales and marketing
services to the pharmaceutical industry. Sales and marketing services comprise
contract sales services, disease management services and Novex Pharma. Innovex
believes it is currently the only pharmaceutical services company offering sales
and marketing services on an international basis, and that it therefore has a
competitive advantage insofar as it can promote its sales and marketing services
at a boardroom level with its clients.
Contract Sales Services. Innovex provides its contract sales services
primarily through the recruitment, training, management and deployment of
field-based sales representatives in project and syndicated teams that provide
information aimed at modifying the behaviour of prescribers, hospital
administrators, the pharmaceutical distribution chain and managed care
providers. Innovex offers a flexible range of contract sales services, from
full-time sales teams for particular products, and time slots in syndicated
sales teams (teams that promote a number of drugs for different clients), to
representatives provided on a contract-hire basis to supplement clients' own
sales teams. Innovex's contract sales teams form a highly skilled network of
professionals that afford clients substantial flexibility in selecting the
extent and costs of promoting products. Clients may select project teams or
slots in syndicated teams according to their preferences in targeting specified
physicians and geographic areas and the other products with which their products
are to be promoted. Through its electronic territory management system, Innovex
is making increasing use of information technology to enhance the speed,
effectiveness and accountability to clients of its contract sales activities in
the United Kingdom and in the United States. Innovex intends to expand this
capability throughout its syndicated sales teams in the United Kingdom and
internationally thereafter. See "-- Information Technology -- ETMS".
Innovex believes that its speed in mobilizing qualified and skilled sales
representatives and the flexibility of its arrangements for providing sales
representatives differentiate it from other companies providing similar services
to the pharmaceutical industry.
Contract sales services accounted for L38.7 million (or 46.5%) of Innovex's
net sales for the 1996 fiscal year. Innovex's contract sales services are most
developed in the United Kingdom; in the 1996 fiscal year, Innovex derived L23.5
million (or 60.9%) of its net sales from contract sales services from its U.K.
operations. Contract sales services are developing rapidly in the United States
and Germany. Net sales of Innovex's contract sales services in the United States
grew from L0.3 million in the 1995 fiscal year to L5.3 million in the 1996
fiscal year; net sales of Innovex's contract sales services in Germany grew from
L4.2 million in the 1995 fiscal year to L8.6 million in the 1996 fiscal year.
Innovex currently also offers contract sales services through its offices in The
Netherlands, Sweden and Spain and is seeking to develop this service through its
other European offices. Innovex believes that its market share has been
increasing in recent years and expects contract sales services to be a
significant area of future growth. In addition, Innovex's broad geographic
infrastructure positions it well as a strategic partner in offering
international co-promotion services to pharmaceutical and biotechnology
companies in preference to their co-promoting with their competitors.
Innovex believes that total expenditure by pharmaceutical and biotechnology
companies on sales and marketing activities is significantly higher than their
expenditure on clinical drug development. The market for outsourced contract
sales services in the pharmaceutical industry has been predominantly national in
nature and is most highly developed in the United Kingdom. Although there is a
relatively low level of market penetration in most other countries, the market
has been growing, particularly in the United States over the past year. Innovex
believes there is significant potential for future growth in the market for
contract sales services for the pharmaceutical and biotechnology industries, and
that it is well positioned by virtue of its international infrastructure and
strong reputation among clients.
Disease Management Services. Innovex provides a range of disease
management services to pharmaceutical companies aimed at modifying the behavior
of patients and physicians and accelerating the acceptance of drugs into
treatment guidelines and formularies.
Innovex began developing disease management services in the United Kingdom
in 1987 and launched these services in the United States in 1994. Innovex
believes that its commercial orientation, clinical and
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promotional expertise and international experience enable it to combine various
disease management activities into tailored programs satisfying specific client
needs in a wide range of geographic markets and therapeutic areas. Innovex
provides its disease management services primarily through teams of nurse
advisers who inform and educate patients and healthcare providers about disease
diagnosis, process and treatment, compliance in taking medication and diet,
exercise and lifestyle. Innovex's net sales from disease management services
were L9.1 million (or 11.0%) of Innovex's total net sales in the 1996 fiscal
year.
Innovex's disease management services are designed to accelerate or
increase the likelihood of the adoption of a client's drug by prescribers and
payers, to add value to a sponsoring pharmaceutical or biotechnology company's
product and to promote improved health outcomes by encouraging the product's
effective usage, thereby reducing total healthcare costs in the medium- to
long-term. Innovex's experience has been that patients and prescribers
frequently welcome independent information on drugs and treatments that these
nurse advisers can provide. Innovex's disease management services assist clients
with one or more of the following activities:
- Guideline Development. Innovex's disease management programs are
designed to provide health economic and outcomes information to clients to
enable the modification, and in some cases the creation, of guidelines for
the diagnosis and treatment of various diseases and to assist physicians
in their determination of the proper diagnosis or treatment of a
particular patient's condition.
- Physician Selection. Innovex maintains databases containing physician
profiles, which it uses to select those physicians most suitable for
participation in a client's proposed disease management project.
- Patient Selection. Innovex locates patients for whom a specified
treatment may be appropriate. Its healthcare professionals then assess
whether there is an opportunity to improve patient care by educating the
patient and the physician concerning the availability of alternative
treatments.
- Education and Behavior Modification. Innovex healthcare professionals
educate health practitioners about developments in medical practice. They
act on behalf of Innovex's clients to install best medical practice in
prescribing centers by, among other things, working with local committees
to adapt diagnosis and treatment guidelines for local use and training
prescribers, either directly or through training clinics.
Disease management services are at an early stage of development and are
currently developing most rapidly in the United Kingdom and the United States.
Innovex believes that this sector will grow rapidly as pharmaceutical and
biotechnology companies adapt to meet the challenges of a changing market,
particularly in therapeutic areas requiring high levels of patient counselling.
Innovex believes that its disease management services will continue to grow
through a broadening of Innovex services in this area. For example, Innovex is
establishing an information service in the United States for its healthcare
professionals to provide product and therapeutic area-specific information
regarding payer/managed care analysis, cost-effectiveness analysis,
reimbursement hotlines and payer advocacy. Furthermore, Innovex is developing
communications and information systems to run large simple clinical trials and
educational programs requiring rapid transmission of large volumes of clinical
data.
Some pharmaceutical companies are developing disease management services
in-house, seeking to coordinate their clinical research activities with their
sales and marketing efforts to maximize profitability from products over their
extended life cycles. Innovex believes that an increasing proportion of this
work may be outsourced, as pharmaceutical and biotechnology companies take
advantage of the independence of third-party service providers to enhance the
acceptability of such products to prescribers and healthcare administrators and
to improve the efficacy of their drugs. Innovex further believes that it is well
positioned to benefit from the outsourcing of disease management services.
Innovex also believes that opportunities exist for the development of the
disease management services industry both toward a broader service offering and
toward a wider customer base, including public healthcare providers and managed
care providers.
Novex Pharma. Novex Pharma, a wholly owned subsidiary of Innovex, is a
small U.K.-based pharmaceutical company. It serves three strategic purposes.
First, it acquires product licenses for niche products from certain major
pharmaceutical company clients in exchange for services provided by Innovex.
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Secondly, Novex Pharma provides contract marketing services for niche products
of certain smaller or emerging pharmaceutical company clients. Thirdly,
Innovex's sales representatives can be used to market products on behalf of
Novex Pharma, enabling Innovex to utilize its resources more efficiently.
Novex Pharma currently owns the product licenses for three products:
Fenopron(R) a non-steroid anti-inflammatory for rheumatoid arthritis and
osteo-arthritis; Haelan(R), a topical steroid for inflammatory skin conditions;
and Vividrin(R), a hay fever product. In addition, Novex Pharma holds the
distribution licenses for Progesic(R), a non-steroid anti-inflammatory for
rheumatoid arthritis and osteo-arthritis; and Ilosone(R), an anti-infective
product. Novex Pharma currently has contracts to market an additional 15
products for four clients. Most of Novex Pharma's activities are outsourced to
third-party suppliers, including other parts of Innovex, which enabled Novex
Pharma to achieve sales of approximately L4.2 million in the 1996 fiscal year
(of which approximately L0.7 million related to products for which Novex Pharma
owns the relevant product license) with only four employees.
Innovex believes that ownership of a pharmaceutical company provides
valuable exposure to and understanding of U.K. clients and potential clients for
Innovex's services. Novex Pharma is a member of the Association of the British
Pharmaceutical Industry ("ABPI"), the U.K. trade association for international
research-based pharmaceutical companies. Mr. Haigh, Innovex's Executive
Chairman, is a member of the Board of Management of the ABPI.
BUSINESS DEVELOPMENT
Innovex promotes outsourcing as a cost-effective strategic alternative to
the in-house provision of services and assists clients in developing outsourcing
strategies. These strategies involve the identification of critical capabilities
that should remain in-house and capabilities that may be more efficiently
outsourced. Innovex believes that no single competing service provider offers
the range of services provided by it. Innovex promotes itself as a distinctive
provider of such services on the basis of the speed with which it can mobilize
resources, the breadth and flexibility of services it offers, its innovative
solutions tailored to client needs, the quality training of its staff, its
commitment to continuous process improvement, the broad range of therapeutic
areas in which it operates, its international capability combined with its
knowledge of local markets and its financial resources and proven track record.
Innovex makes full use of information technology proactively to create
business development opportunities. Innovex has developed IBDIS, a proprietary
business development system, which Innovex's business development staff can use
to bring together client, project and marketing information, both proprietary
and publicly available and to share information among its operating units.
Innovex believes this ability provides a competitive advantage. See
"-- Information Technology -- IBDIS". Innovex also runs an extensive promotional
campaign in trade journals and publications.
Innovex's business development activities are conducted by approximately 50
business development professionals in the United Kingdom, the United States,
Germany, Sweden, The Netherlands, Italy, France and Spain, as well as by members
of Innovex's Board of Directors and senior management. Reflecting the highly
technical nature of Innovex's business, most of its business development staff
have technical or scientific backgrounds, and many are physicians or
pharmacists.
Innovex's business development staff are organized into national, regional
and international teams, reflecting the organization, purchasing arrangements
and budgetary authorities of Innovex's clients. Innovex's current geographical
focus is on the United Kingdom, the United States and Europe. In the United
Kingdom, Innovex has implemented a Strategic Business Unit structure to mirror
the senior management structure of its U.K. clients' operations, enabling
business development staff to develop close relationships with key decision
makers at both the executive and operational levels of these clients'
operations.
CLIENTS
Innovex provided services to over 250 clients in the 1996 fiscal year, and
has provided services to all of the 25 largest pharmaceutical companies in the
world as ranked by 1995 healthcare revenue. In the 1996 fiscal
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year, more than 80% of Innovex's net sales were generated by the 20 largest
pharmaceutical companies as ranked by 1995 healthcare revenue. Pharmaceutical
companies accounted for over 95% of Innovex's net sales in the 1996 fiscal year,
with biotechnology companies accounting for less than 5% of net sales.
In the 1996 fiscal year, two clients, both major international
pharmaceutical companies, accounted for approximately 11.5% and 11.4% of
Innovex's combined net sales. In the 1996, 1995 and 1994 fiscal years, Innovex's
top four clients accounted for approximately 33.6%, 27.7% and 26.4%,
respectively, of its combined net sales. Innovex's contracts are entered into
with different divisions and national operations within each client company and
usually involve different decision makers. For example, in the 1996 fiscal year,
Innovex's net sales from its top four clients were derived from more than 50
distinct projects spanning a wide range of service and geographic areas. Thus,
there is a reduced likelihood that Innovex would simultaneously lose all
contracts with any single client.
Innovex's contracts are typically of one year's duration, although clinical
research contracts may run for five years or longer. At June 30, 1996,
approximately 70% of Innovex's contracts were of a duration of up to one year,
and approximately 30% were of a duration of more than one year. Fee structures
are designed to suit the requirements of the particular project. Generally, fees
for larger clinical research projects are payable on the achievement of agreed
milestones, while fees for other contract research projects and sales and
marketing projects are typically priced on a days-worked basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Innovex -- Overview". Innovex's contracts also provide for the
payment of additional fees in the event of changes in the scope, nature,
duration or conditions of the project. Innovex's fee structures are designed to
ensure that projects are cash-flow neutral or positive at all stages.
Innovex's days-worked contracts generally may be terminated by three
months' notice with or without cause. Fixed-price contracts typically provide a
three-month period for termination arrangements to be agreed. Innovex is
typically entitled to compensation in the event a project is terminated or
delayed. Clients terminate or delay clinical research contracts for a variety of
reasons including, among others, the failure of products being tested to satisfy
safety requirements, unexpected or undesirable clinical results of the product,
the client's decision to forego a particular study, insufficient patient
enrollment or investigator recruitment or production problems resulting in
shortages of the drug.
FUTURE CONTRACTED REVENUE
Future contracted revenue comprises revenue to be earned in the future from
projects where there is either a signed contract or a letter of intent under
which work has commenced. Future contracted revenue at September 30, 1996 was
approximately L150 million, compared with approximately L100 million at March
31, 1996 and approximately L50 million at June 30, 1995. Innovex's future
contracted revenue is subject to seasonal variation. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Innovex -- Overview".
Clinical studies under contracts included in future contracted revenue may
be subject to termination or delay. See "-- Clients". Innovex believes that its
future contracted revenue as of any date is not necessarily indicative of
results for any given future period. Innovex believes that pharmaceutical
companies now apply more stringent criteria to the decision to proceed with
clinical trials. Although clinical research contracts typically require payment
of certain fees for winding down a study and, in some cases, a termination fee,
the loss or delay of a large contract or of multiple contracts could have a
material adverse effect on Innovex.
RECRUITMENT AND TRAINING OF STAFF
Innovex provides project teams with specialist knowledge and expertise to
enable its clients to accelerate the speed to market, the commercial acceptance
and the market penetration of their pharmaceutical products, with the aim of
maximizing their return on investment. Innovex believes that the training and
management of its staff, supported by advanced information technology, is key to
achieving its objective. To assist it in its recruitment efforts, Innovex has
established contractual relationships with specialist healthcare recruitment
agencies in the United Kingdom, the United States and Europe. Innovex also
provides extensive training and development programs for employees engaged in
each of its businesses. Innovex's training programs generally
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involve a core training program for new employees upon joining Innovex, followed
by further development courses.
Following a core international clinical training program, all Innovex
clinical staff receive training designed to develop technical skills and to
complement specific disease state and clinical study training provided by
sponsor companies. Further project-specific training is provided for all
clinical projects. All project training courses involve standard operating
procedures training covering Good Clinical Practice and Innovex procedures,
health outcomes training and field supervision. Core training courses in sales
and marketing services cover initial training with respect to products, selling
skills and client information necessary to operate as medical representatives.
Sales representatives receive further development training with Innovex with a
view to obtaining accreditation by the relevant trade association.
The quality of Innovex's training programs has been acknowledged by several
of its clients, who send their own employees to Innovex for training and, in one
case, have licensed an Innovex training program for use as their own training
program. In addition, where Innovex has provided a team of employees to a client
in connection with its provision of sales and marketing services, that team is
often employed directly by the client upon the completion of the project to
which the team was assigned. The U.K. Government has awarded Innovex its
"Investors in People" award in acknowledgement of Innovex's achievements in
employee training and development.
INFORMATION TECHNOLOGY
Innovex is committed to the use of advanced information technology to
enable it to accelerate the completion of its projects, to track the progress of
projects, to increase productivity, particularly in project initiation, data
capture and data processing, and to broaden and improve its service to clients.
