-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HkCntRGQaOt4r2m1jOYY1vpWgg6EYW1+8TgkOygKKDmREVHgOEj/8Gc/WJFL/Kd0 mRlHP1zrD2kIjTwh7GdD0Q== 0000950116-99-000628.txt : 19990402 0000950116-99-000628.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950116-99-000628 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER RESEARCH WORLDWIDE LTD CENTRAL INDEX KEY: 0001026650 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 223264604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-29100 FILM NUMBER: 99582490 BUSINESS ADDRESS: STREET 1: 124 SOUTH 15TH ST CITY: PHILADELPHIA STATE: PA ZIP: 19172 BUSINESS PHONE: 2159720420 MAIL ADDRESS: STREET 1: 124 SOUTH 15TH STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-K 1 Securities and Exchange Commission Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required) For the Fiscal Year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _____ to__________ Commission File No. 0-29100 --------------------------- PREMIER RESEARCH WORLDWIDE, LTD. (Exact name of issuer as specified in its charter) Delaware 22-3264604 (State of incorporation) (I.R.S. Employer Identification No.) 30 South 17th Street Philadelphia, PA 19103 (Address of Principal Executive Offices - Zip Code) Registrant's telephone number, including area code: (215) 972-0420 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The aggregate market value of the registrant's Common Stock, $.01 par value, held by non-affiliates, computed by reference to the average of the closing bid and asked prices of the Common Stock as reported by Nasdaq on March 29, 1999 was $27,318,000 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Number of shares of Common Stock of the registrant issued and outstanding as of March 25, 1999 was 7,058,720 DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (items 10, 11, 12 and 13) is incorporated by reference from the Registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be filed with the Commission pursuant to Regulation 14A, or if such proxy statement is not filed with the Commission on or before 120 days after the end of the fiscal year covered by this Report, such information will be included in an amendment to this Report filed no later than the end of such 120-day period. 1 ITEM 1. BUSINESS General Premier Research Worldwide, Ltd. (the "Company") is a full-service clinical research and consulting organization (CRO) that brings significant added value to the clinical development process through the application and integration of science, process and technology. The Company provides clinical research products and services to the pharmaceutical, biotechnology and medical device industries and creates client driven clinical R&D process solutions through coupling the Company's in-depth understanding of clinical development with technology and efficient workflow processes. The Company's products and services are provided, both in the United States and internationally, through two business segments: Clinical Operations, which include centralized diagnostic testing services and clinical trial and data management services; and Technology Operations, which includes the developing, marketing and support of clinical trial and data management software, support and consulting services. See footnote 11 to the Consolidated Financial Statements appearing herein for information pertaining to the amounts of net revenue, operating profit and identifiable assets attributable to each of the Company's industry segments for the Company's last three fiscal years. Within Clinical Operations, centralized diagnostic testing services include ECG and transtelephonic monitoring, Holter monitoring, imaging and pulmonary function testing which the Company then analyzes or interprets, and clinical laboratory blood and urine testing. Clinical trial and data management services include study protocol design, site and investigator recruitment, patient enrollment, study monitoring and data medical services, report writing, clinical data collection, analysis and reporting, biostatistical services and regulatory affairs services. All of the Company's products and services are designed to help clients reduce their product development time in a cost-effective manner. In 1977, the Company's predecessor, Cardio Data Systems, began providing diagnostic testing services used to evaluate the safety and efficacy of new drugs. Today, the Company provides these services, which include electrocardiograms ("ECGs"), Holter monitoring, transtelephonic monitoring, pulmonary function testing, blood and urine sampling, and other tests, on a centralized basis. To take advantage of the potential synergies and cross-selling opportunities with its centralized diagnostic testing services, the Company added clinical trial management capabilities in September 1995 by forming with PREMIER, Inc. (a large voluntary hospital buying group), a limited liability company, which was owned 65% by the Company and 35% by PREMIER, Inc. Upon the closing of the Company's initial public offering of its Common Stock in February 1997, PREMIER, Inc.'s minority interest in this limited liability company, held on behalf of certain member hospitals, was converted into 330,150 shares of Common Stock of the Company. In October 1997, the Company acquired the assets and business of DLB Systems, Ltd. ("DLB"), a provider of clinical trial and data management software, support and information technology consulting services to the pharmaceutical, biotechnology and device industry. The acquisition of DLB provided the opportunity to extend the Company's clinical data management expertise worldwide. The integration of the Company's rapid data acquisition and review capacity and DLB's integrated clinical research system allows the Company to offer technological advantages facilitating drug and medical device development. 2 Company Products and Services Clinical Operations Diagnostic tests are employed in clinical trials to measure the effect of the product on certain body organs and systems, to determine the product's safety and/or efficacy. Diagnostic testing services provided by the Company include a variety of diagnostic tests, such as ECGs and Holter monitoring. These services, which the Company provides on a centralized basis, are part of most new drug studies. In most cases, the ECG and transtelephonic monitoring strips, Holter monitoring tapes, imaging and pulmonary function computer disks samples are delivered to the Company, which the Company then analyzes or interprets. The Company provides a broad array of centralized diagnostic testing services, including the following: 12-lead Eletrocardiography. The ECG provides an electronic map of the heart's rhythm and structure, and typically is performed in most clinical trials. ECG strips are measured by the Company's analysts utilizing a digitizing system, and are then interpreted by a Board-certified cardiologist. Modem ECG. Modem ECG will allow the investigator to telephonically transmit 12 lead ECG data directly to the Company for interpretation and immediate return of results back to the investigator. This technology will save time and money and provide the investigator with immediate feedback as to the viability of the patient for admission to the clinical trial or adverse side effects. Modem ECG is in final testing and should be available to the Company's clients during the first half of 1999. Holter Monitoring. Holter monitoring is a 24 hour continuous ECG recording of the heart's rhythm on a cassette tape. Transtelephonic Monitoring (TTM). TTM measures the electrical activity of the heart, typically for 5 to 30 seconds. This data is transmitted over telephone lines by patients carrying a self-activated transmitting device. This test typically is utilized in trials seeking to identify symptomatic heart rhythm events. Pulmonary Function Testing (PFT). PFT measures the lungs' capacity and function by having the patient breathe into a spirometer. Diagnostic Imaging. This service is used in all clinical imaging modalities, including standard radiography (e.g., x-rays), contrast-enhanced radiography (e.g., angiography, studies of the gastrointestinal tract), computed techniques (including CT scanning and MRI), nuclear medicine techniques and ultrasonography to determine or confirm the condition of a patient. Clinical Laboratory Services. The Company performs centralized reference testing of blood and urine samples for drug trials. The Company offers complete services for the design, performance and management of clinical trial programs. The results of clinical trials form the basis on which regulatory approval is granted for pharmaceutical and biotechnology products and medical devices. The Company's multi-disciplinary clinical research group and extensive network of consultants examine a product's pre-clinical and clinical data to design protocols that will evaluate the product's safety and efficacy. The Company can then manage every aspect of clinical trials, including protocol and database design, site and investigator recruitment, regulatory initiation, patient enrollment, study monitoring and data collection, medical services and report writing. The Company's clinical trial and data management services include the following: Study Protocol Design. The protocol defines the medical issues the study seeks to examine and the statistical tests that will be conducted to determine whether the product is safe and effective or, in some pharmacoeconomic trials, whether it is cost-effective. Detailed in the protocol are: (i) the number and type of clinical, laboratory and outcomes measures that are to be tracked and analyzed, (ii) the number of patients required to produce a statistically valid result, (iii) the period of time over which the patients must be tracked and (iv) the dosage and frequency of drug administration or the program of use of the relevant device. 3 Site and Investigator Recruitment. The drug or device being tested is administered to patients by physicians (investigators), at hospitals, clinics or other locations (sites). Potential investigators are identified by a number of means. In some cases, the sponsor has pre-selected investigators with whom it wishes to work. The CRO generally solicits the investigator's participation in the study. Each trial's success depends on the successful identification and recruitment of investigators with an adequate base of patients who meet the requirements of the study protocol. The Company has a database of several thousand investigators, both within and outside the PREMIER, Inc. alliance of hospitals. Access to this data allows the Company to readily identify the sites and investigators able to provide the requisite patient population. Patient Enrollment. Investigators find and enroll patients suitable for each study according to the protocol. The speed with which trials can be completed is significantly affected by the rate at which patients are enrolled. Inability to recruit a sufficient number of patients in a timely manner is a recurring problem and one of the most frequent causes of clinical trial delays, as well as a major source of cost overruns for the sponsor. The Company believes that its contract with AmericasDoctor.com, Inc., the internet company providing real-time physician chat, referrals and healthcare events on America Online's health web page, could provide rapid identification and recruitment of candidates to participate in clinical trials. During a three-week test period in the fourth quarter of 1988, the Company received information on over 17,000 people who expressed an interest in volunteering for clinical research programs. In addition, the Company believes that its affiliation with PREMIER, Inc. and the resultant access to PREMIER, Inc.'s databases could additionally enhance the Company's ability to quickly and cost-effectively recruit investigators and patients for clinical trials. The Company believes that its access to both AmericasDoctor.com, Inc. and PREMIER, Inc.'s patient databases can provide a competitive advantage because it permits the Company to identify more precisely exclusion and inclusion criteria, thereby maximizing patient recruitment without jeopardizing patient safety. Regulatory Services. Each site is required to document compliance with regulations governing the conduct of clinical trials, which must be completed before a trial can be initiated. The use of the Company's DLB Monitor facilitates this process by providing real-time tracking of the status of all relevant documents to the Company and to the client. Study Monitoring and Data Collection. As patients are examined and tests are conducted in accordance with the study protocol, data are recorded on customized case report forms ("CRFs") and laboratory reports. Traditionally, these data are reviewed at the study site by specially trained clinical research associates, also known as CRAs or monitors. The CRAs compare the data to the medical records at the site to reduce the possibility of fraud or error. The CRA requires site personnel to correct errors to facilitate efficient data entry. CRAs visit sites regularly to ensure that the CRFs are completed correctly and that all data specified in the protocol are collected. CRFs are reviewed for consistency and accuracy before their data are entered into an electronic database. The Company also offers its clients three different mechanisms for collecting clinical data and storing the data in one integrated database. Through the use of its Technology Operations segment, the Company can offer (1) traditional double entry ( where each piece of data is entered into a database twice for consistency and accuracy checks); (2) web based remote data entry through the use of the Company's DLB Recorder Remote; and (3) the PremierResearch * Fax system, a fax based rapid data capture system based on a combination of a commercially available technology (DataFax TM, Clinical DataFax Systems Inc.) and procedures and software developed by the Company, which can accelerate the completion, correction and review of accurate CRF data. The PremierResearch * Fax system permits a CRF to be filled out by the investigating site, faxed to the Company and reviewed using the Company's Navigator system within days of a patient's visit. The data from the fax are automatically downloaded into the Company's database by means of optical character recognition and the results are carefully checked both by computer and by trained clinical research personnel. Any errors are compiled and automatically faxed back to the site for correction. This process allows a large portion of data errors to be identified and corrected within a week of a given patient's visit, as opposed to the traditional correction process that typically requires several weeks to several months. The Company believes that correcting a large portion of the errors as the trial progresses decreases the time and expense of clinical data collections and is a significant competitive advantage. Medical Services and Report Writing. During the course of a clinical trial, the Company may provide medical research services, including medical monitoring of the clinical trials and interpretation of clinical trial results. In addition, the statistical analysis of the data collected during a trial, together with other clinical data, are included in a final report generated for inclusion in a regulatory document. The Company's PremierResearch * CARD (computer-assisted research and development) technology allows for immediate correction of data and identification of safety and efficacy issues that may change the course of the clinical development plan or accelerate its timeline. The Company believes that this results in improved medical services. 4 The Company has a history of technological innovation in the provision of services in drug trials, including creating the first computer-assisted new drug application ("CANDA") and creating over sixty-five CANDAs. The Company believes that its technological expertise provides a competitive advantage in the provision of clinical data management and biostatistical analysis services. The Company's data management professionals assist in the design of protocols and CRFs, as well as the development of training manuals for investigational staff to ensure that data are collected in a systematic format. Once the study protocol has been finalized, CRFs for recording the desired information must be developed. Different CRFs may be used at different assessment periods during the course of a trial reflecting the variety of data collected. The application of the Company's processes and technology increase the accuracy and reduce the time and cost of data processing during the trial. Databases are designed according to the analytical specifications of the project and the particular needs of the client. The Company provides clients with data listings, data review and coding, data entry, database verification and editing and problem data resolution. In addition, the Company offers its clients the ability to compile the clinical data for an electronic regulatory submission, such as a CANDA. Biostatistical Analysis. The Company's biostatistics professionals provide biostatistical consulting, database design, data analysis and statistical reporting. These professionals develop and review protocols, design appropriate analysis plans and design report formats to address the objectives of the study protocol and the client's individual objectives. The Company's programming staff and biostatisticians work together to perform appropriate analyses and produce tables, graphs, listings and other applicable displays of trial results. In addition, biostatisticians can assist clients in government regulatory proceedings and in legal proceedings. Regulatory Affairs Services. The Company provides comprehensive regulatory product registration services for pharmaceutical, biotechnology and medical device products in North America and Europe, including regulatory strategy formulation, document preparation and intermediation with the FDA and other regulatory agencies. The Company reviews published literature, assesses the scientific background of a product and the competitive and regulatory environment, identifies deficiencies and defines the steps necessary to obtain registration in the most expeditious manner. Through this service, the Company helps its clients determine the feasibility of developing a particular product or product line. Technology Operations The Company develops, markets and supports clinical trial and data management software and provides software support and information technology consulting services to pharmaceutical, biotechnology and medical device companies. It also utilizes its technology internally to support its Clinical Operations services to clients. To date, inter-segment sales have not been material. The Company's software is designed to accelerate product development and to improve the quality of clinical research by providing superior data handling that facilitates analysis. The technology is developed for clinical research personnel, rather than information technology specialists, enabling medical reviewers to make timely and accurate decisions during the product development process. The acquisition of DLB provided the opportunity to extend the Company's clinical data management expertise worldwide. The integration of the Company's rapid data acquisition and review capacity and DLB's integrated clinical data management system allows the Company to offer technological advantages facilitating drug and medical device development. The Company's software is available on multiple platforms which facilitates integration with the wide variety of systems used by its clients. The Company fully supports and maintains its client's software installations through annual support agreements. The annual support agreement entitle the client to ongoing telephone technical support and improvements and application enhancement and product upgrades. The Company also provides, for fee, complete software training and an array of software migration and implementation consulting services. The Company's clinical trial and data management software products include the following: 5 DLB Recorder TM. The Company's DLB Recorder Clinical Data Management System (Recorder) is a comprehensive solution for collecting, cleaning and managing clinical trial data in any development environment, from single site to worldwide operations. Recorder aids clinical data management by unifying and simplifying case report design, database checking and data quality checking. Recorder offers a three level data structure to effectively assemble new study data for accelerated analysis and reporting according to company specifications, therapeutic area requirements or protocol-specific standards. Recorder's unique Object Cascade eases and simplifies managing changes to evolving standards. Data entry can be accomplished through common processes or in a study by study manner with verification and interactive checks from a single entry screen. Data integrity and quality problems can be identified by programming, or industry-standard languages can be used to store complex checks in Recorder's libraries for repeated use. Recorder offers a lifecycle discrepancy management system to easily locate data discrepancies, then route them to in-house groups or to the investigator for resolution. Recorder tracks the status of each discrepancy either on-line or through standard reports, allowing application of fully-audited solutions directly to the database. Recorder's flexibility of privileged access and control plus hierarchical data locking allow multiple levels of security, flexibility and blinding of data items for archiving data and/or creating interim database "snapshots" prospectively or retrospectively. Recorder interfaces seamlessly with SAS(R), exporting all data and definitions in SAS format directly through SAS/ACCESS(R) pass-through views. Recorder offers standard reports or custom reports can be built with any Oracle(R)-based reporting or query tool. Recorder's integrated randomization subsystem easily implements treatment codes and other randomized aspects of clinical studies, whether generated for an individual study design, a standardized study design, or designs imported from other systems. Recorder allows for distribution of data management operations across sites by operation as well as by individual study for the greatest flexibility in replication, and to centralize maintenance of standards or distribute them to other sites. Recorder's optional Global Dictionary and Codelist Manager subsystem database structures and maintenance facilities are provided for all standard medical dictionaries, including dictionary structures for company products, institutes and investigators. DLB Recorder Remote TM. The Company's DLB Recorder Remote (Recorder Remote) is a web based remote data entry system which enables the Company's pharmaceutical, biotechnology and medical device clients to use standard web browser tools to input data in real-time online or offline, which saves time and reduces costs while maintaining a valid, clean central database. Recorder Remote is currently in beta test and it is anticipated that it will be released to the market in the first half of 1999. Users of Recorder can speed collection and integration of data via the World Wide Web, using standard browser tools such as Netscape Navegator(R) or Microsoft Internet Explorer(R). With Web-based distribution of information, investigators, CRAs and medical directors can all be simultaneously aware of a study's progress, enabling decisions to be made more quickly, and directives to be transmitted at megabyte speed. Recorder Remote Data Capture System maintains a full audit trail, and improves accuracy by performing data validation at the point of entry. DLB Monitor TM. The Company's DLB Monitor and Field Monitor (Monitor) create a comprehensive system and methodology for clinical trial management, which supports the planning and management of a development program and associated studies from Phase I through Phase IV. 6 Monitor Clinical Trial Management Software is an effective tool for ongoing coordination and management of clinical trials. Designed for maximum flexibility and functionality, Monitor provides fast, accurate answers to operational issues whenever they are needed. The tool enables managers to track recruitment (by patient, center, region, protocol and program), contacts, site visits, CRF milestones, grant and investigator payments, supplies and finances. Monitor is a comprehensive project management system, supporting planning and scheduling from the overall program to the individual patient, and provides up-to-date reviews of the study's progress, either by desired completion date or projected start date. Monitor integrates with popular desktop management tools such as Microsoft Project(R), and can automatically transfer data between global locations so all users can base decisions on the same current and consistent information. Alert. Alert is a comprehensive clinical safety reporting system providing a complete solution for multi-national regulatory compliance for manufacturers of pharmaceuticals, biologics, consumer health care products and medical devices. Alert Adverse Event Management Software, is an integrated tool (integrated with Recorder and Monitor) for collecting and reporting safety data analysis information providing complete, validated adverse event management capabilities that meet the global needs of pharmaceutical, biotechnology, medical device and healthcare companies. Alert allows reporting of adverse events from multiple sources, including clinical trials, spontaneous events, published articles and journals, and regulatory authority reports. Alert data can be stored in company and/or product-specific databases, and is the only system that provides the convenience of both single and double data entry, with interactive batch verification of the second entry. Data may be validated at entry or post-entry, and both high-volume and occasional data entry are supported for managing and tracking cases and case workflow, supports checklists, action items and reporting history. Ad hoc case reviews may be made by Alert's fast Query-by-Example facility, or its more generalized Query Builder, which allows selection of virtually any set of criteria for exploration of any set of data fields in the database. Alert generates single- and multi-case reports including FDA 3500A, Clinical Trial 10-Day Report, FDA Periodic Report, Increased Frequency Report, CIOMS I/II, BfArM (Germany), EMEA Spontaneous Report, EMEA Clinical Report, and AFM Report (France). It also allows creation and storage of custom, company or site-specific templates for tracking checklists which implement company-specific Standard Operating Procedures (SOPs). Alert supports reconciliation of adverse event cases submitted on CRFs with commercial or company-developed clinical data management systems, and it cooperates efficiently with Recorder by utilizing consistently-defined data items in both systems to reconcile adverse events in either system that may not be found in the other, or that exist in both, with any differences highlighted. The Company believes that its technology is attractive to its clients' clinical groups, since it includes "user-friendly" tools specifically designed for clinical research personnel. The Company believes that this provides a competitive advantage, since this group is influential in CRO selection. Technology Utilization and Development The Company has a history of technological innovation in the support of clinical trials, including: The first electronic transfer of centralized diagnostic data, eliminating manual key punching (1979), the First multi-site remote data entry system used by the FDA, partially replacing site monitoring (1984), the First computer-assisted new drug application, shortening regulatory review process (1985). The Company has since filed over 65 full data review CANDAs, and the First NDA Day, a one day intensive session between the FDA and the product's sponsor utilizing the interactive features and real-time data query capabilities of the CANDA (1988).First interactive CANDA, providing for the interactive review of clinical data by the FDA, further accelerating the regulatory review process (1993). 7 The Company's technology, designed primarily for the internal use of the Company to support Clinical Operations includes: PremierResearch * Navigator is the Company's proprietary, highly interactive software system designed specifically for the review, analysis and submission of clinical data in the new drug or device application process. Navigator is a user friendly software designed to allow medical and regulatory personnel to interactively review and analyze research data. The Company believes that use of its Navigator system speeds both the product development and regulatory review process, which allows the client to prioritize, change or potentially terminate development of the product. The Company markets the Navigator system for single clinical studies or single laboratory datasets under the name PremierResearch * CARD (computer assisted research and development) and for electronic regulatory submissions for pharmaceutical clients under the name PremierResearch * CANDA. PremierResearch * Enterprise. Enterprise is a proprietary information management system that permits efficient and timely delivery of diagnostic and clinical trial data to the user. Enterprise integrates an entire set of data from an individual patient in a clinical trial which is then available for on-line review by project management, diagnostic services and clinical research personnel. The Company believes that Enterprise facilitates and speeds product development by making it easier for the Company, on behalf of the client, to collect, store, retrieve and utilize the massive amounts of data traditionally collected in clinical trials. 8 PremierResearch * Fax. The Company has developed an overall data-handling process based on the use of a commercial technology (DataFax TM, Clinical DataFax Systems Inc.) supplemented by validation procedures and export software and procedures allowing integration into the Company's proprietary Navigator system in an overall system referred to as the PremierResearch * Fax process. This system receives CRFs, electronically enters the information into data bases, queries the site to correct data errors and inconsistencies, and compiles the resultant database for rapid export into the Navigator system for clinical review. The Company believes that the PremierResearch * Fax system can accelerate the collection and correction of the CRF, which is filled out by investigators at a site and faxed to the Company within days of the patient visit. The data from the fax is downloaded into the Company's database by means of optical character recognition and the results are carefully checked by both the computer and trained clinical research personnel. Any errors are compiled and automatically faxed back to the site for correction. This process allows a large portion of data errors to be resolved within a week of a given patient's visit, as opposed to the traditional correction process that typically requires several weeks to several months. The Company believes that correcting a large portion of errors as the trial progresses decreases the time and expense of clinical data collection. Strategic Investments and Relationships The company has sought and continues to seek strategic investments and relationships to leverage its position in the market place by attracting new technologies and/ or services to increase its capabilities and ability to provide value added products and services. AmericasDoctor.com, Inc. In July, 1998, the Company made a $1 million equity investment in AmericasDoctor.com, Inc. (formerly kmown as America's Doctor), an internet company, which provides real-time physician chat, referrals and healthcare events on America Online's Health web page. AmericasDoctor.com, Inc. became fully operational in September 1998 and is providing one-on-one doctor chat service using a state-of-the-art, 24 hour physician staffed call center. The Company has an exclusive contract with AmericasDoctor.com, Inc. to provide the Company with information on individuals who have expressed an interest in participating in future clinical trials. During a three week test period in the fourth quarter of 1998, the Company received information on over 17,000 people who expressed an interest in volunteering for clinical research programs. Since patient recruitment remains the single largest cause of delayed clinical trials, such a large source of referrals may be advantageous in the future to the Company as well as other clinical research organizations and the patient recruitment efforts of clinical trial sponsor organizations. 9 RX2OTC Joint Venture. During the third quarter of 1998, PRWW entered into a strategic relationship with Nelson Communications Inc., one of the leading independent providers of marketing and communication services to the healthcare industry. The Company formed a joint venture with Nelson, named RX2OTC, which will focus on the expanding business segment of bringing prescription products to the over-the-counter market. The combination of the Company's clinical science, process and technology expertise and Nelson's market research, strategy and communications expertise might result in a creative resource for those healthcare companies looking to take products to the OTC market in a more timely manner. PREMIER, Inc. In September 1995, the Company with PREMIER, Inc. formed a limited liability company, owned 65% by the Company, for the provision of clinical research services. Upon the Company's initial public offering of its Common Stock in February 1997, PREMIER, Inc.'s interest in the limited liability company converted into 330,150 shares of the Company's Common Stock which is held by PREMIER, Inc. on behalf of certain of its affiliated hospitals. PREMIER, Inc. is a voluntary hospital buying group of more than 230 independent, not-for-profit health systems in fifty states which operate or are affiliated with approximately 1,700 hospitals. Healthcare organizations purchase goods and services worth approximately $8.5 billion a year through PREMIER, Inc. group contracts. PREMIER, Inc. is considered the largest committed healthcare group purchasing organization in the world. The agreement between PREMIER, Inc. and the Company gives the Company access to information about PREMIER, Inc.'s pharmaceutical contacts as well as access to PREMIER, Inc.'s databases of patients and physicians for use in connection with the Company's clinical research studies. The Company, in turn, has agreed that PREMIER, Inc.'s affiliated hospitals will be utilized as investigator sites for these studies; however, the Company is not restricted from using investigator sites outside the PREMIER, Inc. alliance. Sales and Marketing The Company's marketing strategy is to focus on prospective clients whose product development projects are complex. The Company's sales staff maintains direct contacts and relationships with clients and prospective clients. The Company believes that a large percentage of its clients have been referred by others in the industry, and its salespeople seek to foster such referrals. During 1998, the Company successfully integrated the Clinical Operations and Technology Operations sales forces into a cohesive multi product/service focused organization. The sales force has extensive pharmaceutical, biotechnology, medical device, software and consulting experience which, under the team selling concept, presents the client with a full picture, integrated solution to the clinical trial process. The Company believes that its technology is attractive to the clinical staff of its clients because of its "user-friendly" tools specifically designed for clinical research personnel. The Company believes that this provides it with a competitive marketing advantage, since such personnel are influential in CRO selection. While the Company seeks new clients, it also attempts to increase repeat business with existing clients by meeting high quality and timely performance standards and through proactive project management. Approximately 72% of net revenues in 1998 were derived from clients for which the Company previously has performed services. When the Company increases the amount of business with an existing client, both benefit from the efficiencies of using proven systems already in place for study conduct and data delivery. The Company uses direct mailings of brochures and marketing materials to existing and prospective clients and advertises in trade journals and similar publications. The Company also attends and exhibits at selected trade shows in the United States and Europe. Clients Over the last three years, the Company has provided services to 22 of the top 25 pharmaceutical companies in the world as ranked by 1997 research and development expenditures as reported by Med Ad News. During 1998, pharmaceutical companies accounted for approximately 63% of the Company's net revenues. In the future, as the Company expands its clinical research services, it expects that biotechnology and medical device companies will account for a more significant percentage of its net revenues. During 1998, the Company provided services under 289 contracts for 91 clients, including some of the largest pharmaceutical companies in the United States, Europe and Japan. During 1996, Sandoz Pharmaceuticals Corporation and Zeneca Pharmaceuticals accounted for approximately 15.3% and 10.1% of the Company's net revenues, respectively. During 1998 and 1997, no single client accounted for more than 10% of the Company's net revenues. The loss of any significant client could have a material adverse effect on the Company's net revenues. 