SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under ss. 240.14a-12
eResearchTechnology, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
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0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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eResearchTechnology, Inc.
30 South 17th Street
Philadelphia, PA 19103
March ___, 2004
Dear eResearchTechnology, Inc. Stockholders:
You are cordially invited to the Annual Meeting of Stockholders to be held
at 3:00 P.M. on April 20, 2004 at the Company's executive offices, 30 South 17th
Street, Philadelphia, PA 19103.
Details with respect to the meeting are set forth in the attached Notice of
Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan to attend the meeting, you
are urged to complete, date, sign and return your proxy. If you attend the
meeting and would prefer to vote in person you may still do so.
Very truly yours,
Joel Morganroth
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JOEL MORGANROTH, MD
Chairman of the Board of Directors
eResearchTechnology, Inc.
eResearchTechnology, Inc.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 20, 2004
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To the Stockholders:
The Annual Meeting of Stockholders of eResearchTechnology, Inc. (the
"Company") will be held at the Company's executive offices located at 30 South
17th Street, Philadelphia, PA 19103, at 3:00 P.M. on April 20, 2004 for the
following purposes:
1. To elect three directors to serve three-year terms.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to authorize an additional 125,000,000 shares of Common
Stock, $.01 par value.
3. To ratify the selection by the Audit Committee of the Board of
Directors of the firm of KPMG LLP as independent accountants for 2004.
4. To transact any other business that may properly come before the
meeting or any adjournment or postponement thereof.
Stockholders of record as of the close of business on March 11, 2004 are
entitled to notice of and to vote at the meeting.
Whether or not you plan to attend the meeting, please complete, date and
sign the enclosed proxy card and return it in the enclosed envelope. Your proxy
may be revoked at any time prior to the time it is voted.
By Order of the Board of Directors,
ANNA MARIE PAGLIACCETTI
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ANNA MARIE PAGLIACCETTI
Senior Vice President, General
Counsel and Secretary
Philadelphia, PA
March ___, 2004
eResearchTechnology, Inc.
30 South 17th Street
Philadelphia, PA 19103
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PROXY STATEMENT
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These proxy materials are furnished in connection with solicitation of
proxies by the Board of Directors (the "Board of Directors" or the "Board") of
eResearchTechnology, Inc., a Delaware corporation ("eRT" or the "Company"), for
the Annual Meeting of Stockholders of eRT to be held at 3:00 P.M. on April 20,
2004, at the Company's executive offices located at 30 South 17th Street,
Philadelphia, PA 19103, and any adjournments or postponements of such meeting.
These proxy materials were first mailed to stockholders on or about March ___,
2004. Sending a signed proxy will not affect the stockholder's right to attend
the Annual Meeting and vote in person. Every stockholder has the power to revoke
such stockholder's proxy at any time before it is voted. The proxy, before it is
exercised at the meeting, may be revoked by filing with the Secretary of the
Company a notice in writing revoking it, by delivering a duly executed proxy
bearing a later date, or by attending the meeting and voting in person.
Stockholders Entitled to Vote
The close of business of March 11, 2004 was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting. As of the
record date, there were _______________ outstanding shares of the common stock,
$.01 par value (the "Common Stock"), of eRT.
Voting of Proxies
A form of proxy is enclosed. All properly executed proxies received by the
Board of Directors, and not revoked, will be voted as indicated in accordance
with the instructions thereon. In the absence of contrary instructions, shares
represented by such proxies will be voted for the election of the director
nominees named in this proxy statement, for the proposal to amend the Company's
Restated Certificate of Incorporation to authorize an additional 125,000,000
shares of Common Stock and for ratification of KPMG LLP as independent
accountants for the year ending December 31, 2004, all of which are described
herein; and in the discretion of the proxy holders on such other matters as may
properly come before the meeting.
The presence, in person or by proxy, of stockholders entitled to cast at
least a majority of the votes that all stockholders are entitled to cast on a
particular issue constitutes a quorum for the purpose of considering such
matter. Each share of Common Stock outstanding as of the record date is entitled
to one vote on each matter that may be brought before the Annual Meeting.
Election of directors will be by plurality of the votes cast. Any other proposal
will require the affirmative vote of a majority of the votes that the holders of
shares present in person or by proxy are entitled to cast on such proposal,
except that the proposal to amend the Company's Restated Certificate of
Incorporation will require the affirmative vote of the holders of a majority of
the Company's outstanding Common Stock as of the record date. Broker nonvotes
and abstentions are counted for the purposes of determining the presence or
absence of a quorum for the transaction of business at the meeting. Abstentions
are counted in the tabulations of the votes cast on proposals presented to the
stockholders, whereas broker nonvotes are not counted for purposes of
determining the election of directors or whether a proposal has been approved.
Costs Of Solicitation
The entire cost of soliciting proxies will be borne by eRT. Arrangements
may be made with brokerage houses and other custodians, nominees and fiduciaries
to send proxies and proxy materials to the beneficial owners of stock, and
reimbursement for expenses may be made. Proxies may be solicited in person or by
telephone by directors, officers or regular employees of eRT, none of whom will
receive additional compensation therefor.
1
ELECTION OF DIRECTORS
(Proposal No. 1)
The Board of Directors currently consists of seven directors divided into
three classes. Pursuant to the Company's Bylaws, the Board of Directors has
approved an increase in the number of directors from seven to eight, effective
as of the date of the 2004 Annual Meeting. Three directors are to be elected at
the Annual Meeting to serve until the 2007 Annual Meeting. The nominees for
election as directors are Sheldon M. Bonovitz, who currently serves on the
Board, and Gerald A. Faich, MD, MPH and Elam M. Hitchner, III. Arthur H. Hayes,
Jr., MD, a director whose term expires at the Annual Meeting, is not standing
for reelection. The Company's remaining five directors will continue in office
for the terms specified below. THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE ELECTION OF MR. BONOVITZ, DR. FAICH AND MR.
HITCHNER.
The proxy holders intend to vote all proxies received by them in the
accompanying form for such nominees unless otherwise directed. In the event any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy or, in lieu thereof, the
Board of Directors may reduce the number of directors. As of the date of this
Proxy Statement, the Company is not aware of any nominee who is unable or will
decline to serve as a director.
The following table lists the name and age of the three nominees and the
five directors of the Company whose terms of office will continue after the
Annual Meeting, and the year in which each director's term of office will expire
(assuming, in the case of each of the nominees, such nominees are elected at the
Annual Meeting).
Year of
Age As Expiration of
Name of 3/1/04 Term as Director
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Nominees for Election
66 2007
Sheldon M. Bonovitz.............................
Gerald A. Faich, MD, MPH........................ 61 2007
Elam M. Hitchner................................ 57 2007
Directors Continuing in Office
Joseph A. Esposito ............................. 51 2006
David D. Gathman................................ 56 2006
Joel Morganroth, MD............................. 58 2005
Stephen S. Phillips............................. 58 2005
John M. Ryan ................................... 68 2006
Mr. Bonovitz has been nominated by the Company's current Board of
Directors to serve as a member of the Board for a three-year term beginning in
April 2004. Mr. Bonovitz has served on the Company's Board of Directors since
1999. Mr. Bonovitz has been a partner in the law firm of Duane Morris LLP, which
provides legal services to the Company, for more than five years, where he
currently serves as Chairman and Chief Executive Officer. Mr. Bonovitz is also a
director of Comcast Corporation. In addition, he serves on the Advisory Boards
of several privately-held companies and he serves on the Boards of Trustees of
The Curtis Institute of Music and the Philadelphia Museum of Art.
Dr. Faich has been nominated by the Company's current Board of Directors to
serve as a member of the Board for a three-year term beginning in April 2004.