Innovex also uses information technology to identify opportunities for proactive
business development and to improve its efficiency and working processes.
Innovex has developed an extensive international information technology
infrastructure primarily through the use of leading commercial software packages
and, in a non-exclusive alliance with Cap Gemini Sogeti, an international IT
services group, through focusing proprietary development efforts on areas
inadequately served by existing commercial software packages.
The use of information technology is most important in Innovex's contract
research services, particularly in data management, project management and
investigator and patient recruitment. Innovex is increasing its use of
information technology in sales and marketing services, especially in electronic
territory management systems. Innovex's principal software systems include:
- IPCAS -- An international project costing and management accounting
system that is used primarily in contract research services to provide
accurate and up-to-date resource utilization and costing information.
IPCAS was introduced in the United Kingdom and Germany in 1995 and is
currently being implemented in other European locations. Innovex plans to
complete the international implementation of IPCAS and the integration of
IPCAS with its other clinical information technology systems during 1997.
- InnTrax -- A proprietary project tracking system that provides
comprehensive, client-configurable tracking for projects. InnTrax was
developed by Innovex in the United States, where it was implemented in
1995, and was introduced in Europe in 1996. Innovex is currently
developing a version for multinational use, which is expected to be fully
implemented in mid-1997.
- Clinical DBMS -- In the United States, Innovex is currently piloting
Oracle Clinical, a database management system for processing clinical
data, to replace ClinDM. Completion of the roll-out in Germany and the
United Kingdom is planned for 1997.
- Drug Safety Reporting -- This project involves the introduction of
ClinTrace, an international system for tracking and reporting serious
adverse events in contract research projects.
- IBDIS -- Innovex's international business development information system
allows it to make maximum use of its unique range of client contacts
through the international sharing of client information,
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project histories and market information, both publicly available and
proprietary. IBDIS facilitates proactive development of business
opportunities by bringing together both internal and external information
regarding clients for access by Innovex's business development staff.
Innovex is currently undertaking a pilot of this system in the United
Kingdom and is planning to fully implement IBDIS internationally by the
end of 1996.
- ETMS -- Innovex's electronic territory management system is a planning,
targeting, reporting, analysis and communications tool incorporating a
physician database for managing sales activity. ETMS enhances Innovex's
marketing efforts by providing clients with information concerning Innovex
representatives' sales calls, enabling clients to assess their
performance. Other benefits of the system include improved sales
performance through better focused and more knowledgeable sales
representatives, and the development of physician profiles. During 1996,
Innovex introduced ETMS in most of its sales services teams in the United
States and began a pilot of a customized commercial software system with
one of its U.K. syndicated sales teams. The pilot is expected to be
completed by the end of December, 1996, with a roll-out to other
syndicated sales teams in the United Kingdom and internationally
thereafter. Innovex is also exploring opportunities to extend the
application of ETMS to Innovex's contract research and disease management
services.
- Project Inception -- A rapid project start-up system designed to enhance
rapid progress through the scoping and start-up phases of international
clinical research projects. Project Inception is being introduced in three
phases, with the final phase scheduled for completion in mid-1997.
Innovex has approximately 50 staff dedicated to information technology and
system maintenance and development. Innovex's information technology
infrastructure includes local area networks in each office connected by a wide
area network to permit the transmission of data and information between all
offices and users.
THE REORGANIZATION
On April 3, 1996, Innovex Limited and the former holding company of the
Innovex group, Innovex Holdings Limited, completed the April Reorganization in
order to enable the Principal Shareholder to realize part of its investment in
Innovex and thereby to reduce the Principal Shareholder's share overhang in
contemplation of an initial public offering by Innovex. The April Reorganization
involved the installation of Innovex Limited as the holding company of the
Innovex group, the sale by the Principal Shareholder of a 24.7% interest in
Innovex to existing venture capital investors and the payment of a special
dividend to the Principal Shareholder, as more fully described below.
CREATION OF A NEW HOLDING COMPANY
Prior to the April Reorganization, Innovex Limited conducted no business
activities, had no material assets or liabilities, and had no relationship with
Innovex Holdings Limited beyond the common ownership by certain 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 Innovex Limited 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%).
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THE EXCHANGE AGREEMENT
Pursuant to an Exchange Agreement, dated April 3, 1996 (the "Exchange
Agreement"), Innovex Limited agreed to purchase the entire issued share capital
of Innovex Holdings Limited from its shareholders in exchange for a combination
of newly issued Ordinary Shares of 0.1 pence each, Cumulative Participating
Preferred Ordinary Shares of 0.1 pence each (the "Preferred Shares"), 6.03125%
Vendor Guaranteed Loan Notes due on or about October 3, 1996 (the "Loan Notes")
and cash. In exchange for its holdings in Innovex Holdings Limited, the
Principal Shareholder received 67,994,225 newly issued Ordinary Shares of
Innovex Limited, L17.0 million of Innovex Limited's Loan Notes and L1.6 million
of cash. In exchange for their respective holdings, the Investors received
14,285,720 newly issued Preferred Shares, and the Management Investors received
4,637,080 Ordinary Shares.
INVESTMENT AGREEMENT
To enable the Principal Shareholder to realize a portion of its investment
in Innovex, Innovex Limited entered into an Investment Agreement, dated April 3,
1996 (the "Investment Agreement"), with, Innovex Holdings Limited, the Principal
Investor and certain of the Management Investors. Pursuant to the Investment
Agreement, Innovex Limited issued 28,533,345 additional Preferred Shares, 11
million newly issued 7.5% Cumulative Redeemable Preference Shares of 1.0 pence
each (the "Preference Shares") and L6.9 million aggregate principal amount of
Loan Stock to the Investors in exchange for an aggregate consideration of
L18,190,444.93. The Preference Shares are redeemable by Innovex Limited on or
before March 31, 2004. The Loan Stock is repayable in four annual installments
commencing March 31, 2000. A portion of the proceeds of this issuance was used
by Innovex Limited to pay a cash dividend of L5.9 million to the Principal
Shareholder and to make a special pension contribution of L1.5 million to the
pension fund of Barrie S. Haigh.
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 Innovex continued to be owned entirely by the Principal Shareholder
(approximately 94%) and the Management Investors (approximately 6%).
As part of the April Reorganization, a number of security interests in
Innovex, some of which were in place prior to April 3, 1996, were created,
released or reordered. As part of these arrangements, Innovex entered into a
Composite Guarantee and Debenture, dated April 3, 1996 (the "Debenture"),
pursuant to which it created a security interest in certain of its assets in
favor of HSBC, as trustee for the holders of Loan Stock. In connection
therewith, the holders of Loan Stock entered into an Intercreditor Agreement,
also dated April 3, 1996, pursuant to which they agreed to subordinate their
rights under the Debenture to Lloyds Bank, as creditor under the Credit
Facility.
As part of the Exchange, it is anticipated that Quintiles will purchase the
Preference Shares and advance funds to Innovex in an amount sufficient to redeem
the Loan Stock.
REGULATION
The development, testing and marketing of new pharmaceutical products is
highly regulated by government agencies in the United Kingdom, the United
States, Europe and elsewhere. The purpose of such regulation is to ensure that
only those products that have been proven safe and effective are made available
to the public and are marketed in a manner that ensures that they are prescribed
for the approved indication.
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STAGES IN DRUG DEVELOPMENT
Before a drug may be marketed in the United Kingdom, the United States or
Europe, the drug must undergo extensive testing and regulatory review in order
to determine that it is safe and effective. The stages of this development
process are as follows:
Pre-clinical Research (2 to 4 years). Laboratory and animal studies
to establish the toxicity of the drug and to detect any potential to cause
birth defects or cancer. If the results warrant continuing development of
the drug, the manufacturer will file an investigational new drug
application, upon which the applicable government agency may grant
permission to begin human trials.
Phase I Clinical Trials (6 months to 1 year). Basic safety and
pharmacology testing in 100 to 200 healthy volunteers, including studies to
determine how the drug works, how it is affected by other drugs, where it
goes in the body, how long it remains active, and how it is broken down and
eliminated from the body.
Phase II Clinical Trials (1 to 2 years). Basic efficacy and
dose-range testing in 10 to 100 volunteer patients to confirm that the drug
works as expected, to help determine the most effective dose and to provide
additional safety data.
Phase III Clinical Trials (2 to 3 years). Efficacy and safety studies
in hundreds or thousands of patients at many investigational sites
(hospitals and clinics). Trials can be placebo-controlled, in which the
drug is compared with a "sugar pill", or studies comparing the drug with
one or more drugs with established safety and efficacy profiles in the same
therapeutic category.
Treatment Investigational New Drug (May span late Phase II, Phase III
and Regulatory Review). When the results from Phase II or Phase III show
special promise in the treatment of a serious condition for which existing
therapeutic options are limited or of minimal value, regulatory authorities
may allow the manufacturer to make the drug available to a larger number of
patients. Although less scientifically rigorous than a controlled clinical
trial, this procedure may enroll, and collect a substantial amount of data
from, tens of thousands of patients.
New Drug Application Preparation and Submission. Upon completion of
Phase III trials, the sponsor assembles the statistically analyzed data
from all phases of development into a new drug application. Although the
size and complexity of new drug applications vary from country to country,
they can comprise 100,000 pages or more, particularly in the United States.
Review and Approval by Governmental Agencies (1 to 1.5
years). Regulatory authorities review data from all phases of development
to confirm that the sponsor has complied with regulations and that the drug
is safe and effective for the indication under study.
Post-Marketing Surveillance and Phase IV Studies. Regulations
frequently require the sponsor to collect and periodically report to
regulatory authorities additional safety and efficacy data on the drug for
as long as the manufacturer markets the drug (post-marketing surveillance).
Additional studies (Phase IV) may be undertaken after initial approval to
find new uses for the drug, to test new dosage formulations, or to confirm
selected non-clinical benefits such as increased cost-effectiveness or
improved quality of life.
REGULATION OF CONDUCT OF CLINICAL TRIALS
Regulatory authorities have promulgated regulations and guidelines that
pertain to applications to initiate trials of products, to the approval and
conduct of studies, to report and record retention, to informed consent, to
applications for the approval of drugs and to post-marketing requirements.
Pursuant to these regulations, service providers that assume the obligations of
a drug sponsor are required to comply with applicable regulations and are
subject to regulatory action for failure to comply with such regulations. In the
United Kingdom, the United States and Europe, the trend has been in the
direction of increased regulation by the applicable regulatory authority.
Innovex believes that many pharmaceutical companies do not have the staff
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and/or the available expertise to comply with all of the regulations and
standards and that this has contributed and will continue to contribute to the
growth of third-party service providers.
The services provided by Innovex are ultimately subject to regulation by
the Medicines Control Agency in the United Kingdom, by the Bundesinstitut fur
Arzneimittel und Medizinprodukte in Germany, by the Food and Drug Administration
in the United States, and by comparable agencies in other countries, although
the level of applicable regulation in other countries is generally less
comprehensive than regulation in the United Kingdom, Germany and the United
States. In addition, Innovex's activities in Europe are affected by the
Committee for Proprietary Medicinal Products of the European Union, and its
successor, the European Medicines Evaluation Agency, which is based in London,
England. Innovex is obligated to comply with regulations governing such
activities as selecting qualified investigators, obtaining required forms from
investigators, certifying that patient informed consent is obtained, monitoring
the validity and accuracy of data, verifying drug accountability and instructing
investigators to maintain records and reports. Innovex must also retain records
for each study for specified periods for inspection by the study sponsor and by
the applicable regulatory authority during audits. If such audits document that
Innovex has failed to comply adequately with applicable regulations and
guidelines, it could have a material adverse effect on Innovex. In addition,
Innovex's failure to comply with applicable regulations and guidelines could
result in termination of ongoing research or the disqualification of data,
either of which could also have a material adverse effect on Innovex.
REGULATION OF SALES AND MARKETING SERVICES
Innovex's sales and marketing services are subject to detailed and
comprehensive regulation in each geographic market in which it operates. Such
regulation relates, among other things, to the qualifications of sales
representatives and the use of healthcare professionals in sales functions. For
example, in the United Kingdom, Innovex complies with the ABPI Code of Practice
for the Pharmaceutical Industry, which prescribes, among other things, an
examination that must be passed by sales representatives within two years of
their taking up employment, and which prevents the employment of healthcare
professionals as sales representatives. Similar guidelines are in effect in
other countries where Innovex offers sales and marketing services.
DEPENDENCE UPON AND EFFECT OF REGULATION
Innovex's business has in part developed out of and depends upon
comprehensive regulation of drug development and promotion. In each of the
countries in which Innovex conducts a material amount of business (the United
Kingdom, the United States and Germany) the trend has been toward continued or
increased regulation. In the United Kingdom and Europe, relevant regulatory
authorities are moving gradually toward the development of common standards for
clinical testing of new drugs, leading to changes in the various requirements
imposed by each country. In addition, drug prices in the United Kingdom are
subject to stringent price controls imposed by the U.K. government, which can
limit the return on investment from a pharmaceutical company's drugs. Changes in
regulation, including the mandatory substitution of generic drugs for patented
drugs, a relaxation of regulatory requirements or the introduction of simplified
drug approval procedures, could materially and adversely affect the demand for
the services offered by Innovex. In addition, failure on the part of Innovex to
comply with applicable regulations could result in the termination of ongoing
contract research, disease management or sales and marketing projects or the
disqualification of data for submission to regulatory authorities, either of
which could have a material adverse effect on Innovex.
POTENTIAL LIABILITIES AND INSURANCE
Innovex's contract research services involve the testing of drugs on human
volunteers pursuant to a study protocol. Clinical research involves a risk of
liability for personal injury or death to patients from unforeseen side effects
or improper administration of the study drug. Many of the study patients are at
risk of further illness or death as a result of factors other than their
participation in a trial. As a result, Innovex could potentially be liable for
bodily injury, death, pain and suffering, loss of consortium, other personal
injury claims and medical expenses arising in connection with the clinical
trials it manages or monitors. To date, Innovex has not received any claims
resulting from the testing of drugs.
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Innovex believes that the risk of liability to patients in clinical trials
is mitigated by various regulatory requirements, including the role of
institutional review boards and the need to obtain informed consent from
patients. An institutional review board is an independent committee that
includes both medical and non-medical personnel and is obliged to protect the
interests of patients enrolled in the trial. In each country in which Innovex
operates, regulatory authorities require each human clinical trial to be
reviewed and approved by an institutional review board at each study site. After
the trial begins, the institutional review board monitors the protocol and
measures designed to protect patients, such as the requirement to obtain
informed consent.
To reduce its potential liability, Innovex's standard-form contracts
contain indemnity provisions. These indemnities generally do not protect Innovex
from its own negligence, breach of statutory duty or breach of contract.
Moreover, these indemnities are contractual arrangements that are subject to
negotiation with individual clients, and the terms and scope of such indemnities
vary among clients and projects, although deviations from these indemnity
provisions must be approved by a senior Innovex executive. Since the performance
of these indemnities is not secured, Innovex bears the risk that an indemnifying
party may not be able to fulfill its obligations. In addition, Innovex seeks to
negotiate contractual provisions limiting its potential liability and to exclude
all liability in respect of the drug or consequential damages. Moreover, Innovex
maintains $10 million of errors and omissions insurance coverage. Innovex also,
in some circumstances in the ordinary course of its business, agrees to
indemnify its clients against liabilities arising from Innovex's negligence or
breach of contract.