10 Forward Load Backlog The company's forward load backlog (also commonly referred to as backlog) consists of anticipated net revenues from work under letters of intent and contracts that have been signed but not yet completed. Once work under a contract or letter of intent commences, revenues are generally recognized over the life of the contract, which generally lasts from one month to two years. Forward load backlog excludes anticipated net revenues from projects for which the Company has commenced work but for which a definitive contract or letter agreement has not been executed. Forward load backlog at December 31, 1998 for Clinical Operations was approximately $33 million as compared to a backlog of $30 million at the end of 1997. The Company experienced growth in both centralized diagnostic testing services and in clinical data management services. The growth was somewhat offset by a decline in the backlog for the clinical laboratory portion of centralized diagnostic testing as the Company, during 1998, chose not to actively promote this smaller, less profitable portion of the business. The Company believes that backlog for Technical Operations is not meaningful and has not been included in the backlog figures as delivery times for software products and consulting services are relatively short and therefore the backlog from year-to-year can change dramatically. The Company believes that its Clinical Operations forward load backlog as of any date is not necessarily a meaningful predictor of future results. Clinical studies under contracts included in the forward load backlog are subject to termination or delay. Clients terminate or delay 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. Most of the Company's contracts are terminable without cause upon 30 to 90 days notice by the client. The Company frequently is entitled to keep any portion of any advance payment and receive certain fees for winding down a study that is terminated or delayed. Competition The decision of whether to outsource can place the Company in competition with a client's in-house development group. However, once the decision is made to outsource, the Company primarily competes against other full service CROs and, to a lesser extent, universities and teaching hospitals. Some of these competitors have substantially greater capital, technical and other resources than the Company. Large CROs with which the Company competes include Quintiles Transnational Corporation, ClinTrials Research, Inc., Covance, Inc., Kendle, Pharmaceutical Product Development, Inc. and PAREXEL International Corporation. CROs generally compete on the basis of experience, medical and scientific expertise in specific therapeutic areas, the quality of clinical research, the ability to organize and manage large-scale trials on a global basis, the ability to manage large and complex medical databases, the ability to provide statistical and regulatory services, the ability to recruit investigators and patients, the ability to integrate information technology with systems to improve the efficiency of clinical research, an international presence, financial viability and price. The Company believes that it competes favorably in all of these areas. The CRO industry is highly fragmented, with participants ranging from several hundred small, limited-service providers to a few large, full-service CROs with global operations. The trend toward CRO industry consolidation has resulted in heightened competition among the CROs for clients. In addition, consolidation within the pharmaceutical industry, as well as a trend by pharmaceutical companies to outsource to fewer CROS, has heightened competition among CROs for contracts from that industry. The Company believes major pharmaceutical, biotechnology and medical device companies tend to develop preferred provider relationships with full-service CROs, effectively excluding smaller CROs from the bidding process. The Company may find reduced access to certain potential clients due to these arrangements. 11 The Company's Technology Operations segment, DLB, competes primarily with Fraser Williams and Clinarium in the trial management area. Its data management competitors include Domain, Oracle Clinical and DZS. In addition the Company vies for business primarily with Domain and Clinarium in the safety arena. In all areas, the primary competitive differentiator for DLB is implementation certainty, which includes a fixed cost and time frame and assured accuracy and completeness. Government Regulation Human pharmaceutical products, biological products and medical devices are subject to rigorous regulations by the federal government, principally the Food and Drug Administration (FDA), and foreign governments if products are tested or marketed abroad. In the United States, the Federal Food, Drug and Cosmetic Act (FFDCA) governs clinical trials and approval procedures as well as the development, manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products and medical devices. Biological products are subject to similar regulation under both the FFDCA and the Public Health Service Act. Because the Company offers services relating to the conduct of clinical trials and the preparation of the marketing applications, the Company is obligated to comply with applicable regulatory requirements governing these activities, both in the United States and in foreign countries. Requirements governing these activities vary from country to country. In the United States, the Company is subject to inspection by the FDA to evaluate compliance with applicable requirements governing the conduct of clinical trials. If the FDA discovers that the Company has violated applicable requirements relating to the conduct of clinical trials or the preparation of marketing applications, discussed in more detail below, the FDA may take enforcement action such as issuance of a Warning Letter; termination of a clinical study; refusal to approve clinical trial or marketing applications or withdrawal of such applications; injunction; seizure of investigational products; civil penalties; or recommending criminal prosecutions. Pursuant to the FDA's fraud policy, the FDA generally will refuse to approve a pending clinical trial or marketing application, or withdraw such application, if it discovers conduct such as submission of fraudulent applications, making untrue statements of material facts, or giving or promising bribes or illegal gratuities. The Company also is subject to both mandatory and permissive debarment by FDA, which would prohibit the Company from assisting in the submission of abbreviated new, drug applications for generic drugs. Conviction of criminal conduct relating to the development or approval of an abbreviated drug application is a prerequisite to such debarment. Such sanctions could have a material adverse effect on the Company. The Company believes that it is in material compliance with all applicable governmental regulations. The following is a summary of the specific requirements relating to the clinical testing and approval of drugs, biologics and devices: Drug Development and Approval in the United States - An Overview Drug products marketed in the United States usually require approval by the FDA before marketing. The steps required before a new prescription drug may be marketed in the United States include (i) preclinical laboratory and animal tests; (ii) the submission to the FDA of an Investigational New Drug application ("IND"), which must be evaluated and found acceptable by the FDA before human clinical trials may commence; (iii) adequate and well-controlled human clinical trials to establish the safety and effectiveness of the drug; (iv) the submission of a New Drug Application ("NDA") to the FDA; and (v) FDA approval of the NDA. The Company's services relate to steps (ii) through (iv) of this process. 12 Clinical trials to evaluate the safety and effectiveness of drugs are generally conducted in three sequential phases that may overlap. In Phase I (typically lasting from 6 months to one year), the drug is introduced into a small number of human subjects, usually healthy volunteers, to determine safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase II (typically lasting from one to two years) involves clinical trials in a limited patient population to determine the effectiveness of the pharmaceutical for specific targeted indications, to determine dosage tolerance and optimal dosage and to identify possible adverse side effects and safety risks. After a compound has been shown in Phase II trials to have an acceptable safety profile and probable effectiveness, Phase III trials (typically lasting from 2 to 3 years) are undertaken in an expanded patient population at multiple clinical sites to further evaluate clinical effectiveness and safety within an expanded patient population. Prior to commencing each phase of a clinical trial, a drug sponsor must submit an IND application to the FDA. The IND application must contain, among other things, protocols for each study; a description of the composition, manufacture, and control of the drug substance and the drug product; information about pre-clinical pharmacological and toxicological studies of the drug; and a summary of previous human experience with the investigational drug. Unless the FDA objects, the IND will become effective 30 days following its receipt by the FDA. If the FDA has concerns about the proposed clinical trial, it may delay the trial and require modifications to the trial protocol prior to permitting the trial to begin. In addition, all clinical trials of new drugs must obtain approval of the institutional review board ("IRB") at each institution at which the trial is conducted. The IRB reviews the study to verify the method of experimentation and safety, and to ensure that subjects give their informed consent to participate in the clinical trial. When results from a Phase II or Phase III study show promise in the treatment of a serious or immediately life-threatening disease in patients for whom no comparable or satisfactory alternative drug or other therapy exists, the FDA may allow the manufacturer to make the new drug available to a larger number of patients through the regulated mechanism of a treatment IND. Although less scientifically rigorous than a controlled clinical trial, the treatment IND facilitates availability of promising drugs to ill patients prior to general marketing and also allows sponsors to obtain additional data on the drug's safety and effectiveness. In general, treatment use of an investigational drug is conditioned upon compliance with safeguards of the IND process such as informed consent, IRB approval, and other requirements. Once a clinical trial with proper IRB and IND approval is commenced, the conduct of the clinical trial is governed by extensive FDA regulations. Clinical trial sponsors (i.e., the persons who initiate the trials but do not actually conduct the investigations) are responsible for the selection of qualified investigators, providing investigators with protocols and other necessary information, monitoring the investigation, reporting changes in study protocol to the FDA, reporting to the FDA and investigators safety reports of serious and unexpected adverse experiences associated with use of the drug, and maintaining records concerning the study. To the extent that the Company performs these functions on behalf of a drug sponsor, the Company must comply with these requirements. Upon completion of clinical trials that demonstrate the safety and efficacy of a new drug, a drug sponsor must submit an NDA and obtain FDA approval of an NDA prior to marketing the drug. The NDA must include information pertaining to the composition, manufacture, and specification of the drug substance; a description of the preclinical studies; a description of the human pharmacokinetic data and human bioavailability data; descriptions of clinical investigations; a statistical evaluation of the clinical data; and proposed labeling. Submission of an NDA does not assure the FDA approval for marketing. The application review process generally takes at least two to three years to complete, and the FDA may require additional data or other studies during the course of its review. Notwithstanding the submission of such data, the FDA ultimately may decide that the application does not satisfy its regulatory criteria for approval. Finally, the FDA may require additional clinical testing following NDA approval to confirm safety and efficacy (Phase IV clinical tests). No assurance exists that clinical studies conducted will provide sufficient information to support the filing of an NDA. Clinical trials may be conducted outside of the United States without an IND. The FDA will accept data from such foreign clinical trials to support clinical investigations in the United States and/or approval of an NDA only if the agency determines that the trials are well-designed, well-conducted, performed by qualified investigators, and conducted in accordance with internationally recognized ethical principles. 13 Less extensive approval requirements can apply to generic drugs. Abbreviated requirements are applicable to drugs that are, for example, either bioequivalent to brand name "pioneer" drugs, or otherwise similar to pioneer drugs, such that all the safety and efficacy studies previously conducted on the pioneer product need not be repeated for approval. Changes in approved drug products, such as in the delivery system, dosage form or strength, can also be the subject of abbreviated application requirements. Biological Product Development and Approval in the United States - An Overview Like drugs and medical devices, biological products (i.e., those derived from living materials of humans, plant, animals or microorganisms, such as vaccines) are subject to extensive regulation by FDA. Biological products are regulated primarily under the Public Health Service Act, but are also subject to regulation under the FFDCA. While some biological products may be approved for marketing via a new drug application ("NDA"), most manufacturers must obtain two licenses from FDA prior to marketing a biological product: a license for the manufacturing establishment, and a product license. In order to obtain a product license, a manufacturer must obtain FDA approval of a product license application ("PLA"). Similar to an NDA, a PLA must contain the following information: nonclinical and clinical data demonstrating the product's safety, purity and potency; a description of the manufacturing methods; data regarding the product's stability; test results for the lots represented by the submitted samples, and samples of the product and its labeling. The sponsor of a clinical trial involving a biological product must file an IND with FDA, unless the product is exempt from such requirement. Once the IND becomes effective, the conduct of the clinical trial is governed by the same regulatory requirements governing drug clinical trials. Thus, to the extent that the Company performs these functions on behalf of the biological product sponsor, the Company must comply with these requirements. Device Development and Approval in the United States - An Overview The FFDCA and regulations thereunder require that, unless exempted by regulation, all products meeting the statutory definition of "device" receive the FDA clearance of a premarket notification (510(k)) submission or FDA approval of a premarket approval ("PMA") application prior to marketing in the United States. Generally, devices are distinguished from drugs through the characteristic of acting or achieving their effect through means other than pharmacologic action. The FDA categorizes medical devices into three regulatory classifications (Class I, II, and III) on the basis of controls deemed reasonably necessary to ensure their safety and effectiveness. Class I devices are subject to general controls (e.g., labeling, pre-market notification, and adherence to good manufacturing practice regulations for medical devices), and Class II devices are subject to general controls and special controls (e.g., performance standards, post-market surveillance, patient registries and FDA guidelines). Class III devices (generally including life-sustaining, life-supporting, or implantable devices, or new devices that have been found not to be substantially equivalent to a legally marketed predicate device) are those which must receive pre-market approval ("PMA") prior to marketing. Before a new device can be introduced into the market, the manufacturer must generally obtain marketing clearance or approval through either a 510(k) pre-market notification or a PMA. A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed "predicate" device (i.e., a Class I or II medical device, or to a Class III medical device for which the FDA has not called for a PMA). The 510(k) must include, among other information, proposed labeling and advertisements; data demonstrating substantial equivalence to a claimed predicate; and any additional information regarding the device requested by the FDA that is necessary to make a finding as to substantial equivalence to a predicate device. The FDA can require clinical studies to demonstrate that a device is as safe and effective as the predicate device. The FDA recently has been requiring a more rigorous demonstration of substantial equivalence than in the past. It generally takes from four to twelve months from submission of a 510(k) to obtain 510(k) clearance, but it may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information or data are needed before a substantial equivalence determination can be made. 14 If a manufacturer cannot establish that a proposed device is substantially equivalent to a legally marketed predicate device, the manufacturer must seek pre-market approval of the proposed device from the FDA through the submission of a PMA application. A PMA application must be supported by extensive data, including non-clinical laboratory studies or animal testing; clinical trial data; and a bibliography of all published reports reasonably known to the manufacturer concerning safety or effectiveness. In addition, the PMA must include a full description of the device and its components; the principle of operation of the device; a full description of the methods, facilities and controls used for manufacturing, processing, packing, storage and, where appropriate, installation; and proposed labeling. Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA determines that the PMA application is sufficiently complete to permit a substantive review, the FDA will accept the application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the PMA. An FDA review of a PMA application generally takes one to two years from the date the PMA application is accepted for filing, but may take significantly longer. The review time is often significantly extended by the FDA asking for more information or clarification of information already provided in the submission. During the review period, an advisory committee, typically a panel of clinicians, will likely be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. The FDA is not bound by the recommendations of the advisory panel. If the FDA's evaluation of the PMA application is favorable, the FDA will issue either an approval letter or an approvable letter, which usually contains a number of conditions which must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the FDA will issue a PMA approval letter, authorizing marketing of the device for certain indications. If the FDA's evaluation of the PMA application is not favorable, the FDA will deny approval of the PMA application or issue a "not approvable" letter. The FDA may also determine that additional clinical trials are necessary, in which case PMA approval may be delayed for several years while additional clinical trials are conducted and submitted in an amendment to the PMA. Human clinical trials are always required to support a PMA application, and may be required to support a 510(k) submission. If the device involved presents a "significant risk" to the patient, the clinical trial sponsor must obtain IRB approval for the study and must file an investigational device exemption ("IDE") application with the FDA prior to commencing human clinical trials. The IDE application must include reports of prior clinical and nonclinical investigations of the device; an investigational plan; a description of the methods, facilities, and controls used for the manufacture, processing, packing, storage, and, where appropriate, installation of the device; information concerning the investigators participating in the study and the IRB's that approved the study; copies of labeling; copies of forms to be provided to subjects to obtain informed consent; and other relevant information requested by the FDA. As with IND applications, the IDE will become effective 30 days following its receipt by the FDA unless the FDA objects to the application. If the FDA has concerns about the proposed clinical trial, it may delay the trial and require modifications to the trial protocol prior to permitting the trial to begin. Clinical trials involving a device that presents a "nonsignificant risk" to the patient may begin after the sponsor has obtained approval by one or more appropriate IRB'S, but not the FDA. Such investigations are, nevertheless, subject to informed consent requirements, monitoring by the sponsor, and record keeping requirements. As discussed with respect to clinical studies involving drugs, the FDA strictly regulates the conduct of all clinical trials involving medical devices, regardless of whether the clinical trial is conducted under an IDE. The sponsor of a clinical study involving a device is responsible for ensuring that proper IRB and/or FDA approval is obtained prior to commencing the study, selecting qualified investigators and informing investigators of all necessary information, monitoring the investigation, informing the IRB and the FDA about significant new information pertaining to the investigation, and maintaining accurate and current records concerning the investigation. The sponsor must evaluate unanticipated adverse effects and terminate the study if it presents an unreasonable risk to subjects. To the extent that the Company performs these functions on behalf of a investigational device sponsor, the Company must comply with these requirements. 15 The FDA will accept foreign clinical studies involving devices that are not conducted under an IDE if the data are valid and the investigator has conducted the studies in conformance with the "Declaration of Helsinki" or the laws and regulations of the country in which the research is conducted, whichever accords greater protection to human subjects. Foreign clinical data that meets these requirements may form the sole basis for PMA approval if the foreign data are applicable to the United States population and medical practice, studies were performed by clinical investigators of recognized competence, and (if necessary) the FDA validates the data through an on-site inspection or other means. CLIA Requirements - An Overview The Company's clinical laboratory services are subject to the requirements of the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"). This law requires all laboratories to meet specified standards in the areas including personnel qualification, administration, participation in proficiency testing, patient test management, quality control, and quality assurance. In addition, laboratories such as the Company's clinical laboratory must obtain appropriate certification under CLIA. The Company has obtained such certification for its clinical laboratory. Under CLIA, the Company's clinical laboratory is subject to inspection by the United States Department of Health and Human Services or a designee. Violations of the CLIA requirements may result in sanctions including suspension, limitation, or revocation of certification; enjoinment of laboratory activities; civil money penalties; or criminal prosecution for intentional violations. There can be no assurance that the regulations under, and future administrative interpretations of, CLIA will not have an adverse impact on the Company's services in this area. Foreign Regulatory Requirements The Company also is subject to foreign regulatory requirements governing clinical trials and product approval requirements. Whether or not the FDA approval has been obtained to conduct a clinical trial or market an FDA-regulated product, approval by comparable regulatory authorities in foreign countries usually must be obtained to conduct such activities in those countries. Potential Liability and Insurance The Company attempts to manage its risk of liability for personal injury or death to patients from administration of products under study through contractual indemnification provisions with clients and through insurance maintained by the Company and its clients. Contractual indemnification generally does not protect the Company against certain of its own actions, such as negligence. The terms and scope of such indemnification vary from client to client and from trial to trial. Although most of the Company's clients are large, well capitalized companies, the financial viability of these indemnification provisions cannot be assured. Therefore, the Company bears the risk that the indemnifying party may not have the financial ability to fulfill its indemnification obligations. The Company also maintains professional liability insurance in the amount of $1 million per claim and in the aggregate and an umbrella policy of $5 million. The Company could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is beyond the scope of an indemnity provision or beyond the scope or level of insurance coverage maintained by it or the client or where the indemnifying party does not fulfill its indemnification obligations. Intellectual Property The Company's services have been enhanced by significant investment in information technology. The Company's information services group is committed to achieving operating efficiencies through technical advances. The Company has developed certain computer software and technically derived procedures that it seeks to protect through a combination of contract law, trademarks, and trade secrets. Although the Company does not believe that its intellectual property rights are as important to its results of operations as are such factors as technical expertise, knowledge, ability and experience of the Company's professionals, the Company believes that its technical capabilities provide significant benefits to its clients. 16 Employees At December 31, 1998, the Company had 274 employees. At its US locations, the Company had 227 employees (217 full-time, 10 part-time). At its UK locations, the Company had 47 employees (all full-time). On December 31, 1998, 39 employees held M.D., Ph.D. or other masters or post-graduate degrees. The Company believes that its relations with its employees are good. ITEM 2. PROPERTIES The Company leases all of its facilities. The Company's principal offices are located in Philadelphia, PA. On January 3, 1999 the Company moved into new Philadelphia facilities, comprised of approximately 58,000 square feet under a lease expiring in 2005. The Company also maintains offices of approximately 9,000 square feet in Peterborough, UK and 6,875 square feet in Maidenhead, UK. The Peterborough and Maidenhead leases expire in 2009 and 2004, respectively. The Peterborough lease contains a termination option as of June 30, 1999. The Company has notified the landlord of its intent to exercise the termination option and has identified a smaller facility at a comparable cost per square foot. The Company's DLB operations are located in Bridgewater, New Jersey, where it leases approximately 10,600 square feet. The Bridgewater lease expires in 1999. The Company believes that the leases generally reflect market rates in their respective geographic areas. ITEM 3. LEGAL PROCEEDINGS The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matters during the fourth quarter of the year covered by this Report to a vote of the security holders through the solicitation of proxies or otherwise. 17 SPECIAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT Officers are elected by the Board of Directors and serve at the pleasure of the Board. The executive officers of the Company are as follows:
Name Age Position ---- --- -------- Joel Morganroth, M.D 53 Chief Executive Officer Joseph Esposito 45 President & Chief Operating Officer David Dworaczyk, Ph.D. 43 Sr. Vice President, Business Development Barry Sachais, Ph.D. 57 Sr. Vice President, Clinical Operations Glenn Cousins 41 Sr. Vice President, Diagnostic Services David A. Evans 41 Sr. Vice President & Chief Technical Officer Fred M. Powell 37 Vice President, Finance and Administration
Dr. Morganroth has served as the Chief Executive Officer of the Company since 1993 and as a Director of the Company since 1997. In addition, Dr. Morganroth has consulted for the Company since 1976. Dr. Morganroth was a Professor of Medicine and Pharmacology at Hahnemann University from 1982 to 1992, and served as a Director of Cardiac Research and Development at the Graduate Hospital of Philadelphia from 1987 until 1992. Currently, Dr. Morganroth is an Adjunct Professor of Medicine (Pharmacology) at Jefferson Medical College of Thomas Jefferson University and Clinical Professor of Medicine at the University of Pennsylvania School of Medicine. Dr. Morganroth is an internationally recognized cardiologist and clinical researcher. He served for over ten years as a Medical Review Officer/Expert for the FDA and since 1995 has served in a similar capacity for the Health Protection Branch of Canada. Mr. Esposito joined the Company as President of DLB Systems in October 1997 and became President and Chief Operating Officer of Premier Research Worldwide in April 1998. From May 1997 until joining the Company, Mr. Esposito had served as President of DLB Systems, Inc. In addition, Mr. Esposito served as President, Worldwide Operations for Computron (1994-1997) and held various senior management positions at Ross Systems, Inc. (1991-1994). From 1979 to 1991, Mr. Esposito held various senior management positions with Wang, which produced computing equipment related to peripheral devices and workflow/image management software. Dr. Dworaczyk joinded the Company as Senior Vice President, Business Development in April 5, 1998. Prior to joining the Company, he held several senior management positions at Solvay Pharmaceuticals from 1989 to 1997 including the position of Director of Computer Aided Registration Statements. After leaving Solvay and until joining Premier Research, he founded and operated his own consulting company focused on drug and medical device development. He has been actively involved in the pharmaceutical industry for over 18 years and has worked in addition at Norwich Eaton Pharmaceuticals and DuPont Pharmaceuticals. His professional experience encompasses domestic and international research and development, commercial operations, business development and strategic planning. Dr. Sachais joined the Company as Vice President-Clinical Research in September 1997 and was named Senior Vice President-North American Operations in April 1998. Prior to joining the Company, he held the position of Vice President of Clinical Research for Quintiles CNS in San Diego from 1993 to 1997 and Director of Clinical research at Kendle from 1991 to 1993. He has spent more than 30 years in the pharmaceutical development area including 14 years at Ciba Geigy and 7 years with Sandoz. The majority of his career, Dr. Sachais has managed CNS Drug Development. In that regard, he was vice president in the CNS therapeutic area at Ciba Geigy. Dr. Sachais received his Ph.D. degree in pharmacology from New Jersey College of Medicine in 1968. Mr. Cousins has served in various capacities since joining the Company in 1980. Mr. Cousins has served as Senior Vice President, Diagnostic Services since 1998. He served as Vice President and Chief Operating Officer of the Company from 1993 to 1996 and as President, Diagnostic Services from 1996 to 1998. Mr. Evans has served as Senior Vice President and Chief Technical Officer since January 1994. Mr. Evans, who joined the Company in 1980, has also served as Vice President (1989-1990) and Executive Vice President (1991-1993). Mr. Evans led the Company's effort to provide CANDAs and was the principal designer of the first CANDA. 18 Mr. Powell has served as Vice President, Finance and Administration and Chief Financial Officer of the Company since 1995. Since joining the Company in 1993, Mr. Powell also has served as Director of Finance and Administration (1993-1995) and Director of Finance (1993). Prior to joining the Company, Mr. Powell was employed as an Assistant Controller for Crown Textile Co. (1989-1993), and as a Senior Manager of KPMG Peat Marwick LLP. While at KPMG Peat Marwick LLP, Mr. Powell specialized in the pharmaceutical and service industries. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been traded on The Nasdaq National Market System since February 4, 1997, under the symbol "PRWW". Before February 1997, no established public trading market existed for the Company's Common Stock. Below is the range of high and low sales information for the Common Stock for the following quarters as quoted on The Nasdaq National Market System: Calendar Period High Low - --------------- ---- --- 1998 First Quarter $13.000 $4.500 Second Quarter 6.375 4.500 Third Quarter 5.500 3.750 Fourth Quarter 6.125 2.750 1997 First Quarter (February 4 - March 31) $26.250 $13.125 Second Quarter 17.000 5.375 Third Quarter 12.000 7.625 Fourth Quarter 14.250 6.250 No dividends were paid on the Common Stock in 1997 or 1998. The Company plans to retain future earnings to fund the development and growth of its business and therefore does not anticipate paying cash dividends in the foreseeable future. During 1998, the Company issued 279,120 shares of its Common Stock upon exercise of outstanding options pursuant to its 1993 Non-Qualified Stock Option Plan, for which it received $633,602. The issuance of such shares was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Rule 701 promulgated under said Act. As of March 15, 1999, there were approximately 1,200 holders of record of the Company's Common Stock. In its initial public offering, the Company sold 2,206,250 shares of Common Stock (including over-allotments), pursuant to its Registration Statement on Form S-1, File No. 333-17001 (the "Registration Statement"), which was declared effective by the Securities and Exchange Commission on February 3, 1997 (the "Effective Date"). The gross proceeds to the Company from the IPO were approximately $37,506,000, and, after underwriting discounts and commissions, expenses paid to or for the benefit of underwriters, and other costs of the IPO, net proceeds to the Company were approximately $34,182,000. 19 From the Effective Date to December 31, 1998, the Company purchased approximately $4,861,000 of property and equipment, used approximately $3,176,000 for working capital, $5,668,000 for short-term investments, $8,655,000 for the purchase of DLB and $1,000,000 for an equity investment in AmericasDoctors.com, Inc. None of the foregoing payments resulted in direct or indirect payments (i) to directors or officers of the Company, nor their associates, (ii) to persons owning 10% or more of the Common Stock of the Company, nor (iii) to affiliates of the Company. The Company's use of proceeds does not represent a material change in the use of proceeds described in the Prospectus contained within the Registration Statement. 20 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company is qualified by reference to, and should be read in conjunction with, the consolidated financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report.