Since 1994, Dr. Faich has been the President of Pharmaceutical Safety
Assessments, a consulting firm. During 1992 to 1994, Dr. Faich served as
President for Corning Pharmaceutical Services, now known as Covance, Inc., and
from 1990 to 1992, he served as President for the Philadelphia Association for
Clinical Trials, which focused on post marketing research. From 1983 to 1990,
Dr. Faich was in charge of statistics and post marketing surveillance for drugs
and biologics at the Food and Drug Administration. He co-chaired the original
CIOMS International Adverse Reaction Working Group and was a founding board
member of the International Society of Pharmacoepidemiology. Dr. Faich is a
Fellow of the American Colleges of Physicians, Preventive Medicine and
Epidemiology and has authored over 90 scientific papers and received numerous
awards. He is currently an Adjunct Scholar for the Center for Clinical
Epidemiology at the University of Pennsylvania and serves as a director for
Sentrx Inc. and as a member of the Life Sciences Advisory Committee for the Port
of Technology of the Science Center at University of Pennsylvania.
2
Mr. Hitchner has been nominated by the Company's current Board of Directors
to serve as a member of the Board for a three-year term beginning in April 2004.
Mr. Hitchner was a partner in the law firm of Pepper Hamilton LLP from May 1992
to June 1999, and returned to the firm in January 2001, where he currently is of
counsel. From July 1999 until December 31, 2000, Mr. Hitchner was a general
partner of Meridian Venture Partners and Meridian Venture Partners II, venture
capital firms located in Radnor, Pennsylvania. Mr. Hitchner is also a director
of Mothers Work, Inc., for which he has served on the Audit Committee since 1993
and as chairman of that committee since 2000.
Mr. Esposito has served as President and Chief Executive Officer of the
Company since March 2001. Mr. Esposito formerly served as the President and
Chief Operating Officer of the Company from April 1998 until March 2001 and has
served as a member of its Board of Directors since 1999. He also served as
President of the Company's Clinical Research Technology and Services division
from October 1997 to April 1998. From May 1997 through October 1997, he was
President of DLB Systems, Inc., which was acquired by the Company in October
1997. He has over 28 years of experience in technology, working closely with
pharmaceutical companies in the areas of clinical research, supply chain
management and regulatory document management. Mr. Esposito was awarded the 2002
Ellis Island Medal of Honor by Congress and the National Ethnic Coalition
Organization for outstanding citizenship, individual achievement and
encouragement of cultural unity.
Mr. Gathman has served as a member of the Company's Board of Directors
since April 2003. Mr. Gathman currently provides consulting services for
Targeted Diagnostics & Therapeutics, Inc., which develops molecular-based
technologies for the detection, diagnosis and treatment of colorectal cancer,
gastrointestinal cancers and certain infectious diseases. From May 2002 until
December 2003, Mr. Gathman was the Vice President and Chief Financial Officer of
Targeted Diagnostics & Therapeutics, Inc. From February 2001 until May 2002, Mr.
Gathman served as the Senior Vice President and Chief Financial Officer of the
Federal Reserve Bank of Philadelphia. Prior to that, Mr. Gathman was Chief
Financial Officer of Internet Capital Group, Inc. from January 1999 until
September 2000, and Executive Vice President and Chief Financial Officer and a
member of the Board of Directors of Integrated Systems Consulting Group, Inc.,
an information services consulting firm, from March 1994 until December 1998.
Mr. Gathman served as Vice President of Finance and Chief Financial Officer of
SunGard Data Systems, Inc., from December 1982 until March 1994. Mr. Gathman is
also a director of Neoware Systems, Inc.
Dr. Morganroth has served as the Chairman of the Company since 1999, its
Chief Scientist since March 2001 and as a director of the Company since 1997. He
served as Chief Executive Officer from 1993 to March 2001. In addition, Dr.
Morganroth has consulted for the Company since 1977. Dr. Morganroth is a
globally recognized cardiologist and clinical researcher. Dr. Morganroth served
for over ten years as a Medical Review Officer/Expert for the Food and Drug
Administration.
Mr. Phillips has served on the Company's Board of Directors since August
2002. Mr. Phillips currently serves as Special Counsel to Medtronic Sofamor
Danek, Inc. Mr. Phillips was the Executive Vice President, General Counsel and
Secretary of Sofamor Danek Group, Inc., a manufacturer of spinal implants and
cranial navigation systems used in neurosurgery, before its acquisition in 1999
by Medtronic. Before joining Sofamor Danek in 1998, Mr. Phillips was a senior
partner in the Philadelphia office of Pepper Hamilton LLP where he was a member
of the firm's Executive Committee.
Mr. Ryan has served on the Company's Board of Directors since 1999. Since
1987, Mr. Ryan has been a principal in Devon Hill Ventures, Inc., a venture
investing and consulting firm focusing on technology investments. In 1977, Mr.
Ryan founded SunGard Data Systems, Inc. and served as its Chief Executive
Officer until 1986 and its Chairman until 1987. Mr. Ryan served as Chairman and
Acting Chief Executive Officer for DLB Systems, Inc. from 1995 until its
acquisition by the Company in 1997. Mr. Ryan is also a director of Neoware
Systems, Inc. and several privately-held companies.
There are no family relationships among the directors, the director
nominees and the executive officers.
Board of Directors Meetings and Committees
The Board of Directors of the Company held a total of nine meetings during
2003. Each director attended more than 75% of the meetings of the Board of
Directors and any committee of which he was a member. The Board has not adopted
a formal policy regarding Board member attendance at its Annual Meeting of
Stockholders, but the Board highly encourages all Board members to attend such
meetings. In April 2003, all members of the Board were present at the Annual
Meeting of Stockholders.
3
The Board of Directors has an Executive Committee, a Compensation
Committee, an Audit Committee and a Governance and Nominating Committee.
The Executive Committee has, with certain exceptions, all the authority of
the Board of Directors. The Executive Committee, which currently consists of Mr.
Bonovitz, Dr. Morganroth and Mr. Ryan, did not hold any meetings during 2003.
Dr. Morganroth serves as chairman of the Executive Committee.
The Compensation Committee is composed of three members of the Company's
Board of Directors, all of whom, in the judgment of the Board, (i) are
independent in accordance with Rule 4200(a)(15) of the listing standards of The
Nasdaq Stock Market, Inc. ("Nasdaq"); (ii) are "Non-employee Directors" for
purposes of Rule 16b-3 under the Securities and Exchange Act of 1934, as
amended; and (iii) satisfy the requirements of an "outside director" for
purposes of Section 162(m) of the Internal Revenue Code. The Compensation
Committee is primarily responsible for determining the compensation payable to
the executive officers of the Company and for recommending to the Board of
Directors additions, deletions and alterations with respect to the various
employee benefit plans and other fringe benefits provided by the Company, except
that no member of the Compensation Committee may take part in any decision
pertaining to his compensation or benefits in his capacity as a director of the
Company. The Compensation Committee also is primarily responsible for
administering the Company's stock option plans, awarding stock options to key
employees of the Company and determining the terms and conditions on which the
options are granted. The Compensation Committee has the responsibility and
authority described in its written charter, which has been adopted and approved
by the Board of Directors and made available, free of charge, on the Company's
website at www.ert.com. The Compensation Committee, which currently consists of
Mr. Gathman, Mr. Phillips and Mr. Ryan, held four meetings during 2003. Mr. Ryan
serves as chairman of the Compensation Committee.
The Audit Committee is composed of three members of the Company's Board of
Directors, all of whom, in the judgment of the Board, are independent in
accordance with Rule 4200(a)(15) of the Nasdaq listing standards and satisfy the
criteria in Rule 4350(d)(2) of the Nasdaq listing standards. The Audit Committee
is primarily responsible for engaging and approving the services performed by
the Company's independent accountants and reviewing and evaluating the Company's
accounting principles and reporting practices and its system of internal
accounting controls. The Audit Committee has the responsibility and authority
described in its written charter, which has been adopted and approved by the
Board of Directors, attached to this proxy statement as Annex I and made
available, free of charge, on the Company's website at www.ert.com. The Audit
Committee, which currently consists of Mr. Gathman, Mr. Phillips and Mr. Ryan,
held ten meetings during 2003. Mr. Gathman serves as chairman of the Audit
Committee. The Board has determined that Mr. Gathman is an "audit committee
financial expert" as defined in Item 401 of Regulation S-K.