Novex Pharma owns the product licenses for each of Fenopron(R), Haelan(R),
and Vividrin(R) and, accordingly, is exposed to potential liabilities for death,
personal injury or other damage caused by these products. Novex Pharma retains
product liability insurance cover substantially in excess of its gross turnover
from products owned by it, with a maximum recovery of approximately L1 million,
with a maximum recovery of L250,000 for any one claim. Novex Pharma also
maintains insurance cover against product recall liability to cover up to L1
million in annual turnover.
Innovex believes that it is not exposed to any significant potential
personal injury or other liability in respect of products marketed but not owned
by it, as any such liability would generally be borne by the sponsor of the
drug. Novex Pharma therefore does not maintain insurance for product liability
claims or product recall liability in respect of such products when it acts as
distributor. Agreements between Novex Pharma and a drug manufacturer typically
contain provisions indemnifying Novex Pharma for losses arising out of such
claims, although the performance by manufacturers of their obligations is not
secured.
INTELLECTUAL PROPERTY
Innovex has registered its trademark in the United Kingdom, the United
States, Germany and in certain other European countries. Innovex also maintains
various product licenses and trademarks in the United Kingdom relating to the
Novex Pharma business, certain of which are delimited in scope. In addition,
Innovex has developed certain computer software and related methodologies that
it has sought to protect through a combination of contracts, copyrights and
trade secrets. However, Innovex does not consider that the loss of exclusive
rights to any of this software or methodology would be material to its business.
Innovex believes that factors such as its ability to attract and retain
highly-skilled professional and technical employees and its project management
skills and experience are significantly more important to its business than are
any intellectual property rights developed by it.
EMPLOYEES
At June 30, 1996, Innovex had 2,944 employees, of whom 24 were physicians
or pharmaceutical consultants, 114 held Ph.D.s, 435 held other scientific
degrees and 264 were qualified nurses. Of Innovex's employees, 1,381, 1,056 and
376 were located in the United Kingdom, the United States and Germany,
respectively, at that date.
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FACILITIES
Innovex leases most of its facilities, including its headquarters in
Marlow, England, where it leases approximately 38,658 square feet under leases
that mature in 2013. Other leased facilities include office space in Freiburg
and Mannheim (Germany), Yardley (Pennsylvania), Parsippany (New Jersey), Lenexa
(Kansas), Uppsala (Sweden), Rotterdam (The Netherlands), Paris (France), Milan
(Italy) and Barcelona and Madrid (Spain). Innovex also owns Phase I clinics in
Lenexa (Kansas) and Freiburg (Germany).
Innovex believes that the space owned and leased by it is adequate for its
current operations although it is currently investigating the expansion of its
operations and consequent facility requirements. The terms of its leases
generally reflect market rates in their respective geographic areas. The
expiration dates of Innovex's leases are generally short-term except for the
Phase I space leased in Freiburg (Germany) which runs until March 2049.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF INNOVEX
The following management's discussion and analysis should be read in
conjunction with the Innovex Combined Financial Statements and the Selected
Financial Data of Innovex, which appear elsewhere in this Proxy Statement. The
Innovex Combined Financial Statements have been prepared in accordance with U.K.
GAAP, which differ in certain material respects from U.S. GAAP. See Note 27 of
Notes to the Innovex Combined Financial Statements for a summary of the
principal differences between U.K. GAAP and U.S. GAAP as they relate to Innovex.
OVERVIEW
Innovex is a leading international C.P.O., which provides a wide range of
contract research and sales and marketing services to the pharmaceutical
industry. Innovex focuses primarily on the period extending from two years
before to two years after the receipt of marketing approval for a drug (the
"peri-launch" period). This period of drug development attracts the highest
level of expenditure and the most intense boardroom focus by drug sponsors.
Innovex typically provides contract research services in the early peri-launch
period and sales and marketing services thereafter. Founded in 1979, Innovex has
experienced consistent growth since its inception, which has been particularly
rapid over recent years.
Innovex achieved net sales of L83.1 million, L51.8 million and L40.7
million in the 1996, 1995 and 1994 fiscal years, respectively, representing
year-on-year increases of 60.6% and 27.0%. This trend of net sales growth has
been experienced in all service areas and geographic markets in which Innovex
operates, especially in the United States, where Innovex's net sales grew from
L5.0 million in the 1994 fiscal year to L15.3 million in the 1996 fiscal year.
Operating income was L3.7 million, L2.9 million and L2.7 million in the 1996,
1995 and 1994 fiscal years, respectively, representing year-on-year increases of
24.5% and 9.9%, and resulting in operating income as a percentage of net sales
of 4.4%, 5.7% and 6.6%, respectively.
This growth has been achieved both through organic expansion and through
acquisitions. In 1993, Innovex acquired the Clinical Research Foundation group,
a contract research organization with offices in Freiburg (Germany), Lenexa
(Kansas) and London (England), from Boehringer Ingelheim. In 1994, Innovex
acquired Galenus, a contract research organization based in Uppsala (Sweden). In
1996, Innovex acquired Eminent, a Spanish contract sales services organization
based in Madrid and Barcelona (Spain). The acquisition of the Clinical Research
Foundation group, which significantly increased the scale of Innovex's
operations, enabled Innovex to operate as a full service C.P.O. in its main
geographic markets. The Galenus acquisition established Innovex's operations in
the Nordic region. The acquisition of Eminent forms part of Innovex's plan to
extend and expand its sales and marketing services throughout Europe. Since
1993, Innovex has established operations in a number of European countries and
expanded its U.S. operations. Innovex is headquartered in Marlow (England) and
has offices in Barcelona (Spain), Freiburg (Germany), Lenexa (Kansas), Madrid
(Spain), Mannheim (Germany), Milan (Italy), Paris (France), Parsippany (New
Jersey), Rotterdam (The Netherlands), Uppsala (Sweden) and Yardley
(Pennsylvania).
Operating income for the 1996 fiscal year was affected by L1.5 million in
non-recurring costs associated with the April Reorganization. In association
with the April Reorganization, Innovex also paid a dividend of L5.9 million to
the Principal Shareholder and made a special contribution of L1.5 million into
the pension fund of Barrie S. Haigh. See "CERTAIN INFORMATION CONCERNING
INNOVEX -- The Reorganization".
Net sales represent the amounts (excluding value added or similar taxes)
derived principally from the provision of services to clients. Innovex does not
include pass through costs, such as investigators' fees, incurred on behalf of,
and recharged directly to, clients as part of net sales. Net sales are
recognized in Innovex's income statement on a percentage of completion basis.
Generally, fees for larger clinical research projects are payable on the
achievement of agreed milestones, while fees for other contract research
projects and sales and marketing projects are typically priced on a days-worked
basis.
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Innovex's quarterly and annual operating results have been and are expected
to continue to be subject to periodic variations, as Innovex typically receives
its highest volume of new orders in the second half of its fiscal year. Such
variations also depend on factors such as the timing of the initiation, progress
and completion of significant projects, contract terminations, exchange rate
fluctuations, the timing of recruitment of staff to support increasing levels of
activities, the opening of new offices, changes in the mix of services offered,
start up costs incurred in connection with the introduction of new services and
the number of working days in any period. Because a high percentage of Innovex's
operating costs are relatively fixed in the short term, variations in the
initiation, completion, termination or delay of contracts or progress of
projects can cause quarterly operating results to vary materially.
Innovex calculates its future contracted revenue monthly. Future contracted
revenue consists of revenue to be earned in the future from projects where there
is either a signed contract or a letter of intent under which work has
commenced. At September 30, 1996, future contracted revenue was approximately
L150 million, compared with approximately L100 million at June 30, 1996 and
approximately L50 million at June 30, 1995. At March 31, 1996, future contracted
revenue was approximately L100 million, or approximately 120% of Innovex's net
sales in the 1996 fiscal year. Future contracted revenue as of any date,
however, is not necessarily indicative of results for any given future period
and is, and is expected to continue to be, subject to periodic variations. See
"CERTAIN INFORMATION CONCERNING INNOVEX -- Future Contracted Revenue".
Innovex's Combined Financial Statements are denominated in pounds sterling,
and changes in the exchange rate between the pound sterling and other currencies
(principally the U.S. dollar and the Deutschemark) will affect the translation
of each subsidiary's financial results into pounds sterling for purposes of
Innovex's consolidated financial results, and will also affect the pound
sterling value of any amounts distributed to Innovex Limited by its
subsidiaries. Such changes may also affect Innovex's balance sheet, and changes
in assets and liabilities resulting from exchange-rate movements may result in
foreign currency gains and losses being recorded. In the 1996, 1995 and 1994
fiscal years, Innovex had foreign currency gains/(losses) of L0.5 million,
L(0.3) million and L0.2 million, respectively.
Innovex conducts operations on an international basis and its results of
operations may be affected by differential tax rates in the countries in which
its earnings are recorded. Because Innovex's effective tax rate has depended and
will continue to depend on the geographic distribution of its earnings among
jurisdictions with varying tax rates, Innovex's results of operations will be
affected by changes in the tax rates of the various jurisdictions within which
it operates. In particular, as the geographic mix of Innovex's results of
operations among various tax jurisdictions changes, its effective tax rate may
vary significantly from period to period. See Note 8 of Notes to the Innovex
Combined Financial Statements.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement data and operating data as a percentage of net sales. Net sales
exclude pass through costs, which are costs, such as investigators' fees,
incurred on behalf of, and recharged directly to, clients. See Note 1 of Notes
to the Innovex Combined Financial Statements.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
(%, EXCEPT NUMBERS OF EMPLOYEES)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Contract research.................................. 45.9 40.4 37.4 40.7 33.5
Sales and marketing................................ 54.1 59.6 62.6 59.3 66.5
----- ----- ----- ----- -----
Net sales(1)....................................... 100.0 100.0 100.0 100.0 100.0
Cost of finished goods sold........................ (7.0) (3.4) (2.5) (3.0) (1.0)
Personnel costs.................................... (52.8) (57.8) (60.2) (61.5) (63.4)
Depreciation and amortization...................... (6.4) (6.3) (6.2) (6.3) (5.1)
Other operating expenses(2)........................ (27.2) (26.8) (23.0) (26.0) (23.2)
Non-recurring costs relating to
reorganization(3)................................ -- -- (1.9) -- --
Special pension contribution(4).................... -- -- (1.8) -- --
----- ----- ----- ----- -----
Operating Income................................... 6.6 5.7 4.4 3.2 7.3
OPERATING DATA
Average number of employees........................ 904 1,172 1,942 1,497 2,868
</TABLE>
- ---------------
(1) Net sales and operating income for the 1994 fiscal year include
approximately L10.7 million and L0.4 million of net sales and operating
income, respectively, attributable to businesses acquired during the year,
principally the Clinical Research Foundation group.
(2) Other operating expenses primarily include marketing and business
development costs, office running costs and motor vehicle and other travel
expenditure.
(3) Non-recurring costs relating to reorganization are costs incurred in
connection with the April Reorganization.
(4) Special pension contribution represents a special contribution to the
pension fund of Barrie S. Haigh paid in association with the April
Reorganization.
The following table sets forth, for the periods indicated, net sales data
by location of client:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
-------------------------------------------------- --------------------------------
1994 1995 1996 1995 1996
-------------- -------------- -------------- -------------- --------------
(L) (%) (L) (%) (L) (%) (L) (%) (L) (%)
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom.............. 26,960 66.2 31,265 60.4 44.304 53.3 9,438 59.6 14,821 44.2
United States............... 6,258 15.3 7,160 13.8 16,286 19.6 2,247 14.2 11,494 34.3
Germany..................... 5,140 12.6 7,350 14.2 11,341 13.6 2,941 18.6 4,581 13.7
Rest of Europe.............. 2,386 5.9 5,983 11.6 11,175 13.5 1,216 7.6 2,609 7.8
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total.............. 40,744 100.0% 51,758 100.0% 83,106 100.0% 15,842 100.0% 33,505 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Results of operations for the three-month periods ended June 30, 1996 and 1995
Net Sales. Net sales were L33.5 million in the first quarter of the 1997
fiscal year, compared with L15.8 million in the first quarter of the 1996 fiscal
year, representing an increase of 111.5%. The increase resulted from increased
net sales for each of contract research and sales and marketing services and
from increased net sales to clients located in each of Innovex's three main
markets, the United Kingdom, the United States and Germany, as well as in the
rest of Europe. Innovex's three largest clients accounted for 18.3%, 12.7% and
45
<PAGE> 51
11.5% of net sales in the first quarter of the 1997 fiscal year; the same
clients accounted for 6.2%, 4.7% and 8.0% of net sales in the first quarter of
the 1996 fiscal year, respectively.
Contract research services generated net sales of L11.2 million in the
first quarter of the 1997 fiscal year, compared with L6.4 million in the first
quarter of the 1996 fiscal year, representing an increase of 74.3%. The increase
was primarily due to higher levels of net sales from international clinical
projects, which increased from L0.8 million to L4.4 million. Innovex believes
that this increase reflects the trend toward greater outsourcing of clinical
research projects undertaken to pursue regulatory approvals in multiple
jurisdictions simultaneously.
Sales and marketing services generated net sales of L22.3 million in the
first quarter of the 1997 fiscal year, compared with L9.4 million in the first
quarter of the 1996 fiscal year, representing an increase of 137.1%. The
increase was primarily due to growth in net sales in the United States, where
net sales from contract sales projects increased from L0.1 million to L8.1
million, as well as continued growth in the United Kingdom and Germany. The
increase in total net sales from sales and marketing services in the U.S.
reflected the significant contract sales projects won by Innovex in the United
States following introduction of such services in that market.
Cost of Finished Goods Sold. Cost of finished goods sold represents the
purchase price and distribution and related costs of pharmaceutical products
supplied by Novex Pharma. Cost of finished goods sold was L0.4 million in the
first quarter of the 1997 fiscal year, compared with L0.5 million in the first
quarter of the 1996 fiscal year, representing a decrease of 30.1%. The level of
these costs in any fiscal period is generally proportional to the sales of drugs
by Novex Pharma in that period.
Personnel Costs. Personnel costs, the largest component of operating
expenses, were L21.2 million in the first quarter of the 1997 fiscal year,
compared with L9.7 million in the first quarter of the 1996 fiscal year,
representing an increase of 117.8%. As a percentage of net sales, personnel
costs were 63.3% in the first quarter of the 1997 fiscal year and 61.5% in the
first quarter of the 1996 fiscal year. The increase was primarily attributable
to the increasing proportion of net sales from sales and marketing services,
which tend to be more labor-intensive than contract research services. Personnel
costs in the first quarter of the 1996 fiscal year include L0.1 million of start
up costs.
Depreciation and Amortization. Depreciation and amortization amounted to
L1.7 million in the first quarter of the 1997 fiscal year, compared with L1.0
million in the first quarter of the 1996 fiscal year, representing an increase
of 71.8%. As a percentage of net sales, depreciation and amortization amounted
to 5.1% in the first quarter of the 1997 fiscal year and 6.3% in the first
quarter of the 1996 fiscal year. The increase in the level of depreciation and
amortization was primarily due to the increase in the size of Innovex's motor
vehicle fleet in the United Kingdom, which accompanied the increase in the
number of employees, to investment in information technology, and to increased
amortization of license rights for new products acquired by Novex Pharma.