Consolidated Statements of Operations Data (in thousands, except per share data) Year Ended December 31 ----------------------------------------------------------------- 1998 1997 1996 1995 1994(1) ---- ---- ---- ---- ------- Revenues $ 38,134 $ 15,327 $ 15,396 $ 12,218 $ 12,910 Less: Reimbursed costs (6,327) (1,164) (113) (154) -- ------------ ----------- --------- ----------- ---------- Net revenues 31,807 14,163 15,283 12,064 12,910 ------------ ----------- --------- ----------- ---------- Costs and expenses: Direct costs 13,847 7,167 6,285 4,124 3,473 Selling, general and administrative 16,165 9,922 6,783 6,375 7,245 Depreciation and amortization 1,606 709 704 1,013 1,197 Write-off of acquired in-process research and development (2) -- 7,883 -- -- -- ----------- ----------- --------- ---------- ---------- Total costs and expenses 31,618 25,681 13,772 11,512 11,915 ----------- ----------- --------- ---------- ---------- Income (loss) from operations 189 (11,518) 1,511 552 995 Other income, net 1,012 1,250 -- -- -- ----------- ---------- --------- ---------- ---------- Income (loss) before income taxes and minority interest 1,201 (10,268) 1,511 552 995 Minority interest in limited liability company -- -- 332 48 -- ----------- ---------- ---------------------- ---------- Income (loss) before income taxes 1,201 (10,268) 1,843 600 995 Income tax provision (benefit) (3) 480 (4,037) 773 259 415 ----------- ----------- --------- ---------- ---------- Net income (loss) (4) $ 721 $ (6,231) $ 1,070 $ 341 $ 580 =========== =========== ========= ========== ========== Basic net income (loss) per share $ 0.10 $ (0.93)(2) $ 0.24 $ 0.08 $ 0.13 Diluted net income (loss) per share $ 0.10 $ (0.93)(2) $ 0.23 $ 0.08 $ 0.13 Consolidated Balance Sheet Data (in thousands) December 31 ------------------------------------------------------- 1998 1997 1996 1995 1994(1) ------------- ----------- ----------- ---------- -------- Cash and cash equivalents and short-term investments $ 16,490 $ 21,763 $ 1,498 $ 33 $ 447 Working capital 20,017 21,661 1,595 1,729 87 Total assets 40,172 36,774 5,748 4,400 5,155 Total stockholders' equity 30,941 30,467 2,516 2,658 2,175
(1) For periods prior to June 1, 1994, the Company operated as direct or indirect subsidiaries or as divisions of UM Holdings, Ltd.("UM"). Effective June 1, 1994, the Company was capitalized through the transfer of the net assets and operations of the divisions by UM. 21 (2) Represents a one-time charge of $7.9 million ($0.71 per share) for the write-off of acquired in-process research and development in connection with the acquisition of DLB Systems, Inc. (3) For periods prior to February 3, 1997, the Company was included in the consolidated income tax returns of UM. The financial statements reflect income taxes calculated on a separate company basis for all periods presented. See Note 7 of Notes to Consolidated Financial Statements. (4) Net income (loss) for all periods presented includes various transactions with related parties, including administrative services and a facility lease from UM and consulting fees paid to the Company's Chief Executive Officer, who is a stockholder. See Note 8 of Notes to Consolidated Financial Statements. 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company is a clinical research organization providing a broad range of integrated product development services on a global basis to its clients in the pharmaceutical, biotechnology and medical device industries. The Company's products and services are provided, both in the United States and internationally, through two business segments: Clinical Operations, which include centralized diagnostic testing services, clinical trial management services and clinical data management services; and Technology Operations, which includes the development, marketing and support of clinical trial and data management software, support and consulting services. The Company had operated a Phase I Clinical Research Unit, which was closed in the first quarter of 1998. The Company's centralized diagnostic testing services are on a fee-for-service basis and contracts generally have terms of one month to two years. A portion of the Company's fee frequently is paid upon contract execution as a non-refundable up-front payment, with the remaining amounts billed monthly. Clinical trial and data management services are generally fixed priced contracts, with certain variable components, and range in duration from a few months to two years. A portion of the Company's fee frequently is paid upon contract execution as a non-refundable up-front payment, with the balance billed in accordance with the contract terms. The Company's contracts generally may be terminated with or without cause on 30 to 90 days notice. Clients terminate or delay contracts for a variety of reasons, including, among others, the failure of the product(s) being tested to satisfy safety or efficacy requirements; unexpected or undesired clinical results of the product; the client's decision to forego a particular study; insufficient patient enrollment or investigator recruitment, and production problems resulting in shortages of required supplies. Revenues from clinical trial software and services are derived primarily from software license fees, software maintenance and support and consulting services. Revenues from centralized diagnostic testing services are recognized as the services are performed. Revenues from clinical trial and data management services are generally recognized on a percentage of completion basis as work is performed. The Company regularly subcontracts with third-party investigators in connection with clinical trials and with other third-party providers for specialized services. These and other reimbursable costs are paid by the Company and reimbursed by clients and, in accordance with industry practice, are included in revenues. Since reimbursed costs may vary significantly from contract to contract and are not meaningful for analyzing trends in revenues, they are included in gross revenues but excluded from net revenues. Revenues from technology software licenses are recognized upon shipment of the software and related documentation when collectibility is deemed probable and the license fee is deemed fixed and determinable. Revenues from software maintenance and continuing support contracts are recognized on a straight-line basis over the period in which the software maintenance and continuing support is provided, generally twelve months. Revenues from consulting and training services are recognized when the services are performed. The Company conducts operations on a global basis, with offices in the United States and United Kingdom. For the years ended December 31, 1998, 1997 and 1996, the Company's international net revenues represented 14.5%, 6.9% and 14.9%, respectively, of total net revenues. 23 Results of Operations Year ended December 31, 1998, compared to the year ended December 31, 1997 Net revenues increased 124.6% or $17.6 million to $31.8 million for the year ended December 31, 1998 compared to $14.2 million for the year ended December 31, 1997. The Company experienced increased net revenues in all ongoing service lines. Clinical Operations net revenues increased 91.7% or $10.4 million to $21.7 million for the year ended December 31, 1998 compared to $11.3 million for the year ended December 31, 1997. Contributing to this increase was centralized diagnostic testing service revenues which increased 42.4% to $9.8 million for the twelve months ended December 31, 1998 compared to $6.9 million for the same period in 1997. The increase in centralized diagnostic testing service revenues resulted from increased contract signings in 1998 which resulted in an increase of more than 50% in the number of diagnostic procedures performed. In addition, 1998 net revenues include the recognition of $0.8 million for work completed under a contract which was cancelled before completion. Clinical trial and data management services increased 168.8% or $7.5 million to $11.9 million for the twelve months ended December 31, 1998 compared to $4.4 million for the same twelve months in 1997. The increase in clinical trial and data management net revenues is attributable to recognition of part of the 1997 backlog and new contracts signed in 1998. The increase in clinical trial and data management net revenues includes $0.6 million generated from the Company's UK operation, which didn't offer such services until late 1997. Technology Operations net revenue results for 1998 reflect the full year effect of the acquisition of DLB Systems, which occurred in October 1997. Technology net revenues for the year ended December 31, 1998 were $9.9 million compared to $0.8 million for the year ended December 31, 1997. Other net revenues result from the Company's Phase I Clinical Research Unit which was closed during the first quarter of 1998. Phase I net revenues for the twelve months ended December 31, 1998 were $0.2 million compared to $2.1 million for the twelve months ended December 31, 1997. Direct costs increased $6.7 million or 93.2% to $13.8 million for the year ended December 31, 1998 compared to $7.2 million for the same period in 1997. The increase in overall direct costs reflects the full-year 1998 impact of DLB operations, acquired in October, 1997, the personnel and related expense impact of increased staffing needed to support increased net revenues and the full-year 1998 impact of the Company's decision to build its international clinical trials and data management service capabilities in Europe, which began in late 1997. Direct costs, as a percent of net revenues, declined to 43.5% in 1998 from 50.6% in 1997. The decrease in direct costs as a percentage of net revenues was primarily due to the full year impact of DLB Systems, whose products and services have lower direct costs as a percentage of revenues, recognition of $0.8 million in net revenues for work completed under a contract which was cancelled before completion, closure of the Phase I unit which had a higher percentage of direct cost to net revenues and to the overall increase in net revenues. Selling, general and administrative expenses increased 62.9% to $16.2 million in 1998 from $9.9 million in 1997. The increase in selling, general and administrative expenses is the result of the full-year impact of DLB Systems, acquired in October 1997, the full-year impact of increases to the company's domestic infrastructure to promote and support future growth in operations and the full-year impact of the Company's decision to build its international clinical trials and data management service capabilities. As a percentage of net revenues, selling, general and administrative expenses declined to 50.8% for the twelve months ended December 31, 1998 compared to 70.1% for the same twelve months of 1997. The decline in selling, general and administrative expenses as a percentage of net revenue was primarily due to the Company's ability to spread the fixed portion of selling, general and administrative expenses over a larger revenue base. 24 Depreciation and amortization expense for the year ended December 31, 1998 increased to $1.6 million for the year ended December 31, 1998 compared to $0.7 million for the year ended December 31, 1997. The year-to-year increase was due to the full-year impact of the DLB System's goodwill amortization and increased capital expenditures in 1998. Other income of $1.0 million during the year ended December 31, 1998 declined from the $1.3 million reported for the year ended December 31, 1997. Other income resulted primarily from income earned on investment of the net proceeds of the Company's initial public offering in February 1997. The Company had an income tax provision of $0.5 million for the year ended December 31, 1998 compared to a tax benefit of $4.0 million for the year ended December 31, 1997. The Company's effective income tax rate for the year ended December 31, 1998, was 40.0%, compared to 39.3% for the year ended December 31, 1997. Year ended December 31, 1997, compared to the year ended December 31, 1996 Net revenues decreased $1.1 million or 7.3% to $14.2 million for the year ended December 31, 1997, compared to $15.3 million for the year ended December 31, 1996. Clinical Operations' net revenues decreased 19.7% or $2.8 million to $11.3 million for the year ended December 31, 1997 compared to $14.1 million for the year ended December 31, 1996. The decrease was primarily due to a $5.1 million decrease in central diagnostic testing service revenues for the year ended December 31, 1997, primarily the result of several significant ECG contracts, which were ongoing in 1996, being completed in early 1997, with a low level of new ECG contracts initiated in 1997. Partially offsetting the decrease in central diagnostic testing service revenues, were increased clinical trial and data management net revenues. The clinical trial and data management net revenue growth was attributable to the Company's increased service capabilities developed during 1997. Revenues for the year ended December 31, 1997 were also increased by $0.4 million in connection with a payment received in the first quarter for a licensing agreement termination. Technology Operations' net revenues for the twelve months ended December 31, 1997 were $0.8 million and reflect the October 31, 1997 acquisition of DLB Systems, Inc. (DLB) Other revenues, which represent the Company's Phase I Clinical Research Unit, increased to $2.1 million for the year ended December 31, 1997 from $1.2 million for 1996 as the result of several large contracts that were conducted in 1997. Direct costs increased $0.9 million or 14.0% to $7.2 million for the year ended December 31, 1997, compared to the year ended December 31, 1996. The increase was primarily attributable to increased direct labor costs incurred in connection with the growth in Phase I and clinical trial and data management net revenues and from the October 31 1997 acquisition of DLB Systems. Partially offsetting these increases was a $1.4 million decline in direct costs of central diagnostic testing services. Prior to 1997, the Company paid ECG reading analysis fees to a professional corporation owned by Joel Morganroth, MD, the Company's Chief Executive Officer. The Company and Dr. Morganroth entered into new employment and consulting agreements, effective January 1, 1997, whereby Dr. Morganroth no longer receives ECG reading fees. During 1996, Dr. Morganroth was paid $1.8 million for ECG reading services compared with $0.1 million in 1997 under the terms of the consulting agreement. See Notes 8 and 10 of Notes to Consolidated Financial Statements. As a percentage of net revenues, direct costs increased to 50.6% in 1997, compared to 41.1% in 1996 and is primarily the result of the decline in net revenues in 1997. 25 Selling, general and administrative expenses increased $3.1 million or 46.3% to $9.9 million for the year ended December 31, 1997, compared to the year ended December 31, 1996. During 1997, the Company initiated new sales and marketing campaigns, doubled the size of the direct sales force, increased its commitment to its proprietary software systems and expanded its service capabilities through increased personnel. In addition, the acquisition of DLB added $0.4 million to the overall growth in selling, general and administrative expenses. As a result of the foregoing, selling, general and administrative expenses, as a percent of net revenue, increased to 70.1% for the year ended December 31, 1997, compared to 44.4% for the year ended December 31, 1996. Depreciation and amortization expense for the year ended December 31, 1997 was comparable to the year ended December 31, 1996, at $0.7 million. In connection with the DLB acquisition, the Company assigned $7.9 million of the total purchase price to in-process research and development and such amount was written-off as a one-time charge ($0.71 per share) in the fourth quarter of 1997. Other income of $1.3 million during the year ended December 31, 1997, resulted primarily from income earned on investment of the net proceeds of the Company's initial public offering in February 1997. The Company had an income tax benefit of $4.0 million for the year ended December 31, 1997 compared to a tax provision of $0.8 million for the year ended December 31, 1996. The Company's effective income tax rate for the year ended December 31, 1997, was 39.3%, compared to 41.9% for the year ended December 31, 1996. The rate decrease in 1997, was primarily the result of investment interest earned in 1997 that was not taxable for state purposes. The 1997 tax benefit included the recognition of a significant deferred tax asset, primarily due to the write-off of in-process research and development and net operating loss carry-forwards. See Note 7 of Notes to Consolidated Financial Statements. Liquidity and Capital Resources The clinical research and technology industries generally are not very capital intensive. The Company's principal cash needs relate to funding receivables as client payments generally lag up to 90 days after the invoice date. In February 1997, the Company completed the initial public offering of its common stock, which resulted in proceeds from the offering, net of expenses, of $34.2 million. As of December 31, 1998, the Company had cash and cash equivalents of $10.8 million and short-term investments of $5.7 million. The Company generally places its investments in A1P1 rated commercial bonds and paper, municipal securities and certificates of deposit with maturities of less than one year. For the year ended December 31, 1998, the Company used cash in operating activities of $0.8 million compared to cash used by operations of $3.8 million during the year ended December 31, 1997. The decrease in operating cash usage was due primarily to the Company's 1998 net profit of $0.7 million compared to a net loss of $6.2 million in 1997 and an increase in deferred revenues. This was partially offset by higher accounts receivable and prepaid expenses in 1998. During the year ended December 31, 1998, the Company purchased $3.4 million of property and equipment compared to $1.5 million purchased in 1997. The increase in the purchase of property and equipment reflects the needs to support the overall growth in the business. On July 2, 1998, the Company made an investment of $1.0 million for a minority equity position in AmericasDoctors.com, Inc., an internet company which provides real-time physician chat, referrals and health care events access on America Online's Health web site. 26 On July 20, 1998, the Company announced that its Board of Directors had authorized the repurchase, over time, of up to 500,000 shares of the Company's common stock at prices determined appropriate by the Company. As of December 31, 1998, the Company had used $.8 million to repurchase 177,800 shares of its Common Stock at an average price of $4.38 per share. During the year ended December 31, 1998, the Company received $.6 million in cash from the exercise of 279,120 employee stock options at an average exercise price per option of $2.27. The Company has a line of credit arrangement with First Union National Bank totaling $3.0 million. At December 31, 1998, the Company had no outstanding borrowings under the line. The Company expects that existing cash and cash equivalents, short-term investments, cash flow from operations and borrowings under its line of credit will be sufficient to meet its foreseeable cash needs for at least the next year. However, there may be acquisition and other growth opportunities that require additional external financing and the Company may from time to time seek to obtain additional funds from the public or private issuances of equity or debt securities. There can be no assurance that such financings will be available or available on terms acceptable to the Company. Year 2000 The Company is aware of the issues and problems associated with the Year 2000 date change. The Company has been addressing company-wide data processing and infrastructure issues since 1995. Premier Research has undertaken a Year 2000 Compliance Plan that will be completed by September 1, 1999. In addition, the Company also plans to have all clinical systems Year 2000 compliant by June 30, 1999. The purpose of this plan is to assure that Premier Research, as a corporate entity, has assessed and taken appropriate actions necessary to become compliant with any issues regarding Year 2000 requirements. The problems surrounding Year 2000 compliance are of extreme concern to the Company, since Premier Research is a clinical research organization providing diagnostic testing and clinical research services to the pharmaceutical industry, as well as a developer of clinical database management software. The Company produces and delivers information that is date sensitive, especially in deriving date and time calculations; Premier Research currently can provide to its clients, date formats that contain century markers or 4-digit year fields for any of its clinical and diagnostic information. The Company's strategy to address Year 2000 compliance is to replace potentially non-compliant software and hardware with new compliant systems or updated Year 2000 compliant versions. The inventory and assessment phases of the Year 2000 plan have primarily been completed for its hardware and software systems. The Company has begun its remediation phase of the plan through the replacement and updating of systems. As of today over 90% of the Company's information technology infrastructure has been assessed and found to be free from any Year 2000 issues. Those that have shown not to be in compliance are currently being evaluated and renovated for compliance. If a system can not be made compliant to the requirements, the system will be replaced with one that is compliant. The Company is also assessing its facilities worldwide that it leases or owns, and plans to complete its deployment of applicable contingency plans by September 1, 1999. The Company is also assessing and surveying its suppliers of third party products and services. Based upon information received from such parties, the Company believes that most of its suppliers are developing, assessing and remediating any issues associated with their Year 2000 plans. The Company cannot at this time fully assess the status of its suppliers until they have completed their own efforts. It will review the readiness of the suppliers on an on-going basis throughout the remainder of the year and will implement specific actions to rectify potential problems in its supply chain. 27 As with any other company in its industry or any business in general, the Company is exposed to risks associated with failures in the private and public sector to become Year 2000 compliant. These risks include the possibility that public infrastructure systems, such as electricity, water, natural gas or telecommunications may fail in this country and other countries in the world that the Company does business. In addition, there are those risks that the internal systems of the Company's suppliers, service providers and customers will fail. The Company also relies considerably on travel and could be adversely affected, if air and train travel is disrupted by issues related to the Year 2000. The Company also relies heavily on the healthcare industry. This industry and its related clinical investigational sites may not have focused their efforts on the Year 2000 issue to the same degree. Thus the Company has an increased risk that its investigational sites, necessary for the conduct of clinical trials, will be unable to provide timely answers and data that it needs to perform services on time to its contractual clients. Also, the failure of the Company's customers to address the Year 2000 issue could negatively impact on their ability to use the Company's services. While contingency plans will be developed to address these risks, the Company cannot assure that those plans will sufficiently protect the Company from the effects of those risks. Any disruptions from the realization of any of these risks could adversely affect the Company's ability to perform its services. The Company estimates that the costs associated with its Year 2000 program will be approximately $ 0.5 million, including costs already incurred. Total Year 2000 costs of approximately $0.3 million have been incurred by the Company through December 31, 1998. The estimates of cost, timing and impact of addressing the Year 2000 issue are based on numerous assumptions of future events, including the continued availability of certain resources, the ability of the Company to meet its deadlines and the cooperation of third parties. However, there can be no guarantee that the assumptions will be correct and that these estimates will be achieved. Actual results could differ significantly from those expected by the Company. Inflation The Company believes the effects of inflation and changing prices generally do not have a material adverse effect on its results of operations or financial condition. Cautionary Statement for Forward-Looking Information Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth above may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technology development, market demand and the Company's ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues of the sponsoring client. Further, information on potential factors that could affect the Company's financial results can be found in the Company's Registration Statement on Form S-1 and its Reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary financial market risks include fluctuations in interest rates and currency exchange rates. Interest Rate Risk The Company generally places its investments in A1P1 rated commercial bonds and paper, municipal securities and certificates of deposit with fixed rates with maturities of less than one year. The company actively manages its portfolio of cash equivalents and marketable securities but in order to ensure liquidity, will only invest in instruments with high credit quality where a secondary market exists. The company has not and does not hold any derivatives related to its interest rate exposure. Due to the average maturity and conservative nature of the Company's investment portfolio, a sudden change in interest rates would not have a material effect of the value of the portfolio. Management estimates that had the average yield of the Company's investments decreased by 100 basis points, the Company's interest income for the year ended December 31, 1998 would have decreased by less than $200,000. This estimate assumes that the decrease occurred on the first day of 1998 and reduced the yield of each investment by 100 basis points. The impact on the Company's future interest income, of future changes in investment yields, will depend largely on the gross amount of the Company's investments. See "Liquidity and Capital Resources". 28 Foreign Currency Risk The Company operates on a global basis from locations in the United States and the United Kingdom. All international net revenues are billed and expenses incurred in either US dollars or Pounds Sterling. As such, we face exposure to adverse movements in the exchange rate of the Pound Sterling. As the currency rate changes, translation of the income statement of our UK entity from the local currency to US dollars affects year-to-year comparability of operating results. The Company does not hedge translation risks because any cash flows from international operations are generally reinvested. To date, the effect of foreign currency fluctuations are reflected in the company's operating results and have not been material. Management estimates that a 10% change in the exchange rate of the Pound Sterling would have impacted the reported operating loss for international operations by less than $200,000. The introduction of the Euro as a common currency for members of the European Monetary Union took place in January 1999. The Company has not determined what impact, if any, the Euro will have on the Company's foreign exchange exposure. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item is set forth on Pages F-1 through F-20. ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III MANAGEMENT ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to Directors of the Company is incorporated by reference from the "Election of Directors" section of the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders (the "Proxy Statement"). For information concerning the executive officers of the Company, see "Executive Officers of Registrant" in Part 1 of this Report. ITEM 11. EXECUTIVE COMPENSATION "Executive Compensation" in the Proxy Statement is incorporated by reference. ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "Certain Relationships and Related Party Transactions" in the Proxy Statement is incorporated herein. PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Public Accountants F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 Consolidated Financial Statement Schedule: II. Valuation and Qualifying Accounts F-20 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Premier Research Worldwide, Ltd.: We have audited the accompanying consolidated balance sheets of Premier Research Worldwide, Ltd. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Premier Research Worldwide, Ltd. and subsidiaries, as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index to Consolidated Financial Statements and Schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, PA February 3, 1999 F-2 Premier Research Worldwide, Ltd. and Subsidiaries Consolidated Balance Sheets
December 31 ---------------------------- 1998 1997 ------------ ------------ Assets Current Assets: Cash and cash equivalents $ 10,822,000 $ 4,679,000 Short-term investments 5,668,000 17,084,000 Accounts receivable, net 10,423,000 5,169,000 Prepaid expenses and other 2,176,000 945,000 Deferred income taxes 159,000 91,000 ------------ ------------ Total current assets 29,248,000 27,968,000 Property and equipment, net 4,110,000 1,986,000 Goodwill, net 2,160,000 2,538,000 Other assets 1,023,000 23,000 Deferred income taxes 3,631,000 4,259,000 ------------ ------------ $ 40,172,000 $ 36,774,000 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 2,519,000 $ 1,745,000 Accrued expenses 1,156,000 1,214,000 Deferred revenues 5,556,000 3,348,000 ------------ ------------ Total current liabilities 9,231,000 6,307,000 ------------ ------------ Commitments and contingencies (Note 10) Stockholders' equity: Preferred stock - $10 par value, 500,000 shares authorized, none issued and outstanding -- -- Common stock - $.01 par value, 15,000,000 shares authorized, 7,217,520 and 6,938,400 shares issued and outstanding 72,000 69,000 Additional paid-in capital 37,061,000 36,430,000 Treasury stock, 177,800 shares at cost (779,000) -- Accumulated deficit (5,413,000) (6,032,000) ------------ ------------ Total stockholders' equity 30,941,000 30,467,000 ------------ ------------ $ 40,172,000 $ 36,774,000 ============ ============
The accompanying notes are an integral part of these statements. F-3 Premier Research Worldwide, Ltd. and Subsidiaries Consolidated Statements of Operations
Year Ended December 31 ------------------------------------------------------ 1998 1997 1996 ------------ ------------ ------------ Revenues $ 38,134,000 $ 15,327,000 $ 15,396,000 Less: Reimbursed costs (6,327,000) (1,164,000) (113,000) ------------ ------------ ------------ Net revenues 31,807,000 14,163,000 15,283,000 ------------ ------------ ------------ Costs and expenses: Direct costs 13,847,000 7,167,000 6,285,000 Selling, general and administrative 16,165,000 9,922,000 6,783,000 Depreciation and amortization 1,606,000 709,000 704,000 Write-off of acquired in-process research and development -- 7,883,000 -- ------------ ------------ ------------ Total costs and expenses 31,618,000 25,681,000 13,772,000 ------------ ------------ ------------ Income (loss) from operations 189,000 (11,518,000) 1,511,000 Other income, net 1,012,000 1,250,000 -- ------------ ------------ ------------ Income (loss)before income taxes and minority interest 1,201,000 (10,268,000) 1,511,000 Minority interest in limited liability company -- -- 332,000 ------------ ------------ ------------ Income (loss) before income taxes 1,201,000 (10,268,000) 1,843,000 Income tax provision (benefit) 480,000 (4,037,000) 773,000 ------------ ------------ ------------ Net income (loss) $ 721,000 $ (6,231,000) $ 1,070,000 ============ ============ ============ Basic net income (loss) per share $ 0.10 $ (0.93) $ 0.24 Diluted net income (loss) per share $ 0.10 $ (0.93) $ 0.23
The accompanying notes are an integral part of these statements. F-4 Premier Research Worldwide, Ltd. And Subsidiaries Consolidated Statements of Stockholders' Equity
Retained Common Stock Additional Earnings --------------------------- Paid-in Treasury (Accumulated Shares Amount Capital Stock Deficit) Total ------ ------ ------- -------- -------- ----- Balance, December 31, 1995 4,402,000 $ 44,000 $ 2,273,000 $ -- $ 341,000 $ 2,658,000 Net income -- -- -- -- 1,070,000 1,070,000 Net distributions to UM Holdings, Ltd. -- -- -- -- (1,212,000) (1,212,000) ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31,1996 4,402,000 44,000 2,273,000 -- 199,000 2,516,000 Net proceeds from issuance of common stock 2,206,250 22,000 34,160,000 -- -- 34,182,000 Conversion of minority interest into common stock 330,150 3,000 (3,000) -- -- -- Net loss -- -- -- -- (6,231,000) (6,231,000) ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1997 6,938,400 69,000 36,430,000 -- (6,032,000) 30,467,000 Net income -- -- -- -- 721,000 721,000 Deemed distribution for income taxes -- -- -- -- (102,000) (102,000) Purchase of treasury stock -- -- -- (779,000) -- (779,000) Exercise of stock options 279,120 3,000 631,000 -- -- 634,000 ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1998 7,217,520 $ 72,000 $ 37,061,000 $ (779,000) $ (5,413,000) $ 30,941,000 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements. F-5 Premier Research Worldwide, Ltd. and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31 ------------------------------------------------ 1998 1997 1996 ------------ ------------ ------------ Operating activities: Net income (loss) $ 721,000 $ (6,231,000) $ 1,070,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Depreciation and amortization 1,606,000 709,000 704,000 Write-off of acquired in-process research and development -- 7,883,000 -- Minority interest in limited liability company -- -- (332,000) Deferred income taxes 411,000 (4,149,000) (25,000) Loss (gain) on sales of property and equipment -- 36,000 (2,000) Changes in operating assets and liabilities, excluding effects of business acquisition: Accounts receivable (5,254,000) (1,277,000) (251,000) Prepaid expenses and other (1,231,000) (524,000) 28,000 Accounts payable 774,000 (295,000) 356,000 Accrued expenses (11,000) (6,000) 198,000 Payable to UM Holdings, Ltd. for income taxes -- (485,000) 485,000 Deferred revenues 2,208,000 586,000 783,000 ------------ ------------ ------------ Net cash provided by (used in) operating activities (776,000) (3,753,000) 3,014,000 ------------ ------------ ------------ Investing activities: Purchases of property and equipment (3,352,000) (1,509,000) (371,000) Proceeds from sales of property and equipment -- -- 34,000 Net (purchases) sales of short-term investments 11,416,000 (17,084,000) -- Net cash paid for business acquisition -- (8,655,000) -- Investment in AmericasDoctor.com, Inc. (1,000,000) -- -- ------------ ------------ ------------ Net cash provided by (used in) investing activities 7,064,000 (27,248,000) (337,000) ------------ ------------ ------------ Financing activities: Net distributions to UM Holdings Ltd. -- -- (1,212,000) Net proceeds from the issuance of common stock -- 34,182,000 -- Net proceeds from exercise of stock options 634,000 -- -- Repurchase of common stock for treasury (779,000) -- -- ------------ ------------ ------------ Net cash provided by (used in) financing activities (145,000) 34,182,000 (1,212,000) ------------ ------------ ------------ Net increase in cash and cash equivalents 6,143,000 3,181,000 1,465,000 Cash and cash equivalents, beginning of year 4,679,000 1,498,000 33,000 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 10,822,000 $ 4,679,000 $ 1,498,000 ============ ============ ============