The Governance and Nominating Committee is composed of three members of the
Company's Board of Directors, all of whom, in the judgment of the Board, are
independent in accordance with Rule 4200(a)(15) of the Nasdaq listing standards.
The Governance and Nominating Committee is primarily responsible for
recommending to the Board governance policies for the Company, the appropriate
size, function and needs of the Board to perform that governance, and qualified
candidates for the Company's Board. The Governance and Nominating Committee has
the responsibility and authority described in its written charter, which has
been adopted and approved by the Board and made available, free of charge, on
the Company's website at www.ert.com. The Governance and Nominating Committee,
which currently consists of Mr. Gathman, Mr. Phillips and Mr. Ryan, held one
meeting during 2003. Mr. Phillips serves as chairman of the Governance and
Nominating Committee.
In accordance with the policy of the Governance and Nominating Committee, a
stockholder desiring to propose a candidate for the Board of Directors to the
Governance and Nominating Committee should submit a written recommendation,
together with biographical information concerning the individual, to the
Chairman of the Nominating Committee at eResearchTechnology, Inc., 30 South
17th Street, 8th Floor, Philadelphia, PA 19103. While recommendations may be
submitted for consideration at any time, the Company requests that
recommendations be received prior to November 15 in any year for consideration
in connection with the nomination and election of directors at the Company's
next Annual Meeting of Stockholders. Once the Governance and Nominating
Committee has identified a prospective nominee, including candidates proposed by
stockholders, it makes an initial determination as to whether to conduct a full
evaluation of the candidate. This initial determination is based on whatever
information is
4
provided to the Governance and Nominating Committee with the recommendation of
the prospective candidate, as well as the Governance and Nominating Committee's
own knowledge of the prospective candidate, which may be supplemented by
inquires to the person making the recommendation or others. The preliminary
determination is based primarily on the need for additional Board members to
fill vacancies or expand the size of the Board and the likelihood that the
prospective nominee can satisfy the evaluation factors described below. If the
Governance and Nominating Committee determines, in consultation with the
Chairman of the Board and other Board members as appropriate, that additional
consideration is warranted, it will then evaluate the prospective nominee
against the standards and qualifications it has established, including:
o Must be independent in accordance with Rule 4200(a)(15) of the Nasdaq
listing standards.
o Must have business experience that included leading or occupying a
senior position in the operations of a significant business or occupying
a senior executive or advisory position in business strategy, investing
or mergers and acquisitions of a significant business. While not
required, experience in health care, particularly pharmaceuticals,
biotechnology, or medical devices, is preferred.
o Must have prior board experience. While public company board experience
is not absolutely required, it is highly preferred.
o Must have an excellent business and personal reputation for
accomplishment and integrity. Personal characteristics that include a
deliberative style, being a good listener, articulate, direct and
succinct, and able to accept/respect other Board members opinions are
preferred.
o Must have personal and business references from people upon whose
recommendations the Governance and Nominating Committee can rely.
o Must be able to commit adequate time to the Board of Directors and its
committees to attend at least 75% of Board and committee meetings in
person and to be a significant contributor to each. At a minimum, this
means, on average, not less than one full day every month for ordinary
matters, a full day for regularly scheduled quarterly meetings and
occasional unscheduled hours of accessibility. Living or working within
90 minutes of Philadelphia is not absolutely required but is highly
preferred.
The Governance and Nominating Committee also considers such other relevant
factors as it deems appropriate, including the current composition of the Board,
the balance of management and independent directors, the need for Audit
Committee expertise, diversity and the evaluations of other prospective
nominees. In connection with this evaluation, the Governance and Nominating
Committee determines whether to interview the prospective nominee, and if
warranted, one or more members of the Governance and Nominating Committee, and
others as appropriate, interview prospective nominees in person or by telephone.
After completing this evaluation and interview, the Governance and Nominating
Committee makes a recommendation to the full Board as to the persons who should
be nominated by the Board, and the Board determines the nominees after
considering the recommendation and report of the Governance and Nominating
Committee. The Company does not currently employ an executive search firm, or
pay a fee to any other third party, to locate qualified candidates for director
positions. Gerald A. Faich, MD, MPH was recommended to the Governance and
Nominating Committee by an individual who is a stockholder, Chairman of the
Board and Chief Scientist of the Company. Elam M. Hitchner, III was recommended
to the Governance and Nominating Committee by an individual who is a stockholder
and non-management director of the Company.
Stockholders who wish to communicate with the Board of Directors or with a
particular director may send a letter to the Secretary of the Company at
eResearchTechnology, Inc., 30 South 17th Street, 8th Floor, Philadelphia, PA
19103. Any communication should clearly specify that it is intended to be made
to the entire Board of Directors or to one or more particular director(s). Under
this process, the Secretary of the Company reviews all such correspondence and
will forward to the Board of Directors a summary of all such correspondence and
copies of all correspondence that, in the opinion of the Secretary, deals with
the functions of the Board of Directors or committees thereof or that she
otherwise determines requires their attention. Directors may at any time review
a log of all correspondence received by the Company that is addressed to members
of the Board of Directors and request copies of any such correspondence.
Concerns relating to accounting, internal controls or auditing matters are
immediately brought to the attention of the chairman of the Audit Committee and
handled in accordance with procedures established by the Audit Committee with
respect to such matters. [A copy of the Audit Committee's procedures for the
submission and handling of complaints or concerns regarding accounting, internal
accounting controls or auditing matters is included in the Company's Code of
Ethics and Business Conduct, which is available on the Company's website at
www.ert.com.] [AT THE TIME OF THE PRELIMINARY PROXY FILING, THE COMPANY'S CODE
OF ETHICS AND BUSINESS CONDUCT WAS NOT POSTED TO OUR WEBSITE. THE COMPANY'S CODE
OF ETHICS AND BUSINESS CONDUCT WILL BE POSTED TO OUR WEBSITE PRIOR TO THE
MAILING OF THE DEFINITIVE PROXY STATEMENT TO THE STOCKHOLDERS.]
5
Audit Committee Report on Audited Financial Statements
The Audit Committee of the Board of Directors assists the Board with the
oversight of the Company's systems of internal control, integrity of financial
reporting, adequacy of disclosures and compliance with legal and regulatory
requirements. The Audit Committee is directly responsible for the engagement,
compensation, oversight and evaluation of the Company's independent accountant
and, once retained, consults with and reviews recommendations made by the
independent accountant with respect to financial statements, financial records,
and financial controls of the Company.
Accordingly, the Audit Committee has (i) reviewed and discussed the audited
financial statements with management; (ii) discussed with the Company's
independent accountants the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees); (iii) received
the written disclosures and the letter from the Company's independent
accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees); and (iv) discussed with the
Company's independent accountants its independence from management and the
Company, including the matters in the written disclosures required by the
Independence Standards Board. The Audit Committee also discussed with the
Company's independent accountants the overall scope and plans for its audit. The
Audit Committee met with management and the Company's independent accountants to
discuss the results of the accountants' examination, their evaluation of the
Company's internal controls and the overall quality of the Company's financial
reporting.
Based on the review and discussions referred to above, and subject to the
limitations of its role, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
This report of the Audit Committee does not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other eRT
filing under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, except to the extent that eRT specifically incorporates
this report by reference therein.