Other Operating Expenses. Other operating expenses primarily include
marketing and business development costs, office running costs and motor vehicle
and other travel expenditure. Other operating expenses were L7.8 million in the
first quarter of the 1997 fiscal year, compared with L4.1 million in the first
quarter of the 1996 fiscal year, representing an increase of 88.4%. As a
percentage of net sales, other operating expenses were 23.2% in the first
quarter of the 1997 fiscal year and 26.0% in the first quarter of the 1996
fiscal year. The reduction in other operating expenses as a percentage of net
sales principally reflects higher levels of net sales, the effects of changes in
the sales mix, economies of scale and systems and process improvements.
Operating Income. Operating income was L2.4 million in the first quarter
of the 1997 fiscal year, compared with L0.5 million in the first quarter of the
1996 fiscal year. As a percentage of net sales, total operating income was 7.3%
in the first quarter of the 1997 fiscal year, compared with 3.2% in the first
quarter of the 1996 fiscal year. The increase in the level of operating income
as a percentage of net sales principally reflects higher levels of net sales,
the effects of changes in the sales mix, economies of scale and systems and
process improvements. Innovex's operating income for an interim period is not
necessarily indicative of full-year results. Operating results have been subject
to periodic variations as Innovex typically receives its highest
46
<PAGE> 52
volume of new orders in the second half of its fiscal year while operating costs
tend to be relatively fixed in the short term. See "-- Overview".
Other Income and Expenses. Other income and expenses comprise financial
income and expenses. Net financial expenses were L0.8 million in the first
quarter of the 1997 fiscal year, compared with L0.5 million in the first quarter
of the 1996 fiscal year, representing an increase of 40.0%. As a percentage of
net sales, net financial expenses were 2.3% in the first quarter of the 1997
fiscal year and 3.4% in the first quarter of the 1996 fiscal year. The increase
was primarily due to additional net financial expenses of L0.3 million on debt
incurred in connection with the April Reorganization.
Income Taxes. Income taxes were L0.7 million in the first quarter of the
1997 fiscal year, compared with L0.13 million in the first quarter of the 1996
fiscal year. As a percentage of net sales, income taxes were 1.8% in the first
quarter of the 1997 fiscal year and 0.2% in the first quarter of the 1996 fiscal
year. The increase was primarily due to the increase in operating income.
Innovex's effective tax rate was 36.7% in the first quarter of the 1997 fiscal
year. This relatively low effective tax rate reflected the partial utilization
of overseas losses available for offset against income earned by Innovex's
overseas companies.
Net Income/(Loss). Net income was L0.9 million in the first quarter of the
1997 fiscal year, compared with a net loss of L0.1 million in the first quarter
of the 1996 fiscal year. As a percentage of net sales, net income was 2.6% in
the first quarter of the 1997 fiscal year. The increase was due primarily to the
increase in operating income, which more than offset increased income taxes and
the non-equity interest dividend on the Preference Shares of L0.2 million.
Excluding the non-equity interest dividend, net income would have been L1.1
million, or 3.1% of net sales.
U.K. GAAP and U.S. GAAP Reconciliation. Estimated net income on a U.S.
GAAP basis was L0.7 million in the first quarter of the 1997 fiscal year,
compared with a net loss of L0.1 million in the first quarter of the 1996 fiscal
year. The differences in net income as reported under U.K. GAAP compared with
estimated net income under U.S. GAAP for the first quarter of the 1997 and 1996
fiscal years principally relate to the accrual of vacation pay that is required
under U.S. GAAP but not under U.K. GAAP. The effects of this item more than
offset the favorable adjustments that would be made under U.S. GAAP with respect
to the income tax effects of U.S. GAAP adjustments.
Results of operations for the fiscal years ended March 31, 1996, 1995 and 1994
Net Sales. Net sales were L83.1 million in the 1996 fiscal year, L51.8
million in the 1995 fiscal year and L40.7 million in the 1994 fiscal year,
representing year-on-year increases of 60.6% and 27.0%. The increase in net
sales in the 1996 and 1995 fiscal years resulted from increased net sales for
each of contract research and sales and marketing services and from increased
net sales to clients located in each of Innovex's three main markets, the United
Kingdom, the United States and Germany, as well as in the rest of Europe.
Innovex's two largest clients accounted for 11.5% and 11.4% of net sales in the
1996 fiscal year; the same clients accounted for 9.6% and 6.1% of net sales in
the 1995 fiscal year and 8.1% and 3.4% of net sales in the 1994 fiscal year.
Innovex's contracts are entered into with different divisions and national
operations within each client company and usually involve different decision
makers. For example, in the 1996 fiscal year, Innovex's net sales from its top
four clients were derived from more than 50 distinct projects spanning a wide
range of business and service areas. Approximately L10.7 million of net sales
for the 1994 fiscal year were attributable to businesses acquired during the
year, principally the Clinical Research Foundation group. Acquisitions have been
accounted for under the purchase method, with the results of operations of the
Clinical Research Foundation group included in Innovex's results from April 1,
1993.
Contract research services generated net sales of L31.1 million in the 1996
fiscal year, L20.9 million in the 1995 fiscal year and L18.7 million in the 1994
fiscal year, representing year-on-year increases of 48.8% and 11.8%. The
increase in the 1996 fiscal year was primarily due to higher levels of net
sales, particularly from international clinical projects and from national
clinical projects in the United States. The increase in the 1995 fiscal year was
primarily due to higher levels of net sales in Germany and the United States, as
well as to the expansion of Innovex's contract research services in the Nordic
region. However, the overall rate of increase
47
<PAGE> 53
was affected by the completion at the end of the 1994 fiscal year of a large,
late-phase clinical trial conducted in the United Kingdom.
Sales and marketing services, Innovex's largest service area, generated net
sales of L52.0 million in the 1996 fiscal year, L30.9 million in the 1995 fiscal
year and L22.0 million in the 1994 fiscal year, representing year-on-year
increases of 68.3% and 40.5%. The increase in total net sales of sales and
marketing services in the 1996 fiscal year reflected the significant contract
sales projects won by Innovex in the United States since the introduction of
such services in that market in the 1995 fiscal year. The increase in the 1994
fiscal year reflected higher levels of contract sales activity in the United
Kingdom and the establishment by Innovex of a significant contract sales
services business in Germany, as well as the launch of Innovex's contract sales
services in The Netherlands. These figures include net sales of disease
management services, which generated L9.1 million of net sales (11.0% of total
net sales) in the 1996 fiscal year, L4.7 million of net sales (9.0% of total net
sales) in the 1995 fiscal year and L2.9 million of net sales (7.2% of total net
sales) in the 1994 fiscal year. These figures also include net sales
attributable to Novex Pharma, which generated L4.2 million of net sales (5.1% of
total net sales) in the 1996 fiscal year, L4.2 million of net sales (8.1% of
total net sales) in the 1995 fiscal year and L4.9 million of net sales (12.0% of
total net sales) in the 1994 fiscal year.
Cost of Finished Goods Sold. Cost of finished goods sold represents the
purchase price and distribution and related costs of pharmaceutical products
supplied by Novex Pharma. Cost of finished goods sold was L2.0 million in the
1996 fiscal year, L1.8 million in the 1995 fiscal year and L2.8 million in the
1994 fiscal year, representing a year-on-year increase of 16.1% and a
year-on-year decrease of 38.3%. As a percentage of total net sales, cost of
finished goods sold was 2.5% in the 1996 fiscal year, 3.4% in the 1995 fiscal
year and 7.1% in the 1994 fiscal year. The level of these costs in any fiscal
year is generally proportional to the sales of drugs by Novex Pharma in that
fiscal year. As a percentage of Novex Pharma's net sales, cost of finished goods
sold was 47.6%, 42.9% and 59.2% in the 1996, 1995 and 1994 fiscal years,
respectively.
Personnel Costs. Personnel costs, the largest component of operating
expenses, were L50.1 million in the 1996 fiscal year, L29.9 million in the 1995
fiscal year and L21.5 million in the 1994 fiscal year, representing year-on-year
increases of 67.2% and 39.2%. As a percentage of net sales, personnel costs were
60.2% in the 1996 fiscal year, 57.8% in the 1995 fiscal year and 52.8% in the
1994 fiscal year. The increases in personnel costs in the 1996 and 1995 fiscal
years reflected increases in the average number of employees from 904 in the
1994 fiscal year and 1,172 in the 1995 fiscal year to 1,942 in the 1996 fiscal
year. The increase in personnel costs as a percentage of net sales over the
three-year period under review is attributable to the increasing proportion of
net sales from sales and marketing services, which tend to be more
labor-intensive than contract research services. Personnel costs in the 1996,
1995 and 1994 fiscal years include L0.3 million, L0.6 million and L0.2 million,
respectively, of start up costs. See "-- Overview" and Note 4 of Notes to the
Innovex Combined Financial Statements.
Depreciation and Amortization. Depreciation and amortization amounted to
L5.2 million in the 1996 fiscal year, L3.3 million in the 1995 fiscal year and
L2.6 million in the 1994 fiscal year, representing year-on-year increases of
58.8% and 25.6%. As a percentage of net sales, depreciation and amortization
amounted to 6.2% in the 1996 fiscal year, 6.3% in the 1995 fiscal year and 6.4%
in the 1994 fiscal year. The increases in the levels of depreciation and
amortization in the 1996 and 1995 fiscal years were primarily due to increases
in the size of Innovex's motor vehicle fleet in the United Kingdom, which
accompanied the increase in the number of employees, and to investment in
information technology. The increase in the 1996 fiscal year was also affected
by increased amortization of license rights for new products acquired by Novex
Pharma. See Note 11 of Notes to the Innovex Combined Financial Statements.
Other Operating Expenses. Other operating expenses primarily include
marketing and business development costs, office running costs and motor vehicle
and other travel expenditure. Other operating expenses were L19.1 million in the
1996 fiscal year, L13.9 million in the 1995 fiscal year and L11.1 million in the
1994 fiscal year, representing year-on-year increases of 38.1% and 24.8%. The
increases in other operating expenses were primarily due to higher levels of
business activity in the 1996 and 1995 fiscal years compared with the respective
previous fiscal years. As a percentage of net sales, other operating expenses
were 23.0% in the 1996 fiscal year, 26.8% in the 1995 fiscal year and 27.2% in
the 1994 fiscal year. The reduction in other operating
48
<PAGE> 54
expenses as a percentage of net sales principally reflects higher levels of net
sales, the effects of changes in the sales mix, economies of scale and systems
and process improvements. Other operating expenses in the 1995 fiscal year
include L0.7 million incurred in connection with the launch of Innovex's sales
and marketing services in the United States and of its contract research
services in Italy and France. See Note 4 of Notes to the Innovex Combined
Financial Statements.
Operating Income. Operating income was L3.7 million in the 1996 fiscal
year, L2.9 million in the 1995 fiscal year and L2.7 million in the 1994 fiscal
year, representing year-on-year increases of 24.5% and 9.9%. Operating income
for the 1996 fiscal year was affected by non-recurring costs amounting to L3.0
million. See "-- Overview". Excluding these costs, operating income would have
been L6.7 million in the 1996 fiscal year and L2.9 million in the 1995 fiscal
year, representing a year-on-year increase of 127.5%. As a percentage of net
sales, operating income (excluding such non-recurring costs) was 8.1% in the
1996 fiscal year, 5.7% in the 1995 fiscal year and 6.6% in the 1994 fiscal year.
The increase in the levels of operating income in the 1995 and 1996 fiscal years
was primarily the result of increased net sales in those years, which more than
offset the effects of the aforementioned non-recurring costs. The decrease in
operating income as a percentage of net sales in the 1995 fiscal year primarily
reflected the L1.3 million of start up costs incurred by Innovex in the 1995
fiscal year in connection with the launch of its sales and marketing services in
the United States and of its contract research services in Italy and France. See
"-- Personnel Costs" and "-- Other Operating Expenses". Approximately L0.4
million of operating income for the 1994 fiscal year was attributable to
business acquired during the year, principally the acquisition of the Clinical
Research Foundation group.
Other Income and Expenses. Other income and expenses primarily comprise
financial expenses and also include gains and write-downs in respect of fixed
assets. Net financial expenses were L1.9 million in the 1996 fiscal year, L1.1
million in the 1995 fiscal year and L1.7 million in the 1994 fiscal year,
representing a year-on-year increase of 73.3% and a decrease of 35.4%. As a
percentage of net sales, net financial expenses were 2.2% in the 1996 fiscal
year, 2.1% in the 1995 fiscal year and 4.1% in the 1994 fiscal year. The
increase in the level of net financial expenses in the 1996 fiscal year was due
to an increase in finance charges in respect of deep discount bonds (from L0.8
million in the 1995 fiscal year to L1.2 million in the 1996 fiscal year). The
increase in finance charges in respect of deep discount bonds reflects the
accrual of the discount on an actual basis commencing April 1, 1995, the first
date on which the deep discount bonds could have been redeemed by Innovex
without penalty. See Note 6 of Notes to the Innovex Combined Financial
Statements. Other income and expenses in the 1995 fiscal year also reflected a
L0.3 million gain from the sale of fixed assets attributable to the sale by
Novex Pharma of the Mintec trademark and the sale by Innovex of its former
headquarters. See Note 5 of Notes to the Innovex Combined Financial Statements.
Other income and expenses in the 1994 fiscal year also reflected a L0.5 million
write-down in the fair value of the same property in that year as a result of a
permanent impairment of its value. See Note 12 of Notes to the Innovex Combined
Financial Statements.
Income Taxes. Income taxes were L0.7 million in the 1996 fiscal year, L0.5
million in the 1995 fiscal year and L0.8 million in the 1994 fiscal year. The
increase in income taxes in the 1996 fiscal year compared with the 1995 fiscal
year resulted from deferred taxes payable in Germany in respect of utilization
of losses available for offset against taxable income. The decrease in the
amount of income taxes in the 1995 fiscal year compared with the 1994 fiscal
year was primarily due to a reduction in the amount of deferred taxes payable in
the United Kingdom, the effect of which more than offset an increase in the
amount of current taxes payable in other countries. Innovex's effective tax rate
was 41.3%, 28.8% and 78.9%, respectively, in the 1996, 1995 and 1994 fiscal
years. The relatively high level of Innovex's effective tax rate in the 1996
fiscal year reflected the lack of tax relief on some of the non-recurring costs
relating to reorganization. The relatively low level of Innovex's effective tax
rate in the 1995 fiscal year reflected a roll-over of the gain arising on the
sale of the Mintec trademark. In addition, for tax purposes Innovex recognized a
capital loss on the sale of its former headquarters, as opposed to the gain on
disposal reflected in the financial statements for that year. The relatively
high level of Innovex's effective tax rate in the 1994 fiscal year reflected
corporation tax on a high level of U.K.-based income before income taxes without
any recognition of deferred tax on overseas losses available for offset against
income earned by Innovex's overseas companies. See Note 8 of Notes to the
Innovex Combined Financial Statements.
49
<PAGE> 55
Net Income. Net income was L1.1 million in the 1996 fiscal year, L1.3
million in the 1995 fiscal year and L0.2 million in the 1994 fiscal year. As a
percentage of net sales, net income was 1.3% in the 1996 fiscal year, 2.6% in
the 1995 fiscal year and 0.5% in the 1994 fiscal year. The decrease in the level
of net income in the 1996 fiscal year compared with the 1995 fiscal year was due
to the L3.0 million of non-recurring costs incurred in the year. See
"-- Overview". Excluding these costs, net income would have been L3.2 million,
or 3.8% of net sales, in the 1996 fiscal year. The increase in net income for
the 1995 fiscal year compared with the 1994 fiscal year primarily reflected
increased levels of net sales.
U.K. GAAP and U.S. GAAP Reconciliation. Estimated net income on a U.S.