The accompanying notes are an integral part of these statements. F-6 PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Background Premier Research Worldwide, Ltd. (the "Company"), a Delaware corporation, is a clinical research organization providing a broad range of integrated product development services on a global basis to its clients in the pharmaceutical, biotechnology and medical device industries. The Company operates in two business segments: Clinical Operations, which includes centralized diagnostic testing, clinical trial management, clinical data management, biostatistical analysis, health care economics and outcomes research and regulatory affairs services; and Technology Operations, which includes developing, marketing and support of software products used in the management of clinical trials. The Company also has a wholly-owned operating subsidiary in the United Kingdom (UK). Initial Public Offering The Company completed an initial public offering of its common stock effective February 3, 1997. The Company sold 2,750,000 shares of common stock at an initial public offering price of $17.00, of which 2,000,000 shares were issued and sold by the Company and 750,000 shares were sold by UM Holdings, Ltd. (UM). Additionally, 412,500 shares of common stock were purchased at $17.00 per share by the underwriters, upon the exercise of an over-allotment option, of which 206,250 shares were purchased from the Company and 206,250 shares were purchased from UM. The net proceeds to the Company, after deducting underwriting discounts and expenses, were approximately $34.2 million. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, its subsidiaries and Premier Research LLC prior to February 1997 (see Note 6). All significant inter-company accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported assets and liabilities and contingency disclosures at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could differ from those estimates. Recapitalization On October 24, 1996, the Company's Board of Directors approved an amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of common stock to 15,000,000 shares and authorizing 500,000 shares of preferred stock. In addition, on November 26, 1996, the Company effected a 2,201-for-one split of its common stock. The increase in authorized shares and the stock split have been retroactively reflected in the accompanying consolidated financial statements. F-7 Revenues Clinical Operations revenues are generally recorded when services are rendered. Revenues under certain clinical research service contracts are recognized under the percentage-of-completion method and include a proportion of the revenues expected to be realized on the contract in the ratio of costs incurred to estimated total costs. Such contracts are generally completed within a few months to two years. A provision for the loss on a contract is made when current estimates indicate a total contract loss. The Company often receives non-refundable deposits from its customers that are recorded as deferred revenues in the accompanying consolidated balance sheets. Clinical Operations revenues for twelve months ended December 31, 1998 include $0.8 million for work completed under a contract which was cancelled before completion. Technology Operations include software license revenues which are recognized upon shipment of the software and related documentation when collectibility is deemed probable and the license fee is deemed fixed and determinable. Revenues from software maintenance and support contracts are recognized on a straight-line basis over the term of the contract, generally 12 months. Revenues from related training and consulting services are recognized as services are performed. Technology Operations revenues for the year ended December 31, 1997 include $0.4 million recognized in connection with a license agreement termination. Cash and Cash Equivalents The Company considers cash on deposit with financial institutions and all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At the balance sheet dates, cash equivalents consisted primarily of investments in money market funds, municipal securities and bonds of government sponsored agencies. Short-term Investments At December 31, 1998, short-term investments consisted of commercial bonds and paper, municipal securities, certificates of deposit and bonds of government sponsored agencies with maturities of less than one year. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", available-for-sale securities are carried at fair value, based on quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. The Company has classified all of its short-term investments at December 31, 1998 as available-for-sale and at December 31, 1998, unrealized gains and losses were immaterial. Realized gains and losses during 1998 were also immaterial. For the purpose of determining realized gains and losses, the costs of the securities sold is based upon specific identification. Investment in AmericasDoctor.com, Inc. In July 1998, the Company paid $1 million for a minority equity position in AmericasDoctor.com, Inc., an internet company that provides physician referrals and healthcare events on America Online's Health web page. This investment is being accounted for on the cost method. AmericasDoctor.com, Inc. is a privately held company and the Company believes that the cost of their investment approximates fair value at December 31, 1998. The $1 million investment is included in long-term assets in the accompanying consolidated balance sheet. Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term. Repair and maintenance costs are expensed as incurred. Improvements and betterments are capitalized. Gains or losses on the disposition of property and equipment are included in other income. Depreciation expense was $1,228,000, $605,000, and $656,000 for the years ended December 31, 1998, 1997 and 1996, respectively. F-8 Goodwill Goodwill is amortized using the straight-line method over five to eight years and is net of accumulated amortization of $704,000 and $325,000 as of December 31, 1998 and 1997, respectively. The related amortization expense was $378,000, $104,000 and $48,000 for the years ended December 31, 1998, 1997, and 1996, respectively. The Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life may warrant revision or that the remaining goodwill balance may not be recoverable. If factors indicate that goodwill should be evaluated for possible impairment, the Company would use an estimate of the related undiscounted cash flows in measuring whether goodwill should be written down to the fair value, in accordance with SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Management believes that there has been no impairment of long-lived assets as of December 31, 1998. Accrued Expenses Included in accrued expenses at December 31, 1998 and 1997 is accrued payroll of $515,000 and $538,000, respectively. Software Development Costs Research and development expenditures are charged to operations as incurred. In 1998 and 1997, research and development expense was approximately $2,500,000 and $700,000 respectively. Research and development expense was not material in 1996. SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. The Company has determined that technological feasibility for its products is generally achieved upon completion of a working model. Since software development costs have not been significant after the completion of a working model, all such costs have been charged to expense as incurred. Advertising Costs The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 1998, 1997 and 1996 was $473,000, $310,000, and $84,000 and respectively. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company was included in the consolidated federal tax return of UM until February 1997 and files separate state, local and foreign income tax returns. The accompanying financial statements reflect income tax expense calculated on a separate-company basis for all periods presented. F-9 Supplemental Cash Flow Information The Company paid approximately $128,000, $819,000, and $316,000 for income taxes in the years ended December 31, 1998, 1997 and 1996, respectively, of which $575,000 was paid to UM in 1997 in accordance with the tax sharing agreement. The Company was not required to make payments to UM for income taxes in 1996 (see Note 7). The following table displays the net non-cash assets that were consolidated as a result of the Company's business acquisition in 1997 (see Note 2): Non-cash asset (liabilities): Accounts receivable $1,055,000 Prepaid expenses and other 35,000 Property and equipment 386,000 Other assets 23,000 In-process research and development 7,883,000 Goodwill 2,548,000 Accounts payable (1,209,000) Accrued expenses (450,000) Deferred revenues (1,616,000) ----------- Net cash paid for acquisition $8,655,000 =========== Other Income Other income consists primarily of earnings on short-term investments. Concentration of Credit Risk and Significant Customers Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable from companies operating in the pharmaceutical industry. For the year ended December 31, 1996, two clients accounted for 25% of the Company's net revenues. For the years ended December 31, 1998 and 1997, no single client accounted for greater than 10% of net revenues. Due to the contract nature of the Company's business and the relative size of such contracts in comparison to the Company, it is not unusual for a significant customer in one year to be insignificant in the next year. The loss of any such client could have a material adverse effect on the Company's operations. In addition, the Company maintains reserves for potential credit losses and such losses, in the aggregate, have not historically exceeded management expectations. Translation of Foreign Financial Statements Assets and liabilities of the Company's UK subsidiary are translated at the exchange rate as of the end of each reporting period. The income statement is translated at the average exchange rate for the period. Cumulative adjustments from translating the UK financial statements are immaterial. Net Income (Loss) Per Common Share The Company follows SFAS No. 128 "Earnings per Share". This statement requires the presentation of basic and diluted earnings per share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year, adjusted for the dilutive effect of common stock equivalents, which consist primarily of stock options, using the treasury stock method. F-10 The table below sets forth the reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations. Year Ended December 31, - -----------------------
Net Per Share Income (Loss) Shares Amount ------------- ------ ---------- 1998 Basic net income $ 721,000 7,102,000 $ 0.10 Effect of dilutive shares -- 102,000 -- ----------- ----------- -------- Diluted net income $ 721,000 7,204,000 $ 0.10 =========== =========== ======== 1997 Basic net loss $(6,231,000) 6,702,000 $ (0.93) Effect of dilutive shares -- -- -- ----------- ----------- -------- Diluted net loss $(6,231,000) 6,702,000 $ (0.93) =========== =========== ======== 1996 Basic net income $ 1,070,000 4,402,000 $ 0.24 Effect of dilutive shares -- 248,000 (0.01) ----------- ----------- -------- Diluted net income $ 1,070,000 4,650,000 $ 0.23 =========== =========== ========
In computing diluted net income (loss) per share, 435,385, 851,620 and 8,804 options to purchase shares of common stock were excluded from the computation for the years ended December 31, 1998, 1997 and 1996, respectively. The options were excluded from the 1998 and 1996 computations because the exercise prices of such options were greater than the average market price of the Company's Common Stock during 1998 and 1996, respectively. The options were excluded from the 1997 computation because their effect would be anti-dilutive. New Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". This statement requires companies to classify items of other comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position. SFAS No. 130 was effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company's comprehensive income includes net income and unrealized gains on short-term investments and losses from foreign currency translation. These unrealized gains and losses and currency translation adjustments were immaterial for all periods presented. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 2. Acquisition of DLB Systems, Inc. Effective October 31, 1997, the Company acquired substantially all of the assets of DLB Systems, Inc. ("DLB") for $6,500,000 in cash, its prior $1.0 million investment and the assumption of certain liabilities. The acquisition was accounted for under the purchase method of accounting, whereby the purchase price was allocated to the assets acquired and the liabilities assumed, based on their fair market values at the acquisition date. The excess of the purchase price over the estimated fair market value of the net assets acquired was assigned to identifiable intangibles. The Company assigned $7,883,000 to in-process research and development and such amount was charged to operations in the accompanying consolidated statement of operations. The Company also recorded goodwill of $2,548,000, which is being amortized on a straight-line basis over eight years. F-11 DLB's results of operations have been included in the Company's consolidated financial statements from the effective date of the acquisition. The following table summarizes the unaudited pro forma results of operations of the Company as if the acquisition of DLB had occurred on January 1, 1996. The pro forma information does not purport to be indicative of the results that would have been attained if the operations had actually been combined during the periods presented. Year Ended December 31 ---------------------------- 1997 1996 ----------- ----------- Net revenues $19,461,000 $21,615,000 Operating loss (5,105,000) (1,751,000) Net loss (2,631,000) (1,477,000) Basis and diluted net loss per share (0.39) (0.34) The pro forma amounts do not include the one-time charge of $7,883,000 ($0.71 per share) related to the write-off of in-process research and development. 3. ACCOUNTS RECEIVABLE: December 31 ---------------------------- 1998 1997 ------------ ------------ Billed $10,307,000 $ 4,916,000 Unbilled 359,000 431,000 Allowance for doubtful accounts (243,000) (178,000) ----------- ------------ $10,423,000 $ 5,169,000 =========== ============ 4. PROPERTY AND EQUIPMENT: December 31 --------------------------------- 1998 1997 -------------- -------------- Computer and other equipment $ 9,466,000 $7,551,000 Furniture and fixtures 1,436,000 636,000 Leasehold improvements 808,000 171,000 ------------ -------------- 11,710,000 8,358,000 Less-Accumulated depreciation (7,600,000) (6,372,000) ------------- -------------- $ 4,110,000 $ 1,986,000 ============= ============== 5. LINE OF CREDIT: The Company has a line of credit with a bank, through June 30, 1999, that provides for borrowings up to $3 million at an interest rate of prime minus 35 basis points. The line of credit agreement includes certain covenants, the most restrictive of which limit future indebtedness and require compliance with a liabilities-to-tangible net worth ratio. To date, the Company has not borrowed any amounts under its line of credit. 6. PREMIER RESEARCH LLC: In September 1995, the Company and PREMIER, Inc. entered into the Agreement and Plan of Organization of a limited liability company, Premier Research LLC (Premier LLC). Under the terms of the agreement, PREMIER, Inc. contributed $300,000 in cash, $50,000 in property, $30,000 in services and the business operations of its Contract Research Organization Division for a 35% interest in Premier LLC. The Company agreed to manage Premier LLC and to fund Premier LLC's working capital needs for three years in exchange for a 65% interest in Premier LLC. In accordance with the agreement, PREMIER, Inc.'s ownership interest in Premier LLC automatically converted into 330,150 shares of common stock concurrent with the Company's initial public offering. F-12 7. INCOME TAXES: The Company was included in the consolidated federal income tax returns of UM until February 1997 under a tax-sharing agreement pursuant to which the Company would pay to UM amounts equal to the taxes that the Company would have paid had it filed separate federal income tax returns. The agreement did not provide for UM to pay the Company for tax losses that UM may utilize. Upon finalizing the Company's 1997 tax return in 1998, the Company recorded a deemed distribution of $102,000 for tax losses attributed to the Company but included in UM's consolidated tax return. The income tax provision (benefit) consists of the following:
Year Ended December 31 ------------------------------------------------- 1998 1997 1996 ------------- -------------- ----------- Current provision : Federal $ -- $ -- $ 485,000 State and local 69,000 112,000 218,000 Foreign -- -- 95,000 ------------- -------------- ----------- 69,000 112,000 798,000 ------------- -------------- ----------- Deferred provision (benefit): Federal 146,000 (3,103,000) (19,000) State and local 34,000 (617,000) (6,000) Foreign 231,000 (429,000) -- ------------ -------------- ----------- 411,000 (4,149,000) (25,000) ------------ -------------- ----------- $ 480,000 $ (4,037,000) $ 773,000 ============ ============== ===========
Foreign income (loss) before income taxes was $676,000, $(1,300,000) and $288,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The reconciliation between income taxes at the federal statutory rate and the amount recorded in the accompanying financial statements is as follows:
Year Ended December 31 ------------------------------------------------ 1998 1997 1996 ----------- ----------- ----------- Tax at federal statutory rate $ 408,000 $(3,491,000) $ 627,000 State and local taxes, net of federal 70,000 (505,000) 140,000 Amortization of goodwill 16,000 16,000 16,000 Other (14,000) (57,000) (10,000) ----------- ----------- ----------- $ 480,000 $(4,037,000) $ 773,000 =========== =========== ===========
The components of the Company's net deferred tax asset are as follows:
December 31 ---------------------------------------- 1998 1997 ------------ ----------- Goodwill amortization $ 2,986,000 $3,129,000 Net operating loss carry-forwards 652,000 853,000 Depreciation (7,000) 30,000 Reserves and accruals 159,000 338,000 ------------ ----------- $ 3,790,000 $4,350,000 ============ ==========
F-13 At December 31, 1998, the Company had a net operating loss carry-forward for federal income tax purposes of approximately $1.5 million which will begin to expire in 2012, a net operating loss carry-forward for state tax purposes of approximately $2.5 million which will begin to expire in 2007 and a UK loss carry-forward of approximately $27,000 which has no expiration date. Management has determined that it is more likely than not that future taxable income will be sufficient to realize all of the Company's deferred tax assets. Approximately $10.5 million of future taxable income is needed for the Company to fully realize the net deferred tax asset recorded at December 31, 1998. 8. RELATED PARTY TRANSACTIONS: TRANSACTIONS WITH UM The Company leased its primary operating facility from UM (see Note 10) in 1998, 1997 and 1996 and participated in UM's 401(k) profit sharing plan in 1997 and 1996. The Company was charged $349,000, $349,000 and $382,000 for rent under the facility lease for the years ended December 31, 1998, 1997 and 1996, respectively, and $ 47,000 and $69,000 for profit sharing plan contributions for the years ended December 31, 1997 and 1996, respectively. The Company believes that all amounts charged by UM were reasonable. In 1997, the Company paid UM $485,000 for 1996 income taxes payable and $90,000 for estimated 1997 income taxes due under the tax sharing agreement (see Note 7). TRANSACTIONS WITH THE COMPANY'S CHIEF EXECUTIVE OFFICER The Company's Chief Executive Officer, who is a stockholder, is a cardiologist who, in addition to his role as Chief Executive Officer of the Company, provides medical services to the Company as an independent contractor through his wholly-owned Professional Corporation (see Note 10). Fees incurred under this consulting arrangement approximated $144,000, $144,000 and $1,955,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Medical Director fees are included in direct costs as they relate to medical interpretations for diagnostic tests. In addition, at December 31, 1998 and 1997 amounts owed to the Company's Chief Executive Officer in connection with the consulting agreement were $48,000 and $24,000 , respectively, and are included in accounts payable in the accompanying consolidated balance sheets. The Company and the Company's Chief Executive Officer entered into new employment and consulting agreements effective January 1, 1997 (see Note 10). In January 1996, the Chief Executive Officer and UM entered into an agreement whereby the Chief Executive Officer purchased 660,300 shares of the Company's Common Stock from UM for $750,000. 9. STOCK OPTION PLANS: In August 1993, the Company established a nonqualified stock option plan (the "1993 Plan") authorizing the grant of options to acquire up to 1,100,500 shares of the Company's common stock. The purpose of the 1993 Plan was to provide an incentive for key individuals to advance the success of the Company. The options cover the purchase of common stock of the Company at exercise prices initially set at or above current fair value as determined by the Board of Directors. Options granted under the 1993 Plan became fully vested 90 days after the Company's initial public offering and expire five years from the initial public offering date. No additional options may be granted under this plan. F-14 In 1996, the Company adopted a new stock option plan (the "1996 Plan") that authorizes the grant of both incentive and non-qualified options to acquire up to 500,000 shares of the Company's common stock. The Company's Board of Directors determines the exercise price of the options under the 1996 Plan. The exercise price of incentive stock options may not be below fair value on the grant date. Incentive stock options under the 1996 Plan expire ten years from the grant date and are exercisable in accordance with vesting provisions set by the Board. During September 1998, the Company offered a stock option exchange program to its employees for options granted under the 1996 Plan. Under the program, stock options could be exchanged, on a one for two basis with the new exercise price set at the greater of 50% of the original exercise price or the closing price on September 30, 1998, the final day of the exchange program. A total of 77,350 stock options were exchanged and 38,675 were reissued in the exchange program at an average exercise price of $6.50. Information with respect to outstanding options under the plans is as follows: Outstanding Option Price Shares Per Share ------------ --------------- Balance, December 31, 1995 473,215 $ 2.27 Granted 57,226 1.14-17.00 ----------- --------------- Balance, December 31, 1996 530,441 1.14-17.00 Granted 330,679 8.25-22.125 Cancelled (9,500) 13.00-13.125 ----------- --------------- Balance, December 31, 1997 851,620 1.14-22.125 Granted 252,675 3.75-9.00 Exercised (279,120) 2.27 Cancelled (151,675) 8.25-13.13 ----------- --------------- Balance, December 31, 1998 673,500 $ 1.14-$22.125 =========== =============== As of December 31, 1998, 296,478 options with a weighted average exercise price of $4.19 per share were exercisable and 82,223 options were available for future grants under the 1996 Plan. F-15 The Company accounts for its option grants under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and the related interpretations. In 1995, the FASB issued SFAS No. 123, " Accounting for Stock-based Compensation". SFAS No. 123 established a fair value based method of accounting for stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value of the options at the date of grant, as prescribed under SFAS No. 123, the Company's net income (loss) and basic and diluted net income (loss) per share would have been adjusted to the following pro forma amounts:
Year Ended December 31 1998 1997 1996 ----------- ----------- ----------- Net income (loss): As reported $721,000 $(6,231,000) $1,070,000 Pro forma 571,000 (6,342,000) 1,043,000 Basic net income (loss) per share: As reported 0.10 (0.93) 0.24 Pro forma 0.08 (0.95) 0.24 Diluted net income (loss) per share: As reported 0.10 (0.93) 0.23 Pro forma 0.08 (0.95) 0.22
The weighted average fair value per share of the options granted during 1998, 1997 and 1996 was estimated as $2.12, $5.40 and $0.80 , respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
1998 1997 1996 -------- -------- ------- Risk-free interest rate 5.3% 6.1% 5.4% Expected dividend yield 0.0% 0.0% 0.0% Expected life 3 years 3 years 3 years Expected volatility 55.0% 55.0% 0.0%
The effects of applying SFAS No. 123 in the pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to options granted prior to 1995, and additional option grants are anticipated. 10. COMMITMENTS AND CONTINGENCIES: LEASES The Company leases office space and equipment under operating leases, including its primary operating facility. During the years ended December 31, 1998, 1997 and 1996, the Company leased its primary operating facility from UM under a lease agreement executed in June 1996 that expires in September 2003 (see Note 8). The Company terminated the facility lease with UM, without penalty, on January 3, 1999 and moved into a new facility under a lease agreement executed in June 1998 that expires in August 2005. Rent expense for all operating leases for the years ended December 31, 1998, 1997 and 1996 was $1,203,000, $708,000, and $830,000, respectively. F-16 Future minimum lease payments as of December 31, 1998 are as follows: Total ----- 1999 $1,391,000 2000 1,306,000 2001 1,393,000 2002 1,394,000 2003 1,394,000 2004 and thereafter 1,777,000 ------------ $8,655,000 ============ AGREEMENTS WITH THE COMPANY'S CHIEF EXECUTIVE OFFICER The Company has entered into employment and consulting agreements with its Chief Executive Officer that continue through December 31, 2001. Either the Company or the Chief Executive Officer may terminate the agreement at any time, with or without cause. However, if the Company terminates the agreement without cause, the Company must continue to pay the President's salary for a one-year period subsequent to the termination. The consulting agreement relates to the Chief Executive Officer's capacity as a medical doctor and cardiologist and, among other things, requires the Chief Executive Officer to serve as Medical Director and/or principal investigator for the Company in addition to providing medical interpretations of diagnostic tests from time to time, as required. Compensation under the consulting agreement is $144,000 per year. The consulting agreement commenced on January 1, 1997 and it continues on a year to year basis unless terminated. The consulting agreement replaced a prior agreement whereby the Chief Executive Officer received additional compensation for medical interpretations of diagnostic tests (see Note 8). CONTINGENCIES The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. The Company believes it has adequate insurance coverage against possible liabilities that may be incurred in connection with the conduct of its business primarily as it relates to the testing of new drugs or medical devices. While the Company believes it operates safely and prudently, in addition to managing liability risks through contractual indemnification, the Company could be materially and adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is beyond the scope of an indemnity provision or insurance coverage, or if an indemnity is not upheld or if the claim exceeds the insurance policy limits. 11. OPERATING SEGMENTS: In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," was issued, effective for fiscal years ending after December 15, 1998. The Company has adopted this statement for the year ended December 31, 1998. The Company's reportable segments are strategic business units that offer different products and services to a common client base. The segments are managed separately because each business requires different technology. The Company's products and services are provided through two business segments, both in the United States and internationally: Clinical Operations, which includes centralized diagnostic testing services, clinical trial management services and clinical data management services; and Technology Operations, which includes clinical trial and data management software, support and consulting services. The Company's discontinued Phase I Clinical Research Unit and income and expense not allocated to reportable segments is reported as Other. During 1998 and 1997, no single client accounted for more than 10% of a segment's net revenues. During 1996, Sandoz Pharmaceuticals Corporation and Zeneca Pharmaceuticals accounted for approximately 15.3% and 10.1% of the Company's Clinical Operations net revenues, respectively. F-17 The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). The Company evaluates performance based on the net revenues and operating earnings performance of the respective business segments. Segment information is as follows:
Year Ended December 31,1998 ------------------------------------------------------------------- Clinical Operations Technology Other Total ---------- ---------- ----- ----- Net revenues from external customers $21,688,000 $ 9,930,000 $ 189,000 $31,807,000 Income (loss) from operations (1,565,000) 1,689,000 65,000 189,000 Identifiable assets 14,189,000 4,588,000 21,395,000 40,172,000 Depreciation and amortization 1,097,000 509,000 - 1,606,000 Capital expenditures 2,864,000 488,000 - 3,352,000 Year Ended December 31, 1997 ------------------------------------------------------------------- Clinical Operations Technology Other Total ---------- ---------- ----- ----- Net revenues from external customers $11,315,000 $ 795,000 $ 2,053,000 $14,163,000 Loss from operations (2,525,000) (8,311,000) (682,000) (11,518,000) Identifiable assets 6,263,000 3,573,000 26,938,000 36,744,000 Depreciation and amortization 547,000 75,000 87,000 709,000 Capital expenditures 1,437,000 30,000 42,000 1,509,000 Year Ended December 31, 1996 ------------------------------------------------------------------- Clinical Operations Technology Other Total ---------- ---------- ----- ----- Net revenues from external customers $14,088,000 $ - $ 1,195,000 $15,283,000 Income (loss) from operations 2,395,000 - (884,000) 1,511,000 Identifiable assets 3,768,000 - 1,980,000 5,748,000 Depreciation and amortization 610,000 - 94,000 704,000 Capital expenditures 371,000 - - 371,000
The Company operates on a worldwide basis with two locations in the United States and two locations in the United Kingdom. Geographic information is as follows:
Year Ended December 31, 1998 -------------------------------------------------- North America Europe Total ------- ------ ----- Net revenues from external customers $27,187,000 $4,620,000 $31,807,000 Income (loss) from operations 2,037,000 (1,848,000) 189,000 Identifiable assets 38,033,000 2,139,000 40,172,000 Year Ended December 31, 1997 -------------------------------------------------- North America Europe Total ------- ------ ----- Net revenues from external customers $ 13,188,000 $ 975,000 $ 14,163,000 Loss from operations (10,218,000) (1,300,000) (11,518,000) Identifiable assets 36,226,000 548,000 36,774,000
F-18
Year Ended December 31, 1996 ---------------------------------------------------- North America Europe Total ------- ------ ----- Net revenues from external customers $ 13,000,000 $ 2,283,000 $ 15,283,000 Income from operations 1,223,000 288,000 1,511,000 Identifiable assets 4,604,000 1,144,000 5,748,000
F-19 SCHEDULE II PREMIER RESEARCH WORLDWIDE, LTD. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS (in thousands)
Balance Balance Beginning of Charges to Deductions End Period Expense from Reserve Other of Period ------------ ---------- ------------ ----- ---------- December 31, 1998 $178 - -- $65 $243 December 31, 1997 $140 - $3 $41 $178 December 31, 1996 $140 - -- -- $140
F-20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. The financial statements of the Company filed as a part of this Report are listed on the attached Index to Consolidated Financial Statements and Financial Schedule at [F-1] 2. The Schedules to the financial statements of the Company filed as a part of this Report are listed in the attached Index to Consolidated Financial Statements and Financial Statement Schedule at [F-1] 3 Exhibits. The following exhibits are filed herewith, unless otherwise marked:
2.1 Asset Purchase Agreement among Premier Research, DLB Systems, Inc. and Recalmon(1) 3.1 Amended and Restated Certificate of Incorporation(2) 3.2 Bylaws(2) 3.3 Amendment to Bylaws (filed herewith) 4.1 Form of Stock Certificate(2) 4.2 Preferred Stock Purchase Agreement between Premier Research and DLB Systems, Inc.(3) 10.1 Employment Agreement with Joel Morganroth, M.D.(2)(4) 10.2 Management Consulting Agreement with Joel Morganroth, M.D., P.C.(2)(4) 10.3 Stock Option Agreement - Jerry Lee(2)(4) 10.4 Stock Option Agreement - Arthur Hayes(2)(4) 10.5 Stock Option Agreement - Connie Woodburn(4) (5) 10.6 Amended and Restated 1993 Stock Option Plan(2)(4) 10.7 1996 Stock Option Plan(2)(4) 10.8 Lease of Philadelphia Facilities with amendment thereto(2) 10.9 Agreement and Plan of Organization entered into with Premier Health Alliance, Inc.(2) 10.10 Tax Sharing Agreement with UM Holdings, Inc.(2) 10.12 Revolving Credit Agreement with First Union National Bank(2) 10.13 Promissory Note to First Union National Bank(2) 10.14 Restated Stock Option Agreement to PREMIER, Inc.(2)(4) 10.15 Restated Stock Option Agreement to Jerry Lee(2)(4) 10.16 Restated Option Agreement to Arthur Hays(2)(4) 10.17 Tax Indemnity Agreement with UM Holdings, Ltd.(2) 10.18 Amended Restated Stock Option Agreement to PREMIER, Inc.(4) 10.19 Strategic Alliance Agreement by and between Premier Research Worlwide and en Vision Sciences, Inc.(5) 10.20 Employment Agreement with Joseph Esposito(4)(5) 10.21 Common Stock Purchase Agreement among AmericasDoctor.com, Inc., Medical Advisory Systems, Inc. and Premier Research Worldwide (filed herewith) 10.22 Support and Service Agreement between AmericasDoctor.com, Inc. and Premier Research Worldwide (filed herewith) 10.23 Sublease Agreement between Premier Research Worldwide and Raytheon Engineers & Constructors, Inc. (filed herewith) 21.1 Subsidiaries of the Registrant (filed herewith) 21.1 Subsidiaries of the Registrant (filed herewith) 23.1 Consent of Arthur Andersen, LLP (filed herewith) 24.1 Powers of Attorneys of certain signatories (included on the signature page) 27.0 Financial Data Schedule (filed herewith)
(1) Incorporated by reference to the exhibit with the same number, filed in connection with the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 12, 1997. (2) Incorporated by reference to the exhibit with the same number, filed in connection with the Company's Registration Statement on Form S-1, File No. 333-17001, declared effective by the Securities and Exchange Commission on February 3, 1997. (3) Incorporated by reference to Exhibit 4.1, filed in connection with the Company's Form 10-Q on August 14, 1997, and as amended by the Company's Form 10-Q/A filed on October 7, 1997. (4) Management contract or compensatory plan or arrangement. (5) Incorporated by reference to the exhibit with the same number, files in connection with the Company's Form 10K on March 30, 1998. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 30th day of March, 1999. PREMIER RESEARCH WORLDWIDE, LTD. By: /s/ Joel Morganroth - ---------------------------------------- Joel Morganroth, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Joel Morganroth Chief Executive Officer, Director March 30, 1999 - ---------------------------- Joel Morganroth, M.D. (Principal executive officer) /s/ Joseph Esposito President and Chief Operating Officer March 30, 1999 - ---------------------------- Joseph Esposito /s/ Fred M. Powell Senior Vice President, Finance/Administration March 30, 1999 - ---------------------------- Fred M. Powell (Principal financial and accounting officer) /s/ Joan Carter Chairman, Director March 30, 1999 - ---------------------------- Joan Carter /s/ John Aglialoro Director March 30, 1999 - ---------------------------- John Aglialoro /s/ Arthur Hull Hayes Director March 30, 1999 - ---------------------------- Arthur Hull Hayes, Jr., M.D. /s/ Arthur W. Hicks Director March 30, 1999 - ---------------------------- Arthur W. Hicks, Jr. /s/ Charles L. Jacobson Director March 30, 1999 - ---------------------------- Charles L. Jacobson, M.D. /s/ Jerry D. Lee Director March 30, 1999 - ---------------------------- Jerry D. Lee /s/ Philip J. Whitcome Director March 30, 1999 - ---------------------------- Philip J. Whitcome, Ph.D. /s/ Connie Woodburn Director March 30, 1999 - ---------------------------- Connie Woodburn
52