Members of the Audit Committee
David D. Gathman (Chair)
Stephen S. Phillips
John M. Ryan
Compensation of Directors
During 2003, directors who are not employees of the Company received a fee
of $1,000 for each directors meeting attended and $500 for each committee
meeting attended, and also received an annual retainer of $6,000. Upon the
initial election of any "outside director" (as defined), such individual
receives at the time of election an automatic one-time option grant of 10,000
shares of Common Stock, and each outside director receives a fixed annual option
grant of 10,000 shares of Common Stock. Each director is also reimbursed for
out-of-pocket expenses incurred in connection with attending meetings and other
services as a director.
Certain Relationships and Related Party Transactions
Certain of the Company's diagnostic testing and clinical research contracts
require that specified medical professional services be provided by Joel
Morganroth, MD, the Company's Chairman and Chief Scientist. The Company has
retained Joel Morganroth, MD, P.C., a professional corporation owned by Dr.
Morganroth, to provide these and other services related to the successful
operation, marketing and business development of the Company's Cardiac Safety
division. This professional corporation received fees for these services of
approximately $394,000 for 2003, which included a bonus award of $166,000.
Effective January 1, 2004, the Company amended its consulting agreement with the
professional corporation, for which the professional corporation will receive
fees at the rate of $240,000 per annum plus discretionary bonuses to be
determined by the Compensation Committee of the Board of Directors. The
consulting agreement continues on a year to year basis unless terminated.
6
Sheldon M. Bonovitz, a director of eRT, is a partner of the law firm of
Duane Morris LLP, which performs legal services for the Company.
Executive Compensation
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors sets the compensation
for the executive officers of the Company and makes recommendations to the Board
of Directors concerning compensation and benefit policies for the Company. The
Compensation Committee believes that the most effective compensation program is
one that provides executives competitive base salaries and incentives to achieve
both current and long-term strategic business goals of the Company.
The Company's executive compensation programs are designed to:
o Align the interests of executive officers with the long-term interests
of stockholders.
o Motivate and challenge executive officers to achieve both annual and
long-term strategic business goals.
o Support an environment that rewards executive officers based upon
corporate and individual performance and results.
o Attract and retain executive officers critical to the long-term success
of the Company.
During 2003, the Compensation Committee engaged a third party compensation
consultant to review the Company's executive officer compensation policies and
the material terms of the Chief Executive Officer's 2004 compensation package
and employment agreement. The information provided by the consultant assured the
Compensation Committee that executive compensation fell within competitive
ranges. In 2003, the basic components of executive officer compensation
consisted of base salary, a cash bonus plan tied to measurements based on
Company performance, and long-term incentives in the form of stock options. The
executive officers also participate in employee benefit plans available
generally to the Company's employees.
Base Salary. Technology companies face competition for qualified employees,
and the Compensation Committee believes it is important that Company executive
officer compensation levels be competitive with other technology companies. The
Compensation Committee reviewed the compensation of the Company's executives in
comparison with other publicly traded technology companies of similar size and
development stage and targeted base salary levels to be consistent with
comparable positions at those companies.
Annual Incentive Compensation Program. In 2003, the Company offered an
annual incentive compensation program permitting officers and all employees to
earn cash bonuses based on achieving targeted financial goals. Based upon actual
2003 performance, the bonus pool for executive officers was $1,217,594 with the
executive officer participants earning bonuses ranging from 32% to 135% of base
salary.
The Compensation Committee believes that this annual incentive compensation
program aids in ensuring that the Company's overall levels of compensation
remain competitive and benefits the Company in that a significant portion of the
compensation of executive officers is in the form of variable incentive pay,
which further aligns the interests of the executive officers with the interests
of the Company's stockholders.
Long-Term Incentive in Form of Stock Options. The Compensation Committee
believes that significant management ownership of the Company's stock
effectively motivates the building of stockholder wealth and aligns the
interests of management with those of the Company's stockholders. The Company's
executive officers received option grants totaling 487,500 shares of Common
Stock during 2003 under the terms of the Company's 1996 Stock Option Plan and
2003 Stock Option Plan at a per share exercise price equal to the market price
of the Company's Common Stock on the date of grant. All options become
exercisable over four years, in equal annual increments beginning one year after
the date of grant, contingent upon the officer's continued employment with the
Company. Of these options granted, 300,000 options were granted to the executive
officers listed in the Summary Compensation Table appearing in this Proxy
Statement.
Chief Executive Officer Compensation. The compensation plan for Mr.
Esposito for 2003 contained the same elements and operated in the same manner as
the compensation plan described above for all the executive officers. His
specific performance goals for incentive compensation were based on the
Company's long-term plan and on the annual operating budget approved by the
Board of Directors. His actual cash bonus was calculated based on the
achievement of those specific goals. In 2003, the Company achieved exceptional
growth in both revenues and profitability, substantially improved its
competitive position and significantly enhanced its proprietary software. The
Compensation Committee believes in rewarding exceptional performance with
exceptional compensation. Following the terms of Mr. Esposito's 2003 executive
incentive compensation plan, the Compensation Committee approved a cash bonus of
$404,846, representing 135% of his base salary for the year. In the opinion of
the Compensation Committee, the compensation paid to Mr. Esposito was consistent
with the compensation of other chief executive officers in comparable companies
with similar performances.
7
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1,000,000 per covered officer in any fiscal year. The
limitation applies only to compensation that is not considered to be
performance-based. Non-performance-based compensation paid to the Company's
executive officers for 2003 did not exceed the $1,000,000 limit per officer, and
the Compensation Committee does not anticipate that the non-performance-based
compensation to be paid the Company's executive officers in the foreseeable
future will exceed that limit.
Members of the Compensation Committee
John M. Ryan (Chair)
David D. Gathman
Stephen S. Phillips
Compensation Committee Interlocks and Insider Participation
At the end of 2003, the Compensation Committee was composed of Mr. Gathman,
Mr. Phillips and Mr. Ryan. None of these individuals is a current or former
officer or employee of the Company or any of its subsidiaries, nor had they had
any other relationship requiring disclosure by the Company under Item 402 of
Regulation S-K.
8
Summary Compensation Table
The following table sets forth information in respect of the compensation
paid for the years ended December 31, 2001, 2002 and 2003 to the persons
(sometimes collectively referred to as the "Named Executive Officers") who were,
at any time during 2003, the Chief Executive Officer, and at the end of 2003,
the other four most highly compensated executive officers of the Company whose
salary and bonus exceeded $100,000 in such year:
Annual Long Term
Compensation(1) Compensation(2)
-----------------------------------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation(3)
----------------------------------------------------------------------------------------------------------
Joseph A. Esposito ............ 2003 $300,000 $404,846 90,000 $ 6,507
President and Chief 2002 $270,000 $271,389 -- $ 3,280
Executive Officer 2001 $270,000 $ 90,000 364,503 $ 3,298
Bruce Johnson.................. 2003 $200,000 $161,939 45,000 $ 3,507
Sr. Vice President and Chief 2002 $175,000 $111,385 -- $ 3,068
Financial Officer 2001 $175,000 $ 30,000 135,000 $ 3,298
Vincent Renz................... 2003 $194,000 $133,672 45,000 $ 6,605
Sr. Vice President and Chief 2002 $170,000 $ 50,000 -- $ 3,151
Technology Officer 2001 $150,000 $ 50,000 225,000 $ 2,960
Scott Grisanti ................ 2003 $194,000 $132,200 75,000 $ 3,507
Sr. Vice President, Business 2002 $170,000 $ 50,250 -- $ 3,135
Development and Chief 2001 $150,000 $ 60,000 225,000 $ 3,110
Marketing Officer
Jeffrey S. Litwin, MD.......... 2003 $194,000 $124,807 45,000 $ 3,674
Sr. Vice President and Chief 2002 $170,000 $157,147 -- $ 3,282
Medical Officer 2001 $150,000 $112,740 270,000 $ 3,268
--------------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total of annual salary and bonuses for the officer
for such year.