GAAP basis was L0.5 million and L1.2 million for the 1996 fiscal year and the
1995 fiscal year, respectively, compared with L1.1 million and L1.3 million
under U.K. GAAP for those years. The differences in the 1996 and 1995 fiscal
years net income as reported under U.K. GAAP compared with estimated net income
under U.S. GAAP principally relate to a deferred tax charge arising on tax
losses set off against taxable income in Germany, and to the accrual of vacation
pay that is required under U.S. GAAP but not under U.K. GAAP. The effects of
these items more than offset the favorable adjustments that would be made under
U.S. GAAP with respect to the amortization of goodwill and, in the 1996 fiscal
year, finance costs in respect of deep discount bonds. For a discussion of the
differences between U.K. GAAP and U.S. GAAP as they relate to Innovex, see Note
27 of Notes to the Innovex Combined Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Innovex's cash flows in each of the 1996, 1995 and 1994 fiscal years are
summarized in the following table:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in) operating
activities............................. L 6,264 L 5,335 L16,611 L 2,032 L (4363)
Net cash used in return on investments
and servicing of finance............... (475) (710) (6,863) (482) (605)
Total tax paid........................... (578) (522) (498) (15) (1,475)
Net cash used in investing activities.... (6,534) (2,118) (4,554) (1,880) (2,537)
Net cash provided by/(used in) financing
activities............................. 3,436 (1,900) (5,356) (1,882) 9,602
------- ------- ------- ------- -------
Net increase/(decrease) in cash and cash
equivalents............................ L 2,113 L 85 L (660) L(2,227) L 622
======= ======= ======= ======= =======
</TABLE>
Net cash provided/(used in) operating activities was L(4.4) million in the
first quarter of the 1997 fiscal year and L2.0 million in the first quarter of
the 1996 fiscal year. Operating cash flow in the first quarter of the 1997
fiscal year was affected by the L1.5 million paid as a special contribution to
the pension fund of Barrie S. Haigh and L0.4 million of expenses incurred in
association with the April Reorganization. Operating cash flow in the first
quarter of the 1997 fiscal year also reflected increased net working capital in
the quarter. Net cash provided by operating activities was L16.6 million, L5.3
million and L6.3 million in the 1996, 1995 and 1994 fiscal years, respectively.
Increased operating cash flow in 1996 was primarily due to improved cash
management, increased net sales and improved operating margins. By requiring the
payment of a portion of fees in advance, establishing regular contractual
billing milestones and keeping payment periods short, Innovex seeks to ensure
that projects are cash-flow neutral or positive at all stages. Innovex manages
its cash by monitoring net working capital and cash balances on both aggregate
and project-by-project bases. Net working capital is defined as the sum of (i)
finished goods and goods for resale, (ii) net trade accounts receivable and
(iii) unbilled accounts receivable, less (i) accounts payable and (ii) advance
payments received. Net working capital at March 31, 1996, was L2.1 million,
equivalent to nine days' net sales outstanding, compared with L3.8 million and
27 days' net sales at March 31, 1995. Net working capital at
50
<PAGE> 56
June 30, 1996 and 1995 was L7.2 million and L6.1 million, equivalent to 20 days'
and 35 days', respectively. Accounts receivable, net of the allowance for
doubtful amounts, were L12.8 million at March 31, 1996, equivalent to 36 days'
net sales outstanding, and L8.1 million at March 31, 1995, equivalent to 37
days' net sales. At June 30, 1996 and 1995, accounts receivable were L19.7
million and L8.7 million, equivalent to 44 days' net sales and 42 days' net
sales, respectively.
Innovex's principal cash needs are the payment of salaries, office rents
and travel expenses. Innovex has historically funded these expenditures from
operations. Innovex has financed acquisitions principally from the proceeds from
the issue of deep discount bonds and private placements of shares and from
operations.
Total tax paid of L1.5 million in the first quarter of the 1997 fiscal year
related to advance corporation tax in respect of the L5.9 million dividend paid
to the Principal Shareholder in association with the April Reorganization.
Net cash used in investing activities was L2.5 million in the first quarter
of the 1997 fiscal year and L1.9 million in the first quarter of the 1996 fiscal
year. The L2.5 million in the first quarter of the 1997 fiscal year included
L1.6 million cash consideration paid in connection with the April
Reorganization. The L1.9 million in the first quarter of the 1996 fiscal year
reflected the payment of deferred consideration of L3.1 million and the receipt
of proceeds of L1.3 million relating to the sale of Innovex's former
headquarters. See "-- Results of Operations for the three-month periods ended
June 30, 1996 and 1995 -- Depreciation and Amortization". Net cash used in
investing activities totalled L4.6 million, L2.1 million and L6.5 million in the
1996, 1995 and 1994 fiscal years, respectively. The 1994 fiscal year investments
include the cash used to purchase the Clinical Research Foundation group, in
respect of which a further L3.5 million was paid in the 1996 fiscal year. At
March 31, 1996, further deferred consideration of up to L5.0 million remained
payable.
Innovex made investments in fixed assets of L7.9 million, L5.4 million and
L4.5 million in the 1996, 1995 and 1994 fiscal years, respectively. These
figures included payments of L4.2 million, L1.8 million and L1.8 million,
respectively, relating to the purchase of vehicles under capital leases,
included in repayment of long-term obligations. Investments in other fixed
assets principally comprise investments in information technology. See Combined
Statements of Cash Flows. Innovex expects to make cash investments in fixed
assets amounting to approximately L17.7 million in the 1997 fiscal year.
Net cash provided by/(used in) financing activities was L9.6 million in the
first quarter of the 1997 fiscal year and L(1.9) million in the first quarter of
the 1996 fiscal year. The L9.6 million in the first quarter of the 1997 fiscal
year included proceeds of L11.0 million from the issue of the Preference Shares
as part of the April Reorganization. The L(1.9) million in the first quarter of
the 1996 fiscal year included a L1.1 million repayment of a mortgage on
Innovex's former headquarters. Net cash provided by/(used in) financing
activities totalled L(5.4) million, L(1.9) million and L3.4 million in the 1996,
1995 and 1994 fiscal years, respectively. These figures include amounts paid
under capital leases referred to above. The 1994 figure reflects proceeds from
the issue of deep discount bonds as part of the 1994 restructuring effected in
connection with the acquisition of the Clinical Research Foundation group.
Innovex has a Facilities Agreement, dated April 3, 1996 (the "Credit
Facility") with Lloyds Bank PLC ("Lloyds Bank"), which provides for a L15.0
million secured guarantee and term loan facility. The Credit Facility also
provides for a L2.0 million cash-backed guarantee facility, pursuant to which
cash-backed guarantees, guarantees or term loans may be issued by Lloyds Bank to
or on behalf of Innovex. Term loans under the Credit Facility may be granted
only upon the calling of guarantees previously issued thereunder. There were
L2.0 million of cash-backed guarantees and L15.0 million of guarantees
outstanding under the Credit Facility at June 30, 1996, each guaranteeing
amounts payable under the Loan Notes issued in the April Reorganization. There
were no term loans outstanding under the Credit Facility at June 30, 1996. Cash-
backed guarantees outstanding under the Credit Facility are collateralized by
L2.0 million in interest bearing cash-deposits with Lloyds Bank, which are
reflected as cash and cash equivalents on the Innovex Interim Financial
Statements. Innovex may not draw on these deposits while the cash-backed
guarantees are outstanding. In the period from October 7 to October 10, 1996 the
Loan Notes guaranteed by Lloyds Bank were redeemed using the L2.0 million cash
deposit with Lloyds Bank and by utilizing the L15.0 million term loan facility.
Guarantees and loans outstanding under the Credit Facility are collateralized by
a fixed and
51
<PAGE> 57
floating charge on Innovex's U.K. assets, by charges over Innovex's accounts
receivable in the United States and Germany, and by charges over Innovex's land
in Germany and freehold property in the United States. Guarantees outstanding
under the Credit Facility bear a commission of 1.625% per annum plus an amount
in respect of certain associated costs. Term loans under the Credit Facility
bear interest at the rate of 1.625% per annum over LIBOR, plus an amount in
respect of certain associated costs. However, Innovex has entered into interest
rate swap arrangements effectively fixing the interest rate on such loans at
9.225% per annum over their term. The Credit Facility contains financial
covenants relating to Innovex's ratio of indebtedness to consolidated net worth
(each as defined therein) and to interest cover.
Innovex also has an Overdraft Facility, also dated April 3, 1996 (the
"Overdraft Facility") with Lloyds Bank. The Overdraft Facility provides an
on-demand multi-currency overdraft facility of up to L3.0 million (or its
equivalent in other currencies) on a net basis and up to L5.0 million (or its
equivalent in other currencies) on a gross basis. Amounts outstanding under the
Overdraft Facility are collateralized in the same manner as guarantees and term
loans under the Credit Facility. At June 30, 1996, Innovex had no outstanding
borrowings under the Overdraft Facility of L1.2 million and a cash balance of
L4.9 million. Borrowings outstanding under the Overdraft Facility that are
denominated in pounds sterling bear interest at the rate of 1.5% over the
published base rate of Lloyds Bank from time to time. Borrowings in currencies
other than the pound sterling bear interest at the rate of 1.5% over Lloyds
Bank's short-term offered rate from time to time for such currency. The weighted
average interest rate on amounts outstanding under the Overdraft Facility was
7.43% for the first quarter of the 1997 fiscal year. Borrowings under the
Overdraft Facility are repayable on demand.
As part of the April Reorganization, Innovex raised L11.0 million through
the issuance of the Preference Shares. Innovex used L5.9 million of this amount
to finance a dividend to the Principal Shareholder and an additional L1.5
million to pay a special contribution to the pension fund of Barrie S. Haigh,
both in association with the April Reorganization. An additional L2.0 million
was deposited with Lloyds Bank as security for Lloyds Bank's guarantee of
Innovex's obligations under the Loan Notes and approximately L1.6 million was
utilized as cash consideration for the purchase of the ordinary shares of
Innovex Holdings Limited. See "-- Certain Transactions".
INFLATION
Innovex believes the effects of inflation, at current levels, generally do
not have a material impact on Innovex's operations or financial condition.
IMPACT OF ACCOUNTING STANDARDS
In March 1995, the U.S. Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived 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. Innovex is required to first comply with the
requirements of SFAS No. 121 in its 1997 Combined Financial Statements. Innovex
believes that the implementation of this statement will not have a material
impact on its financial position or results of operations.
Also during 1995, the FASB issued Statements of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
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 adoption of SFAS No. 123 is not expected to have a significant
impact on Innovex.
52
<PAGE> 58
PROPOSAL TWO
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
SHARES OF AUTHORIZED COMMON STOCK
Under Quintiles' Articles of Incorporation, Quintiles is authorized to
issue up to 50,000,000 shares of Common Stock. On October 24, 1996, the Board of
Directors approved an Amendment to Quintiles' Articles of Incorporation that
increases this maximum number of authorized shares of Common Stock by 50,000,000
shares to a total of 200,000,000 shares, subject to approval by the shareholders
of Quintiles. If the shareholders do not approve the Amendment, then the number
of authorized shares of Quintiles' Common Stock will remain at 50,000,000.
The purpose of the proposed Amendment is to provide sufficient shares for
corporate purposes, including possible future acquisitions, benefit plans,
recapitalizations, stock splits and other corporate purposes, although no such
use currently is planned. Once authorized, the additional shares of Common Stock
may be issued by the Board of Directors without further action by the
shareholders, unless such action is required by law or applicable stock exchange
requirements. Accordingly, this solicitation may be the only opportunity for the
shareholders to take action in connection with such acquisitions, benefit plans,
recapitalizations and other corporate actions. As of October 24, 1996,
shares of Common Stock were issued and outstanding, shares were
reserved for issuance upon conversion of Quintiles' 4.25% Convertible
Subordinated Notes due 2000, 1,951,027 shares of Common Stock were reserved for
issuance in the BRI Merger, 10,000,000 shares of Common Stock were reserved for
issuance in the Exchange and approximately shares were reserved for
issuance under Quintiles' stock option plans. Thus, of the 50,000,000 shares of
Common Stock currently authorized, approximately shares would be unissued
and unreserved if the Amendment is not approved.
The resolution to be considered by the shareholders at the meeting reads as
follows:
"RESOLVED, that Article IV of the Amended and Restated Articles of
Incorporation of Quintiles Transnational Corp. should be amended and
restated to read in full as follows:
Section 4.1. Total Number of Shares of Stock. The total number of
shares of capital stock of all classes that the Corporation shall have
the authority to issue is 225,000,000 shares. The authorized capital
stock is divided into 25,000,000 shares of preferred stock, having $.01
par value (the "Preferred Stock"), and 200,000,000 shares of common
stock, having $.01 par value (the "Common Stock").
FURTHER RESOLVED, that the proper officers of Quintiles Transnational
Corp. are hereby authorized and directed, after shareholder approval of the
proposed amendment, to execute, under its corporate seal, Articles of
Amendment to the Articles of Incorporation and to file such Articles of
Amendment with the North Carolina Secretary of State.
FURTHER RESOLVED, that the Board of Directors of Quintiles
Transnational Corp. may, notwithstanding approval by the shareholders of
Quintiles Transnational Corp., at any time prior to the filing of the
Articles of Amendment with the North Carolina Secretary of State, terminate
the proposed amendment and all transactions contemplated by or incident
thereto."
Shareholder approval of this proposal is required under North Carolina law.
Unless authority has been withheld the proxy agents intend to vote FOR approval
of the Amendment. Approval of the Amendment requires the affirmative vote,
either in person or by proxy, of at least a majority of all shares of Quintiles
Common Stock voted at the Special Meeting. An abstention, withholding of
authority to vote or broker non-vote, therefore, will not have the same legal
effect as an "against" vote and will not be counted in determining whether the
proposal has received the required shareholder vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
OF THE AMENDMENT.
53
<PAGE> 59
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and
June 30, 1996, the Current Reports on Form 8-K dated April 16, 1996 and October
6, 1996 filed with the Commission, the Proxy Statement/Prospectus included
within the Registration Statement on Form S-4 (the "BRI Proxy
Statement/Prospectus") filed with the Commission on September 24, 1996 under the
Securities Act of 1933, as amended (the "Securities Act") (File No. 333-12573)
when such Registration Statement became effective under the Securities Act and
the description of Quintiles' Common Stock contained in its Registration
Statement on Form 8-A as filed with the Commission on April 11, 1994 under the
Exchange Act are hereby incorporated by reference in this Proxy Statement. All
documents filed with the Commission pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
into this Proxy Statement and to be a part hereof from the date of filing of
such documents. Any statement contained in any document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement except as so modified or superseded.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED UPON
WRITTEN OR ORAL REQUEST TO THE CORPORATE SECRETARY, QUINTILES TRANSNATIONAL
CORP., P.O. BOX 13979, RESEARCH TRIANGLE PARK, NORTH CAROLINA 27709 OR BY
TELEPHONE AT (919) 941-2000. WITHIN ONE BUSINESS DAY OF ITS RECEIPT OF SUCH
REQUEST, QUINTILES WILL MAIL BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS
THE COPIES SO REQUESTED. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUESTS SHOULD BE MADE NO LATER THAN FIVE BUSINESS DAYS BEFORE THE SPECIAL
MEETING.
FORWARD LOOKING STATEMENTS
Information set forth in this Proxy Statement contains various
"forward-looking statements" within the meaning of Section 27A of the 1933 Act,
and Section 21E of the 1934 Act, which statements represent Quintiles'
reasonable judgment concerning the future and are subject to risks and
uncertainties that could cause Quintiles' actual operating results and financial
position to differ materially.