EX-3.3 2 EXHIBIT 3.3 Article IX of the by-laws of Premier Research Worldwide, Ltd. is amended to read in its entirety as follows: ARTICLE IX OFFICERS Section 1. The officers of the Corporation shall be chosen by the board of directors and shall be a Chairman of the Board, a chief executive officer, a president, a secretary and a treasurer. The board of directors may also choose one or more vice chairmen, vicepresidents, assistant secretaries and assistant treasurers. Section 2. The board of directors at its first meeting after each annual meeting of shareholders shall choose a Chairman of the Board, a chief executive officer, a president, a secretary, and a treasurer, none of whom need be a member of the board except for the Chairman of the Board. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the board of directors. Section 5. Each officer of the Corporation shall hold office until his successor is chosen and qualifies, except in the event of his death, resignation or removal. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors. Any two or more officers, other than those of president and secretary, may be held by the same person. -1- THE CHAIRMAN OF THE BOARD Section 6. The Chairman of the Board shall preside at all meetings of the board of directors and shareholders, if present thereat, may appoint between meetings of the board ad hoc committees to the board, which appointments shall be subject to the approval of the board at its next meeting, may make recommendations to the board with respect to the membership of the committees to the board, and shall exercise such other powers and perform such other duties as shall be assigned to him from time to time by the board. THE VICE CHAIRMAN Section 7. The vice chairman, or if there shall be more than one, the vice chairmen in the order determined by the board of directors, shall, in the absence or disability of the Chairman, perform the duties and exercise the powers of the Chairman and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE CHIEF EXECUTIVE OFFICER Section 8. The chief executive officer ("CEO") shall, unless otherwise provided by the board of directors, be the chief executive officer of the Corporation. As chief executive officer, he shall have general supervision over the affairs of the Corporation, subject to the policies and directives of the board of directors and shall supervise and direct all officers and employees of the Corporation, but may delegate in his discretion any of his powers to any officer or such other executives as he may designate. THE PRESIDENT Section 9. Unless otherwise provided by the board of directors, the president will be the chief operating officer of the Corporation and shall have general supervision over and control of the operations and activities of the Corporation, subject to the supervision and control of the board of directors, and shall have general supervision and direction of all operating officers and employees of the Corporation, but may delegate in his discretion any of his powers as chief operating officer to any vice president or such other executives as he may designate. In the absence or disability of the CEO, the president shall perform the duties and exercise the powers of the chief executive officer. The president shall have such other duties as from time to time may be assigned to him by the board of directors. -2- Section 10. The Chairman of the Board, vice chairman, CEO, president, or any vice president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. THE VICE-PRESIDENTS Section 11. The vice president, or if there shall be more than one, the vice-presidents in the order determined by the board of directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors, the Chairman of the Board, the CEO or the president may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 12. The secretary shall attend all meetings of the board of directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors, the Chairman of the Board, the CEO or the president, under whose several supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 13. The assistant secretary, or if there shall be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. -3- THE TREASURER AND ASSISTANT TREASURERS Section 14. The treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. Section 15. He shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the CEO, the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 16. If required by the board of directors, he shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 17. The assistant treasurer, or, if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. EX-10.21 3 EXHIBIT 10.21 COMMON STOCK PURCHASE AGREEMENT Among AMERICA'S DOCTOR, INC., MEDICAL ADVISORY SYSTEMS, INC. and PREMIER RESEARCH WORLDWIDE, LTD. Dated July 2, 1998 COMMON STOCK PURCHASE AGREEMENT, dated July 2, 1998, between AMERICA'S DOCTOR, INC., a Delaware corporation (the "Company"), and MEDICAL ADVISORY SYSTEMS, INC., a Delaware corporation ("MAS"), and PREMIER RESEARCH WORLDWIDE, LTD., a Delaware corporation ("PRWW"). MAS and PRWW are at times herein individually referred to as a "Purchaser" and collectively as the "Purchasers". WHEREAS the Company wishes to issue and sell to each Purchaser an aggregate of 50,000 shares of Series A Common Stock, $0.01 par value, of the Company (the "Stock"), at a purchase price of $20 per share, payable as provided herein; WHEREAS each Purchaser wishes to purchase said shares, all on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, the parties hereby agree as follows: I. THE SHARES SECTION 1.01 Purchase and Sale of the Shares. (a) Subject to the terms and conditions set forth herein, the Company shall sell to each Purchaser, and each Purchaser shall purchase from the Company, on the Closing Date, 50,000 authorized but unissued shares of Stock (said shares being herein called the "Shares") at a purchase price of $20 per share for an aggregate purchase price equal to $1,000,000, and the Company shall issue and deliver a stock certificate or certificates in definitive form, registered in the name of the Purchaser, evidencing the Shares being purchased by it hereunder. (b) As payment in full for the Shares to be purchased by it, and against delivery of the stock certificate or certificates therefor as aforesaid, PRWW shall deliver to the Company on the Closing Date a certified or official bank check in Philadelphia Clearing House funds payable to the order of the Company in the amount of $1,000,000, or shall transfer such sum to the account of the Company by wire transfer. (c) As payment in full for the Shares to be purchased by MAS hereunder, MAS shall: (i) Provide to the Company during the Pre-Start-Up Period (as such term is defined in the MAS Service Agreement referred to in paragraph 4(i) below) the systems hardware, software and ongoing support specified more fully in paragraph 13(a) of the MAS Service Agreement, for which MAS shall receive a credit of $360,000, representing the purchase price for 18,000 shares of the Stock hereunder; and (ii) Make the twelve consecutive monthly payments specified below (with the first such payment due in the month following the end of the Pre-Start-Up Period), representing payment of the purchase price for the indicated number of shares of the Stock: A. Eleven monthly payments of $53,320 each, each representing the purchase price for 2,666 shares. B. A twelfth payment of $53,480, representing the purchase price for 2,674 shares. At the Closing, the Company shall execute 13 stock certificates representing the respective shares of the Stock, the purchase price for which is to be satisfied by MAS pursuant to clauses (i) and (ii) above. The Company shall deliver each such certificate to MAS as the -2- purchase price for the Stock represented thereby has been satisfied or paid in accordance with the above provisions. SECTION 1.02 Closing Date. The closing of the sale and purchase of the Shares shall take place at the office of Archer & Greiner, A Professional Corporation, One Centennial Square, Haddonfield, New Jersey 08033, at 10:00 a.m., on July 2, 1998, or at such other date and time as may be mutually agreed upon between the Purchasers and the Company (such date and time of closing being herein called the "Closing Date"). II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchasers as follows: SECTION 2.01 Organization, Qualifications and Corporate Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is duly licensed or qualified as a foreign corporation in each other jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it makes such licensing or qualification necessary and where the failure to be so qualified would have a material adverse effect upon the business or assets of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as currently conducted, to execute, deliver and perform this Agreement, the Registration Rights Agreement, the PRWW Service Agreement, the MAS Service Agreement, the Stockholders Agreement and the Warrants (as such terms are defined in Article IV or VI below) (collectively, the "Operative Documents"), and to issue, sell and deliver the Shares and the Warrant Shares. The copies of the Company's Certificate of -3- Incorporation and by-laws heretofore delivered to the Purchasers are complete and correct. The Company does not own any capital stock of or other equity interest in any other corporation or organization. SECTION 2.02 Authorization of Agreement, Etc. (a) The execution, delivery and performance by the Company of the Operative Documents and the issuance, sale and delivery of the Shares and the Warrant Shares, have been fully authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or Bylaws of the Company, or any provision of any indenture, agreement or other instrument by which the Company or any of its properties or assets is bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) The Shares and the Warrant Shares have been duly authorized and, when issued and delivered in accordance with this Agreement or the Warrant (as applicable), will be validly issued, fully paid and non-assessable shares of Stock. The issuance, sale and delivery of the Shares and the Warrant Shares is not subject to any preemptive rights of shareholders of the Company or to any right of first refusal or other similar right in favor of any person. SECTION 2.03 Validity. This Agreement has been fully executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. The other Operative Documents, when executed and -4- delivered in accordance with this Agreement, will constitute the legal, valid and binding obligation of the Company, enforceable in accordance with their respective terms. SECTION 2.04 Capital Stock. The authorized capital stock of the Company consists of 1,000,000 shares of the Stock. The shareholders of the Company and the number of shares of capital stock owned by each are set forth in Schedule 2.04A hereto. Except for the options, warrants and convertible unsecured promissory notes, the terms of which are fully described in Schedule 2.04B hereto, (i) no subscription, warrant, option, convertible security or other right (contingent or other) to purchase or acquire any shares of any class of capital stock of the Company is authorized or outstanding, (ii) there is not any commitment of the Company to issue any shares, warrants, options or other such rights or to distribute to holders of any class of its capital stock any evidences of indebtedness or assets, (iii) the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof, and (iv) to the Company's knowledge, there are no existing rights of first refusal, registration rights or voting agreements with respect to any of the Company's outstanding shares, except as described on Schedule 2.04C. A true and correct copy of the Stock Option Agreement to Scott Rifkin, M.D., is set forth as Schedule 2.04D. All of the outstanding shares of the Stock have been issued in compliance with all applicable Federal securities law. SECTION 2.05 Financial and Other Data. All financial and other data pertaining to the Company and its business, assets and affairs, which has been or hereafter prior to the Closing shall be furnished to either Purchaser by the Company, are or will be at the time the same are so furnished, true, accurate and complete in all material respects. To the best -5- knowledge and belief of the Company, except as described herein or in the Business Plan (as defined below), the Company has no obligations or liabilities, absolute, accrued or contingent, which in accordance with generally accepted accounting principles should be listed on a balance sheet or described on the notes thereto. To the date hereof, the Company has operated in a pre-start-up phase consistent with the Business Plan. SECTION 2.06 Events Subsequent to January 1, 1998. Since January 1, 1998 except as set forth in Schedule 2.06 hereto, the Company has not (i) issued any stock, bonds or other corporate securities, (ii) borrowed any amount or incurred any liabilities (absolute or contingent), except current liabilities incurred, and liabilities under contracts entered into, in the ordinary course of business, none of which, individually or in the aggregate, are material to the Company, (iii) discharged or satisfied any lien or incurred or paid any obligation or liability (absolute or contingent) other than current liabilities incurred in the ordinary course of business, (iv) declared or made any payment or distribution to shareholders or purchased or redeemed any shares of its capital stock or other securities, (v) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, other than liens of taxes not yet due and payable, (vi) sold, assigned or transferred any of its tangible assets, except in the ordinary course of business, or canceled any debts or claims, (vii) sold, assigned or transferred any patents, trademarks, trade names, copyrights, trade secrets or other intangible assets, (viii) suffered any losses, or waived any rights of substantial value, whether or not in the ordinary course of business, (ix) made any changes in officer compensation, except in the ordinary course of business and consistent with past practice, or (x) entered into any transaction except in the ordinary course of business (recognizing that the Company is in a start-up phase of its -6- business). Since such date, except as set forth in said Schedule 2.06, there has been no material change in the accounting methods or practices of the Company. Between the date hereof and the Closing Date, the Company will not do any of the things listed in Section 2.06 above, except as contemplated by Schedule 2.06 hereto. SECTION 2.07 Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties or rights, before any court or by or before any governmental body or arbitration board or tribunal. To the best knowledge and belief of the Company, there does not exist any basis for any such action, suit, investigation or proceeding. The foregoing includes, without limiting its generality, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any employees or prospective employees of the Company or their use, in connection with the Company's business, of any information or techniques which might be alleged to be proprietary to their former employers. There are no decrees, injunctions or orders of any court or governmental department or agency outstanding against the Company. SECTION 2.08 Trade Secrets. No third party has claimed that any person affiliated with the Company has, in respect of his activities to date, violated any of the terms or conditions of his employment contract with such third party, or disclosed or utilized any trade secrets or proprietary information or documentation of such third party, or interfered in the employment relationship between such third party and any of its employees. The Company is not aware that any person affiliated with it has employed or will employ any trade secrets or any information or documentation proprietary to any former employer, or that any person -7- affiliated with the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture and sale of any products of the Company. To the Company's knowledge, there is no infringement by the Company of any third party intellectual property right. All employees of the Company with access to confidential information and who have executed employment agreements have executed and delivered to the Company a non-disclosure and non-competition agreement. SECTION 2.09 Title to Properties. The Company has good and marketable title to all its real property and owns outright all its other properties and assets, free and clear of mortgages/pledges, security interests, liens, charges and other encumbrances, except (i) as described in Schedule 2.09 hereto, (ii) liens for current taxes not yet due and (iii) minor imperfections of title, if any, not material in amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company. SECTION 2.10 Leasehold Interests. Each lease or agreement to which the Company is a party under which it is a lessee of any property, real or personal, owned by any third party is a valid and subsisting agreement, without any default of the Company thereunder and, to the best knowledge and belief of the Company, without any default thereunder of the other party thereto. The Company's possession of such property has not been disturbed nor has any claim been asserted against the Company adverse to its rights in such leasehold interests, SECTION 2.11 Taxes. The Company has filed or caused to be filed all Federal, state and local tax returns and reports which are required to be filed and has paid or caused to be paid all taxes as shown on all Federal, state and local tax returns filed by it or on any -8- assessment received by it to the extent that such taxes have become due, and all of the foregoing are correct and complete in all material respects. All accruals for taxes owed by the Company are adequately reflected on the financial statements described in Section 2.05 above. No issues have been raised or deficiencies asserted by any taxing authority with respect to the Company's tax liabilities or any of its tax returns or reports. SECTION 2.12 Patents, Trademarks, Etc. To the best knowledge and belief of the Company, the Company owns the patents, trademarks, service marks, trade names, copyrights and licenses listed in Schedule 2.12 hereto without conflict with the rights of others, the same constitute all the patents, trademarks, service marks, trade names, copyrights and licenses necessary in the conduct of the business of the Company, and, except as indicated in said Schedule 2.12, there exists no right of any person to receive a royalty with respect thereto or to utilize or otherwise appropriate the same, and the Company has no distribution, marketing or other agreements granting rights to third parties relating in whole or in part to any items of the foregoing categories, except licenses granted in the ordinary course of its business. All technical information developed by and belonging to the Company which has not been patented by it is and will continue to be protected by measures deemed prudent by the Company for the maintenance of secrecy relating thereto. SECTION 2.13 Governmental Approvals. No registration or filing with, or consent or approval of, or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance of the Operative Documents and the issuance, sale and delivery of the Shares, the Warrants and the Warrant Shares hereunder. -9- SECTION 2.14 Use of Proceeds. Unless otherwise agreed to by the PRWW board representative, the Company will apply the proceeds of the issuance and sale of the Shares for start up and operating costs as described in the Business Plan. In no event will the proceeds of the issuance and sale of the Shares to PRWW be utilized to retire any portion of the Bridge Loan (as defined in subparagraph (k) of Article IV below). SECTION 2.15 Disclosure. The Company has furnished to the Purchasers a copy of the Company's business plan attached as Schedule 2.15A, used in connection with its offer of the Shares (the "Business Plan"). In addition, the Purchasers have had lengthy discussions regarding this investment and the Company in general with representatives of the Company. To the Company's best knowledge and belief, after due inquiry, the Business Plan and this Agreement do not contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements contained therein or herein, in light of the circumstances under which they are made, not misleading. The projections of financial results contained in the Business Plan were in all material respects prepared accurately based upon the assumptions described therein, which assumptions the Company believes to be realistic. The Company is a start-up company without any meaningful financial or operating history and the Purchasers were made aware of the speculative nature and high degree of risk of loss involved with this purchase as set forth in Schedule 2.15B hereto. SECTION 2.16 Offering of the Shares. Neither the Company nor any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Shares or any similar security of the Company has offered the Shares or any such security for sale to, or solicited any offers to buy the Shares or any similar -10- security of the Company from, or otherwise approached or negotiated with respect thereto with, any person or persons other than the Purchasers and not more than 35 non-accredited investors (including, if applicable, the Purchasers). Neither the Company nor any person acting on its behalf has taken or will take any action (including, without limitation, any offer, issuance or sale of any security of the Company, pursuant to the Business Plan or otherwise), under circumstances which might require the integration of such security with the Shares under the Securities Act of 1933 (the "Securities Act") or the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder which might subject the offering, issuance or sale of the Shares to the registration provisions of the Securities Act. The offering, issuance and sale of the Shares hereunder is exempt from the federal registration requirements. SECTION 2.17 Employment Contracts, Etc.; Certain Material Transactions. Except as set forth in Schedule 2.17 hereto, (i) the Company is not a party to any employment or deferred compensation agreements, (ii) the Company does not have any bonus, incentive or profit-sharing plans, (iii) the Company does not have any pension, retirement or similar plans or obligations, and (iv) there are no existing material arrangements or proposed material transactions between the Company and any officer or director or holder of more than 10% of the capital stock of the Company. The Company is not a party to any collective bargaining agreement and, to the best of its knowledge, no organizational efforts are currently being made with respect to any of its employees. Any employment agreements to be entered into in the future or contemplated and listed on Schedule 2.17 but not executed on or before the Closing Date, will be approved by the Company's Compensation Committee. -11- SECTION 2.18 Other Contracts and Commitments. The Company is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in the Company's Certificate of Incorporation or by-laws or in any agreement or instrument to which it is a party which may result in any material adverse change in the condition, financial or other, of the Company, and, to the best knowledge and belief of the Company, there are no existing such defaults by the other parties thereto. Attached hereto as Schedule 2.18 is a true, complete and correct copy of the Interactive Services Agreement between the Company and America Online, Inc. (the "AOL Agreement"). The AOL Agreement is a valid and subsisting agreement, and no default has occurred thereunder by the Company or AOL. SECTION 2.19 Compliance With Law. The Company is not in default under any order of any court, governmental authority or arbitration board or tribunal to which the Company is or was subject or in violation of any laws, ordinances, governmental rules or regulations to which the Company is or was subject, except for such violations which do not, individually or in the aggregate, have a material adverse effect on the Company. The Company has not failed to obtain any licenses, permits, franchises or other governmental authorizations necessary to the ownership of the properties of the Company or to the conduct of the business of the Company and the failure of which to obtain would have a material adverse effect on the Company. SECTION 2.20 Employee Benefits Plans. The Company has never been a party to a multi-employer retirement plan. The Company has no Employee Benefit Plans subject to the -12- provisions of the Employee Retirement Income Security Act of 1974 (as such term is defined therein). SECTION 2.21 Insurance. The Company maintains insurance with responsible and reputable insurance companies in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general area in which the Company operates or owns such properties. III. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER Each Purchaser represents and warrants to the Company (for itself and not for the other Purchaser) that it is acquiring the Shares for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof. Each Purchaser represents and warrants that it is an "accredited investor" as such term is defined under the Securities Act of 1933, as amended (the "Securities Act") or that it has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of this purchase. Each Purchaser further represents that it understands that (i) the Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) and 4(6) thereof, (ii) the Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Shares will bear a legend to such effect (to be removed when such restrictions are no longer applicable), and (iv) the Company will make a notation on its transfer books to such effect. The Purchaser further understands that the exemption from registration afforded by Rule 144 under the -13- Securities Act depends on the satisfaction of various conditions and that, if applicable, Rule 144 affords the basis of sales of the Shares in limited amounts under certain conditions. The Purchaser acknowledges that it has had a full opportunity to request from the Company all instruments, documents, records and books pertaining to this investment, all of which requested documentation has been made available by the Company, and the Purchaser has received such information that it deems relevant in making a decision to purchase the Shares being purchased by it hereunder. The Purchaser has had the full and fair opportunity to have the Company's Business Plan, other documents and this Agreement reviewed thoroughly by independent, competent advisors and counsel or, if not, then the Purchaser has made the fully informed, independent decision not to do so, and the Purchaser has duly considered the factors listed on Schedule 2.15 hereto (provided that the review and receipt of any such information shall not in any manner qualify or diminish the representations of the Company contained in Article II). The Purchaser will comply with any restrictions on transferability of the Shares contained in the Registration Rights Agreement and the Stockholders Agreement. IV. CONDITIONS TO THE OBLIGATIONS OF EACH PURCHASER The obligation of each Purchaser to purchase and pay for the Shares being purchased by it on the Closing Date is, at its option, subject to the simultaneous Closing of the purchase of Shares hereunder by the other Purchaser and, at its option, is further subject to the satisfaction, on or before such date, of the following conditions: -14- (a) Opinion of Counsel. The Purchaser shall have received from Rifkin, Livingston, Levitan & Silver, LLC, counsel for the Company, an opinion dated the Closing Date, in form and substance satisfactory to the Purchaser and its counsel, to the effect that: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own and hold its properties and to carry on its business as currently conducted, to execute, deliver and perform the Operative Documents, and to issue, sell and deliver the Shares and the Warrant Shares. (ii) The authorized capital stock of the Company consists of 1,000,000 shares of Series A Common Stock, of which 234,651 shares are outstanding, which outstanding shares have been validly issued and are fully paid and non-assessable. (iii) Such counsel, without independent investigation, is not aware of any non-compliance with any Federal securities laws in connection with the original issuance of the presently outstanding shares of the Company's capital stock. (iv) The execution, delivery and performance by the Company of the Operative Documents, and the issuance, sale and delivery of the Shares and the Warrant Shares, have been duly authorized by all requisite corporate action, and will not violate any provision of law, the Certificate of Incorporation or by-laws of the Company or, to the knowledge of such counsel, without independent investigation, any provision of any material agreement or other instrument by which the Company or any of its properties or assets is bound or affected, or conflict with, result in a breach of or constitute a default under any such agreement or other instrument. -15- (v) Each of the Operative Documents has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws, to moratorium laws from time to time in effect and to general equity principles), except that such counsel need express no opinion as to the indemnification provisions of the Registration Rights Agreement. (vi) The Shares have been issued, sold and delivered by the Company pursuant to this Agreement and are duly authorized, validly issued, fully paid and nonassessable shares of Stock. (vii) The issuance, sale and delivery of the Shares to the Purchaser, under the circumstances contemplated by this Agreement, are exempt from the registration requirements of the Federal securities laws. (viii) Such counsel does not represent the Company with respect to pending or overtly threatened litigation, and to its knowledge without independent investigation there is no such pending or threatened litigation outstanding. (ix) Such counsel is not aware of any material default by the Company under any agreement or instrument of the Company or any failure by the Company to comply with applicable law. (x) To the knowledge of such counsel, all consents and approvals required for the execution, delivery and performance by the Company of this Agreement have been duly obtained. -16- (b) Representations and Warranties to be True and Correct; Performance. The representations and warranties contained in Article II hereof shall be true and correct 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; the Company shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the Closing Date; and each Purchaser shall have received a certificate dated the Closing Date, executed by the Company's president or vice president, to each such effect. (c) Consents and Approvals. All necessary consents and approvals from governmental and third parties required for the sale and issuance of the Shares hereunder and the other actions contemplated hereby shall have been duly obtained. (d) Secretary's Certificate. Each Purchaser shall have received a certificate from the Secretary or Assistant Secretary of the Company, with respect to the Company's Certificate of Incorporation and by-laws and resolutions of the Company's Board of Directors authorizing the transactions contemplated hereby. (e) Election of Directors. Each Purchaser's designee shall have been elected to the Company's Board of Directors. (f) Stockholders' and Voting Agreement. On the Closing Date, the Company and the other parties thereto shall have executed and delivered the Stockholders' and Voting Agreement among the Company and its shareholders, in the form of Annex III hereto (the "Stockholders Agreement"). (g) Registration Rights Agreement. On the Closing Date the Company shall have executed and delivered the Registration Rights Agreement, in the form of Annex IV hereto (the -17- "Registration Rights Agreement"). (h) [RESERVED] (i) MAS Service Agreement. On the Closing Date, the Company and MAS shall have executed and delivered the Services Agreement in the form of Annex V hereto (the "MAS Service Agreement"). (j) PRWW Service Agreement. On the Closing Date, the Company and PRWW shall have executed and delivered the Services Agreement in the form of Annex VI hereto (the "PRWW Service Agreement"). (k) Bridge Loan. At or prior to the Closing, the Company shall have received a $900,000 bridge loan from Mercantile Safe Deposit & Trust Co., on terms and conditions satisfactory to each Purchaser, guaranteed by the individuals listed on Schedule 4(k) hereto (the "Loan Guarantors"), for which the Loan Guarantors shall receive in the aggregate warrants to acquire not more than 7,500 shares of the Stock, on terms and conditions satisfactory to each Purchaser. (1) Additional Equity Funding. Unless otherwise agreed to by the PRWW board representative, at or prior to the Closing, the Company shall have issued and sold 25,000 shares of the Stock to the individual investors listed in Part A of Annex VII hereto (the "Wyndhurst Group"), for an aggregate consideration, paid in cash, of $500,000, and shall have issued and sold 25,000 shares of the Stock to the individual investors listed in Part B of said Annex (the "Seidman Group"), for an aggregate consideration, paid in cash, of $500,000. -18- V. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY The obligation of the Company to issue and sell the Shares to the Purchasers on the Closing Date is, at its option, subject to the satisfaction, on or before such date, of the following conditions: (a) Representations and Warranties to be True and Correct. The representations and warranties contained in Article III hereof shall be true and correct 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. (b) Operative Documents. The other parties thereto shall have executed and delivered to the Company the Operative Documents. (c) Consents and Approvals. All necessary consents and approvals from governmental and third parties required for the sale and issuance of the Shares hereunder shall have been duly obtained. VI. ADDITIONAL EQUITY OFFERING; ISSUANCE OF WARRANTS SECTION 6.01 Equity Offering. The Company shall use its best efforts to sell, within 45 days of the Closing Date, 150,000 shares of the Stock to as yet undetermined investors (the "Prospective Investors"), for an aggregate consideration of $3,000,000, payable in cash. Such issuance shall be on terms (for example, purchase price, payment terms, registration rights, etc.) no more favorable than those provided hereunder to MAS and PRWW. -19- SECTION 6.02 Issuance of Warrants. On the 45th day following the Closing Date, the Company will issue warrants to purchase its Stock, substantially in the form an Annex VIII hereto (the "Warrants"), to PRWW, MAS, the Wyndhurst Group and the Seidman Group, pro rata to the Stock owned by each. The Warrants will permit the holder thereof to purchase the number of shares of Stock represented thereby (herein, the "Warrant Shares"), at any time during a 10 year period, for a purchase price of $.01 per share. The aggregate number of Warrant Shares issuable under all of the Warrants shall equal the result of (a) $3,000,000, minus (b) the aggregate purchase price received from the Prospective Investors, divided by (c) $3,000,000, multiplied by (d) 50,000 shares. VII. COVENANTS OF THE COMPANY The Company covenants and agrees that, unless the Purchasers shall otherwise consent in writing: (a) Financial Statements. The Company shall furnish to each Purchaser the financial statements and other information required to be provided to holders of the Common Stock pursuant to the Stockholders Agreement. (b) Insurance. The Company will maintain insurance with responsible and reputable insurance companies in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general area in which the Company operates or owns such properties. -20- (c) Key Man Insurance. The Company will use best efforts to obtain within 90 days of the Closing Date, and thereafter will maintain in effect, key man life insurance in an amount of not less than $1,000,000 on the life of its CEO. (d) Non-Disclosure Agreements. The Company will maintain in effect with each of its employees who are privy to confidential information of the Company, and who have or shall execute an employment agreement, a covenant, in form and substance reasonably deemed to be appropriate by the Company, pursuant to which each such employee shall agree not to disclose or utilize confidential or proprietary information of the Company or to compete with the Company. (e) Access to Records. The Company shall afford to each Purchaser and its employees, counsel and other authorized representatives free and full access, on a reasonable basis during normal business hours, to all of the books, records and properties of the Company and to all officers and employees of the Company for any reasonable purpose whatsoever; provided that such free and full access does not unreasonably interfere with the normal business operations of the Company. The Purchaser'shall use its best efforts to maintain the confidentiality of any confidential and proprietary information so obtained by it which is not otherwise available from other sources; provided, however, that the foregoing shall in no way limit or otherwise restrict the ability of the Purchaser or such authorized representatives to disclose any such information concerning the Company which it may be required to disclose (i) to its partners to the extent required to satisfy its fiduciary obligations to such persons, or (ii) otherwise pursuant to or required by law. -21- (f) Budgets and Operating Forecast. The Company will promptly provide each Purchaser will copies of any budgets which it may from time to time adopt, which in any event shall include an annual budget to be prepared and distributed not later than 45 days after the commencement of each fiscal year. (g) Existence; Maintenance of Property. The Company shall do or cause to be done all things necessary to maintain, preserve and keep in full force and effect its corporate existence and all rights, licenses, permits and franchises necessary to the proper conduct of its business and the ownership, leasing or operation of its properties. The Company shall maintain and operate its business and properties in accordance with all applicable laws and regulations and take all reasonable action which may be required to obtain, preserve, renew and extend all licenses, permits, authorizations, trade names, trademarks, copyrights and patents which may be necessary for the continuance of the operation of any such property by it. The Company shall at all times maintain and preserve all property necessary in the conduct of its business and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all necessary and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may properly and advantageously be conducted at all times. (h) Payment of Debts, Taxes, Etc. The Company shall pay all indebtedness and obligations promptly and in accordance with normal terms and pay and discharge promptly all taxes, assessments and governmental charges or liens imposed upon it or upon its income or receipts or in respect of any of its property, before the same shall become in default, as well as all lawful claims which, if unpaid, might result in the creation of a lien or charge upon such -22- properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge or to cause to be paid and discharged any such indebtedness, obligation or tax so long as the validity or amount thereof shall be contested in good faith and the Company shall set aside on its books such reserves as are required by generally accepted accounting principles with respect to any such indebtedness, obligation or tax. (i) Litigation or Other Notices. The Company shall deliver to each Purchaser promptly following the occurrence thereof written notice of the following: (A) all events of default under any of the terms or provisions of any material note, or of any other evidence of material indebtedness or agreement or contract governing the borrowing of money of the Company; (B) levy of an attachment, execution or other process against any of the property or assets, real or personal, of the Company or any of its subsidiaries, unless the same is reasonably discharged within thirty days and is so discharged; (C) the filing or commencement of any action, suit or proceeding by or before any court or any federal, state, municipal or other governmental department, commission, instrumentality or agency which may result in material liability to, or otherwise materially adversely affect, the Company; (D) any matter of non-general effect which has resulted in, or which may result in, a material adverse change in the financial condition or operations of the Company. (j) Performance of Obligations. The Company shall do and perform every act and discharge all of the obligations required to be performed and discharged under any of the Operative Documents at the time or times and in the manner therein and herein specified. -23- (k) Meetings of the Board of Directors. The Company shall call, and use its best efforts to have, regular meetings of the Board of Directors of the Company not less than quarterly. (l) Board of Directors; Membership Thereon. The Board of Directors shall be of such size and composed of such designees as is more fully specified in the Stockholders Agreement. VIII. [RESERVED] IX. MISCELLANEOUS SECTION 9.01 Expenses. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated, provided, however, that the Company shall pay one half of the fees and disbursements of each Purchaser's counsel. With the Purchasers' prior knowledge and approval, closing costs of this transaction payable to third parties have been incurred by the Company which are to be satisfied by (i) cash payments equal to 8% of the proceeds of the offering hereunder due out of the offering and (ii) issuance of shares of the Common Stock equal to 9% of the Company's Common Stock outstanding after the sale and purchase hereunder; the cash payments will accrue until such time as the Company has sufficient funds to pay this cost, at the prudent discretion of management. The Company further confirms that its legal and accounting fees arising from this offering shall not exceed $50,000. -24- SECTION 9.02 Survival of Agreements. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issuance, sale and delivery of the Shares pursuant hereto. SECTION 9.03 Brokerage. Each party hereto represents and warrants to the other that it has incurred no brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party, except for the consulting fees payable by the Company included within the closing costs referred to in Section 9.01 above. Notwithstanding the foregoing, each party hereto will indemnify and hold harmless the other against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby (other than such consulting fees), based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. SECTION 9.04 Parties in Interest. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 9.05 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by first class registered mail, postage prepaid, addressed as follows: (a) if to the Company, at: 11403 Cronridge Drive Suite 200 Owings Mills, MD 21117 -25- (b) if to PRWW, at: Premier Research Worldwide, Ltd. 124 S. 15th Street Philadelphia, Pennsylvania 19102-3010 Attn: CEO (c) If to MAS, at: 8050 Southern Maryland Boulevard Owings, MD 20736 or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others in accordance with this Section 9.05. SECTION 9.06 Law Governing Construction. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. In the event any provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement. SECTION 9.07 Entire Agreement. This Agreement constitutes the entire Agreement of the parties with respect to the subject matter hereof and may not be modified, waived or amended except in writing. SECTION 9.08 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -26- IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement as of the day and year first above written. AMERICA'S DOCTOR, INC. By /s/ Scott Rifkin ------------------------------- President MEDICAL ADVISORY SYSTEMS, INC. By: /s/ Ronald Pickett ------------------------------ PREMIER RESEARCH WORLDWIDE, L.T.D. By: /s/ Fred M. Powell ------------------------------- -27- EX-10.22 4 EXHIBIT 10.22 SUPPORT AND SERVICE AGREEMENT ----------------------------- THIS AGREEMENT, is made the 2nd day of July, 1998, by and between PREMIER RESEARCH WORLDWIDE, LTD., a Delaware corporation with its principal place of business located at 124 S. 15th Street, Philadelphia, PA 19102 (referred to herein as "PRWW") and AMERICA'S DOCTOR, INC., a Delaware corporation with its principal place of business located at 11403 Cronridge Drive, Suite 200, Owings Mills, MD 21117 (referred to herein as "AD"). WHEREAS, the parties hereto have entered into a Stock Purchase Agreement dated as of July 1, 1998 (the "Stock Purchase Agreement") wherein PRWW has purchased certain stock in AD pursuant to the terms of the Stock Purchase Agreement; and WHEREAS, the parties hereto are entering into this Agreement pursuant to and in connection with the Stock Purchase Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: 1. DEFINITIONS 1.1 "Services" shall mean the providing of support and services to PRWW by AD as set forth in Subsection 3.1 of this Agreement. 1.2 "Term" shall mean the period of time during which this Agreement is in force. 1.3 "Operative" shall mean the Services'conforming in all material respects to the performance levels and requirements detailed in this Agreement. 1.4 "Effective Date" shall mean July 2, 1998. 1.5 All other defined terms shall have the meanings ascribed to them in this Agreement. 2. TERM AND TERMINATION 2.1 The Term of this Agreement shall begin on the Effective Date and shall continue until this Agreement is terminated as provided in Subsection 2.2. 2.2 This Agreement may be terminated as follows: (a) By the mutual, written agreement of the parties to terminate this Agreement; or (b) On written notice by a party if the other party materially breaches any provision hereof and does not cure such breach within thirty (30) days after its receipt of written notice, specifying the breach, from the non-breaching party; or (c) On written notice by a party if the other party files a voluntary bankruptcy proceeding, becomes subject to an involuntary bankruptcy proceeding (which is not dismissed or stayed within 30 days of its commencement), becomes subject to a receiver or trustee, or makes an assignment for the benefit of its creditor; or (d) By PRWW without cause with sixty (60) days prior notice to AD; or (e) From and after the date that PRWW no longer owns at least I % of the outstanding voting stock of AD, by AD without cause with 60 days prior notice to PRWW. 3. SUPPORT AND SERVICE PROVISIONS. 3.1. AD agrees to provide the following to PRWW: (a) AD shall provide PRWW with direct links from all AD's existing and future website(s) (but not every page within such websites) to users to provide the following: (i) ongoing solicitation and quantification of qualified clinical research organization (CRO) volunteer patients to participate in clinical/medical studies administered by PRWW; and' (ii) education of the users on the societal merits of participating in clinical research. (b) AD shall promote and market PRWW's studies on line through use of its promotional space on its existing and future Health Main Page(s) to connect to promotional material for PRWW studies. (i) As an example, AD will offer its AOL users daily and monthly themes such as "Heart Disease Prevention." Such promotional ads will be connected to a number of targeted choices for the AOL users. If the AOL user selects a PRWW targeted choice, the AOL user will be immediately connected to a PRWW targeted site (the "Targeted Site"). 2 (ii) The Targeted Site will be created by AD specifically for PRWW under the supervision of and pursuant to the sole discretion of PRWW (AD having the right not to follow PRWW's directions if the same would be detrimental in any material respect to AD's image or business plan). The Targeted Site will give the AOL user appropriate information about PRWW's clinical research activities. If the AOL user wishes to volunteer, the AOL user will make a choice by clicking an icon and will be led automatically and immediately to a form to complete (the "Form" or "Forms" as the context may require). The Form will be created by AD specifically for PRWW under the supervision of and pursuant to the sole discretion of PRWW. The Form will gather the information which PRWW needs for its own purposes and will be varied within reason from study to study at the sole discretion of PRWW. AD shall provide all such completed forms to PRWW by e-mail or other agreedupon means on a daily basis. AD will also provide to PRWW monthly statistical summaries of the information gathered on the Forms as well as its updated monthly databases. 3.2. PRWW agrees to provide the following to AD: (a) Introductions to the Premier Hospital Group and other related healthcare organizations; (b) Introductions to the pharmaceutical, medical instrument companies, and other organizations with which PRWW has an ongoing business relationship (PRWW representing that it has relationships with at least twenty such entities). 4. EXCLUSIVITY/CONFIDENTIALITY 4.1 AD shall provide the above described Services exclusively to PRWW and shall not provide similar services to any other person or entity relating to recruitment for clinical trials. 4.2 AD shall not design or provide any program that is in any way substantially similar or related to the program provided to PRWW for or in conjunction with any other person or entity relating to recruitment for clinical trials without the express written permission of PRWW. 4.3 All materials, documents, and other information shared with PRYM by AD during the course of this Agreement shall be deemed to be, between AD and PRWW, confidential information ("Information") and AD shall share same only with those persons performing hereunder who have a need-to-know same in order to perform the Services. Upon termination of this Agreement, all Information provided to PRWW by AD hereunder shall continue to be the 3 exclusive property of PRWW. AD shall be liable for any unauthorized use or disclosure of the Information by AD's employees which could have reasonably been prevented by AD. 4.4 AD represents, warrants, covenants and agrees that it shall maintain reasonable safeguards against the destruction, loss or alteration of information and data under its control and required to be provided to PRWW hereunder. 4.5 AD shall not, without the prior written approval of PRWW, publicly disclose in any press release, filing, brochure or document any information pertaining to this Agreement (it being understood that AD may disclose this Agreement to potential investors). 4.6 Nothing herein confers or shall confer upon PRWW any right, title or interest in any goodwill, trademark, trade name, brand name, knowledge or credibility of AD. PRWW acknowledges that all such interests are the exclusive property of AD. PRWW shall not assert any claim of ownership or right to the same. 4.7 Nothing herein confers or shall confer upon AD, any right, title or interest in any goodwill, trademark, trade name, brand name, knowledge or credibility of PRWW. AD acknowledges that all such interests are the exclusive property of PRWW. AD shall not assert any claim of ownership or right to same. 5. GENERAL PROVISIONS 5.1 Each party hereto shall indemnify and hold the other party and its directors, officers, employees, agents, subsidiaries, parents, affiliates, consultants and subcontractors (all "Associates") harmless from any claim, liability, loss, damages or expense, together with all reasonable costs and expenses relating thereto-, including reasonable attorneys' fees, resulting from the negligent, reckless or willful acts or omissions of such party, its agents or employees in connection with the providing of the Services hereunder. 5.2 Each party hereto shall indemnify and hold the other party and its Asgociates harmless from any and all claim, liability, loss, damages or expense, together with all reasonable costs and expenses relating thereto, including reasonable attorneys' fees, arising out of or resulting from any breach of any representation, warranty, covenant or obligation of such party contained in this Agreement. 5.3 Each party hereto shall indemnify and hold the other party and its Associates harmless from any and all claim, liability, loss, damages or expense, together with all reasonable costs and expenses relating thereto, including reasonable 4 attorneys' fees, arising from a claim that the Services provided by such party, or any part thereof, infringes a patent, copyright, trade secret or other intellectual property right of a third party. 5.4 Each party hereto shall promptly notify the other party in writing of the assertion of any claim, liability, loss, damages or expense described in this Section 5. The indemnifying party shall have the exclusive right to control the defense and settlement of such claim, and the indemnified party and its Associates shall cooperate and provide all reasonable information, assistance and authority to enable the indemnifying party to conduct such defense. 5.5 In the event that the Services provided by a party hereunder, or any part thereof, are found to infringe a patent, copyright or other intellectual property right, such party shall, in addition to the indemnity provided above, take the following actions at its expense: (a) procure for the other party the right to continue to use the Services; or (b) if such cure is not made available despite such party's best efforts to secure same, replace or modify the offending element(s) of the Services provided for hereunder by such party, so that it/they are no longer infringing while still meeting the requirements of this Agreement. A party shall not have liability hereunder for any claim based on the other party or its Associates' misuse of any product or use or combination of any product with software, hardware or other materials. 5.6 The parties respective rights and obligations under Sections 4.3, 4.4, 4.5, 4.6 and 4.7 hereof and this Section 5 shall survive any expiration or termination of this Agreement. 6. ADDITIONAL COVENANTS, REPRESENTATIONS AND WARRANTIES 6.1 AD represents that AOL has represented to it that AOL has approximately 32 million impressions per year on the Health Main Page. This represents the number of times per year that an AOL user enters the Health Main Page screen each year. 6.2 AD represents that AOL has represented to it that IntelliHealth, an AOL Health Main Page Anchor Tenant without real time medical services, is running 2.5 - 3.0 million page impressions per month. 6.3 AD represents that the users of the Health Main Page and the Anchor Tenants of the Health Main Page are within a demographic group from which volunteers of the nature needed by PRWW are typically found. 5 6.4 AD represents that it is an anchor tenant on the AOL Health Main Page. AD anticipates more than 500,000 users in its first month of operations as an Anchor Tenant on AOL's Health Main Page based upon discussions with AOL and representatives of other Health Main Page Anchor Tenants. 6.5 AD shall use its best efforts to perform the Services hereunder pursuant to the highest standards in the industry. 6.6 AD will designate and at all times use its best efforts to maintain its facility, equipment and service personnel in a manner necessary to provide the Services to PRWW as contemplated in this Agreement. 6.7 AD shall designate and maintain at all times a specific contact person located at the offices of AD who will have primary responsibility to respond, or facilitate the response, to telephone requests for Service by PRWW. 6.8 AD represents, warrants, covenants and agrees that AD's personnel performing hereunder are and shall be skilled in the providing of the Services. 6.9 AD represents, warrants, covenants and agrees that it has in effect, and shall use its best efforts to establish and maintain in effect during the term of this Agreement, all hardware, software, firmware and other intellectual property license and support agreements (including, without limitation, those agreements necessary to secure access to and use of new release levels, amendments, improvements and updates to such hardware, software, firmware and other intellectual property) as are necessary to lawfully and properly provide the Services. 6.10 AD represents, warrants, covenants and agrees that it currently, and shall for the term of this Agreement, strictly enforce any material rights, warranties, licenses and other benefits accruing to it under each of its agreements with third parties whose goods or services are utilized in the providing of the Services. 6.11 AD represents, warrants, covenants and agrees that the hardware, software, firmware and intellectual property provided, developed and/or used by AD hereunder shall not infringe upon or violate any patent, copyright, trademark, trade secret or other intellectual property right of any third party. 6.12 AD represents, warrants, covenants and agrees that the Services shall be furnished and in all respects provided in conformance and compliance with applicable laws. 6 6.13 AD represents, warrants, covenants and agrees that the software and firmware utilized to provide the Services hereunder shall not incur errors or defects as a result of the century date change in the year 2000. 6.14 AD hereby represents and warrants that it has the authority to enter into this Agreement and the right to provide the Services to PRWW hereunder without breach of any obligation to AOL or any third party, and that its performance under this Agreement will not breach any obligation to AOL or any third party, or any contract, agreement, rule, law or regulation of whatsoever nature. 7. ASSIGNMENT Neither party shall assign any of its rights nor delegate any of its obligations under this Agreement without the prior written consent of the other party; provided that the rights and obligations of a party under this Agreement will be automatically assigned to and assumed by any successor to it by merger or consolidation or any person which acquires substantially all of the assets and business of such person. Any prohibited assignment or delegation shall be null and void. 8. RELATIONSHIP OF THE PARTIES The parties are independent contractors. Nothing in this Agreement or in the activities contemplated by the parties pursuant to this Agreement shall be deemed to create an agency, partnership, employment or joint venture relationship between the parties. Each party shall be deemed to be acting solely on its own behalf and, except as expressly stated, has no authority to pledge the credit of, or incur obligations or perform any acts or make any statements on behalf of, the other party. Neither party shall represent to any person or permit any person to act upon the belief that it has any such authority from the other party. Neither party's officers or employees, agents or contractors shall be deemed officers, employees, agents or contractors of the other party for any purpose. 9. AMENDMENT No changes, amendments or modifications of any of the terms or conditions of this Agreement shall be valid unless made by an instrument in writing signed by both parties. 7 10. COMPLIANCE WITH LAWS The parties shall comply with all applicable international, federal, state and local laws, regulations and ordinances as they relate to this Agreement, including but not limited to, the regulations of the United States Government, which are incorporated in this Agreement by this reference as if set forth in full. 11. MISCELLANEOUS 11.1 Whenever this Agreement requires either party's approval, consent or satisfaction, the response shall not be unreasonably or arbitrarily withheld or delayed. 11.2 Section headings are included for convenience only and are not to be used to construe or interpret this Agreement. 11.3 No delay, failure or waiver of either party's exercise or partial exercise of any right or remedy under this Agreement shall operate to limit, impair, preclude, cancel, waive or otherwise affect such right or remedy. 11.4 If any provision of this Agreement is held invalid, illegal or unenforceable, the validity, legality or unenforceability of the remaining provisions shall in no way be affected or impaired thereby. 11.5 This Agreement may be executed by the parties in one or more counterparts, each of which when so executed shall be an original, but all such counterparts shall constitute one and the same instrument. 11.6 This Agreement is entered into and shall be governed by the internal laws and not the -laws regarding conflicts of laws of the State of Maryland. 11.7 The remedies under this Agreement shall be cumulative and not exclusive, and the election of one remedy shall not preclude pursuit of other remedies. Either party may seek any remedy generally available under the governing law. 11.8 The parties each warrant, represent, covenant and agree that they will not assign to perform any efforts under this Agreement any individual who is an unauthorized alien under the Immigration Reform and Control Act of 1986 or its implementing regulations. Each party shall indemnify and hold harmless the other party and its respective Associates from and against any and all liabilities, damages, losses, claims or expenses (including attorneys' fees) arising out of any breach by such party of this Section. In the event any AD personnel or contractor working under this Agreement, or other individual(s) providing 8 Services to PRWW on behalf of AD under this Agreement, are discovered to be unauthorized aliens, AD will irnmediately remove such individuals from performing work and replace such individuals with individuals who are not unauthorized aliens. In the event any PRWW personnel or contractor working under this Agreement or other individual(s) providing Services to AD on behalf of PRWW under this Agreement, are discovered to be unauthorized aliens, PRWW will immediately remove such individuals from performing work and replace such individuals with individuals who are not unauthorized aliens. 11.9 If either party's performance under this Agreement is interfered with by reason of any circumstances beyond said party's reasonable control, including without limitation, severe weather, fire, explosion, A.C. power failure, acts of God, war, revolution, civil commotion, or acts of public enemies, any law, order, regulation, ordinance or requirement of any government or legal body or any representative of any such government or legal body, labor unrest, including without limitation, strikes, slow downs, picketing or boycotts, then said party shall be excused from its performance on a day-for-day basis to the extent of such interference. 11.10 Notices and other communications; shall be transmitted in writing by certified U.S. Mail, postage prepaid, return receipt requested, or by facsimile or by overnight courier, addressed to the parties at the address first set forth above. Such notices and communications shall be deemed effective four (4) days after the date of mailing or upon receipt as evidenced by the U.S. Postal Service return receipt cards, whichever is earlier, or upon receipt if sent by facsimile or overnight courier. 12. ENTIRE AGREEMENT This Agreement, with any other instrument, agreement or document attached or referred to, which are incorporated by this reference as though set forth in full, embodies the final, full and exclusive statement of the agreement between AD and PRWW, and as of its date supersedes all prior agreements, negotiations, representations and proposals, written or oral, relating to the Services. This Agreement shall not be construed to govern any other transaction between AD and PRWW. Neither party shall be bound or liable to any other party for any representation, promise or inducement made by any agent or person in their employ relating to the subject matter which is not embodied in this Agreement. 9 EX-10.23 5 EXHIBIT 10.23 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT ("Sublease") is entered into as of June, 1998 by and between Sublandlord and Subtenant, each as defined below in Section A. A. THE PARTIES Sublandlord's Name and Raytheon Engineers & Constructors, Inc. type of entity: a Delaware Corporation Sublandlord's Address 30 South 17th Street for Notices: Philadelphia, PA 19103 ATT: Real Estate Operations Manager Sublandlord's Payment Raytheon Engineers & Constructors, Inc. Address: P.O. Box 8500 - S5450 Philadelphia, PA 19178 Subtenant's Name and Premier Research Worldwide, Ltd. type of entity: a Delaware Corporation Subtenant's Address 124 South 15th Street for Notices prior to Philadelphia, PA 19102-3010 Commencement Date: ATT: Fred M. Powell Subtenant's Address 30 South 17th Street for Notices after Philadelphia, PA 19103 Commencement Date: ATT: Fred M. Powell Prime Landlord's Name Takaji Kobayashi and Takeshi Shiratori, as and type on entity trustees of Shuwa Trust of Philadelphia, a Pennsylvania Business Trust Prime Landlord's address c/o Shuwa Corporation of New York for Notices 1330 Avenue of the Americas New York, N.Y. 10019 B. DEFINITIONS AND BASIC TERMS The following definitions and basic terms shall have the indicated meanings when used in this Lease: 0.1 Building: The building located on the land bounded by Ludlow Street, 17th Street, Ranstead Street and 18th Street, Philadelphia, Pennsylvania. 0.2 Demised Premises: Entire 8th and 9th floors of Building 0.3 Property: The Building, the parcel of land upon which the Building is situated and any other improvements located thereon. 0.4 Subtenant's Rentable 58,156 rentable square feet Square Feet: 0.5 Total Rentable Square Feet in the Building: 587,637 rentable square feet 0.6 Subtenant's Proportionate Share: 9.9% which is the percentage obtained by dividing (i) Subtenant's Rentable Square Feet by (ii) the total Rentable Square Feet in the Building. 0.7 Commencement Date: The Commencement Date is defined in Section 2.1. 0.8 Term: Commencing on the Commencement Date and ending at 5:00 PM on August 30, 2005 subject to adjustment and earlier termination as provided in the Prime Lease. -2- 0.9 Base Rent: BASE RATE SCHEDULE ------------------ ================================================================================ Base Rent/ Annual Monthly Year Sq Foot Base Rent Base Rent - -------------------------------------------------------------------------------- 1st Lease year $13.00 $756,028 $63,002.33 commencing with Commencement Date - -------------------------------------------------------------------------------- 2nd lease year $15.00 $872,340 $72,695.00 - -------------------------------------------------------------------------------- 3rd lease year $18.00 $1,046,808 $87,234.00 - -------------------------------------------------------------------------------- 4th lease year until $18.25 $1,061,347 $88,445.58 lease expiration ================================================================================ 0.10 Additional Rent: Additional Rent is defined in Section 3.2. 0.11 Rental: Base Rent, Additional Rent and all other sums that Subtenant may owe to Sublandlord under this Sublease. 0.12 Security Deposit: See Section 4. 0.13 Expense Stop/ Base Year: Base Year: 1998 0.14 Tax Stop/ Base Year: Base Year: 1998 0.15 Permitted Use: General office use and no other (See Section 6 for further clarification). 0.16 Tenant Improvement Allowance: See Section 17. 0.17 Option to Renew None. 0.18 Option to Terminate None. 0.19 Option to Expand None -3- PRELIMINARY STATEMENT --------------------- Whereas, a Lease Agreement was entered into on June 13, 1973, between Paul F. Hellmuth, Gorden E. Emerson, Jr., Robert C. Elder and John M. Hines as Trustees for Middle City Trust, as landlord (hereinafter called "Prime Landlord," including any successors and assigns), and Sublandlord, as tenant, for a portion of rentable floor area, consisting of 393,014 square feet, in the building known as 30 South 17th Street, Philadelphia, Pennsylvania (hereinafter called the "Building"). The Building is set on a parcel of land in Philadelphia bounded by Ludlow Street, 17th Street, Ranstead Street and 18th Street (hereinafter called the "Property"). The Property is more fully described in the Prime Lease. Whereas, the Lease Agreement has been amended by written amendments dated October 22, 1973; April 9, 1974; July 18, 1974; November 12, 1974; January 10, 1975; May 5, 1976; April 17, 1979; December 19, 1983; February 9, 1984 and October 25, 1994. The aforesaid Lease Agreement of June 13, 1973, and the amendments thereto are hereinafter referred to as the "Prime Lease," a true (but expurgated as to financial terms) copy of which has been delivered to the Subtenant, and Subtenant hereby acknowledges receipt of same. Whereas, Subtenant desires to sublet from Sublandlord a portion of the premises covered by the Prime Lease, for the term, the rent and upon and subject to the covenants, agreements, terms, conditions, limitations, exceptions and reservations herein contained. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto for themselves, their successors and assigns, hereby covenant and agree as follows: 1. Subleasing of Demised Premises. 1.1 Sublandlord hereby subleases to Subtenant, and Subtenant hereby hires from Sublandlord the entire 8th and 9th floors of the Building (which spaces are herein called the "Demised Premises"). For purposes of this Sublease, the Demised Premises shall be deemed to contain 58,156 rentable square feet. 1.2 Sublandlord shall make available to Subtenant four (4) unreserved parking passes in the Building Parking Garage. Subtenant shall be responsible to pay the monthly fee associated with the use of the parking passes. 2. Term. -4- 2.1 Demised Term. The term ("Demised Term") of this Sublease shall, commence on the earlier of (i) the date on which Subtenant, with Sublandlord's approval, shall take possession of the Demised Premises for the operation of its business therefrom, or (ii) November 1, 1998. The dates for the commencement and expiration of the Demised Term are referred to in this Sublease as the "Commencement Date" and the "Expiration Date", respectively. 2.2 Confirmation of Commencement Date. When a Commencement Date has been established in accordance with subparagraph 2.1 hereof, Sublandlord and Subtenant shall, at the request of either, execute an instrument in form reasonably satisfactory to Sublandlord setting forth said Commencement Date. 2.3 Recordation. This Sublease shall not be filed for record with the recorder's office of the county in which the Demised Premises are located. 2.4 Notwithstanding the generality of the foregoing, in the event that Sublandlord has not made the Premises available to Subtenant on or before June 10, 1998 for Tenant to begin its Tenant Improvements (the "Outside Date") for any reason other than Prime Landlord's failure to grant its consent to this Sublease, then Subtenant shall thereafter have the option to terminate this Sublease by written notice delivered to Sublandlord at any time prior to the date that Sublandlord so makes the Premises available to Subtenant; and, in the event Subtenant timely delivers such notice (time being of the essence), this Sublease shall be deemed null and void, and Sublandlord shall thereupon promptly return all prepaid rent and security to Subtenant whereupon all further obligations of the parties hereto shall end. 3. Base Rent, Additional Rent and Escalation. 3.1 Subtenant shall pay to Sublandlord, commencing on the Commencement Date, in currency which at the time of payment is legal tender for public and private debts in the United States of America, the Base Rent, except that the first full monthly installment due under this Sublease is being paid on the signing of this Sublease. The Base Rent shall be payable in advance in monthly payments on the first day of each month in accordance with Base Rent Schedule set forth in Section B. 0.9., provided that the Base Rent shall be paid on a pro-rata basis for any partial month at the beginning or end of the Term. The Base Rent shall include all services called for in the Prime Lease such as janitorial, security, HVAC and normal electricity for normal business operations provided that Subtenant shall pay for any increases in the cost of such services as provided in Section 3.2 below. If the Prime Landlord has the right to impose additional charges with respect to the Demised Premises pursuant to Exhibit D, Item VI of the Prime Lease, such electrical needs will be separately metered and paid for by Subtenant. Except as may be otherwise expressly provided for herein, Base Rent and all other amounts payable by Subtenant to Sublandlord under the provisions of this Sublease shall be paid promptly when due, without notice or demand therefor, -5- and without deduction, abatement, counter-claim or set-off of any amount or for any reason whatsoever. Base Rent and additional charges shall be paid to Sublandlord at the address of Sublandlord set forth in the preamble of this Sublease or to such other person and/or at such other address as Sublandlord may from time to time designate by notice to Subtenant. No payment by Subtenant or receipt by Sublandlord of any lesser amount than the amount stipulated to be paid hereunder shall be deemed other than on account of the stipulated Base Rent or additional charges; nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction, and Sublandlord may accept any check or payment without prejudice to Sublandlord's right to recover the balance due or to pursue any other remedy available to Sublandlord. 3.2 In addition to its obligation to pay Base Rent, Subtenant shall pay Subtenant's Proportionate Share of increases over the Base Year (as defined below) in the Real Estate Tax Payment and Operating Expenses (as such terms are defined or used in the Prime Lease) payable by Sublandlord with respect to the Demised Premises ("Additional Rent") pursuant to the Prime Lease except that for the purposes of this Agreement the Base Tax Year and the Base Expense Year shall be calendar year 1998. 3.3 The sums for which Subtenant shall be liable pursuant to subparagraph 3.3 above shall be deemed additional rent and shall be payable by Subtenant to Sublandlord within thirty (30) days of the billing date. Such billing shall be accompanied by copies of such bills as Sublessor shall have received from Prime Landlord relating to such charges, and such supporting documents and data as Prime Landlord shall have provided Sublandlord. 