(2) Option amounts are adjusted to reflect the 100% dividend paid on May 29,
2003 and the 50% stock dividend paid on November 26, 2003.
(3) Represents the sum of (i) the Company's 401(k) plan contributions, which in
2003 were $6,000 for Mr. Esposito, $3,000 for Mr. Johnson, $6,000 for Mr.
Renz, $3,000 for Mr. Grisanti and $3,000 for Dr. Litwin; and (ii) the
dollar value of the insurance premium paid by the Company with respect to
group term life insurance, which for 2003 was $507 for Mr. Esposito, $507
for Mr. Johnson, $605 for Mr. Renz, $507 for Mr. Grisanti and $674 for Dr.
Litwin. In 2002, these amounts were $2,750 for Mr. Esposito, $2,538 for Mr.
Johnson, $2,619 for Mr. Renz, $2,619 for Mr. Grisanti and $2,750 for Dr.
Litwin for 401(k) plan contributions; and $530 for Mr. Esposito, $530 for
Mr. Johnson, $532 for Mr. Renz, $516 for Mr. Grisanti and $532 for Dr.
Litwin for the dollar value of the insurance premium paid by the Company
with respect to group term life insurance. In 2001, these amounts were
$2,625 for Mr. Esposito, $2,625 for Mr. Johnson, $2,605 for Mr. Renz,
$2,547 for Mr. Grisanti and $2,625 for Dr. Litwin for 401(k) plan
contributions; and $673 for Mr. Esposito, $673 for Mr. Johnson, $355 for
Mr. Renz, $563 for Mr. Grisanti and $643 for Dr. Litwin for the dollar
value of the insurance premium paid by the Company with respect to group
term life insurance.
9
Employment Contracts
The Company has entered into an employment agreement with Mr. Esposito
effective January 1, 2004. Under this agreement, his employment may be
terminated with or without cause (as defined therein) by the Company at any
time. In the event that the Company terminates Mr. Esposito's employment other
than for cause or in the event of Mr. Esposito's death or disability (as defined
therein), the Company is obligated to (i) pay Mr. Esposito, in lump sum, one
year salary and bonus; (ii) to continue Mr. Esposito's benefits (as defined
therein) for one year; and (iii) accelerate the vesting of all of Mr. Esposito's
stock options, not otherwise vested, to purchase the Company's Common Stock. The
agreement provides that, upon a change of control (as defined therein) of the
Company, Mr. Esposito may resign (i) if he is not offered a position that
includes comparable responsibilities, location or compensation or (ii) in Mr.
Esposito's sole discretion, within one year after the first anniversary of
accepting any position, regardless of the responsibilities, location or
compensation of such position. The fact that Mr. Esposito may not be offered the
position of Chief Executive Officer following any change of control will not
conclusively determine whether the position offered does not include comparable
responsibilities. If Mr. Esposito resigns under such circumstances, the Company
will be obligated to provide the same benefits to Mr. Esposito as if he was
terminated other than for cause. Pursuant to the agreement, Mr. Esposito has
agreed, for a period of no less than one year after termination of employment,
to refrain from (i) working with a company that directly competes with the
Company; and (ii) interfering with the Company's business by soliciting
customers or employees.
The Company has entered into employment agreements with each of the other
Named Executive Officers. Under these agreements, their employment may be
terminated with or without cause (as defined therein) by the Company at any
time. In the event that the Company terminates an officer's employment other
than for cause or in the event of the officer's death or disability (as defined
therein), the Company is obligated to continue base salary payments and benefits
for between six months and one year. These agreements provide that, upon a
change of control (as defined therein) of the Company the officer may resign (i)
if the officer is not offered a position that includes comparable
responsibilities, authority, location or compensation or (ii) in the officer's
sole discretion, within one year after accepting any position, regardless of the
responsibilities, authority, location or compensation of such position. If the
officer resigns under such circumstances, the Company will be obligated to
provide up to one year's base salary and prorated bonus, in one lump sum
payment. Pursuant to the agreement, each officer has agreed, for a period of no
less than one year after termination of employment, to refrain from (i) working
with a company that directly competes with the Company; and (ii) interfering
with the Company's business by soliciting customers or employees.
2003 Stock Option Grants
The following table shows for each of the Named Executive Officers: (i) the
number of options that were granted during 2003; (ii) out of the total number of
options granted to all employees during 2003, the percentage granted to each
Named Executive Officer; (iii) the exercise price; (iv) the expiration date; and
(v) the potential realizable value of the options, assuming that the market
price of the underlying securities appreciates in value from the date of grant
to the end of the option term, at a 5% and 10% annualized rate.
Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Individual Grants (1) Option Term (2)
---------------------------------------------------- -----------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in 2003 ($/Sh) Date 5% 10%
------------------------------------------------------------------------------------- -----------------------
Joseph A. Esposito........... 90,000 7.7% $ 9.43 4/22/13 $533,743 $1,352,609
Bruce Johnson................ 45,000 3.9% 9.43 4/22/13 266,871 676,305
Vincent Renz ................ 45,000 3.9% 9.43 4/22/13 266,871 676,305
Scott Grisanti............... 45,000 3.9% 9.43 4/22/13 266,871 676,305
30,000 2.6% 8.79 4/10/13 165,840 420,270
Jeffrey S. Litwin, MD........ 45,000 3.9% 9.43 4/22/13 266,871 676,305
(1) The options were granted under the terms of the Company's 1996 and 2003
Stock Option Plans at a per share exercise price equal to the market
price of the Company's Common Stock on the date of grant. The options
become exercisable over four years in equal annual increments beginning
one year after the date of grant. The Compensation Committee has the
right to accelerate the exercisability of any of the options, and certain
options automatically accelerate upon a change of control (as defined).
(2) The potential realizable value is the product of (a) the difference
between: (i) the product of the per-share market price at the time of the
grant and the sum of 1 plus the adjusted stock price appreciation rate
(i.e., the assumed rate of appreciation compounded annually over the term
of the option) and (ii) the per-share exercise price of the option; and
(b) the number of securities underlying the grant at fiscal year-end. The
dollar amounts under these columns are the result of calculations at the
5% and 10% assumed rates of appreciation prescribed by the Securities and
Exchange Commission, and therefore are not intended to forecast possible
future appreciation, if any, of the market price of the Company's Common
Stock. The actual value that any Named Executive Officer may realize, if
any, will depend on the amount by which the market price of the Common
Shares at the time of exercise exceeds the exercise price.
10
2003 Option Exercises and Fiscal Year-End Values
The following tables contain certain information concerning the number and
value of any unexercised stock options held by the Named Executive Officers as
of December 31, 2003 and as to the shares acquired and the value realized by
Named Executive Officers who exercised options in 2003.
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Realized Options at FY-End 2003 (#) at FY-End 2003 ($)(2)
Name Exercise (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------------
Joseph A. Esposito............. 1,030,323 $9,715,212 123,930/290,253 $2,849,743/$6,213,064
Bruce Johnson ................. 174,000 $3,345,239 208,504/112,500 $4,806,316/$2,332,125
Vincent Renz .................. 153,000 $3,094,920 43,875/163,125 $1,039,511/$3,562,819
Scott Grisanti................. -- -- 112,500/187,500 $2,687,625/$3,906,075
Jeffrey S. Litwin, MD ......... 15,000 $239,700 114,000/180,000 $2,676,450/$3,901,050
------------------------------------
(1) Value realized is the difference between the market price of a share of
Common Stock on the date of exercise and the exercise price of the option,
multiplied by the number of shares underlying the option.
(2) Value of unexercised "in-the-money" options is the difference between the
market price of a share of the Company's Common Stock on December 31, 2003
and the exercise price of the option, multiplied by the number of shares of
Common Stock underlying the option.