Quintiles cautions that any such forward-looking statements are further
qualified by important factors that could cause Quintiles' actual operating
results to differ materially from those in the forward looking statements,
including without limitation the factors and cautionary statements contained
under the caption "RISK FACTORS" in the BRI Proxy Statement/Prospectus and other
cautionary language included in documents incorporated herein by reference. Such
cautionary language also is applicable to forward looking statements with
respect to Innovex and BRI.
54
<PAGE> 60
AVAILABILITY OF AUDITORS AT SPECIAL MEETING
A representative of Ernst & Young LLP will be present at the Special
Meeting and will have the opportunity to make a statement if the representative
desires to do so and to respond to appropriate questions.
By Order of the Board of Directors,
Gregory D. Porter
Vice President, General Counsel and
Secretary
Durham, North Carolina
October 28, 1996
55
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF QUINTILES, INNOVEX
AND BRI
Introduction to Pro Forma Financial Information.................................. F-3
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1996......... F-4
Notes to Pro Forma Combined Condensed Balance Sheet.............................. F-5
Unaudited Pro Forma Combined Condensed Statement of Income for the six months
ended June 30, 1996............................................................. F-6
Unaudited Pro Forma Combined Condensed Statement of Income for the six months
ended June 30, 1995............................................................. F-7
Unaudited Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1995............................................................... F-8
Unaudited Pro Forma Combined Condensed Statement of Income for the year ended
December 31 1994................................................................ F-9
Unaudited Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1993............................................................... F-10
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF QUINTILES AND
INNOVEX
Introduction to Pro Forma Financial Information.................................. F-11
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1996......... F-12
Notes to Pro Forma Combined Condensed Balance Sheet.............................. F-13
Unaudited Pro Forma Combined Condensed Statement of Income for the six months
ended June 30, 1996............................................................. F-14
Unaudited Pro Forma Combined Condensed Statement of Income for the six months
ended June 30, 1995............................................................. F-15
Unaudited Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1995............................................................... F-16
Unaudited Pro Forma Combined Condensed Statement of Income for the year ended
December 31 1994................................................................ F-17
Unaudited Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1993............................................................... F-18
INNOVEX LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Income Statements for the three months ended
June 30, 1995 and 1996.......................................................... F-19
Unaudited Condensed Consolidated Balance Sheets as at March 31, 1996 and June 30,
1996............................................................................ F-20
Unaudited Condensed Consolidated Statements of Cash Flows for the three months
ended June 30, 1995 and 1996.................................................... F-22
Unaudited Condensed Consolidated Statements of Total Recognized Gains and Losses
for the three months ended June 30, 1995 and 1996............................... F-23
Notes to Unaudited Condensed Consolidated Financial Statements................... F-24
</TABLE>
F-1
<PAGE> 62
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED ANNUAL COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report..................................................... F-27
Combined Income Statements for the three years ended March 31, 1994, 1995 and
1996............................................................................ F-28
Combined Balance Sheets as at March 31, 1995 and 1996............................ F-29
Combined Statements of Cash Flows for the three years ended March 31 1994, 1995
and 1996....................................................................... F-30
Combined Statements of Total Recognized Gains and Losses for the three years
ended March 31, 1994, 1995 and 1996............................................. F-31
Combined Statements of Changes in Shareholders' Equity for the three years ended
March 31, 1994, 1995 and 1996................................................... F-32
Notes to Combined Financial Statements........................................... F-33
</TABLE>
F-2
<PAGE> 63
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF
QUINTILES, BRI AND INNOVEX
The following unaudited pro forma combined condensed financial statements are
presented assuming the Mergers of Quintiles and BRI and Quintiles and Innovex
had occurred at the beginning of each period presented on a pooling of
interests basis.
The unaudited pro forma combined condensed balance sheet reflects the combined
historical balance sheets of Quintiles and Innovex at June 30, 1996 and BRI at
May 31, 1996. The unaudited pro forma combined condensed statements of
operations for the years ended December 31, 1995, 1994 and 1993, and the six
months ended June 30, 1996 and 1995 reflect historical operating results of
Quintiles for such periods combined with historical operating results of BRI for
the twelve months ended November 30, 1995, 1994 and 1993 (BRI's fiscal year) and
the six months ended May 31, 1996 and 1995, respectively, and the historical
operating results of Innovex for the twelve months ended March 31, 1996, 1995
and 1994 (Innovex's fiscal year) and the six months ended June 30, 1996 and June
30, 1995, respectively.
For all applicable periods presented in the pro forma combined condensed
statements of operations, shares used in the computation of earnings per common
and common equivalent share give effect to the appropriate exchange ratios.
The Innovex financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK, except for the redeemable
preference shares which have been reclassified from shareholders' equity and are
presented as a separate classification between debt and shareholders' equity on
the June 30, 1996 unaudited pro forma combined condensed balance sheet. The
remaining net differences between UK and US GAAP are immaterial to Innovex's net
income and shareholders' equity for all periods presented.
The pro forma financial statements are not necessarily indicative of the
results that would have been obtained had the Mergers occurred on the dates
indicated. The pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of
Quintiles, BRI and Innovex incorporated by reference or included hereto,
respectively in this Proxy Statement/Prospectus.
F-3
<PAGE> 64
Unaudited Pro Forma Combined Condensed Balance Sheet
June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ HISTORICAL
PRO FORMA PRO FORMA ----------- PRO FORMA
QUINTILES BRI (1) ADJUSTMENTS SUBTOTAL INNOVEX (2) ADJUSTMENTS PRO FORMA
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $130,213 $ 267 $ - $130,480 $ 5,724 $(49,847)(7) $ 86,357
Accounts receivable and unbilled services 89,598 14,777 - 104,375 44,994 - 149,369
Investments 35,422 - - 35,422 - - 35,422
Other current assets 8,744 847 - 9,591 2,016 - 11,607
-------- ------- ------- -------- -------- -------- --------
Total current assets 263,977 15,891 - 279,868 52,734 (49,847) 282,755
Property and equipment 88,038 7,185 - 95,223 47,160 - 142,383
Less accumulated depreciation 23,203 4,079 - 27,282 15,872 - 43,154
-------- ------- ------- -------- -------- -------- --------
64,835 3,106 - 67,941 31,288 - 99,229
Non-current assets:
Investments 10,710 - - 10,710 - - 10,710
Intangible and other assets 52,276 2,673 - 54,949 14,970 - 69,919
-------- ------- ------- -------- -------- -------- --------
Total non-current assets 62,986 2,673 - 65,659 14,970 - 80,629
-------- ------- ------- -------- -------- -------- --------
Total assets $391,798 $21,670 $ - $413,468 $ 98,992 $(49,847) $462,613
======== ======= ======= ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 26,494 $ 5,084 $ 2,000 (3) $ 33,578 $ 23,570 $ 12,000 (5) $ 69,148
Line of credit and current portion
of long-term debt 546 2,529 - 3,075 14,281 (14,281)(7) 3,075
Unearned income 25,791 5,441 - 31,232 24,137 - 55,369
Income taxes and other current liabilities 7,667 747 - 8,414 7,821 - 16,235
-------- ------- ------- -------- -------- -------- --------
Total current liabilities 60,498 13,801 2,000 76,299 69,809 (2,281) 143,827
Long-term liabilities:
Long-term debt, less current portion 140,355 1,749 - 142,104 35,395 (35,395)(7) 142,104
Long-term obligation 19,827 999 - 20,826 4,418 - 25,244
Deferred income taxes 2,687 - - 2,687 - - 2,687
-------- ------- ------- -------- -------- -------- --------
162,869 2,748 - 165,617 39,813 (35,395) 170,035
-------- ------- ------- -------- -------- -------- --------
Total liabilities 223,367 16,549 2,000 241,916 109,622 (37,676) 313,862
Redeemable preference shares - - - - 171 (171)(7) -
Shareholders' equity:
Preferred Stock - - - - 66 (66)(6) -
Common Stock 218 37 (21)(4) 234 112 (12)(6) 334
Additional paid-in-capital and other
shareholders' equity 129,616 1,318 21 (4) 130,955 16,896 78 (6) 147,929
Retained earnings (accumulated deficit) 38,597 3,766 (2,000)(3) 40,363 (27,875) (12,000)(5) 488
-------- ------- ------- -------- -------- -------- --------
Total shareholders' equity 168,431 5,121 (2,000) 171,552 (10,801) (12,000) 148,751
-------- ------- ------- -------- -------- -------- --------
Total liabilities and shareholders' equity $391,798 $21,670 $ - $413,468 $ 98,992 $(49,847) $462,613
======== ======= ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 65
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
(1) BRI's balance sheet is as of May 31, 1996.
(2) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK, except for the
redeemable preference shares which have been reclassified from
shareholders' equity and are presented as a separate classification
between debt and shareholders' equity. The remaining net differences
between UK and US GAAP are immaterial to Innovex's net income and
shareholders' equity for all periods presented.
(3) To reduce pro forma retained earnings for non-recurring costs (as
currently estimated by management) directly associated with the
acquisition of BRI, estimated at $2 million.
(4) To reflect the issuance of 1,614,915 shares of Quintiles common stock,
$.01 par value, in exchange for the 375,448 shares of BRI common stock,
$0.10 par value, using the agreed upon exchange ratio of 4.3013.
(5) To reduce pro forma retained earnings for non-recurring costs (as
currently estimated by management) directly associated with the acquisition
of Innovex, estimated at $12 million.
(6) To reflect the issuance of 10,000,000 shares of Quintiles common stock,
$.01 par value, in exchange for the outstanding shares of Innovex common
stock and preferred stock.
(7) In connection with the transaction, Quintiles will satisfy in full and
retire approximately $60 million of Innovex's outstanding long-term credit
facility, which was approximately $49.7 million as of June 30, 1996. The
$171,000 of redeemable preference shares will also be redeemed in
connection with the transaction.
F-5
<PAGE> 66
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $147,309 $26,701 $ - $174,010 $95,663 $ - $269,673
Less reimbursed costs:
Investigator payments 19,981 2,734 - 22,715 - - 22,715
Travel and other 9,556 - - 9,556 - - 9,556
-------- ------- ----- -------- ------- -------- --------
Net revenue 117,772 23,967 - 141,739 95,663 - 237,402
Costs and expenses:
Direct costs 54,931 8,455 - 63,386 1,266 - 64,652
General and administrative expense 45,000 13,073 - 58,073 80,378 - 138,451
Depreciation and amortization 5,507 696 - 6,203 5,266 - 11,469
Non-recurring costs relating
to reorganization - - - - 2,334 - 2,334
Special pension contribution - - - - 2,291 - 2,291
-------- ------- ----- -------- ------- -------- --------
105,438 22,224 - 127,662 91,535 - 219,197
-------- ------- ----- -------- ------- -------- --------
Income from operations 12,334 1,743 - 14,077 4,128 - 18,205
Other income (expense), net 1,218 (190) - 1,028 (1,832) - (804)
-------- ------- ----- -------- ------- -------- --------
Income before income taxes 13,552 1,553 - 15,105 2,296 - 17,401
Income taxes 4,291 582 - 4,873 1,016 - 5,889
-------- ------- ----- -------- ------- -------- --------
Net income before non-equity
interest dividends 9,261 971 - 10,232 1,280 - 11,512
Non-equity interest dividends - - - - (315) - (315)
-------- ------- ----- -------- ------- -------- --------
Net income $ 9,261 $ 971 $ - $ 10,232 $ 965 $ - $ 11,197
======== ======= ===== ======== ======= ======== ========
Weighted average shares outstanding 22,288 24,014 33,228
======== ======== ========
Net income per share $ 0.42 $ 0.43 $ 0.34 (3)
======== ======== ========
</TABLE>
(1) BRI's income statement is for the six month period ended May 31, 1996.
(2) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1996.
(3) Pro forma net income per share would have been $0.45 per share for the six
months ended June 30, 1996 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-6
<PAGE> 67
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $104,710 $18,598 $ - $123,308 $49,883 $ - $173,191
Less reimbursed costs:
Investigator payments 27,154 563 - 27,717 - - 27,717
Travel and other 9,296 - - 9,296 - - 9,296
-------- ------- ----- -------- ------- -------- --------
Net revenue 68,260 18,035 - 86,295 49,883 - 136,178
Costs and expenses:
Direct costs 32,229 7,178 - 39,407 1,262 - 40,669
General and administrative expense 26,145 9,305 - 35,450 41,959 - 77,409
Depreciation and amortization 3,281 541 - 3,822 2,998 - 6,820
-------- ------- ----- -------- ------- -------- --------
61,655 17,024 - 78,679 46,219 - 124,898
-------- ------- ----- -------- ------- -------- --------
Income from operations 6,605 1,011 - 7,616 3,664 - 11,280
Other income (expense), net 678 (194) - 484 (1,198) - (714)
-------- ------- ----- -------- ------- -------- --------
Income before income taxes 7,283 817 - 8,100 2,466 - 10,566
Income taxes 2,646 432 - 3,078 776 - 3,854
-------- ------- ----- -------- ------- -------- --------
Net income $ 4,637 $ 385 $ - $ 5,022 $ 1,690 $ - $ 6,712
======== ======= ===== ======== ======= ======== ========
Weighted average shares outstanding 19,293 20,766 29,944
======== ======== ========
Net income per share $ 0.24 $ 0.24 $ 0.22
======== ======== ========
</TABLE>
(1) BRI's income statement is for the six months ended May 31, 1995.
(2) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1995.
F-7
<PAGE> 68
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
--------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI (1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- ------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $228,143 $40,800 $- $268,943 $129,055 $ - $397,998
Less reimbursed costs:
Investigator payments 50,892 2,600 - 53,492 - - 53,492
Travel and other 20,814 - - 20,814 - - 20,814
-------- ------- -- -------- -------- -------- --------
Net revenue 156,437 38,200 - 194,637 129,055 - 323,692
Costs and expenses:
Direct costs 73,429 15,349 - 88,778 3,182 - 91,960
General and administrative expense 60,100 19,070 - 79,170 107,430 - 186,600
Depreciation and amortization 7,514 1,337 - 8,851 8,053 - 16,904
Non-recurring costs relating to
reorganization - - - - 2,373 - 2,373
Special pension contribution - - - - 2,329 - 2,329
-------- ------- -- -------- -------- -------- --------
141,043 35,756 - 176,799 123,367 - 300,166
-------- ------- -- -------- -------- -------- --------
Income from operations 15,394 2,444 - 17,838 5,688 - 23,526
Other income (expense), net 1,768 (319) - 1,449 (2,893) - (1,444)
-------- ------- -- -------- -------- -------- --------
Income before income taxes 17,162 2,125 - 19,287 2,795 - 22,082
Income taxes 5,903 1,124 - 7,027 1,154 - 8,181
-------- ------- -- -------- -------- -------- --------
Net income $ 11,259 $ 1,001 $- $ 12,260 $ 1,641 $ - $ 13,901
======== ======= == ======== ======== ======== ========
Weighted average shares outstanding 20,028 21,506 30,705
======== ======== ========
Net income per share $ 0.56 $ 0.57 $ 0.45 (3)
======== ======== ========
</TABLE>
(1) BRI's income statement is for the year ended November 30, 1995.
(2) Innovex's income statement is for the year ended March 31, 1996. Innovex's
financial statements have been prepared on a basis of generally accepted
accounting principles (GAAP) in the UK. The net differences between UK
and US GAAP are immaterial to Innovex's net income for the year ended
March 31, 1996.