3.3.1 At any time during each Lease Year (which shall be a calendar year unless otherwise defined in the Prime Lease), Sublandlord may furnish to Subtenant a written statement or statements (an "Estimate Statements") setting forth Sublandlord's reasonable estimate of the Operating Expense Payment for such Lease Year (the "Estimated Payment"). Provided that an Estimate Statement has been delivered to Subtenant fifteen (15) days prior to such date, Subtenant shall pay to Sublandlord on the first day of each month an amount equal to one-twelfth (1/12th) of the Estimated Payment for such Lease Year. If Sublandlord furnishes an Estimate Statement for a Lease Year subsequent to the commencement thereof, then (i) until the first day of the month following the month in which the Estimate Statement is furnished to Subtenant, Subtenant shall continue to pay to Sublandlord on the first day of each month an amount equal to the monthly sum payable by Subtenant to Sublandlord with respect to the next previous Lease Year; (ii) promptly after the Estimate Statement is furnished to Subtenant, Sublandlord shall give notice to Subtenant stating whether the amount previously paid by Subtenant to Sublandlord for the current Lease Year was greater or less than the installments of the Estimated Payment to be paid for the current Lease Year, and (a) if there shall be a deficiency, Subtenant shall pay the amount -6- thereof within fifteen (15) days after demand therefor, or (b) if there shall have been an overpayment, Sublandlord shall credit against the next installments of the Base Rent and payments of Additional Rent payable under this Sublease, the amount of Subtenant's overpayment (or in the event that no additional Base Rent is due Sublandlord shall pay said overpayment directly to Subtenant; and (iii) on the first day of the month following the month in which the Estimate Statement is furnished to Subtenant, and monthly thereafter throughout the remainder of the Lease Year, Subtenant shall pay to Sublandlord an amount equal to one-twelfth (1/12th) of the Operating Expense Payment shown on the Estimate Statement. Any amount owing to Subtenant subsequent to the expiration or earlier termination of the Term shall be paid to Subtenant within fifteen (115) business days after a final determination has been made of the amount due to Subtenant. Subtenant's obligation for the Operating Expense Payment shall commence as of the Commencement Date. The Operating Expense Payment shall be prorated for any partial Lease Years in which the Commencement Date shall occur and the Term shall end. 3.3.2 Subtenant shall pay to Sublandlord any amounts owed with respect to Real Estate Taxes pursuant to Section 3.2 above when Sublandlord is required to pay such Real Estate Taxes to the Prime Landlord pursuant to Section 2.6 of the Prime Lease. Subtenant's obligation for Real Estate Taxes shall commence as of the Commencement Date. The Real Estate Tax Payment shall be prorated for any partial Lease Years in which the Commencement Date shall occur and the Term shall end. 3.3.3 Within 15 days after receipt from Prime Landlord, Sublandlord shall furnish to Subtenant an annual statement or statements (the "Annual Statements ") setting forth the items constituting the Operating Expenses and/or Real Estate Taxes during such Lease Year, which Annual Statements shall be prepared based upon and accompanied by the statement of Operating Expenses and/or Real Estate Taxes received by Sublandlord from Prime Landlord. If the Annual Statements shows that the Operating Expense Payment (or other payments) for such Lease Year exceeded the Operating Expense Payment which should have been paid for such Lease Year, Sublandlord shall credit against the next installments of Base Rent and payments of Additional Rent payable under this Sublease, the amount of such excess; if the Annual Statement for such Lease Year shows that the Estimated Operating Expense Payment for such Lease Year was less than the Operating Expense Payment (or other payments) which should have been paid for such Lease Year, Subtenant shall pay the amount of such deficiency within fifteen (15) days after receipt of the Annual Statement. Any amount owing to Subtenant subsequent to the expiration or earlier termination of the Term shall be paid to Subtenant within fifteen (15) days after delivery of the final Annual Statement. 3.3.4 Each Annual Statement shall be conclusive and binding upon Subtenant unless, within six (6) months after receipt thereof, Subtenant shall -7- notify Sublandlord that it disputes the correctness of the Annual Statement, specifying in reasonable detail based on the information available to Subtenant the manner in which the Annual Statement is claimed to be incorrect. If such notice is sent, provided Subtenant shall pay to Sublandlord the amount shown to be due to Sublandlord on the disputed Annual Statement, Sublandlord agrees to use reasonable efforts to enforce its rights under the Lease to dispute the correctness of the statements of Operating Expense and/or the Real Estate Taxes delivered by Prime Landlord to Sublandlord the cost of which dispute shall be equitably apportioned among Subtenant and such other subtenants of Sublandlord at the Building who also request that Sublandlord dispute such statements. Subtenant agrees to indemnify and hold Sublandlord harmless from and against any and all claims, costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys fees and disbursements. If Prime Landlord shall revise the statements of Operating Expense Payment and/or Real Estate Taxes disputed by Subtenant, Sublandlord shall deliver to Subtenant a revised Annual Statement, and an appropriate payment or credit by Sublandlord, or payment by Subtenant, as the case may be. 3.4 Anything to the contrary notwithstanding, if Subtenant shall procure any additional services for the Demised Premises (such as those contemplated by Section 4.1.2 of the Prime Lease) from Prime Landlord, Subtenant shall pay for same at the rates charged therefor by Prime Landlord and shall make such payment at the same time it pays the Base Rent to Prime Landlord or Sublandlord as Sublandlord shall direct unless differently directed by the Prime Landlord. Any sums payable pursuant to this subsection shall be deemed Additional Rent and shall be collectible as such. 3.5 All Base Rent, Additional Rent and all other costs, charges and sums payable by Subtenant hereunder (collectively, "Rental"), shall constitute rent under this Sublease, and shall be payable to Sublandlord at its address as set forth herein, unless Sublandlord shall otherwise so direct in writing (or unless otherwise directed to the extent permitted by Section 3.4 by the Prime Landlord. 3.6 If Subtenant shall fail to pay within ten (10) days after due any installment of Rental, Subtenant shall pay to Sublandlord, in addition to such installment of Rental, as a late charge and as Additional Rent, a sum equal to interest at the Applicable Rate (hereinafter defined) per annum on the amount unpaid, commencing from the date such payment was due to and including the date of payment. The "Applicable Rate" shall be the rate equal to the lesser of (a) two (2) percentage points above the then current rate publicly announced by Citibank, N.A. or its successor as its "base rate" (or such other term as may be used by Citibank, N.A. from time to time for the rate presently referred to as its "base rate") or (b) the maximum rate permitted by applicable law. 3.7 Subtenant shall promptly pay the Rental as and when the same shall become due and payable without set-off, offset or deduction of any kind -8- whatsoever, except as expressly set forth herein, and, in the event of Subtenant's failure to pay the same when due (subject to grace periods provided herein), Sublandlord shall have all of the rights and remedies provided for herein or at law or in equity, in the case of non-payment of rent. Upon the request of Subtenant, Sublandlord shall reasonably consider taking action under Section 8.8.2 of the Prime Lease provided that Subtenant shall, in addition to any other indemnity provided for herein, fully indemnify and hold Sublandlord harmless from any and all cost and expenses incurred by Sublandlord (including reasonable attorney fees) in complying with Subtenant's request. 3.8 Sublandlord's failure during the Term to prepare and deliver any statements or bills required to be delivered to Subtenant hereunder, or Sublandlord's failure to make a demand under this Article 3 or under any other provisions of this Sublease shall not in any way be deemed to be a waiver of, or cause Sublandlord to forfeit or surrender its rights to collect any Rental which may have become due pursuant to this Article 3 during the Term. Subtenant's liability for Rentals due under this Article 3 accruing during the Term shall survive the expiration or sooner termination of this Sublease. 3.9 Subtenant shall pay to Sublandlord, upon the execution of this Sublease, the amount of Sixty Three Thousand Two Dollars and thirty three cents ($63,002.33) representing a prepayment of the first month's rental due under this Sublease. 4. SECURITY DEPOSIT. 4.1 On the date of execution of this Sublease by Subtenant, Subtenant shall deposit with Sublandlord, as security for Subtenant's obligations under this Sublease, a Letter of Credit (as hereinafter defined) or equivalent credit instrument (the "Equivalent Credit Instrument," and, collectively with Letter of Credit, the "Security Instrument") such as a certificate of deposit issued in the name of the Sublandlord, in the amount of Six Hundred Thousand Dollars ($600,000.00) (the "Security"). In the event that Subtenant seeks to use an Equivalent Credit Instrument as security, such Equivalent Credit Instrument shall (1) be issued by a bank acceptable to Sublandlord in its sole discretion, (2) shall have a liquidity that is cash equivalent as determined by Sublandlord in its sole discretion, and (3) at all times be in the possession of Sublandlord. Sublandlord shall have the right to draw upon such Security Instrument any number of times up to the aggregate amount equal to the face value of such of Security Instrument following a default by Subtenant beyond notice and any applicable cure period. In the event that Subtenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of the Sublease, the Security Instrument shall be returned to Subtenant promptly after the date fixed as the end of the Term and delivery of the entire possession of the Premises to Sublandlord in the condition required pursuant to the Sublease. In the event Sublandlord applies or retains any -9- portion or all of the Security Instrument deposited, Subtenant shall, within ten (10) days following written demand therefor, pay to Sublandlord, with interest, the amount so applied. Subtenant's failure to so pay such amount shall be deemed a default by Subtenant in the payment of any installment of Base Rent. 4.2 The Letter of Credit shall be a clean, irrevocable, letter of credit ("Letter of Credit") issued by any bank which is a member of Philadelphia Clearing House Association (hereinafter referred to as the "Issuing Bank"), which Letter of Credit shall have a term of not less than one (1) year, be issued for the benefit of Sublandlord, be in the amount of the Security during the period commencing on the date of such Letter of Credit as deposited with Sublandlord and continuing through the Expiration Date. The Issuing Bank shall pay to Sublandlord or its duly authorized representative in one installment or in several partial installments an amount up to the face value of the Letter of Credit upon presentment of the Letter of Credit and a sight draft in the amount to be drawn and a letter signed by Sublandlord stating that Sublandlord is entitled to draw upon the Letter of Credit in the amount requested based on a default by Subtenant under the Sublease and, that any applicable notice and cure period has expired. Subtenant shall provide a replacement Letter of Credit no later than thirty (30) days prior to the expiration of the then existing Letter of Credit. A failure by Subtenant to provide a replacement Letter of Credit within the aforesaid period shall entitle Sublandlord to draw the face amount under the then existing Letter of Credit and shall constitute a default hereunder beyond any applicable cure period. 4.3 Any proceeds drawn by Sublandlord under a Security Instrument shall be held by Sublandlord, to the extent that such proceeds are not applied to the satisfaction of any of Subtenant's obligations under this Sublease, as if the same were a cash security deposit. 4.4 Notwithstanding the foregoing, in the event that Subtenant is not then in default of any term, condition or covenant of this Sublease, then the Security may be periodically reduced beginning with the Commencement Date on a straight line basis provided that the Security shall not be reduced to less than Sixty Three Thousand Nine Hundred Ninety Two Dollars and thirty three cents ($63,992.33) at the expiration of the Term. Provided that Subtenant is not in default under any of the terms or conditions of this Sublease, the balance of the Security Instrument shall be released or returned to Subtenant within thirty days after the expiration of the Term. All interest earned on the Certificate of Deposit accrues to the benefit of the Subtenant. 5. Subordination to and Incorporation of the Lease. 5.1 This Sublease is in all respects subject and subordinate to the terms and conditions of the Prime Lease (true and complete copies of which have been furnished by Sublandlord to Subtenant), and to all matters to which the Prime Lease are subject and subordinate. Subtenant shall indemnify Sublandlord for, and shall hold it harmless from and against, any and all losses, damages, penalties, liabilities, costs and -10- expenses, including, without limitation, reasonable attorneys' fees and disbursements, which may be sustained or incurred by Sublandlord by reason of Subtenant's failure to keep, observe or perform any of the terms, provisions, covenants, conditions and obligations on Sublandlord's part to be kept, observed or performed under the Prime Lease with respect to the Demised Premises to the extent same shall have been incorporated herein, or otherwise arising out of or with respect to Subtenant's use and occupancy of the Demised Premises from and after the Commencement Date. Sublandlord shall promptly provide Subtenant with a copy of any notice it receives from Prime Landlord with respect to any alleged breach and the same opportunity permitted by the Prime Lease to cure such breach provided that the time to cure shall in no event extend beyond the date that Sublandlord must effectuate any cure. Sublandlord shall indemnify Subtenant for, and shall hold it harmless from and against, any and all losses, damages, penalties, liabilities, costs and expenses, including, without limitation, reasonable attorneys fees and disbursements, which may be sustained or incurred by Subtenant by reason of Sublandlord's failure to keep, observe or perform any of the terms, provisions, covenants, conditions and obligations on Sublandlord's part to be kept, observed or performed under the Prime Lease. 5.2 Except as otherwise expressly provided in, or otherwise inconsistent with, this Sublease, or to the extent not applicable to the Demised Premises, the terms, provisions, covenants, stipulations, conditions, rights, obligations, remedies and agreements contained in the Prime Lease including but not limited to Sections 2.2 (first sentence only), 2.7 (as amended by the Seventh and Eighth Lease Amendments), 2.8, 2.9, 3.3, 3.4 (first paragraph), 3.6, 4.1.1, 4.1.2, 4.1.3, 4.1.5, 4.1.6, 4.1.7, 4.2, Article 5, Article 6, Article 7, Article 8, Article 9 and Section 1 of the Ninth Lease Amendment and Sections 6(e) and 6(f) of the Tenth Lease Amendment are incorporated in this Sublease by reference, and are made a part hereof as if herein set forth at length, Sublandlord being substituted for the "Landlord" under the Prime Lease, Subtenant being substituted for the "Tenant" under the Prime Lease, and Demised Premises being substituted for "Premises" under the Prime Sublease except that the following provisions of the Lease shall be deemed deleted therefrom and shall have no force and effect as between Sublandlord and Subtenant: Article 1, Sections 2.1, 2.2 (except for the first grammatical paragraph), 2.4, 2.5, 2.6, 2.10, 3.1, 3.2, 3.4 (second paragraph), 3.6, 4.1.4. 5.6, 5.7 (except that with respect to Sections 5.6 & 5.7 Subtenant shall have all of the obligations to the Prime Landlord set forth therein) and Sections 3, 4 and 5 of the Tenth Amendment. 6. Use: Quiet Enjoyment 6.1 Subtenant shall use and occupy the Demised Premises for general office use and for no other purpose provided that general office use shall include a clinical testing laboratory but in no event shall any outpatient or inpatient testing, treatment or services be permitted nor shall animal testing or research be permitted. -11- 6.2 Subtenant shall not permit the occupancy of any space in the Building or Demised Premises for a use causing an unusually high degree of traffic through or abuse of the lobby, elevators or common use areas in excess of normal use for a first-class office building, or causing unusual concentration of persons in the lobby, elevators or common areas, or resulting in commotion, noise or generally disagreeable activities or conditions, or employing or engaged in activities which result in a denser use of space than customary in office buildings of the contemplated character of the Building provided that a clinical testing laboratory shall not be deemed a generally disagreeable activity. 6.3 As long as Subtenant shall pay the Rental due hereunder and shall duly perform all the terms, covenants and conditions of this Sublease on its part to be performed and observed, Subtenant shall peaceably and quietly have, hold and enjoy the Demised Premises during the Term hereof, subject to the provisions of this Sublease. 6.4 Sublandlord will not restrict Subtenant's access to the Demised Premises on a 24 hour seven day a week basis provided that nothing herein shall affect the rights of the Prime Landlord under the Prime Lease. 7. Covenants with Respect to the Lease. 7.1 Subtenant shall not do anything that would constitute a default under the Prime Lease or omit to do anything that Subtenant is obligated to do under the terms of this Sublease so as to cause there to be a default under the Prime Lease. 7.2 The time limits set forth in the Prime Lease for the giving of notices, making demands, performance of any act, condition or covenant, or the exercise of any right, remedy or option, are changed for the purpose of this Sublease, by lengthening or shortening the same in each instance, as appropriate, so that notices may be given, demands made, or any act, condition or covenant performed, or any right, remedy or option hereunder exercised, by Sublandlord or Subtenant, as the case may be (and each party covenants that it will do so) within five (5) days prior to the expiration of the time limit, taking into account the maximum grace period, if any, relating thereto contained in the Prime Lease. Each party shall promptly deliver to the other party copies of all notices, requests or demands which relate to the Demised Premises or the use or occupancy thereof after receipt of same. 7.3 Compliance with Laws. Subtenant shall at all times fully comply with all applicable laws, ordinances, rules and regulations of all governmental authorities ("Applicable Laws") with respect to its occupancy of the Demised Premises and the operation of its business conducted therein. At the request of Sublandlord, -12- Subtenant shall deliver copies of all permits, certificates and licenses evidencing Subtenants compliance with all Applicable Laws. 8. Services and Repairs. 8.1 Notwithstanding anything to the contrary contained in this Sublease or in the Prime Lease, Sublandlord shall not be required to provide any of the services that Prime Landlord has agreed to provide, whether specified in the Prime Lease or required by law, or furnish the electricity to the Demised Premises that Prime Landlord has agreed to furnish pursuant to the Prime Lease (or required by law), or make any of the repairs or restorations that Prime Landlord has agreed to make pursuant to the Prime Lease (or required by law), or comply with any laws or requirements of any governmental authorities with respect to the Demised Premises, or take any other action that Prime Landlord has agreed to provide, furnish, make, comply with, or take or, cause to be provided, furnished, made, complied with or taken under the Prime Lease, but Sublandlord agrees to use all diligent efforts as approved by Subtenant, at Subtenant's sole cost and expense, to obtain the same from Prime Landlord (provided, however, that Sublandlord shall not be obligated to use such efforts or take any action which might give rise to a default under the Prime Lease), and Subtenant shall rely upon, and look solely to, Prime Landlord for the provision, furnishing or making thereof or compliance therewith. If Prime Landlord shall default in the performance of any of its obligations under the Prime Lease, including its obligation to comply with environmental and other laws, Sublandlord shall, upon request and at the expense of Subtenant, timely institute and diligently prosecute any action or proceedings which Subtenant, in its reasonable judgment, deems meritorious, in order to have Prime Landlord make such repairs, furnish such electricity, provide such services or comply with any other obligation of Prime Landlord under the Prime Lease or as required by law. Subtenant shall indemnify and hold harmless Sublandlord from and against any and all such claims arising from or in connection with such request, action or proceeding unless resulting from an negligent act or omission of Sublandlord. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature, including, without limitation, reasonable attorneys' fees and disbursements, incurred in connection with any such claim, action or proceeding brought thereon. Subtenant shall not make any claim against Sublandlord for any damage which may arise, nor shall Subtenant's obligations hereunder be diminished, by reason of (i) the failure of Prime Landlord to keep, observe or perform any of its obligations pursuant to the Prime Lease unless such failure is due to Sublandlord's negligence or misconduct, or (ii) the acts or omissions of Prime Landlord, its agents, contractors, servants, employees, invitees or licensees. Sublandlord shall not be responsible for any failure or interruption, for any reason whatsoever, of the services or facilities that may be appurtenant to or supplied at the Building by the Prime Landlord or otherwise, including, without limitation, heat, air conditioning, water, electricity, elevator service and cleaning service, if any; and no failure to furnish, or interruption of, any such services or facilities shall give rise to any -13- (x) abatement, diminution or reduction of Subtenant's obligations under this Sublease, (y) constructive eviction, whether in whole or in part, or (z) liability on the part of the Sublandlord. The provisions of this Section 8 shall survive the expiration or earlier termination of the Term hereof. Notwithstanding anything herein to the contrary, if and to the extent that Sublandlord obtains an abatement or reduction in rent under the terms of the Prime Lease due to Prime Landlord's failure to deliver essential services to the Premises, then Subtenant shall be entitled to a corresponding abatement or reduction of rent under this Sublease. 9. Consents. 9.1 Sublandlord agrees that whenever its consent or approval is required hereunder, or where something must be done to Sublandlord's satisfaction, it shall not unreasonably withhold or delay such consent or approval; provided, however, that whenever the consent or approval of Prime Landlord or the lessor under a superior lease, or the mortgagee under a mortgage, as the case may be, is also required pursuant to the terms of the Prime Lease, if Prime Landlord or the lessor under a superior lease, or the mortgagee under a mortgage shall withhold its consent or approval for any reason whatsoever, Sublandlord shall not be deemed to be acting unreasonably if it shall also withhold its consent or approval. However, Sublandlord shall reasonably cooperate with Subtenant in obtaining such consent or approval. If Prime Landlord shall withhold its consent or approval in connection with this Sublease or the Demised Premises in any instance where, under the Prime Lease, the consent or approval of Prime Landlord may not be unreasonably withheld, Sublandlord, upon the request and at the expense of Subtenant, shall either (i) timely institute and diligently prosecute any action or proceeding which Subtenant, in its reasonable judgment, deems meritorious, in order to dispute such action by Prime Landlord at the sole cost and expense of Subtenant, or (ii) permit Subtenant, to the extent allowable under the Prime Lease, to institute and prosecute such action or proceeding against Prime Landlord provided that Subtenant shall keep Sublandlord informed of its actions and shall not take any action which might give rise to a default under the Prime Lease. 9.2 If Subtenant shall request Sublandlord's consent and Sublandlord has agreed, under the terms of this Sublease, that neither its consent nor its approval shall be unreasonably withheld, and Sublandlord shall fail or refuse to give such consent or approval, and Subtenant shall dispute the reasonableness of Sublandlord's refusal to give its consent or approval, such dispute shall be finally determined by a court of competent jurisdiction. In the event that any action or proceeding is brought to enforce any term, covenant or condition of this Sublease on the part of Sublandlord or Subtenant, the party ultimately prevailing in such litigation shall be entitled to costs of such litigation and to reasonable attorneys fees to be fixed by the court in such action or proceeding, including any appeal or appeals therefrom. -14- 10. Termination of Lease. If the Prime Lease is terminated by Prime Landlord pursuant to the terms thereof with respect to all or any portion of the Demised Premises prior to the Expiration Date for any reason whatsoever, including, without limitation, by reason of casualty or condemnation, this Sublease shall thereupon terminate with respect to any corresponding portion of the Demised Premises, and (unless such termination of the Prime Lease shall be as a result of Sublandlord's default thereunder or a voluntary surrender of the Demised Premises, other than a surrender of the Demised Premises permitted under the Prime Lease with respect to a termination of the Prime Lease by reason of casualty to or condemnation of the Demised Premises or the Building) Sublandlord shall not be liable to Subtenant by reason thereof. In the event of such termination, Sublandlord shall return to Subtenant that portion of the Rental paid in advance by Subtenant with respect to such portion of the Demised Premises, if any, prorated as of the date of such termination together with the Letter of Credit. 11. Sublease, Not Assignment. Notwithstanding anything contained herein, this Sublease shall be deemed to be a sublease of the Demised Premises and not an assignment, in whole or in part, of Sublandlord's interest in the Prime Lease. 12. Damage, Destruction, Fire and Other Casualty; Condemnation. In the event that 50% or more of the Demised Premises is destroyed by fire or other casualty such that Subtenant cannot use the Demised Premises for a period of at least six consecutive months then either Sublandlord or Subtenant upon thirty days written notice shall have the right to terminate this Sublease. In the event of said fire or other casualty, rent shall abate in proportion to the percentage of the Demised Premises Subtenant is unable to occupy. 13. No Waivers. Failure by Sublandlord in any instance to insist upon the strict performance of any one or more of the obligations of Subtenant under this Sublease, or to exercise any election herein contained, shall in no manner be or be deemed to be a waiver by Sublandlord of any of Subtenant's defaults or breaches hereunder or of any of Sublandlord's rights and remedies by reason of such defaults or breaches, or a waiver or relinquishment for the future of the requirement of strict performance of any and all of Subtenant's obligations hereunder. Further, no payment by Subtenant or receipt by Sublandlord of a lesser amount than the correct amount or manner of payment of Rental due hereunder shall be deemed to be other than a payment on account, or any letter accompanying any check or payment be deemed to effect or evidence an accord and satisfaction, and Sublandlord may accept any checks or payments as made without prejudice to Sublandlord's right to recover the balance or pursue any other remedy in this Sublease or otherwise provided at law or equity. 14. Notices. Any notice, statement, demand, consent, approval, advance or other communication required or permitted to be given, rendered or made by either -15- party to the other, pursuant to this Sublease or pursuant to any applicable law or requirement of public authority (collectively, "communications") shall be in writing and shall be deemed to have been properly given, rendered or made only if sent by personal delivery, receipted by the party to whom addressed, or certified mail, return receipt requested, posted in a United States post office station in the continental United States, or by reputable overnight delivery service, addressed to Sublandlord or Subtenant at their address first above written. All such communications shall be deemed to have been given, rendered or made when delivered and receipted by the party to whom addressed, in the case of personal delivery, or three (3) business days after the day so mailed or one (1) business day after overnight delivery service. Either party may, by notice as aforesaid, designate a different address or addresses for communications intended for it. 15. Broker. Each party hereto covenants, warrants and represents to the other party that it has had no dealings, conversations or negotiations with any broker other than Cushman & Wakefield and Preferred Real Estate Advisors, Inc. (the "Brokers") concerning the execution and delivery of this Sublease. Each party hereto agrees to indemnify and hold harmless the other party against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and disbursements, arising out of its respective representations and warranties contained in this Section 15 being untrue. Sublandlord shall pay any brokerage commissions due to the Brokers pursuant to a separate agreement between Sublandlord and the Brokers. The provisions of this Section 15 shall survive the expiration or earlier termination of the Term hereof. 16. Renovation of the Demised Premises. 16.1 Subtenant Finish Architect/Subtenant Finish Contractor. 16.1.1 Subtenant shall retain the services of a qualified and experienced Subtenant finish architect (the "Subtenant Finish Architect") and other consultants as shall be reasonably necessary for the purposes of planning, designing and administering the design and construction of the Demised Premises for Subtenant occupancy. The Subtenant Finish Architect shall be responsible for the development, completion and submission of certain design and construction documentation for Subtenant's, Sublandlord's and Prime Landlord's review and approval as set forth herein. 16.1.2 Subtenant shall retain the services of a qualified and experienced Subtenant finish general contractor (the "Subtenant Finish Contractor") and such other specialty contractors as shall be reasonably necessary for the purpose of constructing Subtenant finish work. The selection of the Subtenant Finish Contractor -16- by Subtenant shall be subject to the approval of Sublandlord, which approval shall not be unreasonably withheld or delayed. 16.2 Determination of Subtenant's Space Requirement Program. Subtenant Finish Architect shall determine Subtenant's Space Requirement Program. 16.2.1 Based upon the requirements of Subtenant's Space Requirement Program, the Subtenant Finish Architect shall develop and submit to Subtenant and Sublandlord "Subtenant's Test Fit Plan", which shall generally indicate the functional and organizational relationships of the Demised Premises, the location and size of said Demised Premises, all demising partitions, interior walls and doors, the location and configuration of office areas, the layout of typical furniture and other special conditions and requirements of Subtenant's space. 16.2.2 Upon completion of Subtenant's Test Fit Plan, the Subtenant Finish Architect shall deliver copies of the completed Subtenant's Test Fit Plan to Subtenant and two (2) copies to Sublandlord. Sublandlord shall have one week to approve or reject Subtenant's Test Fit Plan. 16.3 Preparation and Approval of Subtenant Construction Documents. 16.3.1 Subtenant shall authorize the preparation of Subtenant Construction Documents which documents shall be completed and delivered to Sublandlord. The Subtenant Construction Documents shall consist of one set of architectural drawings signed and sealed by a registered Pennsylvania architect. In addition, one set of signed and sealed engineered mechanical, electrical and plumbing drawings will be required if necessary. Sublandlord shall review and approve or reject the Subtenant Construction Documents within one week of submission to Sublandlord. 16.3.2 Neither review nor approval by Sublandlord of any of the Subtenant Construction Documents shall constitute a representation or warranty by Sublandlord that such Subtenant Construction Documents either (i) are complete or suitable for their intended purpose or (ii) comply with applicable laws, ordinances, codes and regulations, it being expressly agreed by Subtenant that Sublandlord assumes no responsibility or liability whatsoever to Subtenant or to any other person or entity for such completeness, suitability or compliance. 16.4 Construction of Subtenant Finish Work. Immediately following the approval of Subtenant Construction Documents Subtenant shall cause the Demised Premises to be improved and completed, in a good and workmanlike manner and in accordance with Subtenant Construction Documents and in accordance with all applicable laws. -17- 16.5 Except as expressly set forth in this Agreement, Subtenant acknowledges and agrees that Sublandlord has not made, does not make and specifically negates and disclaims any representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express or implied, oral or written, past, present or future, of, as to, concerning or with respect to: (a) the nature, quality or condition of the Demised Premises, (b) the suitability of the Demised Premises for any and all activities and uses which Subtenant may conduct thereon, (d) the compliance of or by the Demised Premises or its operation with any laws, rules, ordinances or regulations of any applicable governmental authority or body, (e) the manner or quality of the construction or materials, if any, incorporated into the Demised Premises, (f) the manner, quality, state of repair or lack of repair of the Demised Premises, or (h) compliance with any Environmental Laws or any pollution or land use laws, rules, regulations, orders or requirements, including the existence in or on the Demised Premises of Hazardous Materials, (i) any other matter with respect to the Demised Premises. Additionally, unless expressly set forth herein, no person acting on behalf of Sublandlord is authorized to make, and by execution hereof of Subtenant acknowledges that no person has made, any representation, agreement, statement, warranty, guaranty or promise regarding the Demised Premises or the transaction contemplated herein; and no such representation, warranty, agreement, guaranty, statement or promise if any, made by any person acting on behalf of Sublandlord will be valid or binding upon Sublandlord. Subtenant further acknowledges and agrees that having been given the opportunity to inspect the Demised Premises, Subtenant is relying solely on its own investigation of the Demised Premises and not on any information provided or to be provided by Sublandlord except as expressly set forth in this Agreement, and agrees to accept the Demised Premises at the Commencement Date and waive all objections or claims against Sublandlord (including, but not limited to, any right or claim of contribution) arising from or related to the Demised Premises or to any Hazardous Materials on the Demised Premises. Sublandlord shall not be liable or bound in any manner by any oral or written statement, representation or information pertaining to the Demised Premises furnished by any real estate broker, contractor, agent, employee, servant or other. 16.6 Notwithstanding anything in this Section 16 to the contrary, Prime Landlord will need to review and approve the plans for Subtenant's Finish Work prior to the commencement of any construction, all in accordance with the provisions of the Prime Lease. Any unreasonable delay occasioned by Prime Landlord's review and approval process shall extend the Commencement Date set forth in Section 2.1. Sublandlord shall solicit the required consents from the Prime Landlord with the cooperation of Subtenant as required. 