11
Stockholder Return Performance Graph
The following graph compares the cumulative total stockholder return on the
Company's Common Stock against the cumulative total return on the Nasdaq Stock
Market (U.S.) Index and Nasdaq Health Service Index for the period commencing
December 31, 1997 and ending December 31, 2003. The graph assumes that at the
beginning of the period indicated, $100 was invested in the Company's Common
Stock and the stock of the companies comprising the Nasdaq Stock Market (U.S.)
Index and the Nasdaq Health Services Index, and that all dividends, if any, were
reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ERESEARCHTECHNOLOGY, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ HEALTH SERVICES INDEX
[Graphic Omitted]
Cumulative Total Return
--------------------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
--------------------------------------------------------------------
ERESEARCHTECHNOLOGY, INC. 100.00 215.08 167.12 256.88 550.66 2506.93
NASDAQ STOCK MARKET (U.S.) 100.00 186.20 126.78 96.96 68.65 108.18
NASDAQ HEALTH SERVICES 100.00 75.96 101.66 169.10 142.66 188.30
* $100 invested on 12/31/98 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
12
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of March __, 2004,
with respect to the beneficial ownership of the Common Stock of the Company by
(i) the Company's directors, director nominees and Named Executive Officers;
(ii) the Company's directors and executive officers as a group; and (iii) each
person known to the Company to own beneficially more than 5% of the Common
Stock.
Shares
Beneficially Percentage
Name of Beneficial Owner Owned Owned
------------------------------------------------------------------------------------------------------------------
Joel Morganroth, MD (1) (6)............................................................ [3,018,825] [8.8%]
Arbor Capital Management, LLC (2) ..................................................... [2,126,100] [6.2]
Next Century Growth Investors, LLC (3) ................................................ [1,783,952] [5.2]
Joseph A. Esposito (6) ................................................................ [468,886] [1.4]
Bruce Johnson (6) .................................................................... [274,504] [*]
Stephen S. Phillips (4) (6) .......................................................... [232,950] [*]
Jeffrey S. Litwin, MD (6) ............................................................. [114,625] [*]
John M. Ryan (6) .................................................................... [132,850] [*]
Arthur H. Hayes, Jr., MD (6) .......................................................... [120,000] [*]
Vincent Renz (5) (6) ................................................................. [119,562] [*]
Scott Grisanti (6) .................................................................... [87,500] [*]
Sheldon M. Bonovitz (6) ............................................................... [63,958] [*]
David D. Gathman (6) .................................................................. [34,800] [*]
Elam M. Hitchner ...................................................................... [5,000] [*]
Gerald A. Faich, MD, MPH .............................................................. [--] [--]
All directors and executive officers as a group (15 persons) (6) ...................... [4,920,179] [13.8]
-------------------------------------------------------------------
* Less than 1.0%
(1) Dr. Morganroth's address is 30 South 17th Street, Philadelphia,
Pennsylvania 19103. Includes (i) 1,215,000 shares directly owned by Dr.
Morganroth, as to which he has sole voting and dispositive power; (ii)
43,200 shares owned by a pension plan, as to which Dr. Morganroth has
shared voting and dispositive power; and (iii) 1,350,000 shares held in
three separate trusts, the trustee of which is Dr. Morganroth's wife and
the beneficiaries of which are Dr. Morganroth's children, as to which Dr.
Morganroth disclaims beneficial ownership. The 1,350,000 shares held in the
three trusts include 750,000 shares as to which the trusts entered into
10b5-1 plans in the form of variable prepaid forward agreements with an
unaffiliated securities brokerage firm.
(2) Arbor Capital Management, LLC ("Arbor") is located at One Financial Plaza,
120 South Sixth Street, Suite 1000, Minneapolis, Minnesota 55402. Arbor is
an investment advisor registered under Section 203 of the Investment
Advisors Act of 1940. Rick D. Leggott is the CEO and majority shareholder
of Arbor. Arbor has been granted discretionary dispositive power over its
clients' securities and in some instances has voting power over such
securities. Any and all discretionary authority, which has been delegated
to Arbor, may be revoked in whole or in part at any time. This information
is as reported by Arbor in a Schedule 13G dated February 9, 2004 filed with
the Securities and Exchange Commission.
13
(3) Next Century Growth Investors, LLC ("Next Century") is located at 5500
Wayzata Blvd., Suite 1275, Minneapolis, Minnesota 55416. Thomas L. Press
serves as Director, Chairman and Chief Executive Officer of Next Century
and Donald M. Longlet serves as Director and President of Next Century. Mr.
Press and Mr. Longlet each own in excess of 25% and are controlling persons
of Next Century. This information is as reported by Next Century in a
Schedule 13G dated February 17, 2004 filed with the Securities and Exchange
Commission.
(4) Includes 1,800 shares owned by Mr. Phillips' minor children, of which Mr.
Phillips acts as custodian.
(5) Shares owned by Mr. Renz' minor children.
(6) Includes the following shares issuable with respect to options granted
pursuant to the Company's 1996 Stock Option Plan and 2003 Stock Option
Plan, which are currently exercisable or exercisable within 60 days after
March 11, 2004:
Name Number of options
-----------------
Joel Morganroth, M.D .................................... [380,625]
Joseph A. Esposito ...................................... [237,555]
Bruce Johnson .......................................... [214,504]
Stephen S. Phillips...................................... [30,000]
Jeffrey S. Litwin, M.D................................... [98,125]
John M. Ryan ........................................... [63,000]
Arthur H. Hayes, Jr., M.D................................ [120,000]
Vincent Renz ............................................ [117,000]
Scott Grisanti .......................................... [87,500]
Sheldon M. Bonovitz ..................................... [60,000]
David D. Gathman ........................................ [30,000]
Other executive officers ............................... [245,219]
All directors and executive officers as a group ........[1,730,028]
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of its Common Stock,
to file reports of ownership and changes in ownership of the Common Stock with
the Securities and Exchange Commission and the Nasdaq Stock Market. Based upon a
review of the forms and written representations that it received, the Company
believes that all filing requirements applicable to its officers, directors and
greater than 10% beneficial owners have been timely satisfied.
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct that applies
to its Chief Executive Officer, Chief Financial Officer (who serves as the
Company's principal financial and principal accounting officer) and other
employees and directors. [The Code of Ethics and Business Conduct is available
on the Company's website at www.ert.com.] [AT THE TIME OF THE PRELIMINARY PROXY
FILING, THE COMPANY'S CODE OF ETHICS AND BUSINESS CONDUCT WAS NOT POSTED TO OUR
WEBSITE. THE COMPANY'S CODE OF ETHICS AND BUSINESS CONDUCT WILL BE POSTED TO OUR
WEBSITE PRIOR TO THE MAILING OF THE DEFINITIVE PROXY STATEMENT TO THE
STOCKHOLDERS.] The Company intends to post amendments to or waivers from its
Code of Ethics and Business Conduct, to the extent applicable to the Company's
Chief Executive Officer and Chief Financial Officer, at that location on its
website.
APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
AUTHORIZING AN ADDITIONAL 125,000,000 SHARES
OF COMMON STOCK, $0.01 PAR VALUE
(Proposal No. 2)
14
Description of the Amendment
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that the Company is authorized to issue two classes of stock consisting
of 50,000,000 shares of Common Stock, $.01 par value per share, and 500,000
shares of preferred stock, $10.00 par value per share. On February 3, 2004, the
Board of Directors determined by resolution that it is in the best interests of
the Company and its stockholders to increase the number of authorized shares of
the Company's Common Stock from 50,000,000 to 175,000,000 and authorized an
amendment to the Certificate to effect the proposed increase. You are being
asked to approve the amendment to increase the number of authorized shares of
the Company's Common Stock from 50,000,000 to 175,000,000. If this Proposal is
approved and the amendment to the Restated Certificate of Incorporation becomes
effective, the first paragraph of Article IV of the Restated Certificate of
Incorporation, which sets forth the Company's presently authorized capital
stock, will be amended to read as follows:
The aggregate number of shares, which the corporation shall have authority
to issue, is 175,500,000, by classes and par value of shares as follows:
Par Value
Class No. of Shares Per Share
----------------------------------------------------------------------------
Common ........................................ 175,000,000 $ 0.01
Preferred ..................................... 500,000 $10.00
Approval of the proposal will require the favorable vote of the holders of
a majority of the Company's outstanding Common Stock as of the record date. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
AMENDMENT.