(3) Pro forma net income per share would have been $0.58 per share for the year
ended December 31, 1995 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-8
<PAGE> 69
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $141,185 $25,347 $- $166,532 $81,063 $ - $247,595
Less reimbursed costs:
Investigator payments 39,027 576 - 39,603 - - 39,603
Travel and other 12,091 - - 12,091 - - 12,091
-------- ------- -- -------- ------- ------- --------
Net revenue 90,067 24,771 - 114,838 81,063 - 195,901
Costs and expenses:
Direct costs 41,612 10,053 - 51,665 2,764 - 54,429
General and administrative
expense 34,418 13,300 - 47,718 68,578 - 116,296
Depreciation and amortization 4,538 699 - 5,237 5,115 - 10,352
-------- ------- -- -------- ------- ------- --------
80,568 24,052 - 104,620 76,457 - 181,077
-------- ------- -- -------- ------- ------- --------
Income from operations 9,499 719 - 10,218 4,606 - 14,824
Other income (expense), net 679 (189) - 490 (1,684) - (1,194)
-------- ------- -- -------- ------- ------- --------
Income before income taxes 10,178 530 - 10,708 2,922 - 13,630
Income taxes 3,506 238 - 3,744 841 - 4,585
-------- ------- -- -------- ------- ------- --------
Net income $ 6,672 $ 292 $- $ 6,964 $ 2,081 $ - $ 9,045
======== ======= == ======== ======= ======= ========
Weighted average shares outstanding 17,557 18,893 28,043
======== ======== ========
Net income per share $ 0.38 $ 0.37 $ 0.32
======== ======== ========
</TABLE>
(1) BRI's income statement is for the year ended November 30, 1994.
(2) Innovex's income statement is for the year ended March 31, 1995. Innovex's
financial statements have been prepared on a basis of generally accepted
accounting principles (GAAP) in the UK. The net differences between UK
and US GAAP are immaterial to Innovex's net income for the year ended
March 31, 1995.
F-9
<PAGE> 70
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1993
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
------------------- PRO FORMA PRO FORMA ---------- PRO FORMA
QUINTILES BRI(1) ADJUSTMENTS SUBTOTAL INNOVEX(2) ADJUSTMENTS PRO FORMA
--------- -------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Professional fee income $79,289 $17,824 $- $97,113 $62,395 $ - $159,508
Less reimbursed costs:
Investigator payments 12,048 - - 12,048 - - 12,048
Travel and other 5,537 - - 5,537 - - 5,537
------- ------- -- ------- ------- ------- --------
Net revenue 61,704 17,824 - 79,528 62,395 - 141,923
Costs and expenses:
Direct costs 28,386 7,401 - 35,787 4,380 - 40,167
General and administrative expense 23,839 9,650 - 33,489 49,937 - 83,426
Depreciation and amortization 3,469 372 - 3,841 3,982 - 7,823
------- ------- -- ------- ------- ------- --------
55,694 17,423 - 73,117 58,299 - 131,416
------- ------- -- ------- ------- ------- --------
Income from operations 6,010 401 - 6,411 4,096 - 10,507
Other income (expense), net (188) (152) - (340) (2,549) - (2,889)
------- ------- -- ------- ------- ------- --------
Income before income taxes and
change in accounting method 5,822 249 - 6,071 1,547 - 7,618
Income taxes 1,980 71 - 2,051 1,221 - 3,272
------- ------- -- ------- ------- ------- --------
Net income before change in
accounting method 3,842 178 - 4,020 326 - 4,346
Change in accounting method - 158 - 158 - - 158
------- ------- -- ------- ------- ------- --------
Net income $ 3,842 $ 20 $- $ 3,862 $ 326 $ - $ 4,188
======= ======= == ======= ======= ======= ========
Weighted average shares outstanding 13,535 14,851 23,972
======= ======= ========
Net income per share $ 0.28 $ 0.26 $ 0.17
======= ======= ========
</TABLE>
(1) BRI's income statement is for the year ended November 30, 1993.
(2) Innovex's income statement is for the year ended March 31, 1994. Innovex's
financial statements have been prepared on a basis of generally accepted
accounting principles (GAAP) in the UK. The net differences between UK
and US GAAP are immaterial to Innovex's net income for the year ended
March 31, 1994.
F-10
<PAGE> 71
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.
F-11
<PAGE> 72
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.
F-12
<PAGE> 73
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
(1) Innovex's financial statements have been prepared on a basis of
generally accepted accounting principles (GAAP) in the UK, except for
the redeemable preference shares which have been reclassified from
shareholders' equity and are presented as a separate classification
between debt and shareholders' equity. The remaining net differences
between UK and US GAAP are immaterial to Innovex's net income and
shareholders' equity for all periods presented.
(2) To reduce pro forma retained earnings for non-recurring costs (as
currently estimated by management) directly associated with the
acquisition of Innovex, estimated at $12 million.
(3) To reflect the issuance of 10,000,000 shares of Quintiles common
stock, $.01 par value, in exchange for the outstanding shares of
Innovex common stock and preferred stock.
(4) In connection with the transaction, Quintiles will satisfy in full and
retire approximately $60 million of Innovex's outstanding long-term
credit facility, which was approximately $49.7 million as of June 30,
1996. The $171,000 of redeemable preference shares will also be
redeemed in connection with the transaction.
F-13
<PAGE> 74
Unaudited Pro Forma Combined Condensed Statement of Income
Six Months ended June 30, 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex (1) Adjustments Pro forma
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Professional fee income $147,309 $95,663 $ - $242,972
Less reimbursed costs:
Investigator payments 19,981 - - 19,981
Travel and other 9,556 - - 9,556
-------- ------- ------- --------
Net revenue 117,772 95,663 - 213,435
Costs and expenses:
Direct costs 54,931 1,266 - 56,197
General and administrative expense 45,000 80,378 - 125,378
Depreciation and amortization 5,507 5,266 10,773
Non-recurring costs relating to
reorganization - 2,334 2,334
Special pension contribution - 2,291 - 2,291
-------- ------- ------- --------
Income from operations 105,438 91,535 - 196,973
-------- ------- ------- --------
12,334 4,128 - 16,462
Other income (expense), net 1,218 (1,832) (614)
-------- ------- ------- --------
Income before income taxes 13,552 2,296 - 15,848
Income taxes 4,291 1,016 - 5,307
-------- ------- ------- --------
Net income before non-equity interest dividends 9,261 1,280 - 10,541
Non-equity interest dividends - (315) - (315)
-------- ------- ------- --------
Net income $ 9,261 $ 965 $ - $ 10,226
======== ======= ======= ========
Weighted average shares outstanding 22,288 31,502
======== ========
Net income per share $ 0.42 $ 0.32 (2)
======== ========
</TABLE>
(1) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1996.
(2) Pro forma net income per share would have been $0.45 per share for the six
months ended June 30, 1996 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-14
<PAGE> 75
Unaudited Pro Forma Combined Condensed Statement of Income
Six months ended June 30, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex (1) Adjustments Pro forma
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Professional fee income $104,710 $49,883 $ - $154,593
Less reimbursed costs:
Investigator payments 27,154 - - 27,154
Travel and other 9,296 - - 9,296
-------- ------- -------- --------
Net revenue 68,260 49,883 - 118,143
Costs and expenses:
Direct costs 32,229 1,262 - 33,491
General and administrative expense 26,145 41,959 - 68,104
Depreciation and amortization 3,281 2,998 - 6,279
-------- ------- -------- --------
61,655 46,219 - 107,874
-------- ------- -------- --------
Income from operations 6,605 3,664 - 10,269
Other income (expense), net 678 (1,198) - (520)
-------- ------- -------- --------
Income before income taxes 7,283 2,466 - 9,749
Income taxes 2,646 776 - 3,422
-------- ------- -------- --------
Net income $ 4,637 $ 1,690 $ - $ 6,327
======== ======= ======== ========
Weighted average shares outstanding 19,293 28,471
======== ========
Net income per share $ 0.24 $ 0.22
======== ========
</TABLE>
(1) Innovex's financial statements have been prepared on a basis of generally
accepted accounting principles (GAAP) in the UK. The net differences
between UK and US GAAP are immaterial to Innovex's net income for the six
months ended June 30, 1995.
F-15
<PAGE> 76
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1995
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex(1) Adjustments Pro forma
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Professional fee income $228,143 $129,055 $ - $357,198
Less reimbursed costs:
Investigator payments 50,892 - - 50,892
Travel and other 20,814 - - 20,814
-------- -------- -------- --------
Net revenue 156,437 129,055 - 285,492
Costs and expenses:
Direct costs 73,429 3,182 - 76,611
General and administrative expense 60,100 107,430 - 167,530
Depreciation and amortization 7,514 8,053 - 15,567
Non-recurring costs relating to reorganization - 2,373 - 2,373
Special pension contribution - 2,329 - 2,329
-------- -------- -------- --------
141,043 123,367 - 264,410
-------- -------- -------- --------
Income from operations 15,394 5,688 - 21,082
Other income (expense), net 1,768 (2,893) - (1,125)
-------- -------- -------- --------
Income before income taxes 17,162 2,795 - 19,957
Income taxes 5,903 1,154 - 7,057
-------- -------- -------- --------
Net Income $ 11,259 $ 1,641 $ - $ 12,900
======== ======== ======== ========
Weighted average shares outstanding 20,028 29,226
======== ========
Net income per share $ 0.56 $ 0.44 (2)
======== ========
</TABLE>
(1) Innovex's income statement is for the year ended March 31, 1996 and has
been prepared on a basis of generally accepted accounting principles
(GAAP) in the UK. The net differences between UK and US GAAP are
immaterial to Innovex's net income for the year ended March 31, 1996.
(2) Pro forma net income per share would have been $0.57 per share for the year
ended December 31, 1995 if Innovex had not incurred the $2.3 million of
non-recurring costs relating to its reorganization and the $2.3 million of
special pension contributions.
F-16
<PAGE> 77
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex(1) Adjustments Pro forma
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Professional fee income $141,185 $81,063 $ - $222,248
Less reimbursed costs:
Investigator payments 39,027 - - 39,027
Travel and other 12,091 - - 12,091
-------- ------- -------- --------
Net revenue 90,067 81,063 - 171,130
Costs and expenses:
Direct costs 41,612 2,764 - 44,376
General and administrative expense 34,418 68,578 - 102,996
Depreciation and amortization 4,538 5,115 - 9,653
-------- ------- -------- --------
80,568 76,457 - 157,025
-------- ------- -------- --------
Income from operations 9,499 4,606 - 14,105
Other income (expense), net 679 (1,684) - (1,005)
-------- ------- -------- --------
Income before income taxes 10,178 2,922 - 13,100
Income taxes 3,506 841 - 4,347
-------- ------- -------- --------
Net Income $ 6,672 $ 2,081 $ - $ 8,753
======== ======= ======== ========
Weighted average shares outstanding 17,557 26,707
======== ========
Net income per share $ 0.38 $ 0.33
======== ========
</TABLE>
(1) Innovex's income statement is for the year ended March 31, 1995 and has
been prepared on a basis of generally accepted accounting principles
(GAAP) in the UK. The net differences between UK and US GAAP are
immaterial to Innovex's net income for the year ended March 31, 1995.
F-17
<PAGE> 78
Unaudited Pro Forma Combined Condensed Statement of Income
Year ended December 31, 1993
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma
Quintiles Innovex(1) Adjustments Pro forma
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Professional fee income $79,289 $62,395 $ - $141,684
Less reimbursed costs:
Investigator payments 12,048 - - 12,048
Travel and other 5,537 - - 5,537
------- ------- -------- --------
Net revenue 61,704 62,395 - 124,099
Costs and expenses:
Direct costs 28,386 4,380 - 32,766
General and administrative expense 23,839 49,937 - 73,776
Depreciation and amortization 3,469 3,982 - 7,451
------- ------- -------- --------
55,694 58,299 - 113,993
------- ------- -------- --------
Income from operations 6,010 4,096 - 10,106
Other income (expense), net (188) (2,549) - (2,737)
------- ------- -------- --------
Income before income taxes 5,822 1,547 - 7,369
Income taxes 1,980 1,221 - 3,201
------- ------- -------- --------
Net Income $ 3,842 $ 326 $ - $ 4,168
======= ======= ======== ========
Weighted average shares outstanding 13,535 22,656
======= ========
Net income per share $ 0.28 $ 0.18
======= ========
</TABLE>
(1) Innovex's income statement is for the year ended March 31, 1994 and has
been prepared on a basis of generally accepted accounting principles
(GAAP) in the UK. The net differences between UK and US GAAP are
immaterial to Innovex's net income for the year ended March 31, 1994.
F-18
<PAGE> 79
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$'000
(NOTE
1)
NET SALES................................................... 15,842 33,505 52,030
COSTS AND EXPENSES
Cost of finished goods sold................................. (479) (335) (520)
Personnel costs............................................. (9,742) (21,215) (32,945)
Depreciation and amortization............................... (1,002) (1,721) (2,673)
Other operating expenses.................................... (4,116) (7,794) (12,103)
------- ------- -------
OPERATING INCOME............................................ 503 2,440 3,789
OTHER INCOME AND EXPENSES
Financial income and expenses............................... (540) (756) (1,174)
------- ------- -------
(LOSS)/INCOME BEFORE INCOME TAXES........................... (37) 1,684 2,615
Income taxes................................................ (31) (618) (960)
------- ------- -------
NET (LOSS)/INCOME BEFORE NON-EQUITY INTEREST DIVIDENDS...... (68) 1,066 1,655
Non-equity interest dividend................................ -- (206) (319)
------- ------- -------
NET (LOSS)/INCOME........................................... (68) 860 1,336
======= ======= =======
</TABLE>
F-19
<PAGE> 80
INNOVEX PLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 1996 AND JUNE 30, 1996
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1996 1996 1996
--------- -------- --------
<S> <C> <C> <C>
L'000 L'000 US$'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>
F-20
<PAGE> 81
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>
F-21
<PAGE> 82
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).
F-22
<PAGE> 83
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>
F-23
<PAGE> 84
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
F-24
<PAGE> 85
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>
F-25
<PAGE> 86
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>
F-26
<PAGE> 87
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
F-27
<PAGE> 88
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.
F-28
<PAGE> 89
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.
F-29
<PAGE> 90
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.
F-30
<PAGE> 91
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>
F-31
<PAGE> 92
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.
F-32
<PAGE> 93
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.
F-33
<PAGE> 94
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
F-34
<PAGE> 95
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.
F-35
<PAGE> 96
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>
F-36
<PAGE> 97
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.
F-37
<PAGE> 98
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.
F-38
<PAGE> 99
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>
F-39
<PAGE> 100
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.
F-40
<PAGE> 101
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>
F-41
<PAGE> 102
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.
F-42
<PAGE> 103
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>
F-43
<PAGE> 104
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>
F-44
<PAGE> 105
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>
F-45
<PAGE> 106
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>
F-46
<PAGE> 107
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>
F-47
<PAGE> 108
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.
F-48
<PAGE> 109
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.
F-49
<PAGE> 110
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.
F-50
<PAGE> 111
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.
F-51
<PAGE> 112
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.
F-52
<PAGE> 113
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.
F-53
<PAGE> 114
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>
F-54
<PAGE> 115
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.
F-55
<PAGE> 116
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.
F-56
<PAGE> 117
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
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<PAGE> 118
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.
F-58
<PAGE> 119
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.
F-59
<PAGE> 120
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.