16.7 Mailroom Monorail System. Subtenant acknowledges that Sublandlord has previously installed a mailroom monorail between several floors located in the core area of the Building. Sublandlord reserves the right at any time to -18- enter the Demised Premises to access the mailroom monorail area for repair or maintenance to the mailroom monorail system or the shaft and Subtenant shall not restrict or obstruct in any way Sublandlord's access to the area marked by cross hatching on the attached Exhibit _________. 16.8 Waiver of Mechanic's Lien. Prior to commencing any construction, Subtenant shall obtain from the Subtenant Finish Contractor a Waiver of Mechanic's Lien in recordable form. 17. Tenant Improvement Allowance. Sublandlord shall make available to Subtenant an improvement allowance of Nine Hundred Ninety Eight Thousand Six Hundred Fifty Two Dollars ($998,652.00). Subtenant may use this improvement allowance to offset construction costs for the Tenant Finish Work. In the event that the total Tenant Improvement Allowance is not utilized at the end of construction, then Subtenant shall have the right to either credit any unutilized allowance against the Base Rent next due, or to apply any unused allowance to supplement any other allowance category. Said Tenant Improvement Allowance shall be paid to Subtenant or Subtenant's contractors within thirty (30) days after Sublandlord is provided with evidence of paid invoices representing the work in the case of payment made to Subtenant or partial of final lien waivers in the case of payments made directly to contractors. 18. Consent of Prime Landlord to this Sublease. Subtenant hereby acknowledges and agrees that this Sublease is subject to and conditioned upon Sublandlord obtaining the written consent (the "Consent") of Prime Landlord as provided in the Lease. Promptly following the execution and delivery hereof, Sublandlord shall submit this Sublease to Prime Landlord. Subtenant hereby agrees that it shall cooperate in good faith with Sublandlord and shall comply with any reasonable requests made of Subtenant by Sublandlord or Prime Landlord in the procurement of the Consent. In no event shall Sublandlord or Subtenant be obligated to make any payment to Prime Landlord in order to obtain the Consent or the consent to any provision hereof, other than as expressly set forth in the Lease. In the event that Prime Landlord shall not have executed and delivered the Consent within thirty (30) days after the date of this Sublease, or in the event that Prime Landlord objects to this Sublease then either party shall have the right to cancel this Sublease by written notice given to the other at any time thereafter prior to the execution and delivery of the Consent, and with the giving of such notice this Sublease shall be deemed canceled and of no further force or effect and neither party shall have any liability or obligation to the other in respect thereof, except for any obligations or liabilities which have accrued prior to such cancellation. In the event that this Sublease is canceled by reason of Prime Landlord's objection or failure to consent, Subtenant hereby agrees to vacate the Demised Premises upon 24 hours written notice to do so. 19. Assignment, Subletting and Mortgaging. -19- 19.1 Subtenant shall not assign, sell, transfer (whether by operation or law or otherwise), pledge, mortgage or otherwise encumber this Sublease or any portion of its interest in the Demised Premises, nor sublet all or any portion of the Demised Premises or permit any other person or entity to use or occupy all or any portion of the Demised Premises, without the prior written consent of Sublandlord and Prime Landlord. Upon the request of Subtenant, Sublandlord, at Subtenant's sole cost and expense, shall request the consent of the Prime Landlord and cooperate with Subtenant in obtaining any consent. 19.2 Notwithstanding the above, Subtenant shall have the right to assign this sublease in its entirety or to sublease all or any portion of the Demised Premises without the consent of Sublandlord to: (i) a successor to all of Subtenant's businesses if such succession takes place by merger or consolidation, reorganization, active legislation or other, or (ii) any affiliate or subsidiary of Subtenant ("Permitted Transferee"). 19.3 If Subtenant desires at any time to assign this Sublease, or sublet all or any portion of the Demised Premises, (except with respect to transfers permitted pursuant to Section 19.2 above) Subtenant shall comply with the following terms and conditions: 19.3.1 Subtenant shall first notify Sublandlord at least sixty (60) days prior to the proposed effective date of the assignment or sublease, in writing, of its desire to do so and shall submit in writing to Landlord: (1) the name of the proposed subtenant or assignee, (2) the nature of the proposed subtenant's or assignee's business to be carried on in the Demised Premises, (3) the terms and conditions of the proposed sublease or assignment, and (4) financial statements for the two most recent completed fiscal years of the proposed Subtenant or assignee, and a bank reference. Thereafter, Subtenant shall furnish such supplemental information as Sublandlord may reasonably request concerning the proposed Subtenant or assignee. At any time within fifteen (15) days after Sublandlord's receipt of the information specified above, Sublandlord may by written notice to Subtenant elect to (1) consent to the sublease or assignment, or (2) disapprove of the sublease or assignment, said consent not to be unreasonably withheld or delayed. If Sublandlord consents to the sublease or assignment within the fifteen (15) day period, Subtenant may thereafter enter into such assignment or sublease of the Demised Premises, or a portion thereof, upon the terms and conditions and as of the effective date set forth in the information furnished by Subtenant to Sublandlord, provided that nothing herein shall detract from Subtenant's requirement to obtain Prime Landlord's consent to any sublease or assignment. 19.3.2 Notwithstanding Sublandlord having granted its consent to any assignment or subleasing, prior to the effective date of any assignment -20- or commencement date of any sublease, Sublandlord shall be furnished with a copy of the fully executed sublease or assignment of the sublease agreement. 19.3.3 No sublease of the Demised Premises or portion thereof, or assignment of this sublease, shall be for a period of less than one (1) year nor shall any sublease extend beyond the expiration date of the term of this sublease. 19.3.4 Notwithstanding any other provision of this Sublease, Subtenant may not enter into any sublease, license, concession or other agreement for use, occupancy or utilization of space in the Demised Premises which provides for a rental or other payment for such use, occupancy or utilization based in whole or in part on the net income or profits derived by any person from the property leased, occupied or utilized, or which would require the payment of any consideration which would not fall within the definition of "rents from real property" as that term is defined in Section 856(d) of the Internal Revenue Code of 1986, as amended. 19.4 Subtenant shall pay to Sublandlord as additional rent, within five (5) business days following the due dates of such sums (after subtracting therefrom the expenses of subletting including advertising, brokerage commission, legal fees and alteration expenses) Fifty percent (50%) of the amount by which (a) the rent payable by such assignee, sublessee or sublessees to Subtenant, throughout the term exceeds the rent otherwise payable by Subtenant to Sublandlord under this sublease; plus (b) fifty percent (50%) of all other consideration payable for the assignment or sublease of this Sublease for the area assigned or sublet, computed on the basis of an average rent per rentable square foot of area assigned or sublet. The foregoing is a freely negotiated arrangement between Sublandlord and Subtenant, respecting the allocation of appreciated rentals. This covenant shall survive the expiration of the term of this sublease. 19.5 Any notice by Subtenant to Sublandlord pursuant to this Section 19 of a proposed assignment or subletting, shall be accompanied by payment of Five Hundred Dollars ($500.00) as a non-refundable fee for Sublandlord's time and the processing of Subtenant's request for Sublandlord's consent. In addition to said fee, Subtenant shall reimburse Sublandlord for reasonable attorneys' fees incurred by Sublandlord in connection with such review and the preparation of documents in connection therewith. 19.6 Each permitted assignee, transferee or sublessee other than Sublandlord shall assume and be deemed to have assumed this sublease and shall remain liable jointly and severally with Subtenant for the payment of the rent and for the due performance or satisfaction of all of the provisions, covenants, conditions and agreements herein contained on Subtenant's part to be performed or satisfied. No permitted assignment or sublease shall be binding on Sublandlord unless such assignee, sublessee or Subtenant shall deliver to Sublandlord a counterpart of such -21- assignment or sublease which contains a covenant of assumption by the assignee or sublessee, but the failure or refusal of the assignee or sublessee to execute such instrument of assumption shall not release or discharge the assignee or sublessee from its liability set forth above. 19.7 If this Sublease be assigned, or if the Demised Premises of any part thereof be sublet (whether or not Sublandlord, and Prime Landlord shall have consented thereto), Sublandlord, after default by Subtenant in its obligations hereunder, may collect rent from the assignee or subtenant and apply the amount collected to the Rental herein reserved, but no such assignment or subletting shall be deemed the acceptance of the assignee or subtenant as a tenant, or a release of Subtenant from the further performance and observance by Subtenant of the covenants, obligations and agreements on the part of Subtenant to be performed or observed herein. The consent by Sublandlord and Prime Landlord to an assignment, sale, pledge, transfer, mortgage or subletting shall not in any way be construed to relieve Subtenant from obtaining the express consent in writing, to the extent required by this Sublease or the Prime Lease or Prime Sublease, of Sublandlord and Prime Landlord and Landlord to any further assignment, sale, pledge, transfer, mortgage or subletting. 19.8 If Subtenant is a partnership, the admission of new Partners (hereinafter defined), the retirement, death, withdrawal, incompetency or bankruptcy of any Partner, or the reallocation of partnership interests among the Partners shall not constitute an assignment of this Sublease requiring the prior consent of Sublandlord. The reorganization of Subtenant into a professional corporation if Subtenant is a partnership, or the reorganization of Subtenant from a professional corporation into a partnership, shall not constitute an assignment of this Sublease requiring the prior consent of Sublandlord, provided that (i) immediately following such reorganization the Partners of Subtenant shall be not less than ninety percent (90%) of those Partners existing immediately prior to such reorganization and (ii) any Partner of Subtenant immediately prior to-such reorganization who is not a Partner of Subtenant immediately after such reorganization shall be released from liability under this Sublease only to the extent permitted by and in accordance with the provisions of Section 19.2 hereof. Any such reorganization either at one time or over a twelve (12) month period shall be considered the same reorganization. If Subtenant shall become a professional corporation, each individual shareholder in Subtenant and each attorney-employee of a professional corporation which is a shareholder in Subtenant shall have the same personal liability as such individual or attorney-employee would have under this Sublease if Subtenant were a partnership and such individual or attorney-employee were a Partner of Subtenant. Upon the request of Sublandlord, each such individual or attorney-employee shall execute an agreement confirming such personal liability. A "Partner" shall be any partner of Subtenant or any attorney-employee of a professional corporation which is a partner of Subtenant and any shareholder of Subtenant if Subtenant shall become a professional corporation. -22- 19.9 Except as set forth above, either a transfer (including the issuance of treasury stock or the creation and issuance of new stock) of a controlling interest in the shares of Subtenant (if Subtenant is a corporation, other than a professional corporation, or trust) or a transfer of a majority of the total interest in Subtenant (if Subtenant is a partnership) at any one time or over a period of time through a series of transfers, shall be deemed an assignment of this Sublease and shall be subject to all of the provisions of this Agreement, including, without limitation, the requirements that Subtenant obtain Sublandlord's prior consent thereto. The transfer of shares of Subtenant (if Subtenant is a corporation or trust) for purposes of this Section shall not include the sale of shares by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended, which sale is effected through the "over-the-counter market" or through any recognized stock exchange. 20. Insurance. Subtenant shall obtain and keep in full force and effect during the term of the Sublease, at its own cost and expense, comprehensive public liability and property damage insurance with a broad form contractual liability endorsement with a minimum limit of liability of $3,000,000 for injury or death and damages to any one person, of $3,000,000 for injury or death arising out of one occurrence, and $3,000,000 for damage to property, naming Sublandlord and Subtenant as insureds against any and all claims for personal injury, death or property damage occurring in, upon, adjacent to, or connected with the Subleased Demised Premises or any part thereof. Said insurance is to be written in form reasonably satisfactory to Sublandlord by good and solvent insurance companies of recognized standing, admitted to do business in the State of Pennsylvania which shall be reasonably satisfactory to Sublandlord. Subtenant shall pay all premiums and charges therefor and upon failure to do so Sublandlord may, but shall not be obligated to, make such payments, in which event Subtenant agrees to pay the amount thereof to Sublandlord on demand. Such policies shall contain a provision that no act or omission of Subtenant will affect or limit the obligation of the insurance company to pay the amount of any loss sustained and shall be noncancellable except upon thirty (30) days advance written notice to Sublandlord. In the event Subtenant shall fail to obtain such insurance, Sublandlord may, but shall not be obligated to, obtain the same, in which event the amount of the premium paid shall be paid by Subtenant to Sublandlord upon demand. 21. Partnerships If Subtenant is a partnership (or is comprised of two (2) or more persons, individually or as co-partners of a partnership or joint venture) or if Subtenant's interest in this Sublease shall be assigned to a partnership (or two (2) or more persons individually or as co-partners of a partnership or joint venture) or to a professional corporation pursuant to Section 19 hereof (any such partnership, professional corporation and such persons are referred to in this Article as "Partnership Subtenant"), then (i) the liability of each of the parties comprising Partnership Subtenant shall be joint and several, (ii) each of the parties comprising Partnership Subtenant hereby consents in advance to, and agrees to be bound by, any written instrument which may hereafter be executed by Subtenant, changing, modifying or discharging this -23- Sublease, in whole or in part, or surrendering all or any part of the Demised Premises to Sublandlord, and by any notices, demands, requests or other communications which may hereafter be given by Partnership Subtenant or by any of the parties comprising Partnership Subtenant, (iii) any bills, statements, notices, demands, requests or other communications given or rendered to or by a Partner of Partnership Subtenant shall be binding upon Partnership Subtenant, (iv) if any individual Partner of Partnership Subtenant is or becomes an attorney-employee of a professional corporation, such individual shall have the same personal liability under this Sublease as such individual would have if he and not the professional corporation were a Partner of Partnership Subtenant, and such individual, upon the request of Sublandlord, shall execute an agreement confirming such personal liability, (v) if Partnership Subtenant shall admit new Partners, all of such new Partners shall, by their admission to Partnership Subtenant, be deemed to have assumed joint and several liability for the performance of all of the terms, covenants and conditions of this Sublease on Partnership Subtenant's part to be observed and performed, and (vi) Partnership Subtenant shall give prompt notice to Sublandlord of the admission of any new Partners and the death, retirement, withdrawal, incompetency or bankruptcy of any Partner, and, upon demand of Sublandlord, shall cause each such new Partner to execute and deliver to Sublandlord an agreement in form satisfactory to Sublandlord, wherein each such new Partner shall assume joint and several liability for the performance of all the terms, covenants and conditions of this Sublease on Subtenant's part to be observed and performed (but neither Sublandlord's failure to request any such agreement nor the failure of any such new Partner to execute or deliver any such agreement to Sublandlord shall vitiate the provisions of this Section 21). 22. Default 22.1 In additional to the remedies set forth in the Prime Lease, in the event of a default by Subtenant under the terms or conditions of this Sublease, Subtenant hereby agrees to the Confession of Judgment provisions set forth below: THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OR AUTHORITY FOR AN ATTORNEY (OR A CLERK OF COURT OR A PROTHONOTARY) TO CONFESS JUDGMENT AGAINST TENANT. SINCE THIS PARAGRAPH REQUIRES TENANT TO WAIVE IMPORTANT DUE-PROCESS RIGHTS AND OTHER CONSTITUTIONAL RIGHTS, SUBTENANT AND SUBLANDLORD AGREE THAT IT IS APPROPRIATE FOR SUBTENANT TO PROVIDE A SPECIAL ACKNOWLEDGMENT THAT SUBTENANT WAIVES THOSE RIGHTS KNOWINGLY AND VOLUNTARILY. IN MAKING THIS SPECIAL ACKNOWLEDGMENT, SUBTENANT EXPRESSLY, KNOWINGLY AND VOLUNTARILY MAKES THE FOLLOWING REPRESENTATIONS, ACKNOWLEDGMENTS, AND ASSURANCES (IN WHICH "YOU" SHALL MEAN SUBTENANT OR, IF APPROPRIATE SUBTENANT'S HEIRS, SUCCESSORS AND/OR ASSIGNS): -24- (I) YOU HAVE DISCUSSED WITH YOUR OWN LEGAL COUNSEL THE CONSEQUENCES OF GRANTING THE WARRANTS OR POWERS OF ATTORNEY IN THE SUBLEASE (OR YOU HAVE WILLFULLY AND KNOWINGLY ELECTED NOT TO HAVE SUCH A DISCUSSION WITH AN ATTORNEY WHO REPRESENTS YOU). (II) YOU UNDERSTAND THE CONSEQUENCES OF GRANTING SUCH WARRANTS OR POWERS OF ATTORNEY, INCLUDING BUT NOT LIMITED TO THE FACT THAT YOU ARE THEREBY WAIVING IMPORTANT RIGHTS THAT YOU WOULD OTHERWISE HAVE UNDER THE CONSTITUTIONS OF THE UNITED STATES OF AMERICA AND OF THE COMMONWEALTH OF PENNSYLVANIA. (III) YOU UNDERSTAND THAT AMONG THE RIGHTS YOU WILL WAIVE BY GRANTING SUCH WARRANTS OR POWERS OF ATTORNEY ARE: (A) THE RIGHT TO RECEIVE PRIOR NOTICE OF PROCEEDINGS TO ENFORCE SUCH A JUDGMENT BY HAVING A SHERIFF OR MARSHAL EVICT YOU FROM THE LEASEHOLD SPACE, AND (B) THE RIGHT TO HAVE A HEARING CONDUCTED BEFORE YOU ARE DEPRIVED OR YOUR PROPERTY AS A RESULT OF SUCH ENFORCEMENT PROCEEDINGS. (IV) NO ONE HAS EXERCISED ANY FORCE OR MADE ANY THREATS OR TAKEN ANY ACTS THAT HAVE DEPRIVED YOU OF YOUR FREE WILL IN DECIDING WHETHER TO GRANT SUCH A WARRANT OF ATTORNEY. (V) YOU UNDERSTAND THAT SUBLANDLORD AND ITS ATTORNEYS AND AGENTS ARE RELYING UPON YOUR ASSURANCE THAT THESE ACKNOWLEDGMENTS AND REPRESENTATIONS ARE TRUE. -25- CONFESSION OF JUDGMENT ---------------------- 1. Warrant and Power of Attorney to Confess Judgment in Ejectment. When this Sublease and the Term thereof or Subtenant's right to possession of the Demised Premises shall have been terminated on account of any Event of Default by Subtenant hereunder, and also when the Term hereby created shall have expired, it shall be lawful for any attorney to appear as attorney for Subtenant, as well as for all persons claiming by, through or under Subtenant, and to sign an agreement for entering in any competent court an amicable action in ejectment against Subtenant and all persons claiming by, through or under Subtenant and therein confess judgment for the recovery by Sublandlord of possession of the Demised Premises. This Sublease shall be his sufficient warrant, whereupon, if Sublandlord so desires, a writ of possession may issue forthwith, without any prior writ or proceedings whatsoever. If for any reason after such action shall have been commenced the same shall be determined and the possession of the Demised Premises hereby demised remain in or be restored to Subtenant, Sublandlord shall have the right for the same default and upon any subsequent defaults, or upon the termination of this Sublease, to bring one or more further amicable action or actions as hereinbefore set forth to recover the possession of said Demised Premises and confess judgment for the recovery of possession of the Demised Premises as hereinbefore provided. 2. Release. Subtenant hereby unconditionally and forever releases and waives (i) all rights that Subtenant would otherwise have to object to, interfere with, attack, seek to strike or open, or seek to stay the aforesaid entry of judgment or judgments and/or the aforesaid issuance and consummation of execution or executions thereon, (ii) any and all errors heretofore or hereafter committed by Sublandlord in connection with this Sublease and/or in connection with Sublandlord's enforcement of its rights under this paragraph, (iii) inquisition and condemnation of any property seized or levied upon by virtue of such execution, and (iv) any exemptions to which Subtenant would otherwise be entitled under any statute, law, ordinance, regulation or rule of law. 4. Affidavit of Default. In any amicable action brought hereon, or other action brought pursuant to the foregoing warrants and powers of attorney (to confess judgment herein), Sublandlord shall cause to be filed in such action an affidavit made by it or someone acting for it, setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be prima facie evidence, and if a true copy of this Sublease (and of the truth of the copy such affidavit shall be sufficient evidence) shall be filed in such suit, action or actions, it shall not be necessary to file the original as a warrant of attorney, any rule of court, custom or practice to the contrary notwithstanding. -26- 23. Holding Over. In the event Subtenant holds over after the expiration of the term of this Lease, then, in addition to any other rights or remedies Sublandlord may have as provided in the Prime Lease, Subtenant shall indemnify, protect, defend and hold harmless Sublandlord, from and against any and all claims, suits, demands, liability, damages and expenses, including direct and consequential damages sustained by Sublandlord, together with reasonable attorneys' fees and costs, if any, arising from or in connection with Subtenant's failure to vacate the Demised Premises at the termination or sooner expiration of the term of this Sublease. 24. Non-Disturbance Agreement. Upon Subtenant's request, Sublandlord will use reasonable efforts to assist Subtenant in obtaining a Non-Disturbance Agreement from the current lender on the property provided that: (i) the failure of Subtenant to obtain such a Non-Disturbance Agreement shall not give Subtenant the right to terminate this Sublease and provided further that Sublandlord shall not be required to make any payments to the Prime Landlord or the current lender to obtain such Non-Disturbance Agreement nor shall Sublandlord be required to make any concessions with respect to the Prime Lease. 25. Miscellaneous. 25.1 This Sublease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Sublease. Any agreement hereafter made shall be ineffective to change, modify or discharge this Sublease in whole or in part unless such agreement is in writing and signed by the parties hereto. No provision of this Sublease shall be deemed to have been waived by Sublandlord or Subtenant unless such waiver be in writing and signed by Sublandlord or Subtenant, as the case may be. The covenants and agreements contained in this Sublease shall bind and inure to the benefit of Sublandlord and Subtenant and their respective permitted successors and assigns. 25.2 In the event that any provision of this Sublease shall be held to be invalid or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Sublease shall be unaffected thereby. 25.3 The paragraph headings appearing herein are for purpose of convenience only and are not deemed to be a part of this Sublease. 25.4 Capitalized terms used herein shall have the same meanings as are ascribed to them in the Prime Sublease, unless otherwise expressly defined herein. 25.5 This Sublease shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania. -27- 25.6 This Sublease is offered to Subtenant for signature with the express understanding and agreement that this Sublease shall not be binding upon Sublandlord unless and until Sublandlord shall have executed and delivered a fully executed copy of this Sublease to Subtenant. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement of Sublease as of the day and year first above written. Witness: Raytheon Engineers & Constructors, Inc. By: - ------------------------------ ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- Witness: Premier Research Worldwide, Ltd. By: /s/ Fred M. Powell - ------------------------------ ----------------------------------- Name: Fred M. Powell ----------------------------------- Title: Chief Financial Officer ----------------------------------- ACKNOWLEDGMENT OF SUBTENANT --------------------------- Subtenant hereby acknowledges again its consent to the following provisions of Section 22 of the Sublease as follows: 1. Warrant and Power of Attorney to Confess Judgment in Ejectment. When this Sublease and the Term thereof or Subtenant's right to possession of the Demised Premises shall have been terminated on account of any Event of Default by Subtenant hereunder, and also when the Term hereby created shall have expired, it shall be lawful for any attorney to appear as attorney for Subtenant, as well as for all persons claiming by, through or under Subtenant, and to sign an agreement for entering in any competent court an amicable action in ejectment against Subtenant and all persons claiming by, through or under Subtenant and therein confess judgment for the recovery by Sublandlord of possession of the Demised Premises. This Sublease shall be his -28- sufficient warrant, whereupon, if Sublandlord so desires, a writ of possession may issue forthwith, without any prior writ or proceedings whatsoever. If for any reason after such action shall have been commenced the same shall be determined and the possession of the Demised Premises hereby demised remain in or be restored to Subtenant, Sublandlord shall have the right for the same default and upon any subsequent defaults, or upon the termination of this Sublease, to bring one or more further amicable action or actions as hereinbefore set forth to recover the possession of said Demised Premises and confess judgment for the recovery of possession of the Demised Premises as hereinbefore provided. 3. Release. Subtenant hereby unconditionally and forever releases and waives (i) all rights that Subtenant would otherwise have to object to, interfere with, attack, seek to strike or open, or seek to stay the aforesaid entry of judgment or judgments and/or the aforesaid issuance and consummation of execution or executions thereon, (ii) any and all errors heretofore or hereafter committed by Landlord in connection with this Sublease and/or in connection with Sublandlord's enforcement of its rights under this paragraph and (iii) any exemptions to which Subtenant would otherwise be entitled under any statute, law, ordinance, regulation or rule of law. 4. Affidavit of Default. In any amicable action brought hereon, or other action brought pursuant to the foregoing warrants and powers of attorney (to confess judgment herein), Sublandlord shall cause to be filed in such action an affidavit made by it or someone acting for it, setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be prima facie evidence, and if a true copy of this Sublease (and of the truth of the copy such affidavit shall be sufficient evidence) shall be filed in such suit, action or actions, it shall not be necessary to file the original as a warrant of attorney, any rule of court, custom or practice to the contrary notwithstanding. Witness: Premier Research Worldwide, Ltd. By: /s/ Fred M. Powell - ----------------------------- ----------------------------- Name: Fred M. Powell ----------------------------- Title: Chief Financial Officer ----------------------------- -29- CONSENT TO SUBLEASE Shuwa Investments Corporation 515 South Flower Street, Suite 1270 Los Angeles, California 90071-2205 Telephone (213) 489-2757 / Telefax (213) 489-2762 June ____, 1998 Raytheon Engineers & Constructors, Inc. 30 South 17th Street Philadelphia, Pennsylvania 19103 Re: Building: 30 South 17th Street Sublet Premises: Entire 8th and 9th Floors Date of Prime Lease: June 13, 1973 as amended Date of Sublease: June ____, 1998 Landlord: Shuwa Trust of Philadelphia, a Pennsylvania Business Trust Prime Lessee: Raytheon Engineers & Constructors, Inc. Sublessee: Premier Research Worldwide, Ltd. Gentlemen: Pursuant to the terms of your Lease Agreement ("Prime Lease") covering the above captioned Sublet Premises, as said Prime Lease may have been amended to the date hereof, you have requested our consent to a sublease (dated as described in the above caption) to the above captioned Sublessee, a copy of which sublease is annexed hereto and made a part hereof and is hereinafter referred to as the "Sublease". We hereby grant our consent to the Sublease upon the following express terms and conditions: 1. The Sublease is subject and subordinate to the Prime Lease and to all of its terms, covenants, conditions, provisions and agreements. 2. Neither the Sublease nor this consent thereto shall: (a) release or discharge you from any liability, whether past, present or future, under the Prime Lease; (b) operate as a consent or approval by us to or of any of the terms, covenants, conditions, provisions or agreement of the Sublease and we shall not be bound thereby; (c) be construed to modify, waive or affect any of the terms, covenants, conditions, provisions or agreements of the Prime Lease, or to waive any breach thereof, or any of our rights as Landlord thereunder, or to enlarge or increase our obligations as Landlord thereunder; or (d) be construed as a consent by us to any further subletting either by you or by the Sublessee or to any assignment by you of the Prime Lease or assignment by the Sublessee of the Sublease, whether or not the Sublease purports to permit the same and, without limiting the generality of the foregoing, both you and the Sublessee agree that the Sublessee has no right whatsoever to assign, mortgage or encumber the Sublease nor to sublet any portion of the Sublet Premises or permit any portion of the Sublet Premises to be used or occupied by any other party. 3. In the event of your default under the provisions of the Prime Lease, the rent due from the Sublessee under the Sublease shall be deemed assigned to us and we shall have the right, under such default, at any time at any option, to give notice of such assignment to the Sublessee. We shall credit you with any rent received by us under such assignment but the acceptance of any payment on account of rent from the Sublessee as the result of any such default shall in no manner whatsoever be deemed an attornment by the Sublessee to us in the absence of a specific written agreement signed by us to such an effect, or serve to release you from any liability under the terms, covenants, conditions, provisions or agreements under the Prime Lease. Notwithstanding the foregoing, any payment other than rent from the Sublessee directly to us, regardless of the circumstances or reasons therefore, shall in no manner whatsoever be deemed an attornment by the Sublessee to us in the absence of a specific written agreement signed by us to such an effect. 4. Prime Lessee and Sublessee agree and acknowledge that Landlord's consent herein shall not create or be deemed to be the basis of creating any covenant, representation or warranty, express or implied (including, without limitation, any covenant of quiet enjoyment), on the part of Landlord with respect to the terms of the Sublease, Sublessee's, use and enjoyment of the Sublet Premises, or any other matter arising out of or in connection with the Sublease. 5. The term of the Sublease shall expire and come to an end on its natural expiration date or any premature termination date thereof or concurrently with the natural expiration date or any premature termination of the Prime Lease for any reason whatsoever (including, without limitation, any termination by mutual consent or other right, now or hereafter agreed to by Landlord or Prime Lessee, or by operation of law or at Landlord's option in the event of a material default by Prime Lessee). 6. This consent is not assignable, nor shall this consent be a consent to any amendment, or modification of the Sublease, without Landlord's prior written consent. 7. You and the Sublessee covenant and agree that, under no circumstances shall we be liable for any brokerage commission or other charge or expense in connection with the Sublease and you and the Sublessee agree to indemnify us against same and against any cost or expense (including, but not limited to, attorneys' fees) incurred by us in resisting any claim for any such brokerage commission. 8. You and Sublessee understand and acknowledge that Landlord's consent hereto is not a consent to any improvement or alteration work being performed in the Sublet Premises, that Landlord's consent must be separately sought if and to the extent provided in the Prime Lease and will not necessarily be given, and that if such consent is -2- given the same will be subject to you and Sublessee signing Landlord's standard form of Agreement with respect to work being performed by persons other than Landlord. 9. Landlord's consent herein shall not constitute any agreement, representation, warranty or verification that the Sublease is in compliance with the Prime Lease. 10. Landlord hereby confirms that the letter from Landlord's building manager attached hereto as Exhibit 1, accurately states the policy that tenants of the Building have 24 hour access to their premises, provided that such access may be subject to interruptions caused by the performance of repairs and alterations or force majeure events. The execution of a copy of this consent by you (as Prime Lessee) and by the Sublessee shall indicate your joint and several confirmation of the foregoing conditions and of your agreement to be bound thereby and shall constitute Sublessee's acknowledgment that it has received a copy of the Prime Lease (with principal economic terms omitted) from you. Very truly yours, LANDLORD: SHUWA TRUST OF PHILADELPHIA, a Pennsylvania Business Trust By: /s/ Takaji Kobayashi ------------------------------- Takaji Kobayashi Its: Trustee -3- CONFIRMED AND AGREED: PRIME LESSEE: RAYTHEON ENGINEERS & CONTRACTORS, INC. a Delaware Corporation By: --------------------------------- Name: ------------------------------- [Print Name] Its: -------------------------------- CONFIRMED AND AGREED: SUBLESSEE: PREMIER RESEARCH WORLDWIDE, LTD. a Delaware Corporation By: /s/ Fred M. Powell --------------------------------- Name: Fred M. Powell ------------------------------- [Print Name] Its: Chief Financial Officer -------------------------------- -4- EX-21.1 6 EXHIBIT-21.1 Exhibit 21.1 Subsidiaries of Registrant Name Jurisdiction of Organization - -------------------------------------------------------------------------------- Premier Research Worldwide, Ltd. United Kingdom - -------------------------------------------------------------------------------- Premier Research Investment Corporation Delaware - -------------------------------------------------------------------------------- EX-23.1 7 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statement File No. 333-26471. ARTHUR ANDERSEN LLP Philadelphia, PA March 29, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1.00 10,822 5,668 10,666 (243) 0 29,248 11,710 (7,600) 40,172 9,231 0 0 0 72 30,869 40,172 0 31,807 0 13,847 17,771 0 (1,012) 1,201 480 721 0 0 0 721 .10 .10
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