Purpose of the Amendment
At the close of business on March 11, 2004 there were _______________
shares of the Company's Common Stock issued and outstanding and no shares of the
Company's preferred stock issued and outstanding. ________ shares of Common
Stock were also reserved for options as of the same date. As a result, only
_____________ shares of Common Stock remained available for future corporate
purposes.
In the opinion of the Board of Directors, the additional authorized shares
of Common Stock will benefit the Company by providing flexibility to the Board
of Directors, without requiring further action or authorization by the
stockholders (except as may be required by applicable law or stock exchange
requirements), to issue additional shares of Common Stock from time to time to
respond to business needs and opportunities as they arise, or for other proper
corporate purposes. Currently, the primary reason for seeking an increase in the
number of authorized shares is to accommodate potential stock splits in the form
of stock dividends, although no such splits have been authorized and there is no
assurance that the Company will implement any such stock split. However, the
Company's needs, opportunities and purposes might also include, for example,
obtaining capital funds through public and private offerings of shares of Common
Stock or securities convertible into shares of Common Stock and using shares of
Common Stock in connection with structuring possible acquisitions of businesses
and assets. Additionally, the Board of Directors, in its discretion, could in
the future, subject to stockholder approval, increase, establish or extend stock
option or stock award plans. If the amendment were postponed until specific
needs arose for an amount of shares in excess of the amount of Common Stock
authorized for issuance, the Company's ability to respond promptly and
effectively might be adversely impacted by the additional expenses and delay
resulting from the stockholder approval process.
Though from time to time the Company's Board of Directors considers
transactions involving the issuance of shares of Common Stock, except for the
foregoing, as of the date of this Proxy Statement, the Board of Directors has no
agreement, arrangement or intention to issue any of the shares for which
approval is sought. If the proposed amendment to our Restated Certificate of
Incorporation is approved by the stockholders, the Board of Directors does not
intend to solicit further stockholder approval prior to the issuance of any
additional shares of Common Stock, except as may be required by applicable law,
the rules of the Nasdaq Stock Market or other applicable requirements. Further,
any such transactions are necessarily contingent upon numerous factors,
including without limitation, the number of shares of Common Stock of the
Company authorized for issuance, fluctuations in the stock market, the
prevailing condition of the overall economy and the market price of the Common
Stock.
15
Effect of the Amendment
Increasing the number of authorized shares of Common Stock will not have
any immediate effect on the rights of current stockholders. However, the Board
of Directors will have the authority to issue authorized shares of Common Stock
without requiring future stockholder approval of those issuances (except as may
be required by applicable law or stock exchange requirements). If the Board of
Directors determines that an issuance of shares of the Company's Common Stock is
in the best interests of the Company and its stockholders, the issuance of
additional shares could have the effect of diluting the earnings per share or
the book value per share of the outstanding shares of Common Stock or the stock
ownership or voting rights of a stockholder. The holders of the Company's Common
Stock have no preemptive right to purchase any of the additional shares of
Common Stock when issued.
The increase in the number of authorized shares of Common Stock and the
subsequent issuance of all or a portion of those shares could have the effect of
delaying or preventing a change of control of the Company without further action
by the stockholders. Subject to applicable law and stock exchange requirements,
the Company could issue shares of authorized and unissued Common Stock in one or
more transactions that would make a change of the control of the Company more
difficult and therefore less likely. Any issuance of additional shares could
have the effect of diluting the earnings per share and book value per share of
the outstanding shares of Common Stock or the stock ownership and voting rights
of a person seeking to obtain control of the Company. The Company is not aware
of any pending or proposed transaction involving a change of control of the
Company.
Implementing the Proposed Amendment
If approved by the stockholders at the Annual Meeting, the proposed
amendment to our Restated Certificate of Incorporation will become effective
upon the filing of a certificate of amendment with the Secretary of State of the
State of Delaware. Although the Board of Directors intends to file the
certificate of amendment as soon as practicable after the Annual Meeting, if, in
the judgment of the Board of Directors, any circumstances exist that would make
consummation of the proposed amendment inadvisable, then, in accordance with
Delaware law and notwithstanding approval of the proposed amendment to the
Restated Certificate of Incorporation by the stockholders, the Board of
Directors may abandon the proposed amendment, either before or after approval
and authorization thereof by the stockholders, at any time prior to the
effectiveness of the filing of the certificate of amendment.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(Proposal No. 3)
The Audit Committee has designated KPMG LLP to be the independent
accountants for the year ending December 31, 2004. The Board of Directors will
offer a resolution at the Annual Meeting to ratify this designation. KPMG LLP
has served as the Company's independent public accountant since July 2002. The
Company's organizational documents do not require that the Company's
stockholders ratify the selection of KPMG LLP as the Company's independent
accountants. The Company is doing so because the Board of Directors of the
Company believes it is a matter of good corporate practice. If the Company's
stockholders do not ratify the selection, the Audit Committee will reconsider
whether or not to retain KPMG LLP, but still may retain them. Even if the
selection is ratified, the Audit Committee, in its discretion, may change the
appointment at any time during the year if it determines that such a change
would be in the best interests of the Company and its stockholders.
On July 3, 2002, the Company dismissed Arthur Andersen LLP ("Andersen"), as
its independent accountant, and appointed KPMG LLP as its new independent
accountant. The decision to change the Company's independent accountant was
recommended by the Audit Committee and approved by the Board of Directors of the
Company.
Andersen's report on the Company's financial statements for the year ended
December 31, 2001 did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the year ended December 31, 2001 and the period from December 31,
2001 through July 3, 2002, there were no disagreements with Andersen on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Andersen, would have caused it to make reference to the subject
matter of the disagreements in connection with its report; and there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
At the time this disclosure was first made, the Company provided Andersen
with a copy of the foregoing disclosures and requested a letter from Andersen
addressed to the Securities and Exchange Commission stating whether it agreed
with such statements. Andersen orally advised the Company that due to events
impacting Andersen's infrastructure it was unable to issue such a letter.
16
During the year ended December 31, 2001 and the period from December 31,
2001 through July 3, 2002, the Company did not consult KPMG LLP with respect to
the application of accounting principles to a specified transaction either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
During 2002 and 2003, the Company retained its principal independent
accountants to provide professional services in the following categories and
amounts:
2002 2003
--------- ---------
Audit fees $ 121,000 $ 193,000
Audit related fees 42,005 6,345
--------- ---------
Audit and audit related fees 163,005 199,345
Tax fees 144,400 114,900
--------- ---------
Total fees $ 307,405 $ 314,245
========= =========
Audit fees were for professional services rendered in connection with the
audit of the Company's consolidated financial statements for the years ended
December 31, 2002 and 2003 that are customary under auditing standards generally
accepted in the United States or that are customary for the purpose of rendering
an opinion or review report on the financial statements, and for the review of
the financial statements included in the quarterly reports on Form 10-Q required
to be filed during fiscal years 2002 and 2003. Audit-related fees consist
primarily of services rendered in connection with due diligence procedures
requested by the Company in relation to a proposed transaction. Tax fees consist
primarily of 2002 and 2003 federal, state and local tax return preparation,
including the preparation and work related to the determination and support of
research and development tax credits available to the Company for those years.