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<PAGE> 121
APPENDIX A
SHARE EXCHANGE AGREEMENT
<PAGE> 122
APPENDIX A
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 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
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<PAGE> 123
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) L1.00, 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 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 L30 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).
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<PAGE> 124
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.
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
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<PAGE> 125
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
L244,015.29, 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 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 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
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<PAGE> 126
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, 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 budget and
financial projections have been prepared on the basis of
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<PAGE> 127
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 L140,000,000, of
which at least L70,000,000 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.
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
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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. 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 L2,000,000 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 L100,000 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 L500,000 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
L100,000 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 L100,000 (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 L100,000 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 L100,000 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 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
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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 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
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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 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 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 L25,000,000. Set
forth on Schedule 2.16 are the amounts necessary on the date of this Agreement
to make all of the payments
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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 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.
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(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.
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
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
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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 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.
(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
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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 L500,000, (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
L500,000, 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 applicable
reserves, none of which individually or in the aggregate exceeds L250,000, (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.
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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.
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 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.
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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 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.
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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 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 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
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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.
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 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
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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 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 L500,000
(including any Contract for the provision of services to customers) and
Contracts for capital expenditures in an individual or aggregate amount not to
exceed L500,000 and consult with Quintiles before entering into a Contract
involving expenditure by Innovex of more than L500,000, (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 occur any offering or sale of Innovex's or any of Innovex's Affiliates'
securities to the public (any such offering or sale
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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 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 L1,000,000. Quintiles agrees
not to
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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 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, 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,
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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.
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.
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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 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.
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.
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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 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.
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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.
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
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
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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 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
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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 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 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
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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 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.
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(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 "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.
(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.
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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 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.
(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,
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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 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.
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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 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 $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
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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.
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.
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(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.
(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 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.
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<PAGE> 156
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.
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.
A-35
<PAGE> 157
9.10. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
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 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
A-36
<PAGE> 158
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.
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
HSBC PRIVATE EQUITY INVESTMENTS
LIMITED
By: /s/ C. MASTERSON
------------------------------------
Name: C. Masterson
Title: As Attorney
A-37
<PAGE> 159
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
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
A-38
<PAGE> 160
/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)
/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
A-39
<PAGE> 161
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
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
A-40
<PAGE> 162
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
A-41
<PAGE> 163
APPENDIX B
OPINION OF GOLDMAN SACHS & CO.
<PAGE> 164
APPENDIX B
[LETTERHEAD]
October 6, 1996
PERSONAL AND CONFIDENTIAL
Board of Directors
Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Morrisville, NC 27560
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to Quintiles
Transnational Corp. ("Quintiles" or the "Company") of the Exchange Ratio (as
defined below) to be paid by the Company pursuant to the Share Exchange
Agreement dated as of October 4, 1996 among Quintiles, Innovex Limited
("Innovex") and the shareholders of Innovex (the "Agreement"). Pursuant to the
Agreement, each outstanding ordinary share, nominal value 0.1p per share, of
Innovex (the "Ordinary Shares") and each outstanding cumulative participating
preferred ordinary share, nominal value 0.1p per share, of Innovex (the
"Preferred Ordinary Shares" and, together with the Ordinary Shares, the "Innovex
Shares") will be converted into the right to receive a number of shares equal to
the Exchange Ratio, as defined in the Agreement, (the "Exchange Ratio") of
common stock, par value $0.01 per share, of Quintiles (the "Shares"). In
addition, we understand that pursuant to the Agreement, Quintiles (i) will
purchase each outstanding cumulative preference share, nominal value 0.1p per
share, of Innovex from the holders thereof, for L1.00 per share in cash, plus
accrued and unpaid dividends, (ii) will advance, or cause one of its
subsidiaries to advance to Innovex up to L30,000,000 to make payments in respect
of certain liabilities of Innovex referred to in the Agreement and (iii) will
issue in respect of each outstanding option to purchase Ordinary Shares a
substitute corresponding option to purchase shares of Common Stock of the
Company.
Goldman, Sachs & Co. and its affiliates ("Goldman Sachs" or the "Firm"), as
part of its investment banking business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. We are familiar with the Company having provided
investment banking services to the Company from time to time, including having
acted as co-manager of the Secondary Offering of 1,750,000 common shares of the
Company offered in September 1995, having acted as lead underwriter of the
4 1/4% Convertible Subordinated Debentures due 2000 of the Company in May 1996,
and having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. In the
course of the trading activities of Goldman Sachs, the Firm has accumulated a
long position of 21 Shares against which the Firm is short 15,850 Shares.
Goldman Sachs has also accumulated a long position of $3,870,000 face value of
Quintiles' 4 1/4% Convertible Subordinated Debentures due 2000. Goldman Sachs
has also accumulated a long position of $300,000 face value and a short position
of $550,000 face value of Quintiles' 4 1/4% Convertible Subordinated Debentures
due 2000 issued under Regulation S.
Goldman Sachs is also familiar with Innovex, having provided investment
banking services to Innovex in connection with a proposed public offering of the
Innovex Shares and having provided financial advice and assistance to Innovex in
connection with the Agreement. Goldman Sachs does not have any financial
interest in any securities of Innovex.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the form of Escrow Agreement by and among the Company, the
shareholders of Innovex, and the escrow agent to be named therein attached as
Exhibit B to the Agreement; the form of Registration Rights Agreement by and
B-1
<PAGE> 165
Quintiles Transnational Corp.
Page 2
among the Company and the shareholders named therein of Innovex attached as
Exhibit C to the Agreement; Annual Reports to Stockholders, Annual Reports on
Form 10-K, and audited financial statements of the Company for the two years
ended December 31, 1995; audited financial statements of the Company for the
three years ended December 31, 1993; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company; the Prospectus for the Secondary
Common Stock Offering for the Company dated September 28, 1995; the Prospectus
for the offering of the 4 1/4% Convertible Subordinated Debentures due 2000 of
the Company dated May 17, 1996; certain other communications from the Company to
its stockholders; certain internal financial analyses and forecasts for the
Company prepared by its management; and certain financial forecasts including,
without limitation, cost savings and operating synergies projected by the
Company to result from the combination of the two companies.
In connection with this opinion, and in the course of providing the
investment banking and other services to Innovex described above, we also have
reviewed information relating to Innovex, including, among other information,
audited financial statements of Innovex for the five fiscal years ended March
31, 1996; the draft registration statement on Form F-1 confidentially filed with
the Securities and Exchange Commission on August 2, 1996; certain internal
business and financial reports, analyses, and forecasts of Innovex and its
subsidiaries prepared by Innovex management; and certain other communications
from Innovex to its stockholders.
We also have reviewed certain financial analyses and forecasts for the
combined operations of the Company and Innovex prepared by the Company and
identified by the Company to us as the ones upon which we should rely for
purposes of our opinion, those projections being more conservative than
projections provided by the management of Innovex. We also have held discussions
with members of the senior management of the Company and Innovex regarding the
past and current business operations, financial condition, and future prospects
of their respective companies and as combined pursuant to the consummation of
the Agreement. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial information for the Company
and Innovex and stock market information for the Company with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the contract research organization industry specifically and in the healthcare
industry generally and performed such other studies and analyses as we
considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts projected by the Company to result from the
combination of the two companies have been reasonably prepared on a basis
reflecting the best currently available judgments and estimates of the Company
(including as to timing and amount). In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Innovex or any of their subsidiaries and, we have not been furnished with any
such evaluation or appraisal. We have assumed with your consent that the
transaction will be accounted for as a pooling of interests under generally
accepted accounting principles. The opinion expressed herein is provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of this transaction.
B-2
<PAGE> 166
Quintiles Transnational Corp.
Page 3
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio is fair to Quintiles.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
--------------------------------------
(Goldman, Sachs & Co.)
B-3
<PAGE> 167
APPENDIX C
OPINION OF SMITH BARNEY INC.
<PAGE> 168
APPENDIX C
[LETTERHEAD OF SMITH BARNEY INC.]
October 6, 1996
The Board of Directors
Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 300
Morrisville, North Carolina 27560
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Quintiles Transnational Corp. ("Quintiles") of the consideration to be
paid by Quintiles pursuant to the terms and subject to the conditions set forth
in the Share Exchange Agreement, dated as of October 4, 1996 (the "Agreement"),
by and among Quintiles, Innovex Limited ("Innovex"), and shareholders of
Innovex. As more fully described in the Agreement, Quintiles will issue to each
holder of ordinary shares, nominal value 0.1p per share, of Innovex ("Ordinary
Shares") and cumulative participating preferred ordinary shares, nominal value,
0.1p per share, of Innovex ("Preferred Ordinary Shares" and, together with the
Ordinary Shares, the "Innovex Shares") in exchange for such holder's Innovex
Shares (the "Exchange") that number of shares of the common stock, par value
$0.01 per share, of Quintiles (the "Quintiles Common Stock") determined by
multiplying (i) the total number of Innovex Shares held by such holder and (ii)
the number (the "Exchange Ratio") determined by dividing (A) 10,000,000 by (B)
the sum of the number of Innovex Shares issued and outstanding as of the closing
date for the Exchange (the "Closing Date") and the number of Innovex Shares
issuable pursuant to options or other stock acquisition rights to purchase
Ordinary Shares outstanding as of the Closing Date, subject to adjustment as
specified in the Agreement. It is our understanding that, in connection with the
transactions contemplated by the Exchange, Quintiles will (i) pay to each holder
of cumulative redeemable preference shares, nominal value 0.1p per share, of
Innovex ("Preference Shares") in exchange for such holder's Preference Shares a
cash amount determined by multiplying (A) the number of Preference Shares held
by such holder and (B) L1.00, plus accrued and unpaid dividends to the Closing
Date and (ii) advance (or cause one of its wholly owned subsidiaries to advance)
to Innovex up to L30 million in cash for payment by Innovex, in full
satisfaction and retirement thereof, of all of Innovex's outstanding loan stock
and Innovex's and its subsidiaries' outstanding liability under Innovex's credit
facilities with Lloyds Bank, PLC.
In arriving at our opinion, we reviewed the Agreement and held discussions with
certain senior officers, directors and other representatives and advisors of
Quintiles and certain senior officers of Innovex concerning the businesses,
operations and prospects of Quintiles and Innovex. We examined certain publicly
available business and financial information relating to Quintiles and certain
business and financial information relating to Innovex as well as certain
financial forecasts and other information and data for Quintiles and Innovex
which were provided to or otherwise discussed with us by the managements of
Quintiles and Innovex. We reviewed the financial terms of the Exchange as set
forth in the Agreement in relation to, among other things: current and
historical market prices and trading volumes of Quintiles Common Stock; the
historical and projected earnings and other operating data of Quintiles and
Innovex; and the capitalization and financial condition of Quintiles and
Innovex. We considered, to the extent publicly available, the financial terms of
similar transactions recently effected which we considered relevant in
evaluating the Exchange and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant to evaluating those of Quintiles and
Innovex. We also evaluated the potential pro forma financial impact of the
Exchange on Quintiles (after giving effect to the proposed acquisition by
Quintiles of BRI International, Inc.). In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we deemed appropriate in arriving at
our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise
C-1
<PAGE> 169
The Board of Directors
Quintiles Transnational Corp.
October 6, 1996
Page 2
reviewed by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been advised by the management of Quintiles that such forecasts and
other information and data were prepared on bases reflecting reasonable
estimates and judgments as to the future financial performance of Quintiles and
Innovex. We have assumed, with your consent, that the Exchange will be treated
as a pooling of interests in accordance with generally accepted accounting
principles. Our opinion, as set forth herein, relates to the relative values of
Quintiles and Innovex. We are not expressing any opinion as to what the value of
the Quintiles Common Stock actually will be when issued pursuant to the Exchange
or the price at which the Quintiles Common Stock will trade subsequent to the
Exchange. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Quintiles or
Innovex nor have we made any physical inspection of the properties or assets of
Quintiles or Innovex. We have not been asked to consider, and our opinion does
not address, the relative merits of the Exchange as compared to any alternative
business strategies that might exist for Quintiles or the effect of any other
transaction in which Quintiles might engage. Our opinion is necessarily based
upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Smith Barney has been engaged to render financial advisory services to Quintiles
with respect to this opinion and will receive a fee upon the delivery of such
opinion. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of Quintiles for our own account or for
the account of our customers and, accordingly, may at any time hold a long or
short position in such securities. We have in the past provided financial
advisory and investment banking services to Quintiles unrelated to the Exchange,
for which services we have received compensation. In addition, we and our
affiliates (including Travelers Group Inc. and its affiliates) may maintain
relationships with Quintiles and Innovex.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Quintiles in its evaluation of the
proposed Exchange, and our opinion is not intended to be and does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the proposed Exchange. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Smith Barney be made, without our
prior written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to Quintiles.
Very truly yours,
/s/ SMITH BARNEY INC.
- ------------------------------------------------------
(Smith Barney Inc.)
C-2
<PAGE> 170
APPENDIX D
REVOCABLE PROXY
QUINTILES TRANSNATIONAL CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Quintiles Transnational Corp., a North
Carolina corporation hereby appoints Dennis B. Gillings, Rachel R. Selisker and
Gregory D. Porter, or any of them, attorneys and proxies of the undersigned,
with full power of substitution and with authority in each of them to act in the
absence of the other, to vote and act for the undersigned shareholder (including
in their discretion with respect to any adjournment of the Special Meeting and
any other procedural matters) at the Special Meeting of Shareholders to be held
at 9:00 a.m., local time, on November 26, 1996, at the [Radisson Governors' Inn,
Research Triangle Park, North Carolina 27709], and at any adjournments thereof,
upon the following matters:
PROPOSAL ONE:
Approval of the issuance by Quintiles of up to 10,000,000 shares of the
common stock, par value $.01 per share, of Quintiles to the shareholders of
Innovex Limited, a company organized under the laws of England and Wales with
limited liability, in connection with the Exchange Agreement, as more fully
described in the Notice of Special Meeting and Proxy Statement annexed hereto.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL TWO:
Approval of an amendment to the Amended and Restated Articles of
Incorporation of Quintiles to increase the number of authorized shares of
Quintiles Common Stock from 50,000,000 to 200,000,000, as more fully described
in the Notice of Special Meeting and Proxy Statement annexed hereto.
/ / FOR / / AGAINST / / ABSTAIN
This proxy will be voted as directed by the undersigned shareholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL. The
undersigned shareholder may revoke this proxy at any time before it is voted by
delivering to the Secretary of Quintiles either a written revocation of the
proxy or a duly executed proxy bearing a later date, or by appearing at the
Special Meeting and voting in person. The undersigned shareholder hereby
acknowledges receipt of notice of the Special Meeting and Proxy Statement dated
October 28, 1996 and hereby revokes any proxy or proxies heretofore given.
(Continued and to be dated and signed on reverse side)
(Continued from other side)
If you receive more than one proxy card, please sign and return all cards in
the accompanying envelope.
/ / I PLAN TO ATTEND THE NOVEMBER 26, 1996 SPECIAL SHAREHOLDERS MEETING OF
QUINTILES TRANSNATIONAL CORP.
Date: _________________, 1996
_______________________________
(Signature of Shareholder or
Authorized Representative)
_______________________________
(Print name)
Please date and sign exactly as
name appears hereon. Each
executor, administrator,
trustee, guardian,
attorney-in-fact and other
fiduciary should sign and
indicate his or her full title.
In the case of stock ownership
in the name of two or more
persons, both persons should
sign.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A QUORUM
AT THE SPECIAL MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES TO
RETURN THIS PROXY PROMPTLY.