The Audit Committee has considered the above non-audit services and has
determined that the provision thereof is compatible with maintaining auditor
independence. All services rendered by KPMG were permissible under applicable
laws and regulations, and were pre-approved by the Audit Committee for 2003. The
Audit Committee has not adopted a formal policy regarding the pre-approval of
all audit and permissible non-audit services provided by the Company's
independent accountants. It is the Audit Committee's procedure to approve any
engagement or accounting project involving the independent accountants, and the
related fees, prior to commencement of the engagement or project.
Approval of the proposal will require the favorable vote of a majority of
the stockholders present in person or by proxy and voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION OF
KPMG LLP AS THE INDEPENDENT ACCOUNTANTS FOR FISCAL 2004. It is anticipated that
representatives of KPMG LLP will be present at the meeting to respond to
appropriate questions and, if they desire, to make a statement.
17
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 2005 Annual Meeting
of Stockholders must be received by eRT no later than November 18, 2004. Such
proposals may be included in next year's proxy statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
In accordance with Rule 14a-4(c) promulgated by the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, the
holders of proxies solicited by the Board of Directors in connection with the
2004 Annual Meeting may vote such proxies in their discretion on certain matters
as more fully described in such rule, including without limitation on any matter
coming before the meeting as to which the Company does not have notice on or
before February 1, 2005.
The Board knows of no other matters that may be presented for action at the
meeting. However, if any other matter properly comes before the meeting, the
proxy holders will vote in accordance with their judgment on such matter.
Stockholders are urged to vote, sign and return the enclosed form of proxy
promptly in the enclosed envelope.
By Order of the Board of Directors,
ANNA MARIE PAGLIACCETTI
-------------------------------------
ANNA MARIE PAGLIACCETTI
Senior Vice President, General Counsel
and Secretary
March ___, 2004
18
Annex I
eResearchTechnology, Inc.
Audit Committee Charter
The Board of Directors ("Board") of eResearchTechnology, Inc. ("Company")
hereby establishes an Audit Committee ("Committee") with authority, purpose, and
specific duties as described in the following text.
COMPOSITION
The Committee shall be composed of at least three members of the
Company's Board, all of whom, in the judgment of the Board, shall be independent
in accordance with Rule 4200(a)(15) of the listing standards of The Nasdaq Stock
Market, Inc. ("Nasdaq"). One of the Committee members shall be designated
Committee Chairman by the full Board. Each member of the Committee shall, in the
judgment of the Board, have the ability to read and understand the Company's
fundamental financial statements, including its balance sheet, income statement
and cash flow statement. At least one member of the Committee shall, in the
judgment of the Board, have sufficient accounting or related financial
management expertise to be considered a "financial expert" within the meaning of
the regulations promulgated by the Securities and Exchange Commission from time
to time.
AUTHORITY
The Committee is granted the authority to undertake its responsibilities
and duties as provided herein and to investigate any activity of the Company
that may have a financial impact or that may involve financial reporting. The
Committee is empowered to retain persons having special competence as necessary
to assist the Committee in fulfilling its responsibilities. The Company will
adequately fund the operation of the Committee. The operation will include, at a
minimum, payments to the independent accountant for audit services and, if
necessary, any other professionals retained by the Committee.
PURPOSE
The Committee is appointed by the Board to assist the Board with the
oversight of the Company's systems of internal control, integrity of financial
reporting, adequacy of disclosures and compliance with legal and regulatory
requirements. The Committee is directly responsible for the engagement,
compensation, oversight and evaluation of the Company's independent accountant.
MEETINGS
The Committee shall meet at least four times each year and at such other
times as it deems necessary. A majority of members of the Committee must be
present, in person or by telephone, at all formal meetings. However,
subcommittees of one or more members may be formed to handle specific projects.
As necessary or desirable, the Committee may request that management, employees
or any other persons attend the meetings. All employees are directed to
cooperate as requested by members of the Committee.
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MINUTES
A summary of each meeting is to be presented to the Board.
REPORT
The Committee shall prepare a report each year for inclusion in the
Company's proxy statement as required by the rules and regulations of the
Securities and Exchange Commission, Nasdaq and any other applicable rules and
regulations.
SPECIFIC DUTIES
The Committee will:
Independent Accountant
1. Engage, evaluate and terminate when appropriate, the independent
accountant.
2. Review the scope and extent of the independent accountant's planned
annual examination and engagement letter and pre-approve the annual audit
fee.
3. Pre-approve all other audit services to be provided by the independent
accountant.
4. Pre-approve all permitted non-audit services to be performed by the
independent accountant.
5. Inform the independent accountant and management that the independent
accountant is ultimately accountable to the Committee and the independent
accountant may communicate with any member of the Committee at any time.
6. Confirm the independence of the independent accountant by discussing and
reviewing all significant relationships that the independent accountant
have with the Company and obtaining their assertion of independence in
accordance with professional standards.
7. Receive and review: (a) a report by the independent accountant describing
the independent accountant 's internal quality-control procedures and any
material issues raised by the most recent internal quality-control
review, or peer review, of the independent accounting firm, or by any
inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent
audits carried out by the firm, and any steps taken to deal with any such
issues; and (b) other required reports from the independent accountant.
2
8. Review with the independent accountant and management: (a) the adequacy and
effectiveness of the systems of internal controls (including any
significant deficiencies and significant changes in internal controls
reported to the Committee by the independent accountant or management),
accounting practices, and disclosure controls and procedures (and
management reports thereon), of the Company and its subsidiaries; and (b)
current accounting trends and developments, and take such action with
respect thereto as may be deemed appropriate.
9. Inquire as to the cooperation received by the independent accountant from
the Company during their audit examination, including their access to all
requested records, data, and information.
10. Inquire of the independent accountant whether there have been any
disagreements with management.
11. Discuss with the independent accountant any relevant observations, comments
or recommendations that the independent accountant may have. Review
managements written responses to the recommendations contained in the
"Management Letter".
12. Obtain, review and discuss the report from the independent accountant
regarding the matters referenced in Section 10A(k) of the Exchange Act.
Financial Matters
13. Have familiarity with the accounting and reporting principles and general
practices applied by the Company in preparing its financial statements.
14. Review with management and the independent accountant the annual and
quarterly financial statements of the Company.
15. Review and approve all financial information and related disclosures
contained in the Company's quarterly reports on Form 10-Q and its annual
report on Form 10-K prior to filing with the SEC.
16. Review earnings press releases, as well as Company policies with respect to
earnings press releases, financial information and earnings guidance
provided to analysts and rating agencies.
17. Review reports on Form 8-K and any other correspondence with the SEC.
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Risk Assessment
18. Discuss Company policies with respect to risk assessment and risk
management, and review contingent liabilities and risks that may be
material to the Company and major legislative and regulatory developments
which could materially impact the Company's contingent liabilities and
risks.
19. Review: (a) the status of compliance with laws, regulations, and internal
procedures and (b) the scope and status of systems designed to promote
Company compliance with laws, regulations and internal procedures, through
discussions with management, legal counsel and third parties as determined
by the Committee.
Business Ethics
20. Require that the Company maintain and publish written statement(s) that
embody the Company's standards of corporate conduct, ethics and
performance.
21. Make all necessary inquiries of management and the independent accountant
concerning compliance with these standards.
22. Evaluate whether Company management is adequately communicating the
importance of business ethics and internal controls to all relevant
personnel.
23. Establish procedures for the receipt, retention, evaluation and treatment
of complaints regarding the Company's accounting, internal controls and
auditing matters.
24. Establish procedures for confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
Other
25. Review the quality and adequacy of the Company's financial and accounting
personnel at least annually.
26. Review officers' expenses, expense reports and perquisites at least once a
year.
27. Review all consulting fees paid by the Company to any organization where
such fees exceed $100,000 annually.
28. Review and, if appropriate, approve any proposed related-party
transactions.
29. Set clear hiring policies for employees or former employees of the
independent accountant.
30. Conduct an annual performance evaluation of the Committee and annually
evaluate the adequacy of its charter.
4